Proposed Exemptions; Del Monte Savings Plan; et al.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-9767, et al.]

Proposed Exemptions; Del Monte Savings Plan; et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the

Department of Labor (the Department) of proposed exemptions from

certain of the prohibited transaction restriction of the Employee

Retirement Income Security Act of 1974 (the Act) and/or the Internal

Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

All interested persons are invited to submit written comments or

request for a hearing on the pending exemptions, unless otherwise

stated in the Notice of Proposed Exemption, within 45 days from the

date of publication of this Federal Register Notice. Comments and

request for a hearing should state: (1) The name, address, and

telephone number of the person making the comment or request, and (2)

the nature of the person's interest in the exemption and the manner in

which the person would be adversely affected by the exemption. A

request for a hearing must also state the issues to be addressed and

include a general description of the evidence to be presented at the

hearing. A request for a hearing must also state the issues to be

addressed and include a general description of the evidence to be

presented at the hearing.

ADDRESSES: All written comments and request for a hearing (at least

three copies) should be sent to the Pension and Welfare Benefits

Administration, Office of Exemption Determinations, Room N-5649, U.S.

Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C.

20210. Attention: Application No. stated in each Notice of Proposed

Exemption. The applications for exemption and the comments received

will be available for public inspection in the Public Documents Room of

Pension and Welfare Benefits Administration, U.S. Department of Labor,

Room N-5507, 200 Constitution Avenue, N.W., Washington, D.C. 20210.

Notice to Interested Persons

Notice of the proposed exemptions will be provided to all

interested persons in the manner agreed upon by the applicant and the

Department within 15 days of the date of publication in the Federal

Register. Such notice shall include a copy of the notice of proposed

exemption as published in the Federal Register and shall inform

interested persons of their right to comment and to request a hearing

(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in

applications filed pursuant to section 408(a) of the Act and/or section

4975(c)(2) of the Code, and in accordance with procedures set forth in

29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).

Effective December 31, 1978, section 102 of Reorganization Plan No. 4

of 1978 (43 FR 47713, October 17, 1978) transferred the authority of

the Secretary of the Treasury to issue exemptions of the type requested

to the Secretary of Labor. Therefore, these notices of proposed

exemption are issued solely by the Department.

The applications contain representations with regard to the

proposed exemptions which are summarized below. Interested persons are

referred to the applications on file with the Department for a complete

statement of the facts and representations.

Del Monte Savings Plan, and Del Monte Certain Hourly Savings Plan

(the Plans) Located in San Francisco, CA

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

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CFR part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption

is granted the restrictions of sections 406(a), 406(b)(1) and (b)(2) of

the Act and the sanctions resulting from the application of section

4975 of the Code, by reason of section 4975(c)(1) (A) through (E) of

the Code, shall not apply to (1) The proposed extension of credit to

the Plans (the Loan) by Del Monte Corporation (the Employer), the

sponsor of the Plans, with respect to the Plans' interests in

guaranteed investment contract No. CG01300B3A (the GIC) issued by

Executive Life Insurance Company of California (Executive Life); and

(2) the Plans' potential repayment of the Loan (the Repayments);

provided that the following conditions are satisfied:

(A) All terms and conditions of such transactions are no less

favorable to the Plans than those which the Plans could obtain in

arm's-length transactions with unrelated parties;

(B) No interest or expenses are paid by the Plans;

(C) The Loan is made in lieu of amounts to be paid to the Plan

under the plan of rehabilitation resulting from the bankruptcy of

Executive Life (the Rehab Plan);

(D) The Repayments shall not exceed the principal amount of the

Loan;

(E) The Repayments shall not exceed the amounts actually received

by the Plans under the Rehab Plan; and

(F) Repayment of the Loan shall be waived to the extent that the

amount of the Loan exceeds the amount of cash recovered by the Plans

under the Rehab Plan.

Summary of Facts and Representations

1. The Employer is a New York corporation engaged in the business

of processing and marketing canned vegetables and fruit, with its

corporate headquarters in San Francisco, California. The Employer is a

wholly-owned subsidiary of Del Monte Foods Company (DMFC), a Maryland

corporation. On behalf of its employees and those of its affiliates,

the Employer sponsors both of the Plans, which are defined contribution

pension plans providing for individual participant accounts (the

Accounts) and participant-directed investment of the Accounts. As of

December 31, 1993, the Plans had approximately 3,730 participants.

