[Federal Register Volume 67, Number 117 (Tuesday, June 18, 2002)]
[Notices]
[Pages 41506-41517]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-15320]


-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-11050, et al.]


Proposed Exemptions; Provident Mutual Life Insurance Company 
(Provident)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

-----------------------------------------------------------------------

SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (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.

Provident Mutual Life Insurance Company (Provident)

Located in Berwyn, PA

[Application No. D-11050]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the

[[Page 41507]]

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).\1\
---------------------------------------------------------------------------

    \1\ For purposes of this proposed exemption, references to 
provisions of Title I of the Act, unless otherwise specified, refer 
also to corresponding provisions of the Code.
---------------------------------------------------------------------------

Section I. Covered Transactions

    If the exemption is granted, 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 initial issuance, by Provident, of its 
common stock (Provident Shares) to the conversion agent (the Conversion 
Agent), as stockholder of record, on behalf of any eligible 
policyholder of Provident (the Eligible Member), including any Eligible 
Member which is an employee benefit plan (within the meaning of section 
3(3) of ERISA), an individual retirement annuity (within the meaning of 
section 408 or 408A of the Code) or a tax sheltered annuity (within the 
meaning of section 403(b) of the Code) (each, a Plan), including a Plan 
sponsored by Provident for Provident employees (a Provident Plan); (2) 
the exchange, by the Conversion Agent, of Provident Shares for common 
stock (Sponsor Class A Shares) issued by Nationwide Financial Services, 
Inc. (the Sponsor), or, the receipt of cash (Cash) or policy credits 
(Policy Credits) by an Eligible Member, in exchange for such Eligible 
Member's membership interest in Provident or in connection with the 
merger (the Merger) between Provident and the Eagle Acquisition 
Corporation (the Merger Sub), a wholly-owned subsidiary of the Sponsor, 
in accordance with the terms of a plan of conversion (the Plan of 
Conversion) and merger agreement (the Merger Agreement), adopted by 
Provident and implemented pursuant to the Pennsylvania Insurance 
Company Mutual-to-Stock Conversion Act, as amended, codified at 40 P.S. 
sections 911-A to 929-A (the Conversion Act) and the applicable 
provisions of the Pennsylvania Business Corporation Law of 1998.
    In addition, if the exemption is granted, the restrictions of 
section 406(a)(1)(E) and (a)(2) and section 407(a)(2) of the Act shall 
not apply to the receipt and holding, by a Provident Plan, of Sponsor 
Class A Shares, whose fair market value exceeds 10 percent of the value 
of the total assets held by such Plan.
    The proposed exemption is subject to the general conditions set 
forth below in Section II.

Section II. General Conditions

    (a) The Plan of Conversion, including the Merger Agreement, is 
subject to approval, review and supervision by the Commissioner of 
Insurance of the Commonwealth of Pennsylvania (the Commissioner) and is 
implemented in accordance with procedural and substantive safeguards 
that are imposed under the laws of the Commonwealth of Pennsylvania.
    (b) The Commissioner reviews the terms of the options that are 
provided to Eligible Members of Provident as part of such 
Commissioner's review of the Plan of Conversion and Merger, and 
approves the Plan of Conversion and Merger following a determination 
that such Plan of Conversion is fair and equitable to all Eligible 
Members. The New York Superintendent of Insurance (the Superintendent) 
may object to the Plan of Conversion if he or she finds that such Plan 
of Conversion is not fair or equitable to all New York policyholders.
    (c) As part of their separate determinations, both the Commissioner 
and the Superintendent concur on the terms of the Plan of Conversion.
    (d) Each Eligible Member has an opportunity to vote at a special 
meeting (the Eligible Members' Meeting) to approve the Plan of 
Conversion and Merger after full written disclosure is given to the 
Eligible Member by Provident.
    (e) Any determination to receive Sponsor Class A Shares, Cash, or 
Policy Credits by an Eligible Member which is a Plan, pursuant to the 
terms of the Plan of Conversion, is made by one or more Plan 
fiduciaries that are independent of Provident and its affiliates and 
neither Provident nor any of its affiliates exercises any discretion or 
provides investment advice, within the meaning of 29 CFR 2510.3-21(c), 
with respect to such decisions.
    (f) After each Eligible Member is allocated a fixed component 
equivalent to approximately 20% of Provident Shares, additional 
consideration is allocated to Eligible Members based on actuarial 
formulas that take into account each policy's contributions to the 
surplus and asset valuation reserve of Provident, which formulas have 
been approved by the Commissioner.
    (g) In the case of an Eligible Member who is entitled to receive 
Provident Shares only upon consummation of the Merger, such Provident 
Shares are exchanged for Sponsor Class A Shares, Cash or Policy Credits 
in accordance with an election made by such Eligible Member.
    (h) In the case of a Provident Plan, the independent Plan fiduciary 
(the Independent Fiduciary)--
    (1) Votes on whether to approve or not to approve the proposed 
demutualization;
    (2) Elects between consideration in the form of Sponsor Class A 
Shares, Cash or Policy Credits on behalf of such Plans;
    (3) Reviews and approves Provident's allocation of Sponsor Class A 
Shares, Cash or Policy Credits received for the benefit of the 
participants and beneficiaries of the Provident Plans;
    (4) Votes on Sponsor Class A Shares that are held by the Provident 
Plans and disposes of such shares held by the Retirement Pension Plan 
for Certain Home Office, Managerial and Other Employees of Provident 
Mutual Life Insurance Company (the Home Office Pension Plan), which 
exceeds the limitation of section 407(a)(2) of the Act, as soon as it 
is reasonably practicable, but in no event later than six months after 
the effective date (the Effective Date) of the Plan of Conversion and 
Merger;
    (5) Provides the Department with a complete and detailed final 
report as it relates to the Provident Plans prior to the Effective Date 
of the demutualization; and
    (6) Takes all actions that are necessary and appropriate to 
safeguard the interests of the Provident Plans and their participants 
and beneficiaries.
    (i) All Eligible Members that are Plans participate in the 
transactions on the same basis as all Eligible Members that are not 
Plans.
    (j) No Eligible Member pays any brokerage commissions or fees in 
connection with the receipt of Sponsor Class A Shares or Policy Credits 
or in connection with the implementation of the commission-free 
purchase and sale program (the Commission-Free Program).
    (k) All of Provident's policyholder obligations remain in force and 
are not affected by the Plan of Conversion or Merger.
    (l) The terms of the transactions are at least as favorable to the 
Plans as an arm's length transaction with an unrelated party.

Section III. Definitions

    For purposes of this proposed exemption:
    (a) The term ``Provident'' means Provident Mutual Life Insurance 
Company and any of its affiliates as

[[Page 41508]]

defined in paragraph (b) of this Section III.
    (b) An ``affiliate'' of Provident includes--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with Provident. (For 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.); and
    (2) Any officer, director or partner in such person.
    (c) The term ``Allocable Provident Shares'' means the number of 
Provident Shares determined in accordance with Section 3.1(c) of the 
Merger Agreement, representing the total number of Provident Shares 
that will be notionally allocated to Eligible Members in accordance 
with the Plan of Conversion and the ``Actuarial Contribution 
Memorandum'' (for purposes of allocating among Eligible Members the 
consideration that is actually to be distributed to Eligible Members in 
the form of Sponsor Class A Shares, Cash or Policy Credits). The 
Actuarial Contribution Memorandum sets forth the principles, 
assumptions and methodologies for the calculation of the Actuarial 
Contribution of Eligible Policies, which is the estimated past 
contribution of such Eligible Policy to Provident's statutory surplus 
and asset valuation reserve, plus the contribution that such policy is 
expected to make in the future, as calculated according to the 
principles, assumptions and methodologies set forth in the Plan of 
Conversion and its exhibits.
    (d) The term ``Eligible Member'' means the owner of an ``eligible 
policy,'' as provided by the records of Provident and by its articles 
of incorporation and bylaws, on the adoption date of the Plan of 
Conversion. (An ``Eligible Policy'' is defined as a policy that is in 
force on the adoption date.) Provident and any of its subsidiaries will 
not be Eligible Members with respect to any policy that entitles the 
policyholder to receive consideration, unless the consideration is to 
be utilized in whole or in part for a plan or program funded by that 
policy for the benefit of participants or employees who have coverage 
under that plan or program. Provident may deem a person to be an 
Eligible Member in order to correct any immaterial administrative 
errors or oversights.
    (e) With respect to the conversion of Provident from a mutual life 
insurance company to a stock insurance company (the Conversion), the 
term ``Policy Credit'' means consideration to be paid in the form of an 
increase in cash value, account value, dividend accumulations, face 
amount, extended term period or benefit payment, as appropriate, 
depending on the policy, or extension of the policy's expiration date. 
With respect to the Merger, the term ``Policy Credit'' means 
consideration to be paid in the form of an adjustment of policy values 
for certain policies under the Plan of Conversion.
    (f) The ``Effective Date'' means the date the actual Conversion and 
Merger will transpire. It is expected to occur in the latter part of 
the third quarter in 2002, however the exact date is not known at this 
time.