2. The Plans' assets are held in a master trust (the Master Trust)

of which the trustee is the Merrill Lynch Trust Company of California

(the Trustee). The named fiduciary of each Plan is the Del Monte

Investment Committee (the Committee), which consists of five employees

of the Employer appointed by the Employer's board of directors. The

Committee designates the investment options into which the Plans'

participants may direct the investment of their Accounts. The Plans

currently offer five investment options, one of which is the Interest

Income Fund (the I Fund), which invests in, among other things,

guaranteed investment contracts issued by insurance companies. As of

December 31, 1993, the I Fund represented approximately 54 percent of

the fair market value of the assets of the Master Trust. The assets of

the I Fund include guaranteed investment contract No. CG01300B3A (the

GIC). The GIC was issued to the Plans on or about December 1, 1990 by

Executive Life Insurance Company of California (Executive Life) as part

of an arrangement whereby Executive Life agreed to ``clone'' a contract

previously held by the Plans' predecessor plans (the Predecessor

Plans), in connection with the sale of the Employer to DMFC in 1990 and

the Employer's agreement that the Plans would assume the assets and

liabilities of the Predecessor Plans. The GIC is a benefit-responsive

contract permitting withdrawals for plan benefits, loans, and

participant-directed reallocations among investment options under the

Plans, and was issued in the principal amount of $3,899,130.43, with a

guaranteed simple annual interest rate of 9.22 percent (the Contract

Rate) to the July 1, 1993 maturity date.

The Committee has designated Merrill Lynch Asset Management, Inc.

(MLAM) as the investment manager for the I Fund. MLAM and the Trustee

are both subsidiaries of Merrill Lynch & Co. In accordance with

investment guidelines provided by the Committee, MLAM generally invests

and manages the I Fund's assets, which consist of Plan contributions,

participant reallocations of Account balances to the I Fund, and

proceeds of maturing investments. MLAM represents that it is not an

investment manager within the meaning of Section 3(38) of the Act with

respect to any ``cloned'' contracts, including the GIC, which were

issued to the Plans as part of the asset transfer from the Predecessor

Plans.1

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\1\ In this proposed exemption, the Department expresses no

opinion as to whether or not MLAM constitutes an investment manager

within the meaning of Section 3(38) of the Act.

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3. On April 11, 1991 (the Conservation Date), Executive Life was

placed in conservatorship by the Commissioner of Insurance of the State

of California.2 As of that date, payments under the GIC were

suspended, and no withdrawals or payments from the GIC have been made

since the Conservation Date. As of the Conservation Date, the GIC had a

book value of $3,766,668, representing total principal deposits under

the GIC plus accrued interest at the Contract Rate less previous

withdrawals, and constituting approximately 2.4 percent of the assets

of the I Fund at that time. Effective April 30, 1991, the Committee

froze a proportionate share of each of the 2,918 Accounts invested in

the I Fund. With respect to the frozen portion of each Account, the

Committee has prohibited the crediting of earnings, the making of

distributions, withdrawals and loans, and the reallocation of the

frozen Account portions to other investment options of the Plans.

Printed Account statements provided to the Plans participants have

reported the frozen Account portions separately, indicating the frozen

status.

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\2\ The Department notes that the decision to acquire and hold

the GIC is governed by the fiduciary responsibility requirements of

Part 4, Subtitle B, Title I of the Act. In this proposed exemption,

the Department is not proposing relief for any violations of Part 4

which may have arisen as a result of the acquisition and holding of

the GIC.

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4. In September 1993, the Employer entered into a written agreement

for the sale of substantially all the assets of one of the Employer's

business units to Silgan Containers Corporation (Silgan). Pursuant to

that agreement, the Employer is required to transfer to one or more

individual account plans maintained by Silgan (the Silgan Plans) the

assets and liabilities of the Plans with respect to the Accounts of the

Plans' participants who transferred employment from the Employer to

Silgan as a result of the sale of the business unit. The parties agreed

that the asset transfer is to be made in cash. The asset transfer

includes 288 Accounts which are subject to the proportionate freeze

resulting from the Executive Life conservatorship.

5. On August 13, 1993, the Los Angeles Superior Court approved the

terms of the Rehabilitation/Liquidation Plan for Executive Life (the

Rehab Plan) effective September 3, 1993. On or about December 29, 1993,

each holder of an Executive Life contract was provided with an election

form and summary of the Rehab Plan. Under the Rehab Plan, Executive

Life's guaranteed investment contracts were reduced in value to

approximately 79 percent of the book value as of the Conservation Date

(the Rehab Value), and each holder of such contracts was paid an amount

(the Interim Payment) for accumulated interest and fees for the period

between the Conservation Date and September 3, 1993. Each contract

holder, including the Plans, was informed that each contract holder

could elect by February 12, 1994 to ``opt in'' or ``opt out'' of the

Rehab Plan. The Employer represents that by ``opting in'', according to

the Rehab Plan summary, a contract holder would be issued a new 5-year

contract issued by Aurora National Life Assurance Company, the

successor of Executive Life, in an amount equal to the Rehab Value less

the amount of the Interim Payment, plus the right to receive possible

distributions (Residual Payments) from certain trusts and settlements

which may occur in the liquidation of Executive Life. The Employer

states that, according to the Rehab Plan summary, ``opting out'' of the

Rehab Plan results in a cash settlement, consisting of an immediate

cash payment (the Initial Payment), and the right to receive any

Residual Payments which become available. The Interim Payment was

payable to all contract holders, whether they ``opt in'' or ``opt out''

of the Rehab Plan.

6. The Employer states that after review and consideration of the

Rehab Plan summary and the reports of outside consultants retained for

analysis and advice, the Committee determined that the Plans should

``opt out'' of the Rehab Plan. Accordingly, the Plans received the

Initial Payment on the GIC on March 31, 1994. When combined with the

Interim Payment, the Plans have received approximately 57 percent of

the GIC's Conservation Date book value. The Employer states that the

Residual Payments potentially available to the Plans, as a contract

holder which ``opts out'' of the Rehab Plan, will consist of the net

proceeds, if any, from the following: (a) An allocation holdback equal

to approximately 11 percent of the GIC's Conservation Date book value;

(b) liquidation of three trusts established under the Rehab Plan to

liquidate Executive Life's non-investment grade securities and other

assets, paid through an ``Opt-Out Trust''; and (c) remaining proceeds

from another trust established under the Rehab Plan to deal with bond

indemnification obligations shared by contract holders. The Employer

states that the summary of the Rehab Plan reported that some Residual

Payments may be made annually but others could take a substantial

period of time to realize. The Employer represents that under the Rehab

Plan, neither the timing nor the amount of any Residual Payments can be

determined with certainty. However, the Employer represents that on the

basis of the Rehab Plan summary and the analysis conducted by

consultants retained to assist the Committee, the Committee estimates

that the Plans will receive total Residual Payments of $1,073,500.30

(the Estimated Residuals), or about 28.5 percent of the GIC's book

value as of the Conservation Date.

7. In order that the frozen portions of the Accounts may be

released without the delay and uncertainty of awaiting the Residual

Payments, and in order to enable the transfer of assets from the Plans

to the Silgan Plans, the Employer proposes to loan the Plans the amount

of the Estimated Residuals (the Loan), and is requesting an exemption

to permit the Loan under the terms and conditions described

herein.3 The Loan, pursuant to a written agreement, will be made

in a lump sum in the amount of the Estimated Residuals less any

Residual Payments which the Plans may have received prior to the Loan.

The Loan will be made as soon as practicable after the Committee has

obtained the exemption proposed herein, if granted, and a closing

agreement with respect thereto has been consummated with the Internal

Revenue Service. The repayment of the Loan (the Repayments) will be

limited to the cash proceeds, if any, received by the Plan as Residual

Payments after the date of the Loan. Repayments are due only as and

when Residual Payments are received by the Plans. No interest will be

paid on the Loan, and the Plans will incur no expenses with respect to

the Loan. Under no circumstances will the Repayments exceed the Loan.

At such time as the Trustee or Executive Life notifies the Employer

that no further Residual Payments will be made, repayment of any

outstanding Loan amount will be waived by the Employer.

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\3\The Department notes that this exemption, if granted, will

not affect the ability of any participant or beneficiary to bring a

civil action against Plan fiduciaries for breaches of section 404 of

the Act in connection with any aspect of the GIC transactions.

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8. If the proposed exemption is granted, the Committee intends to

revalue the Plans' investment in the GIC (the Adjusted Value) to equal

the sum of the Initial Payment, the Interim Payment, the Loan, and any

Residual Payments received prior to the Loan. Each frozen Account will

also be adjusted to reflect the Adjusted Value accordingly, reducing

the Plans' recorded investment in the GIC from the Conservation Date

book value to the Adjusted Value, and a proportional percent of each

frozen Account will be recorded as a loss. After the Loan is made and

the Accounts are adjusted, the Committee will remove the freeze on the

Accounts invested in the GIC and the Plans will resume distribution,

withdrawals, loans and interfund transfers with respect to Account

portions previously subject to the freeze. Additionally, the Plans will

be able to complete the transfer of assets to the Silgan Plans, in

accordance with the agreement of sale of the Employer's business unit

to Silgan, by transferring the previously frozen Account portions on

the basis of the Adjusted Value and by utilizing the cash made

available by the Loan.