Summary of Facts and Representations

The Parties

    1. Provident, a mutual life insurance company organized under the 
laws of the Commonwealth of Pennsylvania, maintains its principal place 
of business at 1000 Chesterbrook Avenue, Berwyn, Pennsylvania. 
Provident was formed in 1865 and converted to a mutual insurance 
company in 1922 pursuant to the Pennsylvania Act of April 20, 1921. 
Provident's business is concentrated in life insurance products and it 
offers a broad range of life insurance and variable annuity products 
and related services to its policyholders. As of December 31, 2000, 
Provident and its subsidiaries had approximately $9.2 billion in 
assets, with $8.2 billion set aside primarily to pay future 
policyholder benefits. Provident had approximately $3.9 billion in 
general account assets and $2.8 billion in separate account assets as 
of December 31, 2000.
    2. As a mutual life insurance company, Provident has no authorized, 
issued or outstanding capital stock. Pursuant to Pennsylvania law and 
Provident's Articles of Incorporation and By-Laws, Provident's 
policyholders, through the purchase of Provident's insurance policies, 
acquire both insurance coverage from, and membership rights in, 
Provident. The membership rights of policyholders consists principally 
of the right to vote in the election of directors of Provident and the 
right to share in any residual value of Provident in the event that 
Provident were to be liquidated. Each Provident policyholder is 
entitled to one vote regardless of the number or size of policies he or 
she holds. In this regard, Provident policyholders are entitled to vote 
on the Conversion.
    3. Provident has a number of subsidiaries and affiliates that 
provide a variety of financial services, including investment 
management and brokerage services. Provident and its affiliates also 
provide a variety of fiduciary and other services to Plans described in 
section 3(3) of the Act and to other Plans described in section 
4975(e)(1) of the Code, including Plan administration and related 
services, investment management services, and securities brokerage and 
related services. Many of the Plans to which Provident and its 
affiliates provide services are also Provident policyholders.
    As of December 31, 2000, Provident had over 1,050 outstanding 
policies and contracts held in connection with Plans. These Plans 
include defined benefit pension plans, defined contribution plans, 
i.e., 401(k) plans, and welfare benefit plans such as group life, 
short- and long-term disability, accidental death and dismemberment, 
and group health coverage.
    Although Provident is not a party in interest with respect to any 
of its policyholders that are Plans merely because it has issued an 
insurance policy to such Plans, its provision of the foregoing services 
to the Plans may cause it to be considered a party in interest under 
section 3(14)(A) and (B) of the Act.
    4. Besides issuing insurance policies and providing services to 
certain client Plans, Provident and its subsidiaries and affiliates 
sponsor three in-house Plans which are expected to receive 
consideration in connection with the Plan of Conversion described 
herein. A description of each of the affected Provident Plans is 
summarized in the following table:

----------------------------------------------------------------------------------------------------------------
                                             Approximate number     Total assets
           Name of plan and type            of participants  (as   (as of 12/31/              Coverage
                                                of 12/31/00)            00)
----------------------------------------------------------------------------------------------------------------
The Home Office Pension Plan (Defined                      2,231     $191,031,805  Actives, Deferred and
 Benefit).                                                                          Retirees.
Savings Plan for Certain Employees, Agents                 2,636      $85,655,382  Actives, Separated and
 and Managers of Provident Mutual Life                                              Beneficiaries.
 Insurance Company (the Savings Plan)
 (Defined Contribution: 401(k) & Profit
 Sharing).

[[Page 41509]]

 
Pension Plan for Agents of Provident                       1,316      $86,819,283  Actives, Separated and
 Mutual Life Insurance Company (the Agents                                          Beneficiaries.
 Pension Plan) (Defined Contribution:
 Money Purchase).
----------------------------------------------------------------------------------------------------------------

    EMJAY Corporation is the trustee for the Savings Plan and the 
Agents Pension Plan. The Home Office Pension Plan is not required to 
have a trustee because all funds are held under insurance contracts 
issued by Provident. Investment decisions for each Provident Plan are 
made by Provident's Benefits Committee, which serves as the Plan 
administrator. Members of the Benefits Committee consist of officers of 
Provident.

Provident's Conversion

    5. Provident is considering a transaction which would allow for its 
conversion from a mutual life insurance company into a stock life 
insurance company in accordance with the requirements of the Conversion 
Act, as amended and as codified at 40 P.S. Sections 911-A to 929-A. It 
is anticipated that, in the Conversion, Eligible Members of Provident, 
including Plans, will initially be issued Provident Shares, or for 
certain other policyholders, Cash or Policy Credits in respect of the 
extinguishment of their membership interests in Provident. Eligible 
Members receiving Cash or Policy Credits in the Conversion will be 
those for whom the receipt of such consideration is mandatory under the 
Plan of Conversion and the Merger Agreement. Provident Shares issued in 
the Conversion will be held by the Conversion Agent on behalf of the 
Eligible Members.
    Immediately following the Conversion, pursuant to the Merger 
Agreement, the Merger Sub will merge with and into Provident. In turn, 
Provident will become a wholly-owned subsidiary of the Sponsor.\2\ 
Eligible Members that receive Provident Shares in the Conversion will 
exchange those shares for Sponsor Class A Shares or, subject to certain 
limitations, Cash or Policy Credits. The Sponsor Class A Shares will be 
registered under the Securities Exchange Act of 1934, as amended, and 
listed on the New York Stock Exchange.
---------------------------------------------------------------------------

    \2\ Provident states that because Pennsylvania law does not 
provide for demutualizations structured as reverse triangular 
mergers or permit the direct merger of a stock company into a mutual 
company, it would not be possible for the insurer to become a 
wholly-owned subsidiary of the Sponsor through the merger of the 
Merger Sub with and into Provident without the prior conversion of 
Provident from a mutual company to a stock company under 
Pennsylvania law. As a result, Provident explains that it is 
necessary for Provident to convert from a mutual insurance company 
to a stock corporation under Pennsylvania law before the Merger Sub 
can merge with and into Provident. In addition, Provident states 
that because it holds non-transferable licenses and policy form 
approvals necessary for the operation of its business, and for other 
substantial business reasons, Provident must be the surviving entity 
in any merger.
---------------------------------------------------------------------------

    6. Provident represents that at present, it can increase its 
capital primarily through earnings contributed through its operating 
businesses, through the issuance of surplus notes, or by divestiture of 
all or a portion of interests in subsidiaries or other investments. 
However, Provident explains that none of these methods may provide a 
long-term source of capital to allow the insurer to develop new 
businesses or provide greater stability and protection for its 
policyholders. Therefore, Provident believes that its proposed 
Conversion and affiliation with the Sponsor will be in the best 
interests of its policyholders (including its Plan policyholders) 
because it will--
     Help assure the continuity of Provident's life insurance 
and other business, enhance Provident's competitiveness, and generate 
significant opportunities for improved financial performance;
     Provide Provident with greater flexibility to obtain 
capital as compared to the current mutual life insurance structure, and 
significantly enhance Provident's ability to become a financially-
stronger organization with greater resources to back its obligations to 
policyholders;
     Provide Provident with increased flexibility to fund the 
growth of existing product lines, expand into new product lines, and 
take advantage of investment and acquisition opportunities;
     Benefit both short-term and long-term interests of 
Provident, its policyholders, employees, the communities in which 
Provident does business, and other groups that will be affected by the 
transaction; and
     Allow Provident to become affiliated with a larger 
enterprise with significant financial strength.
    Moreover, Provident states that the Conversion and Merger will not, 
in any way, change premiums or reduce benefits, values, guarantees, or 
other policy obligations of Provident to its policyholders. Also, 
Provident represents that it will continue to pay policyholder 
dividends as declared.
    7. Accordingly, Provident requests an administrative exemption from 
the Department which, if granted, will permit
    (1) the initial issuance, by Provident, of Provident Shares to the 
Conversion Agent, as stockholder of record, on behalf of any Eligible 
Member, including any Eligible Member which is a Plan, including a 
Provident Plan \3\; (2) the exchange, by the Conversion Agent, of 
Provident Shares for Sponsor Class A Shares issued by the Sponsor, or, 
the receipt of Cash or Policy Credits, in exchange for such 
policyholder's membership interest in Provident or in connection with 
the Merger between Provident and the Merger Sub, a wholly-owned 
subsidiary of the Sponsor, in accordance with the terms of the Plan of 
Conversion and the Merger Agreement, adopted by Provident and 
implemented pursuant to the Conversion Act and the applicable 
provisions of the Pennsylvania Business Corporation Law of 1998.
---------------------------------------------------------------------------

    \3\ Provident represents that it is aware that the Sponsor Class 
A Shares would constitute ``qualifying employer securities'' within 
the meaning of section 407(d)(5) of the Act, and that section 408(e) 
of the Act would apply to such distributions. Nevertheless, 
Provident has specifically requested that the exemption apply to the 
receipt of Sponsor Class A Shares by any of the Provident Plans, if 
applicable, regardless of the ability by such Plan to utilize 
section 408(e) of the Act. (The Department, however, expresses no 
opinion herein on whether the Sponsor Class A Shares would 
constitute a ``qualifying employer security'' within the meaning of 
section 407(d)(5) of the Act and whether section 408(e) of the Act 
would apply to such distributions.) Provident believes that this 
expanded type of exemptive relief will provide the greatest 
flexibility for Wilmington Trust, the independent fiduciary for the 
Provident Plans, to select suitable types of consideration.
---------------------------------------------------------------------------

    Provident represents that the receipt of the demutualization 
consideration pursuant to the Plan of Conversion by an Eligible Member 
which is a Plan may be viewed as a prohibited sale or exchange of 
property between the Plan and Provident in violation of section 
406(a)(1)(A) of the Act. Moreover, Provident states that the 
transaction may also be construed as a transfer of plan assets to, or a 
use of plan assets by or for the benefit of, a party in interest

[[Page 41510]]

in violation of section 406(a)(1)(D) of the Act.
    In addition to the above, Provident is requesting that the 
exemption apply, for a period of up to 6 months following the Effective 
Date, to the holding, by the Home Office Pension Plan, of Sponsor Class 
A Shares whose fair market value exceeds 10 percent of the Provident 
Plan's assets, in violation of sections 406(a)(1)(E) and (a)(2) and 
407(a)(2) of the Act.\4\
    The proposed exemption includes a number of conditions that protect 
Eligible Members that are Plans, which are consistent with the 
conditions proposed under prior demutualization exemptions granted by 
the Department. Generally, the conditions rely on the safeguards 
provided under Pennsylvania insurance law to protect the interests of 
all policyholders, including those that are Plans, in connection with 
the Conversion and Merger. Among the safeguards is the requirement that 
distributions to Eligible Members that are Plans pursuant to the 
exemption must be on terms no less favorable to the Plans than Eligible 
Members that are not Plans. In this regard, Eligible Members that are 
Plans must participate in the Conversion on the same basis as Eligible 
Members that are not Plans.
---------------------------------------------------------------------------

    \4\ Section 406 (a)(1)(E) of the Act prohibits the acquisition 
by a plan of any employer security which would be in violation of 
section 407(a) of the Act. Section 406(a)(2) of the Act states that 
no fiduciary who has authority or disrection to control the assets 
of a plan shall permit the plan to hold any employer security if he 
[or she] knows that holding such security would violate section 
407(a) of the Act. Section 407(a)(1) of the Act prohibits the 
acquisition by a plan of any employer security which is not a 
qualifying employer security. Section 407(a)(2) of the Act provides 
that a plan may not acquire any qualifying employer security, if 
immediately after such acquisition, the aggregate fair market value 
of such securities exceeds 10 percent of the fair market value of 
the plan's assets.
    In addition to the above, section 407(f) of the Act, which is 
applicable to the holding of a qualifying employer security by a 
plan other than an eligible individual account plan, requires that 
(a) immediately following its acquisition by a plan, no more than 25 
percent of the aggregate amount of stock of the same class issued 
and outstanding at the time of acquisition is held by the plan; and 
(b) at least 50 percent of the stock be held by persons who are 
independent of the issuer. Provident has confirmed that to the best 
of its knowledge, none of the Sponsor Class A Shares which will be 
issued to the Provident Plans will violate the provisions of section 
407(f) of the Act.
---------------------------------------------------------------------------

    In addition, to represent the interests of the Provident Plans with 
respect to such activities as voting and the election of 
demutualization consideration, Provident has retained Wilmington Trust 
Company (Wilmington Trust), to act as the Independent Fiduciary.
---------------------------------------------------------------------------

    \4\ Section 406(a)(1)(E) of the Act prohibits the acquisition by 
a plan of any employer security which would be in violation of 
section 407(a) of the Act. Section 406(a)(2) of the Act states that 
no fiduciary who has authority or discretion to control the assets 
of a plan shall permit the plan to hold any employer security if he 
[or she] knows that holding such security would violate section 
407(a) of the Act. Section 407(a)(1) of the Act prohibits the 
acquisition by a plan of any employer security which is not a 
qualifying employer security. Section 407(a)(2) of the Act provides 
that a plan may not acquire any qualifying employer security, if 
immediately after such acquisition, the aggregate fair market value 
of such securities exceeds 10 percent of the fair market value of 
the plan's assets.
    In addition to the above, section 407(f) of the Act, which is 
applicable to the holding of a qualifying employer security by a 
plan other than an eligible individual account plan, requires that 
(a) immediately following its acquisition by a plan, no more than 25 
percent of the aggregate amount of stock of the same class issued 
and outstanding at the time of acquisition is held by the plan; and 
(b) at least 50 percent of the stock be held by persons who are 
independent of the issuer. Provident has confirmed that to the best 
of its knowledge, none of the Sponsor Class A Shares which will be 
issued to the Provident Plans will violate the provisions of section 
407(f) of the Act.
---------------------------------------------------------------------------

Pennsylvania Law Procedural Requirements for Conversions

    8. The Conversion Act establishes an approval process for the 
demutualization of a life insurance company organized under 
Pennsylvania law. In this regard, a plan of demutualization must be 
approved by the board of directors of the converting company, by the 
Commissioner, and by a vote of the Eligible Members of the converting 
company.
    First, the Plan of Conversion, including the Merger, must be 
approved by an affirmative vote of not less than two-thirds of the 
converting company's board of directors. Then, the Plan of Conversion, 
including the Merger, must be approved by the Commissioner who will 
approve it if, after holding a public hearing, he or she determines 
that the Plan of Conversion complies with all provisions of 
Pennsylvania law and is fair and equitable to the company and the 
policyholders. The policyholders of the mutual life insurance company 
generally must also approve the Plan of Conversion and the Merger. The 
Conversion Act provides that the policyholders eligible to vote on the 
Plan of Conversion are ``Eligible Members'' of the mutual life 
insurance company. Before the Conversion and the Merger can become 
effective, the Plan of Conversion must be put to a vote of the eligible 
members of the converting company. Under the Conversion Act, the 
eligible members must be provided with notice of the meeting of 
policyholders called for the purpose of voting whether to approve the 
demutualization plan, and the Plan of Conversion must be approved by a 
vote of not less than two-thirds of the votes of the insurer's eligible 
members voting thereon in person, by proxy or by mail.
    9. Consistent with the requirements of Pennsylvania law, the Plan 
of Conversion adopted by Provident provides for Provident to file an 
application with the Commissioner under Section 803-A of the Conversion 
Act to reorganize as a stock life insurance company. The Commissioner 
will hold a hearing on whether the terms of the demutualization comply 
with the Conversion Act after giving written notice to Provident and 
other interested persons. The Plan of Conversion also provides for 
Provident Eligible Members to be able to comment on the Plan of 
Conversion at the hearing, for the Eligible Members to vote on the Plan 
of Conversion at the Eligible Members' Meeting and for Provident to 
provide notice to its Eligible Members of both the public hearing and 
the Eligible Members' Meeting.
    The Conversion Act explicitly permits the Commissioner to employ 
staff personnel and to engage outside consultants to assist him in 
determining whether a demutualization plan meets the requirements of 
the Conversion Act and any other relevant provisions of the 
Pennsylvania law. In the case of the proposed demutualization, the 
Commissioner has retained an actuarial firm, Tillinghast Towers 
Perrins, and is expected to hire an accounting firm, legal advisers and 
an investment banking firm as consultants.
    A decision by the Commissioner to approve a demutualization plan 
pursuant to the Conversion Act is then subject to judicial review in 
Pennsylvania courts.
    In addition to the Pennsylvania regulatory requirements, Provident 
has agreed to file a copy of the Plan of Conversion with the 
Superintendent.\5\ The Plan of Conversion may also be subject to review 
by the Superintendent, who may raise objections if the Plan of 
Conversion is deemed to be unfair or inequitable to New York 
policyholders. If the Superintendent opines unfavorably on the Plan of 
Conversion, Provident, as a practical matter, would either amend the 
Plan of Conversion or work out a satisfactory solution with the 
Superintendent. If the Superintendent were to require changes 
unacceptable to the Commissioner, Provident would have to work with 
both regulators to arrive at a satisfactory solution.
---------------------------------------------------------------------------