9. In summary, the applicant represents that the proposed

transaction satisfies the criteria of section 408(a) of the Act for the

following reasons: (a) All terms and conditions of the Loan will be no

less favorable to the Plans than those which the Plans could obtain in

an arm's-length transaction with an unrelated party; (b) The Loan will

enable the Plans to resume normal operations with respect to the frozen

portion of the Accounts; (c) The Loan will enable the completion of the

transfer of assets to the Silgan Plan with respect to 288 frozen

Accounts; (d) No interest or expenses will be paid by the Plans; (e)

The Repayments will be restricted to the Residual Payments received by

the Plans pursuant to the Rehab Plan; (f) The Repayment will not exceed

the Loan or the Residual Payments received after the Loan is made; and

(g) The Repayments will be waived to the extent the Loan exceeds

Residual Payments received by the Plans after the Loan is made.

FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,

telephone (202) 219-8881. (This is not a toll-free number.)

Xerox Corporation Profit Sharing and Savings Plan (the PSSP); Xerox

Corporation Retirement Income Guarantee Plan (the RIGP); Profit Sharing

Plan of Xerox Corporation and the Xerographic Division, A.C.T.W.U, AFL-

CIO (the Union PSP); and the Retirement Income Guarantee Plan of Xerox

Corporation and the Xerographic Division, A.C.T.W.U, AFL-CIO (the Union

RIGP; Collectively, the Plans) Located in Stamford, Connecticut

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

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CFR part

2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption

is granted the restrictions of sections 406(a), 406(b)(1) and (b)(2) of

the Act and the sanctions resulting from the application of section

4975 of the Code, by reason of section 4975(c)(1) (A) through (E) of

the Code, shall not apply to the proposed guarantees (the Guarantees)

by the Xerox Corporation (the Employer), the sponsor of the Plans, of

amounts payable to the Plans by the Aurora National Life Assurance

Company (Aurora) with respect to five group annuity contracts (the

GACs) originally issued by Executive Life Insurance Company of

California (Executive Life); provided that the following conditions are

satisfied:

(A) All terms and conditions of such transactions are no less

favorable to the Plans than those which the Plans could obtain in

arm's-length transactions with unrelated parties;

(B) The Guarantees are made solely with respect to the amounts

which are due the Plans, but unpaid, with respect to the GACs; and

(C) The Settlement Agreement described in the Summary of Facts and

Representations, below, is approved by the U.S. District Court,

District of Connecticut.

Summary of Facts and Representations

Introduction: In 1994, the Xerox Corporation and other defendants

to certain litigation entered into a settlement agreement which

requires, among other things, that Xerox Corporation guarantee the

Plans' receipt of certain payments in connection with the

rehabilitation of Executive Life Insurance Company of California. Xerox

Corporation also has undertaken to make a similar guarantee with

respect to certain of the Plans' participants who were not parties to

the litigation settlement agreement. Xerox Corporation is requesting an

exemption to permit these guarantees, under the terms and conditions

described herein.

1. Xerox Corporation (the Employer) is a publicly-held New York

corporation engaged in the development, manufacture, marketing, and

servicing of document processing technology, with its corporate

headquarters in Stamford, Connecticut. The Employer maintains various

qualified employee benefit plans for its employees, including the

Plans, the assets of which are held in the Xerox Corporation Trust

Agreement to Fund Retirement Plans (the Master Trust), which had total

assets of approximately $4.6 billion as of December 31, 1993. The Union

PSP and the Union RIGP (the Union Plans) are maintained pursuant to

collective bargaining agreements between the Employer and the

Xerographic Division of the Amalgamated Clothing and Textile Workers'

Union, A.F.L.-C.I.O. (the Union). The trustee of the Master Trust is

the State Street Bank and Trust Company of North Quincy, Massachusetts

(the Trustee), serving as a directed trustee according to directions of

a delegee of a committee of representatives of the Employer's board of

directors (the Committee). The PSSP and the Union PSP are defined

contribution plans (the DC Plans) which provide for individual

participant accounts and participant-directed investment of such

accounts among investment options in the Master Trust (the MT Funds).

The RIGP and Union RIGP are hybrid defined benefit plans (the DB Plans)

in which certain participants may accrue benefits measured in part by

reference to individual accounts consisting of contributions made on

the participant's behalf. The individual accounts of the DB Plans are

invested among the MT Funds.

2. Included among the MT Funds as of April 1, 1991 was a guaranteed

fund (the G Fund) which invested primarily in group annuity and

guaranteed investment contracts issued by various insurance companies.

As of April 1, 1991, the G Fund had approximately $65.6 million

invested in group annuity contracts (the GACs) issued by Executive Life

Insurance Company of California (ELIC), representing approximately 7.5

percent of the assets in the G Fund as of that date. On April 11, 1991,

the Insurance Commissioner of the State of California (the

Commissioner) ordered a conservatorship (the Conservatorship) of ELIC,

and halted all payments on ELIC's guaranteed contracts, including the

GACs.4 The Employer represents that it took immediate protective

action on behalf of the Plans' participants, by segregating the G Fund

assets attributable to the GACs in a new segregated fund (the

Segregated Fund), effective April 1, 1991. The account of each Plan

participant with an interest in the G Fund as of April 1, 1991 was

assigned an interest in the Segregated Fund, in proportion to the GACs'

total value as of April 1, 1991.5 The remaining G Fund assets were

placed in a new fund designated as the Income Fund. The Plan was

amended, effective April 1, 1991, to prohibit distribution, withdrawal,

and transfer of any account balance attributable to the Segregated

Fund.

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\4\The Department notes that the decision to acquire and hold

the GACs are governed by the fiduciary responsibility requirements

of Part 4, Subtitle B, Title I of the Act. In this proposed

exemption, the Department is not proposing relief for any violations

of Part 4 which may have arisen as a result of the acquisition and

holding of the GACs.

\5\Each participant's interest in the Segregated Fund was

determined by multiplying his interest in the G Fund by a fraction,

the numerator of which was the value of G Fund assets invested in

the GACs as of April 1, 1991, and the denominator of which was the

value of total assets in the G Fund as of April 1, 1991.

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3. The Employer represents that on September 3, 1993 the assets and

restructured liabilities of ELIC were assigned to Aurora Life National

Assurance Company (Aurora), pursuant to the Commissioner's court-

approved rehabilitation plan (the Rehab Plan). Under the Rehab Plan,

each ELIC contract holder was permitted to elect between (1) Opting in

to the Rehab Plan, in which case Aurora would assume the ELIC contract,

or (2) opting out of the Rehab Plan, in which case a cash settlement

would be paid in exchange for the ELIC contract. A determination was

made by a delegee of the Committee that the Plans would elect to opt

out of the Rehab Plan, and the appropriate opt-out election forms were

completed by the Trustee. Subsequently, the Plans received $37.9

million (the Initial Recovery), approximately 58 percent of the

Segregated Fund, as part of the Rehab Plan's provisions for ELIC

contract holders who opted out of the Rehab Plan. The Employer

represents that the Commissioner has estimated that such holders of

ELIC contracts can expect to recover a total of about 85 percent of the

Conservatorship Date value of the contracts. Accordingly, the Employer

states that the Plans can expect to recover from Aurora another $17.8

million on the contracts, approximately 27 percent of the Segregated

Fund, over the remaining estimated four years of the Rehab Plan's

operation.

4. However, on April 6, 1992, a class action (the 1992 Litigation)

was commenced on behalf of affected participants and beneficiaries of

the RIGP and PSSP (the Plaintiffs) against the Employer and members of

the Committee (collectively, the Defendants), Maureen Rose, et al., v.

Joan Ganz Cooney, et al., Civil Action No. 5:92-CV-208, Federal

District Court, District of Connecticut (the Court). The Plaintiffs

alleged that the Defendants' actions in connection with the Plans'

purchase of the GACs violated various provisions of the Act. On July

15, 1994, Plaintiffs and Defendants executed an agreement in settlement

of the 1992 Litigation (the Agreement), which provides as follows:

(A) Defendants are to make an initial cash payment of $13 million

to an interest-bearing escrow account (the Escrow). Amounts in the

Escrow, including interest, less attorney's fees and administrative

costs approved by the Court, are to be transferred to the Master Trust

for the benefit of Plaintiffs no sooner than 10 days after the Court

enters a final order approving the Agreement, but only if the

transactions contemplated by the Agreement are approved by the

Department, in the exemption proposed herein, and by the Internal

Revenue Service (the Service). The Employer represents that it is

expected that the Escrow payment to the Master Trust on behalf of

Plaintiffs, after payment of costs and fees, will be approximately $9

million, or about 15 percent of the Plaintiff's account balances in the

Segregated Fund.