    \5\ Specifically, section 1106(i) of the New York Insurance Law 
[Section 1106(i)] authorizes the Superintendent to review the 
demutualization plan of a foreign life insurer licensed in New York 
and to specify the conditions, if any, that the Superintendent would 
impose in order for the foreign insurer to retain its New York 
license following its demutualization. In this regard, Section 
1106(i) requires that a foreign life insurer licensed in New York 
file with the Superintendent a copy of the demutualization plan at 
least 90 days prior to the earlier of (a) the date of any public 
hearing required to be held on the plan of reorganization by the 
insurer's state of domicile and (b) the proposed effective date of 
the demutualization.
    If, after examining the plan of demutualization, the 
Superintendent finds that the plan is not fair or equitable to the 
New York policyholders of the insurer, the Superintendent must set 
forth the reasons for his findings. In addition, the Superintendent 
must notify the insurer and its domestic state insurance regulator 
of his findings and his reasons for such findings and advise of any 
requirements he considers necessary for the protection of current 
New York policyholders in order to permit the insurer to continue to 
conduct business in New York as a stock life insurer after the 
demutualization.
---------------------------------------------------------------------------

    Provident's Plan of Conversion was adopted by its Board of 
Directors on December 14, 2001. Provident expects the Eligible Members' 
Meeting will occur in the latter part of the third quarter for the 2002 
calendar year, with

[[Page 41511]]

notice of such meeting having been mailed at least 30 days prior to the 
scheduled meeting date to approximately 1,050 Plan policyholders which 
are Eligible Members. Approximately 316,317 Eligible Members will be 
eligible to vote on the Plan of Conversion and each Eligible Member 
will be entitled to only one vote, regardless of the number or size of 
the policies owned. Further, Provident's hearing on the Plan of 
Conversion is expected to be held on May 23, 2002 in King of Prussia, 
Pennsylvania. As for the actual Conversion and Merger, Provident 
expects these events will transpire during the latter part of the third 
quarter of 2002.\6\ Provident expects these events should occur within 
three months of approval of the Plan of Conversion by the Commissioner. 
If the Conversion and Merger are not completed by December 31, 2002, 
the Merger Agreement may be terminated. If the Merger Agreement is 
terminated, the Conversion and Merger will not take place.
---------------------------------------------------------------------------

    \6\ However, the Department notes that the Merger and Plan of 
Conversion must take place five business days after the Eligible 
Members' Meeting. At such meeting, Eligible Members have the 
opportunity to vote for or against the Conversion and Merger. Notice 
of the Eligible Members' Meeting cannot be sent to Eligible Members 
until issuance of an order from the Commissioner approving the Plan 
of Conversion. The Department also notes that if the subject 
exemption is not received prior to the Effective Date of the Plan of 
Conversion, Provident will, subject to the Commissioner's approval, 
either pay consideration to such Eligible Members or delay payment 
of such consideration and place said amount in an escrow or similar 
arrangement subject to terms and conditions approved by the 
Commissioner.
---------------------------------------------------------------------------

Distributions to Eligible Members

    10. Provident's Plan of Conversion provides for Eligible Members to 
ultimately receive Sponsor Class A Shares, Cash, or Policy Credits as 
consideration for giving up their membership interests in the mutual 
company, which interests are extinguished as a result of the 
demutualization. For this purpose, an Eligible Member is essentially a 
policyholder whose name appears on the insurer's records as owner of an 
eligible policy on the date the Plan of Conversion is adopted. As 
stated above, any determination to receive Sponsor Class A Shares, Cash 
or Policy Credits by an Eligible Member which is a Plan, pursuant to 
the Plan of Conversion, will be made by one or more Plan fiduciaries 
which are independent of Provident and its affiliates. In this regard, 
neither Provident nor its affiliates will exercise any investment 
discretion or provides ``investment advice,'' within the meaning of 29 
CFR 2510.3-21(e), with respect to such decisions.\7\
---------------------------------------------------------------------------

    \7\ ``The proceeds of the demutualization will belong to the 
Plan if they would be deemed to be owned by the Plan under ordinary 
notions of property rights. See ERISA Advisory Opinion 92-02A, 
January 17, 1992 (assets of plan generally are to be identified on 
the basis of ordinary notions of property rights under non-ERISA 
law). It is the view of the Department that, in the case of an 
employee welfare benefit plan with respect to which participants pay 
a portion of the premiums, the appropriate plan fiduciary must treat 
as plan assets the portion of the demutualization proceeds 
attributable to participant contributions. In determining what 
portion of the proceeds are attributable to participant 
contributions, the plan fiduciary should give appropriate 
consideration to those facts and circumstances that the fiduciary 
knows or should know are relevant to the determination, including 
the documents and instruments governing the plan and the proportion 
of total participant contributions to the total premiums paid over 
an appropriate time period. In the case of an employee pension 
benefit plan, or where any type of plan or trust is the 
policyholder, or where the policy is paid for out of trust assets, 
it is the view of the Department that all of the proceeds received 
by the policyholder in connection with a demutualization would 
constitute plan assets.'' See ERISA Advisory Opinion 2001-02A, 
February 15, 2001.
---------------------------------------------------------------------------

    11. It is anticipated that the following steps will occur on or 
prior to the Effective Date:
    (a) The Sponsor will make a capital contribution in Cash to the 
Merger Sub in an amount equal to the excess of (x) the total amount of 
Cash and Policy Credits that are to be paid or credited to Eligible 
Members in the transactions, over (y) the total amount of Cash and 
Policy Credits to be paid or funded by Provident from its surplus as it 
existed prior to the Conversion and Merger. The amount to be paid or 
funded by Provident from its surplus as it existed prior to the Merger 
will, when added to the amount paid or payable by Provident in respect 
of costs and expenses incurred in connection with the Conversion and 
the Merger, be equal to not more than 10 percent of the value of 
Provident as of the Effective Date without taking into account any 
diminution resulting from such costs and expenses.
    (b) Provident will convert to a stock company. Immediately 
following the Conversion and under the terms of the Plan of Conversion, 
the Conversion Agent will vote the Provident Shares in favor of the 
Merger.
    (c) The Merger Sub then will merge with and into Provident, with 
Provident as the surviving corporation. The Provident Shares evidenced 
by the global certificate will be extinguished. In exchange therefor, 
Eligible Members will be entitled to receive Sponsor Class A Shares, 
Cash, or Policy Credits.
    12. In order to determine the amount of consideration to which each 
Eligible Member is entitled (combinations of different forms of 
consideration will not be permitted), each Eligible Member will be 
allocated a number of Provident Shares equal to the sum of (a) a fixed 
minimum number of shares \8\ and (b) an additional number of shares 
based on actuarial formulas that take into account each policy's 
contributions to the surplus and asset valuation reserve of Provident, 
which formulas have been approved by the Commissioner. As noted above, 
upon consummation of the Merger, the Provident Shares that are 
allocated to those policyholders who are entitled to receive stock will 
be exchanged for Sponsor Class A Shares, Cash or Policy Credits in 
accordance with the terms of the Merger Agreement.
---------------------------------------------------------------------------

    \8\ The fixed component of consideration will equal the quotient 
of: (A) 20% of the total number of Allocable Provident Shares 
divided by (B) the total number of Eligible Members, provided that 
any resulting fractional number of Provident Shares shall be rounded 
to the nearest whole number of Provident Shares. Determination of 
Allocable Provident Shares depends upon the ``Sponsor Final Stock 
Price'' which, as defined in the Merger Agreement, means ``the 
volume weighted average of the sales prices of the Sponsor Class A 
Shares as published by Bloomberg Professional Service for the 15 
consecutive Trading Dates ending on the fifth Trading Day 
immediately preceding the Closing Date.'' The aggregate purchase 
price is also subject to a ``collar'' adjustment based on 
fluctuations in the stock price of the Sponsor Class A Shares and an 
adjustment related to the amount of assets to be allocated to a 
``closed block'' of assets for the benefit of certain dividend 
receiving policies. Thus, the total number of shares allocated to 
the fixed component will not fully be determined until the Closing 
Date of the Merger and such total may be subject to further 
regulatory approval.
---------------------------------------------------------------------------

Consideration Payable to Eligible Members

    13. Under the Plan of Conversion, certain Eligible Members will 
receive Cash or Policy Credits in respect of the extinguishment of 
their membership interests in the Conversion. The remaining Eligible 
Members will be issued Provident Shares in respect of their membership 
interests in Provident. With respect to the Merger, the Provident 
Shares will be extinguished and, in exchange therefore, Eligible 
Members will be entitled to receive Sponsor Class A Shares, Cash, or 
Policy Credits.
    Eligible Members who own the following types of policies will be 
required under the Plan of Conversion to receive Policy Credits in 
exchange for their membership interests in Provident: a policy that is 
an individual retirement annuity contract (the IRA) within the meaning 
of section 408(b) or 408A of the Code or a tax sheltered annuity 
contract (the TSA) within the meaning of section 403(b) of the Code; or 
a policy that is an individual annuity contract that has been issued 
pursuant to a Plan qualified

[[Page 41512]]

under sections 401(a) or 403(a) of the Code directly to the Plan 
participant; or a policy that is an individual life insurance policy 
that has been issued pursuant to a Plan qualified under section 401(a) 
or 403(a) of the Code directly to the plan participant. These 
policyholders are collectively referred to as ``Policy Credit 
Recipients.''
    Also, with respect to the Conversion, certain Eligible Members will 
be required to receive consideration in the form of Cash in exchange 
for their membership interests in Provident. Said policyholders are 
collectively referred to as ``Cash Recipients.'' A Cash Recipient is a 
policyholder whose address for mailing purposes as shown on Provident's 
records is located outside the United States; or whose address for 
mailing purposes as shown on Provident's records on the Effective Date 
is an address at which mail is undeliverable or deemed to be 
undeliverable in accordance with guidelines approved by the 
Commissioner; or to whom Provident determines in good faith to the 
satisfaction of the Commissioner that it is not reasonably feasible or 
appropriate to provide consideration in the form that such Eligible 
Member would otherwise receive.\9\
---------------------------------------------------------------------------

    \9\ The Policy Credit Recipients and the Cash Recipients are 
hereinafter collectively referred to as ``Mandatory Consideration 
Recipients.''
---------------------------------------------------------------------------

    Eligible Members that own group annuity contracts designed to fund 
benefits under a retirement plan which is qualified under section 
401(a) or section 403(a) of the Code (including a plan covering 
employees described in section 401(c)) that do not affirmatively elect 
to receive Sponsor Class A Shares or Cash in the Merger will receive 
Policy Credits (Qualified Plan Recipients). All other Eligible Members 
will have the option to receive Cash rather than Sponsor Class A Shares 
in the Merger.\10\ It is possible that not all Eligible Members opting 
to receive Cash or Policy Credits will receive Cash or Policy Credits. 
Instead, the aggregate amount of Cash and Policy Credits available will 
be limited. If elections for Cash and Policy Credits are over-
subscribed, available Cash and Policy Credits first will be paid or 
credited to Mandatory Consideration Recipients and then will be paid or 
credited sequentially to Optional Consideration Recipients, starting 
with electing Eligible Members entitled to receive the smallest amount 
of consideration and continuing to electing Eligible Members receiving 
the largest amount of consideration at which all Optional Consideration 
Recipients at that level of consideration can be paid with the 
available funds. No Eligible Member will receive a combination of Cash 
or optional Policy Credits and Sponsor Class A Shares.
---------------------------------------------------------------------------

    \10\ Optional Cash Recipients and Qualified Plan Recipients are 
together referred to herein as ``Optional Consideration 
Recipients.''
---------------------------------------------------------------------------

    Each Provident Share issued in the Conversion to an Eligible Member 
(other than an Optional Consideration Recipient) will be exchanged for 
one Sponsor Class A Share on a one for one exchange in the Merger. The 
amount of Cash or value of Policy Credits received by each Mandatory 
Consideration Recipient or Optional Consideration Recipient in the 
Conversion or Merger will be based on (x) the number of Sponsor Class A 
Shares such Eligible Member would have received if such Eligible Member 
had received Sponsor Class A Shares in the Merger and (y) the average 
market value of such Sponsor Class A Shares for the 15 consecutive 
trading days ending on the fifth trading day immediately preceding the 
Effective Date.

Limitation on Consideration and Effect on Existing Policies

    14. The amount of Cash and Policy Credits that may be paid or 
credited pursuant to the Plan of Conversion and the Merger Agreement, 
in the aggregate, will not exceed (x) the total amount paid or credited 
that will be funded out of Provident's surplus as this surplus existed 
prior to the Merger, with certain limitations not relevant for purposes 
of this request, and (y) additional amounts paid or credited with funds 
supplied by the Sponsor as a capital contribution to the Merger Sub. 
These additional amounts cannot exceed 20 percent of the value of 
Provident as of the Effective Date, determined without taking into 
account any diminution resulting from costs or expenses paid or payable 
by Provident in connection with the Conversion and Merger, but 
including amounts paid or credited out of Provident's surplus pursuant 
to clause (x) above.
    Under the current terms of the Merger Agreement, the amount of Cash 
or Policy Credits that may be paid or funded with Cash supplied by the 
Sponsor is further limited so that no more than 20 percent of the total 
number of Eligible Members receiving consideration provided or funded 
by the Sponsor (including Eligible Members receiving Sponsor Class A 
Shares) will receive Cash or Policy Credits. The parties to the Merger 
have agreed to waive this limitation if the Internal Revenue Service 
issues certain tax rulings.

The Closed Block (the Closed Block)

    15. Pursuant to the Plan of Conversion, Provident will, for 
policyholder dividend purposes only, operate the Closed Block for the 
benefit of individual policies paying ``experience-based policy 
dividends''. For accounting purposes only, assets of Provident will be 
allocated to the Closed Block in an amount that produces cash flows 
which, together with anticipated revenue from the Closed Block policies 
and contracts, are expected to be sufficient to support the Closed 
Block policies, including, but not limited to, provisions for payment 
of claims and certain charges and taxes, and to provide for 
continuation of dividend scales payable for 2001, if the experience 
underlying such scales (including the portfolio interest rate) 
continues, and to allow for appropriate adjustments in such scales if 
such experience changes. Assets in the Closed Block remain as general 
account assets of Provident and are fully subject to the claims of 
creditors of Provident, like any general account assets.

Commission-Free Program

    16. Under the terms of the Plan of Conversion, the Sponsor will 
establish the Commission-Free Program within 90 days after the 
Effective Date which will continue for at least 90 days thereafter. The 
Commission-Free Program will provide any shareholder holding fewer than 
100 Sponsor Class A Shares the opportunity to either sell all of such 
shareholder's shares or to buy additional shares necessary to increase 
such shareholder's shares to 100, in either case, at the prevailing 
market prices but without paying brokerage commissions, mailing 
charges, registration fees, or other administrative or similar 
expenses.