(B) In the event that payments after June 3, 1994, and before

January 1, 1999, from Aurora (and any other source related to the

rehabilitation of ELIC, other than any state insurance guaranty

associations) to the Master Trust for the benefit of Plaintiffs with

respect to the GACs are less than $16.1 million, approximately 27

percent of the Plaintiffs' account balances in the Segregated Fund,

then the Employer shall pay the difference to the Master Trust on or

before January 31, 1999. This undertaking by the Employer is referred

to herein as the Settlement Guarantee. The Employer requests an

exemption to permit the Settlement Guarantee under the terms and

conditions of the Agreement and this proposed exemption.

Each Plaintiff will have a pro rata share of the amounts paid under

the Agreement in proportion to the Plaintiff's account's share of the

Segregated Fund. The Employer represents that when added to the amounts

already received from Aurora, the Employer's payments under the

Agreement are expected to ensure that Plaintiffs will recover 100

percent of their account balances in the Segregated Fund. The

Agreement, after approval by the Court, will be in full satisfaction of

all claims of Plaintiffs arising out of the subject matter of the 1992

Litigation, and the 1992 Litigation will be dismissed with prejudice.

The Agreement will be effective only if approved by the Court and only

if the Employer obtains the exemption proposed herein by the Department

and a favorable ruling on the Agreement by the Service. The Employer

represents that the Court entered a preliminary approval of the

Agreement on July 22, 1994, and rendered its final approval of the

Agreement in a hearing on September 8, 1994.6

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\6\In this proposed exemption, the Department is proposing

exemptive relief solely for the Guarantees, and not for any other

aspects of the GAC transactions or the Agreement. The Department

notes that this exemption, if granted, will not affect the rights of

any participant or beneficiary of the Plans with respect to any

civil action against Plan fiduciaries for breaches of section 404 of

the Act in connection with any aspect of the GAC transactions.

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5. Participants in the Union Plans were not parties to the 1992

Litigation. The Employer represents that since 1991, the Union has

demanded that the Union Plans' participants with rights in the GACs

(the Union Participants) be made whole for their losses on the GACs. On

June 9, 1994, a class action lawsuit was filed against the Trustee (the

1994 Litigation) on behalf of the Plaintiffs in the 1992 Litigation and

the Union Participants, alleging that the Trutees' actions in

connection with the Plans' purchase of the GACs violated various

provisions of the Act. Although the proposed Agreement will provide

that the 1994 Litigation be dismissed with prejudice as to the 1992

Litigation Plaintiffs, it will provide that the 1994 Litigation be

dismissed without prejudice as to the Union Participants. The terms of

the Agreement do not require any payments by the Employer to the

Segregated Fund on behalf of the Union Participants. In response to

ongoing demands on behalf of the Union Participants, the Employer has

agreed to make payments to the Master Trust with respect to the Union

Participants in a manner similar to the Agreement's provisions for the

1992 Litigation Plaintiffs. Specifically, the Employer will make an

initial cash payment to the Master Trust on behalf of the Union

Participants equal to 15 percent of the Segregated Fund account

balances of the Union Participants. The Employer also guarantees to

make additional payments to the extent that amounts received by the

Master Trust from Aurora for the benefit of Union Participants after

June 3, 1994 and before January 1, 1999 are less than $1.8 million, or

27 percent of the Union Participants' account balances in the

Segregated Fund. The Employer's guarantee to make such additional

payments (the Union Guarantee) is included in the Guarantees for which

the Employer requests an exemption, under the terms and conditions of

the exemption proposed herein.7 The Employer represents that, when

added to amounts already received from Aurora, the initial payments and

contingent additional payments by the Employer pursuant to the Union

Guarantee will ensure that the Union Participants recover 100 percent

of their account balances in the Segregated Fund. The Employer's

initial and contingent additional payments to the Union Participants

are conditioned upon the grant of the exemption proposed herein and a

favorable ruling by the Service.

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\7\The Union Guarantee is not evidenced by a written agreement,

like the Settlement Guarantee. Instead, the Employer's commitment to

the Union Guarantee is evidenced in a public announcement by the

Employer's chief executive officer, Paul A. Allaire, reported in the

July 18, 1994 edition of a newsletter, Today at Xerox, which is

published by the Employer.