Independent Fiduciary

    17. As stated above, Wilmington Trust will serve as the Independent 
Fiduciary for all of the Provident Plans in connection with the 
implementation of Provident's Plan of Conversion. Generally, such 
transactions over which Wilmington Trust will exercise investment 
discretion may result in the acquisition, holding or disposition of 
Sponsor Class A Shares by the Provident Plans. Wilmington Trust states 
that it is familiar with the Department's independent fiduciary 
requirements and has acknowledged and accepted such duties, 
responsibilities and liabilities to act on behalf of the Provident 
Plans. In return for services rendered, Wilmington Trust

[[Page 41513]]

will be compensated by either Provident, a successor, or an affiliate.
    Wilmington Trust was founded in 1903 and its home state is 
Delaware. As of December 31, 2001, Wilmington Trust had approximately 
$7.3 billion in banking assets and $24.6 billion in assets under 
management. Wilmington Trust maintains its primary focus on asset 
management and trust services and is also a specialty provider of 
corporate financial services on an international scale. Since 1942, 
Wilmington Trust has provided trustee, custodial, and administrative 
services for all types of qualified and non-qualified employee benefit 
plans, and currently has approximately 1,000 employee benefit plans 
under management.
    Wilmington Trust represents that it is independent of Provident and 
its affiliates. In this regard, Wilmington Trust asserts that it has no 
business, ownership or control relationship, nor is it otherwise 
affiliated with Provident and its affiliates. Further, Wilmington Trust 
represents that while it either directly or through its affiliates may 
provide one or more banking, trust or other customary services to 
Provident or its affiliates from time to time, it derives less than one 
percent of its annual income from Provident and its affiliates.
    As the Independent Fiduciary for the Provident Plans, Wilmington 
Trust will be required to (a) vote on whether to approve or not to 
approve the proposed demutualization; (b) elect between consideration 
in the form of Sponsor Class A Shares, Cash or Policy Credits on behalf 
of such Plans; (c) review and approve Provident's allocation of Sponsor 
Class A Shares, Cash or Policy Credits received for the benefit of the 
participants and beneficiaries of the Provident Plans; (d) vote on 
Sponsor Class A Shares that are held by the Provident Plans and dispose 
of such stock held by the Home Office Pension Plan, which exceeds the 
limitation of section 407(a)(2) of the Act, as soon as it is reasonably 
practicable, but in no event later than six months after the Effective 
Date of the Plan of Conversion; and (e) take all actions that are 
necessary and appropriate to safeguard the interests of the Provident 
Plans and their participants and beneficiaries. In addition, Wilmington 
Trust will provide the Department with a complete and detailed final 
report as it relates to the Provident Plans prior to the Effective Date 
of the demutualization. Finally, Wilmington Trust states that it has 
conducted a preliminary review of Provident's Plan of Conversion and it 
sees nothing in the Plan that would preclude the Department from 
proposing the requested exemption.
    18. In summary, it is represented that the proposed transactions 
will satisfy the statutory criteria for an exemption under section 
408(a) of the Act because:
    (a) The Plan of Conversion will be implemented in accordance with 
procedural and substantive safeguards that are imposed under 
Pennsylvania law and will be subject to review and supervision of the 
Commissioner and the Superintendent.
    (b) The Commissioner will review the terms and options that are 
provided to Eligible Members of Provident as part of such 
Commissioner's review of the Plan of Conversion and Merger and the 
Commissioner will approve the Plan of Conversion and Merger following a 
determination that such Plan is fair and equitable to Eligible Members 
(including Eligible Members that are Plans).
    (c) The Superintendent will object to the Plan of Conversion if he 
or she finds that such Plan is not fair or equitable to New York 
policyholders.
    (d) As part of their separate determinations, both the Commissioner 
and the Superintendent must concur on the terms of the Plan of 
Conversion.
    (e) In the case of an Eligible Member that is a Plan, one or more 
independent Plan fiduciaries will have an opportunity to vote to 
approve the terms of the Plan of Conversion (or to comment on such 
Plan), and will be solely responsible for all such decisions after 
receiving full and complete disclosure from Provident.
    (f) The Plan of Conversion and Merger will help assure the 
continuity of Provident's life insurance and other business, will 
enhance the competitiveness of Provident and will generate significant 
opportunities for improved financial performance.
    (g) The proposed exemption will allow Eligible Members that are 
Plans to receive Sponsor Class A Shares, Cash or Policy Credits, in 
exchange for their membership interests in Provident and neither 
Provident nor any of its affiliates will exercise investment discretion 
or provide ``investment advice,'' within the meaning of 29 CFR 2510.3-
21(c), with respect to such decisions or options given.
    (h) Each Eligible Member will have an opportunity to determine 
whether to vote to approve the terms of the Plan of Conversion and 
Merger and will also be solely responsible for any decisions that may 
be permitted under the Plan of Conversion regarding the form of 
consideration to be received in the demutualization.
    (i) All Plans that are Eligible Members will participate in the 
transactions and on the same basis as Eligible Members that are not 
Plans.
    (j) No Eligible Member will pay any brokerage commissions or fees 
in connection with the receipt of Sponsor Class A Shares or Policy 
Credits or in connection with the implementation of the Commission-Free 
Program.
    (k) The demutualization will not, in any way, change premiums or 
reduce policy benefits, values, guarantees or other policy obligations 
of Provident to its policyholders.

FOR FURTHER INFORMATION CONTACT: Ms. Anna M. N. Mpras of the 
Department, telephone (202) 693-8565. (This is not a toll-free number.)

Chiquita Processed Foods 401(k) Retirement Savings Plan (the 401(k) 
Plan) and the Chiquita Savings and Investment Plan (the Savings Plan; 
collectively the Plans)

Located in New Richmond, WI and Cincinnati, OH, respectively

[Application Nos. D-11063 and D-11064]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting an exemption under 
the authority of section 408(a) of the Act and section 4975(c)(2) of 
the Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990).\11\ If the 
exemption is granted, the restrictions of sections 406(a), 406(b) and 
407(a) of the Act and the sanctions resulting from the application of 
section 4975 of the Code, by reason of section 4975(c)(1)(A) through 
(E) of the Code, shall not apply, effective March 19, 2002, to (1) the 
acquisition and holding by the Plans of certain new warrants (the 
Warrants) to purchase new common stock (the New Common Stock) issued by 
Chiquita Brands International, Inc. (the Employer), a party in interest 
with respect to the Plans; and (2) the subsequent exercise of the 
Warrants, as directed by participants in the Plans, provided that the 
following conditions were met:
---------------------------------------------------------------------------

    \11\ For purposes of this proposed exemption, references to 
provisions of Title I of the Act, unless otherwise specified, refer 
also to corresponding provisions of the Code.
---------------------------------------------------------------------------

    (a) The Plans had little, if any, ability to affect the negotiation 
or confirmation of either the Plan of Reorganization of Chiquita (the 
Original POR) filed by the Employer on November 28, 2001 under Chapter 
11 of Title 11 of the United States Code (the Bankruptcy Code), the 
First Amended Plan of Reorganization of Chiquita (the First Amended 
POR),

[[Page 41514]]

subsequently filed under the Bankruptcy Code by the Employer on January 
18, 2002, or the Second Amended Plan of Reorganization of Chiquita (the 
Second Amended POR), subsequently filed under the Bankruptcy Code by 
the Employer on March 7, 2002.
    (b) The acquisition and holding of the Warrants did not occur until 
the Second Amended POR had been confirmed.
    (c) The Plans acquired the Warrants automatically in connection 
with the Employer's bankruptcy proceedings and without any unilateral 
action on their part.
    (d) All shareholders, including the Plans, were treated in a like 
manner with respect to the issuance of the Warrants.
    (e) The Warrants represented less than 25 percent of the assets of 
either Plan.
    (f) Any decision to exercise the Warrants acquired by the Plans in 
connection with the Employer's bankruptcy will be made by the 
participants in accordance with the terms of a warrant agreement (the 
Warrant Agreement), as well as in accordance with the Plan provisions 
for individually-directed investment of participant accounts.
    (g) The Plans did not pay any fees or commissions in connection 
with the receipt of the Warrants, nor will the Plans pay any fees or 
commissions in connection with the holding or exercise of the Warrants.
    (h) The trustees of the Plans (the Trustees) will not allow 
participants to exercise the Warrants held by their individual accounts 
in the Plans unless the fair market value of the New Common Stock 
exceeds the exercise price of the Warrants.

EFFECTIVE DATE: If granted, this proposed exemption will be effective 
as of March 19, 2002.