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8. In summary, the applicant represents that the proposed

transaction satisfies the criteria of section 408(a) of the Act for the

following reasons: (a) The Guarantees will protect the Plans

participants and beneficiaries from losses on the GACs' value as of the

commencement of the ELIC conservatorship; (b) The Guarantees will

eliminate uncertainty with respect to the value of the GACs in the

Segregated Fund; (c) The Settlement Guarantee will enable the

settlement of Plaintiffs claims arising from the 1992 Litigation and

the 1994 Litigation; and (d) the Union Guarantee will extend to the

Union Participants the same protections with respect to the GACs as

those extended to the Plaintiffs under the Settlement Guarantee.

FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,

telephone (202) 219-8881. (This is not a toll-free number.)

Vaquero Farms, Inc. Profit Sharing Plan and Agri-Bis, Inc. Profit

Sharing Plan (the Plans) Located in Stockton, California

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

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 408(a) of the Act and section 4975(c)(2) of the

Code and in accordance with the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption

is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2)

of the Act and the sanctions resulting from the application of section

4975 of the Code, by reason of section 4975(c)(1) (A) through (E) of

the Code shall not apply to the past cash sale (the Sale) by the Plans

of certain promissory notes (the Notes) to Vaquero Farms, Inc. (the

Applicant) and Agri-Bis, Inc., a related company, provided that the

following conditions were met at the time of the Sale: (1) The sales

price of the Notes was not less than their aggregate fair market value

on the date of the Sale; (2) the Sale was a one-time transaction for

cash; (3) the Plans did not pay any fees or commissions in connection

with the Sale; and (4) the Plans' independent fiduciary determined that

the transaction was appropriate for and in the best interests of the

Plans and their participants and beneficiaries.

EFFECTIVE DATE: If granted, this proposed exemption would be effective

as of May 31, 1994, the date of the Sale.

Summary of Facts and Representations

1. The Applicant operates a farming enterprise in the San Joaquin

Valley area of California. Agri-Bis, Inc. is related to the Applicant

by common ownership. The Plans are both defined contribution plans. As

of September 30, 1992, the Vaquero Farms, Inc. Profit Sharing Plan had

138 participants and total assets of approximately $4,531,364. As of

January 31, 1993, the Agri-Bis, Inc. Profit Sharing Plan had 41

participants and total assets of approximately $2,039,764.

2. The Plans acquired their interests in the Notes in June of 1989

when each Plan loaned $250,000 to Triad Pacific 1987 Investors (Triad),

a California limited partnership, unrelated to the Applicant. The Notes

are secured by second deeds of trust on industrial leased real property

located at 192-252 West Larch Road, Tracey, California (Drew Centre)

and 3008 East Hammer Lane, Stockton, California (the Pavilion). The

Applicant represents that, prior to investing Plan assets in Triad, the

Plans' trustees conducted a thorough investigation of the potential

investment, including an examination of the properties and the

financial condition of Triad. According to the Applicant, the

investment was consistent with the Plans' investment policies. The

Applicant represents that the Plans have invested from time to time in

other deeds of trust and that they learned of this investment

opportunity directly from the principals of Triad. In accordance with

the terms of the Notes, the principal amount of the loans became due in

June of 1993. The principal amount plus accrued interest from June 1993

remains unpaid.8 In July of 1993, the borrower, Triad, filed a

voluntary petition under Chapter 11 of the Bankruptcy Act. Union Bank,

which holds a first deed of trust on the Drew Centre property securing

a promissory note in the principal amount of $3,301,132, has filed a

motion for relief from the automatic stay seeking to foreclose on its

security interest in the Drew Centre property. Appraisals of the Drew

Centre property indicate a range of values between $2,750,000 and

$3,900,000. Gentra Financial, which holds a first deed of trust on the

Pavilion Property securing a promissory note in the amount of

$3,800,000 has also sought relief from the automatic stay to enable it

to foreclose on its security interest in the Pavilion property.

Appraisals of the Pavilion property indicate a range of values between

$2,366,000 and $3,125,000. Consequently, the Applicant represents that

the Plans are in jeopardy of losing the security for their loans. The

Applicant also represents that full repayment of the loans is very

unlikely.

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\8\The Department notes that the decisions to acquire and hold

the Notes, and all decisions regarding collection on the Notes when

due, are governed by the fiduciary responsibility requirements of

part 4, subtitle B, title I of the Act. In this regard, the

Department is not herein proposing relief for any violations of part

4 which may have arisen as a result of the acquisition and holding

of the Notes.

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3. On May 31, 1994, the Applicant purchased the Notes from the

Plans for their full face value, plus interest at the rate provided in

the Notes, through the date of purchase.9 The actual purchase

price for each of the Notes was $269,823.91. The Applicant represents

that the transaction was designed to protect the Plans' participants

and beneficiaries from losses which would have resulted from the

foreclosure of senior lienholders on the real property which secured

the Plans' loans to Triad. The Applicant represents that it was

necessary to purchase the Notes from the Plans prior to receiving an

individual exemption for the transaction because foreclosure was

imminent and the Notes would have been worthless to the Applicants if

foreclosure had occurred prior to the purchase of the Notes.

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\9\The Notes provided for interest at 2\1/2\ percentage points

above the prime lending rate charged by the Bank of America.

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4. Howard L. Seligman, an attorney licensed to practice in the

State of California and a partner in the firm of Seligman and Willet,

Inc., has agreed to serve as an independent fiduciary (the Independent

Fiduciary) in connection with the transaction. The Independent

Fiduciary has acknowledged his status as an ERISA fiduciary and

represents that he understands and accepts his fiduciary duties,

responsibilities and potential liabilities. The Independent Fiduciary

maintains that he has no pre-existing business relationship with the

Applicant or Agri-Bis, Inc. He also represents that, prior to the date

the Sale took place, he reviewed the appraisals of the Pavilion and

Drew Centre, the documents related to the outstanding security

interests on those properties, and documents related to the pending

Chapter 11 proceeding by Triad. Based on his review of these documents,

the Independent Fiduciary represents that the ability of Triad to repay

its obligation to the Plans was questionable. The Independent Fiduciary

also represents that the purchase price for the Notes exceeded the fair

market value of the Notes as of the date of the Sale. The Independent

Fiduciary has determined that the purchase of the Notes by the Employer

resulted in fully satisfying each of the obligations owed by Triad to

the Plans, that the transaction was protective of the Plans'

participants and beneficiaries, and that, therefore the transaction was

in the best interests of the Plans' participants and beneficiaries.

5. In summary, the applicant represents that the transaction meets

the statutory criteria for an exemption under section 408(a) of the Act

because: (a) the Plans' independent fiduciary reviewed the terms and

conditions of the exemption and determined that the purchase of the

Notes for full face value plus interest was in the best interest of the

Plans' participants and beneficiaries; (b) the Plans received a price

which was not less than the fair market value of the Notes; (c) the

Sale was a one-time sale for cash; and (d) the Plans did not pay any

expenses in connection with the Sale.

FOR FURTHER INFORMATION CONTACT: Ms. Virginia Miller of the Department,

telephone (202) 219-8971. (This is not a toll-free number.)

General Information

The attention of interested persons is directed to the following:

(1) The fact that a transaction is the subject of an exemption

under section 408(a) of the Act and/or section 4975(c)(2) of the Code

does not relieve a fiduciary or other party in interest of disqualified

person from certain other provisions of the Act and/or the Code,

including any prohibited transaction provisions to which the exemption

does not apply and the general fiduciary responsibility provisions of

section 404 of the Act, which among other things require a fiduciary to

discharge his duties respecting the plan solely in the interest of the

participants and beneficiaries of the plan and in a prudent fashion in

accordance with section 404(a)(1)(b) of the act; nor does it affect the

requirement of section 401(a) of the Code that the plan must operate

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

(2) Before an exemption may be granted under section 408(a) of the

Act and/or section 4975(c)(2) of the Code, the Department must find

that the exemption is administratively feasible, in the interests of

the plan and of its participants and beneficiaries and protective of

the rights of participants and beneficiaries of the plan;

(3) The proposed exemptions, if granted, will be supplemental to,

and not in derogation of, any other provisions of the Act and/or the

Code, including statutory or administrative exemptions and transitional

rules. Furthermore, the fact that a transaction is subject to an

administrative or statutory exemption is not dispositive of whether the

transaction is in fact a prohibited transaction; and

(4) The proposed exemptions, if granted, will be subject to the

express condition that the material facts and representations contained

in each application are true and complete, and that each application

accurately describes all material terms of the transaction which is the

subject of the exemption.

Signed at Washington, DC, this 27 day of September, 1994.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 94-24184 Filed 9-29-94; 8:45 am]

BILLING CODE 4510-29-P