Summary of Facts and Representations

    1. The Employer is a New Jersey corporation maintaining its 
principal place of business in Cincinnati, Ohio. The Employer is an 
international marketer, producer and distributor of fresh fruits, 
vegetables and processed foods sold under the ``Chiquita'' and other 
brand names.
    2. The Plans, which are sponsored by the Employer, are defined 
contribution plans that provide for participant-directed investments. 
Participants in the Plans may direct the investments of their accounts 
into a variety of funds, including the Employer's common stock fund. 
The Savings Plan, formerly known as the ``United Brands Company Savings 
and Investment Plan,'' was adopted by the Employer effective January 1, 
1986. As of December 21, 2001, the Savings Plan had total assets of 
approximately $34,521,487 and 989 participants. Of the total assets, 
the Savings Plan held 1,285,537 shares of Employer common stock (the 
Old Employer Common Stock) which represented approximately 2.27% of the 
fair market value of the assets of the Savings Plan and was allocated 
to the individual accounts of 557 participants. Putnam Fiduciary Trust 
Company, a trust company having its principal place of business in 
Boston, Massachusetts, serves as the trustee for the Savings Plan.
    The 401(k) Plan was formed, effective April 1, 1999, as the result 
of a merger of the American Fine Foods 401(k) Plan and the Stokely USA, 
Inc. Retirement Savings Plan into the Friday Canning Corporation 401(k) 
Savings Plan. As of December 21, 2001, the 401(k) Plan had total assets 
of approximately $37,521,487 and 2,624 total participants. Of the total 
assets, the 401(k) Plan held 199,515 shares of the Old Employer Common 
Stock which represented about 0.32% of the fair market value of the 
assets of such plan and was allocated to the accounts of 283 
participants. UMB Bank, N.A., a trust company having its principal 
place of business in Kansas City, Missouri, serves as the trustee for 
the 401(k) Plan.
    3. The Plans are administered by the Chiquita Brands International, 
Inc. Employee Benefits Committee (the Benefits Committee) appointed by 
the Board of Directors of the Employer. Since the participants in the 
Plans direct the investment of their accounts, neither the Benefits 
Committee, nor the Trustees, exercise investment discretion over the 
assets involved in the transactions that are described herein.\12\
---------------------------------------------------------------------------

    \12\ The Department notes that ERISA's general standards of 
fiduciary conduct applied to the decision to offer Old Employer 
Common Stock as an investment option under the Plans. In this 
regard, section 404(a)(1) of the Act requires that a fiduciary 
discharge his or her duties in regards to the plan solely in the 
interest of the participants and beneficiaries, and with the care, 
skill, prudence and diligence under the circumstances then 
prevailing that a prudent man acting in a like capacity and familiar 
with such matters would use in the conduct of an enterprise of a 
like character and with like aims.
---------------------------------------------------------------------------

    4. The Savings Plan previously allowed participants to defer up to 
12% of compensation and provides for matching and discretionary 
Employer contributions. The Savings Plan was amended to comply with 
recent tax law changes in February 2002. As part of the amendment 
process, the Savings Plan was amended to allow participants to defer up 
to 15% of compensation.
    The 401(k) Plan also was amended to comply with recent tax law 
changes. The 401(k) Plan allows participants to defer up to 15% of 
compensation and also provides for matching and discretionary employer 
contributions.
    5. On November 28, 2001, the Employer filed, with the Bankruptcy 
Court, the Original POR under the Bankruptcy Code, along with its 
petition. Under the Original POR, holders of shares of Old Employer 
Common Stock were entitled to receive shares of New Common Stock and 
Warrants to purchase additional shares of New Common Stock. The Old 
Employer Common Stock was to be cancelled on the Effective Date of the 
reorganization. The Effective Date would be a business day selected by 
the Employer after the Original POR was confirmed by the Bankruptcy 
Court and certain material conditions to the effectiveness of the 
Original POR had been satisfied. Namely, the approval of such POR in 
the Bankruptcy Court and the execution of an amended finance facility 
by Chiquita Brands, Inc., a wholly owned subsidiary of the Employer, 
which employs some Plan participants and also owns Chiquita Processed 
Foods. As holders of the Old Employer Common Stock, the Plans were 
entitled to receive shares of New Common Stock and the Warrants on the 
Effective Date, or as soon as reasonably practicable thereafter, under 
the Original POR.
    6. On January 18, 2002, the Employer filed the First Amended POR 
with the Bankruptcy Court primarily to reflect actual distributions to 
the Employer's common and preferred shareholders. After the filing of 
the Chapter 11 case, up until January 2002, the Employer's preferred 
shareholders had been able to convert their owned shares of Employer 
preferred stock (the Employer Preferred Stock) to shares of Old 
Employer Common Stock. As a result, the Employer could not determine 
exact distributions to each class, because the numbers of outstanding 
shares of the Employer Preferred Stock were changing daily. However, 
the Bankruptcy Court entered an order prohibiting the conversion at the 
option of the holder of the Employer Preferred Stock into shares of Old 
Employer Common Stock after January 8, 2002. As a result of this 
prohibition, the Employer was able to set the distributions and filed 
the First Amended POR with the Bankruptcy Court to show accurate stock 
distributions.
    7. On March 7, 2002, the Employer filed the Second Amended POR with 
the Bankruptcy Court. The Second Amended POR was confirmed by the 
Bankruptcy Court on March 8, 2002,

[[Page 41515]]

and became effective on March 19, 2002.
    The major change in the Second Amended POR was the modification of 
certain releases in the Original POR and the First Amended POR. In this 
regard, in the Original POR and First Amended POR, holders of equity 
and claims who were entitled to receive distributions under the POR 
were deemed to release certain claims against certain parties relating 
to transactions in securities, the Employer, the POR and the Chapter 11 
case. In the Second Amended POR, the releases by holders of equity were 
limited to claims in respect of the distributions that would be 
received as a result of such POR.
    In addition, under each POR, all holders of Old Employer Common 
Stock would be entitled to receive their pro rata share of the New 
Common Stock and the Warrants. Moreover, the Old Employer Common Stock 
would be cancelled and extinguished.
    8. On March 19, 2002, the Effective Date of the Second Amended POR, 
approximately 40 million shares of New Common Stock, including 800,000 
shares of New Common Stock that were subject to delayed delivery were 
issued or issuable pursuant to the Second Amended POR. Of these, 
approximately one million shares of New Common Stock, as well as 
13,333,333 Warrants, were distributed to the Plans and the other 
shareholders of the Old Employer Common Stock and Employer Preferred 
Stock and preference stock. Based on the number of shares of Old 
Employer Common Stock held by the Plans as of March 19, 2002, the Plans 
received 10,086 shares of New Common Stock (the Plans did not contain 
Employer Preferred Stock or preference stock). Of the New Common Stock 
issued to the Plans, 1,416 shares were allocated to the 401(k) Plan and 
8,670 shares were allocated to the Savings Plan.
    In addition to shares of New Common Stock, approximately 168,114 
Warrants were issued to the Plans. The Warrants represented less than 
25 percent of each Plan's assets. Of the Warrants distributed, 23,604 
Warrant shares were transferred to the 401(k) Plan and 144,510 Warrant 
shares were transferred to the Savings Plan and allocated, on March 20, 
2002, to the individual accounts of the affected participants. Any 
fractional shares of New Common Stock and Warrants were converted 
through market sales into cash, which in turn, was subsequently 
allocated to the participants' accounts.\13\
---------------------------------------------------------------------------

    \13\ The cash equivalent of the fractional shares to which the 
participants of the Savings Plan were entitled, after applying 
certain conversion rates, was distributed to the Savings Plan on 
March 27, 2002. The cash was allocated to the participants' 
accounts, after settling with the transfer agent, on May 1, 2002. 
Similarly, the 401(k) Plan received the cash equivalent to which its 
participants were entitled, after applying certain conversion rates, 
on April 30, 2002, and the cash was allocated to the participants' 
accounts on the same date. The Employer had anticipated that the 
cash would be distributed to the Plans during the week of April 12, 
2002 and allocated to participants as soon as administratively 
practicable thereafter. However, due to administrative 
complications, the cash distributions and allocations were not 
accomplished until the dates set forth above.
---------------------------------------------------------------------------

    The Second Amended POR also authorized the adoption of a new stock 
option plan, and the issuance thereunder of options for the purchase of 
up to 5,925,926 shares of New Common Stock. If all such options and all 
Warrants are exercised, the Employer will have issued and outstanding 
59,259,259 shares of New Common Stock.
    Because of the relatively small amount of Old Employer Common Stock 
in the Plans, it is represented that the participants, although 
entitled to vote, had little, if any ability to negotiate the terms of 
the Original POR, the First Amended POR or the Second Amended POR.
    9. The Warrants are exercisable for 13,333,333 shares of New Common 
Stock. Thus, each Warrant entitles the holder to purchase one share of 
New Common Stock during the period commencing on March 19, 2002 and 
ending on the seventh anniversary of the Effective Date of the Second 
Amended POR. The Warrants are presently listed on the New York Stock 
Exchange (the NYSE). Participants in the Plans are not entitled to 
invest in additional Warrants.
    The exercise price for the Warrants has been set at a price per 
share that is equal to the ``Solvency Value.'' The Solvency Value is 
the value per share of the New Common Stock that, when multiplied by 
the number of shares of New Common Stock distributed to holders of old 
subordinated debenture claims against the Employer (and after adding 
such amount to the $250 million face amount of new senior notes to be 
issued to holders of old senior note claims and old subordinated 
debenture claims), will equal the amount of old senior note claims and 
old subordinated debenture claims for principal, plus unpaid interest 
on such principal through March 19, 2002, the Effective Date of the 
Second Amended POR. As stated in the Warrant Agreement, the exercise 
price of each Warrant is $19.23 per Warrant share.
    10. All shareholders of Old Employer Common Stock, including the 
Plans, were treated in a similar manner with respect to the their 
acquisition and holding of the Warrants. No participant in the Plans 
paid, nor will pay, any fees or commissions in connection with the 
acquisition, holding, or exercise of the Warrants.
    With respect to the exercise of the Warrants, the Trustees will 
follow the direction of the participants in accordance with the 
procedures set forth in the Warrant Agreement and established by the 
Benefits Committee. In this regard, the Trustees will not allow 
participants to exercise the Warrants held in such participants' 
individual accounts in the Plans unless the fair market value of the 
New Common Stock exceeds the exercise price of the Warrants. In 
addition, the shares of New Common Stock received upon the exercise of 
the Warrants (or cash in lieu of fractional shares) will be credited to 
participants' accounts. Moreover, the Benefits Committee is considering 
implementing a procedure whereby participants will be required to 
exercise at least 100 Warrant shares at any one time. If a participant 
does not own at least 100 Warrants, such participant will be required 
to exercise all of the Warrants held in his or her account at that 
time.
    With respect to the sale of the Warrants, the Trustees will also 
follow the direction of the participants in accordance with procedures 
established by the Benefits Committee. All such sales will occur on the 
open market and in the 100 share increments described above. Following 
a sale transaction, the proceeds will be allocated to each affected 
participant's account in the Plans.\14\
---------------------------------------------------------------------------

    \14\ Because the Warrants are listed on the NYSE, the Department 
has determined that no exemption is necessary with respect to sales 
of such securities, on the open market, to non-parties in interest, 
at the direction of participants. In this regard, if the Warrants 
are sold through an exchange in an ordinary ``blind transaction'' 
where neither the buyer nor the seller (nor the agent of either) 
knows the identity of the other party involved, no prohibited 
transaction will have occurred in violation of the Act (see ERISA 
Advisory Opinion 85-18A, April 23, 1985).
---------------------------------------------------------------------------

    11. The Employer represents that it analyzed the impact of each POR 
on the Plans. In particular, the Employer states that it analyzed the 
prohibited transaction implications of the automatic exchange of the 
Old Employer Common Stock held by the Plans for the Warrants. 
Accordingly, the Employer has requested exemptive relief from the 
Department with respect to the acquisition and holding by the Plans of 
the Warrants as well as with respect to the subsequent exercise of the 
Warrants by the participants in the Plans. If granted, the exemption 
would

[[Page 41516]]

be effective as of March 19, 2002, which is the date the Warrants were 
issued to the Plans.
    12. The Employer represents that the shares of New Common Stock 
that were acquired by the participant accounts in the Plans in 
conjunction with the issuance of the Warrants, would constitute a 
``qualifying employer security'' within the meaning of section 
407(d)(5) of the Act and that the acquisition and holding by the Plans 
of such stock would be statutorily exempt under section 408(e) of the 
Act.\15\ However, the Employer notes that the Warrants are ``employer 
securities,'' as defined in section 407(d)(1) of the Act (as securities 
issued by an employer of employees covered under a plan or an affiliate 
of such employer), but are not ``qualifying employer securities.'' 
Therefore, the Employer asserts that in the absence of an 
administrative exemption, the acquisition and holding of the Warrants 
by the Plans or the subsequent exercise of the Warrants, as directed by 
the Plan participants, would violate sections 406(a), 406(b) and 407(a) 
of the Act.
---------------------------------------------------------------------------

    \15\ Similarly, the Employer represents that the acquisition and 
holding by the participant accounts in the Plans of the Old Employer 
Common Stock would constitute a ``qualifying employer security.''
    The term ``qualifying employer security'' means an employer 
security which is ``stock,'' a ``marketable obligation,'' or an 
``interest in a publicly-traded partnership,'' under section 
407(d)(5) of the Act.
    In relevant part, section 408(e) of the Act provides that 
sections 406 and 407 of the Act shall not apply to the acquisition 
or sale by a plan of qualifying employer securities (as defined in 
section 407(d)(5)(1) if such acquisition is for adequate 
consideration (or in the case of a marketable obligation, at a price 
not less favorable to the plan than the price determined under 
section 407(e)(1)), (2) if no commission is charged with respect 
thereto, and (3) if--(A) the plan is an eligible individual account 
plan (as defined in section 407(d)(3), or (B) in the case of an 
acquisition by a plan which is not an eligible individual account 
plan, the acquisition is not prohibited under section 407(a) of the 
Act.
    In this proposed exemption, the Department expresses no opinion 
herein on whether the exchange of the Old Employer Common Stock for 
the New Common Stock by the individual accounts of affected 
participants in the Plans satisfied the terms and conditions of 
section 408(e) of the Act.
---------------------------------------------------------------------------

    13. In summary, it is represented that the transactions have 
satisfied or will satisfy the statutory criteria for an exemption under 
section 408(a) of the Act because:
    (a) The acquisition and holding of the Warrants by the Plans 
occurred in connection with the Employer's bankruptcy proceedings, 
pursuant to which all shareholders of the Old Employer Common Stock 
were treated in the same manner, thereby allowing certain affected Plan 
participants the ability to maximize the return on their shares of Old 
Employer Common Stock.
    (b) The Plans had little, if any, ability to affect the negotiation 
and confirmation of either the Employer's Original POR, the First 
Amended POR or the Second Amended POR with respect to the bankruptcy 
proceedings.
    (c) The Warrants were issued to the Plans automatically in 
connection with the Employer's bankruptcy proceedings and without any 
unilateral action on the part of the Plans.
    (d) The Plan participants did not pay, nor will pay, any fees or 
commissions with respect to the acquisition, holding, or exercise of 
the Warrants.
    (e) All shareholders, including the Plans, were treated in a like 
manner with respect to the issuance of the Warrants.
    (f) The Warrants represented less than 25 percent of the assets of 
either Plan.
    (g) Any decision to exercise the Warrants acquired by the Plans in 
connection with the Employer's bankruptcy will be made by the Plan 
participants, in accordance with the terms of the Warrant Agreement, as 
well as in accordance with the Plan provisions for individually-
directed investment of participant accounts.
    (h) The Trustees will not allow participants to exercise the 
Warrants held by their individual accounts in the Plans unless the fair 
market value of the New Common Stock exceeds the exercise price of the 
Warrants.

Notice to Interested Persons

    The Employer will provide notice of the proposed exemption to all 
interested persons, including participants and beneficiaries who 
receive the Warrants, the Trustees, and the Benefits Committee, by 
first class mail within 10 days of the date of publication of the 
notice of proposed exemption in the Federal Register. The notice will 
include a copy of the proposed exemption, as published in the Federal 
Register, and a supplemental statement, as required pursuant to 29 CFR 
2570.43(b)(2), which will inform interested persons of their right to 
comment on and/or to request a hearing with respect to the proposed 
exemption. Comments regarding the proposed exemption and requests for a 
public hearing are due within 40 days of the date of publication of the 
notice of pendency in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Anna M.N. Mpras of the Department, 
telephone (202) 693-8565. (This is not a toll-free number.)

General Information

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

    Signed at Washington, DC, this 13th day of June, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 02-15320 Filed 6-17-02; 8:45 am]
BILLING CODE 4510-29-P