Proposed Exemptions; Genelabs Technologies, Inc.; Section 401(k) Plan, et al.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-9601, et al.]

Proposed Exemptions; Genelabs Technologies, Inc.; Section 401(k)

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, NW., Washington, DC

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, 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 (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.

Genelabs Technologies, Inc. Section 401(k) Plan (the Plan) Located in

Redwood City, CA

[Application No. D-9601]

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) and 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 cash sale (the Sale) by

the Plan of Group Annuity Contract Number 7410 (GA-7410) issued by

Mutual Benefit Life Insurance Company (Mutual Benefit), located in

Newark, New Jersey to Genelabs Technologies, Inc., located in Redwood

City, California (the Employer), the sponsoring employer and a party in

interest with respect to the Plan; provided that: (1) The Sale is a

one-time transaction for cash; (2) the plan does not experience any

loss nor incur any expenses from the transaction; (3) the Plan receives

no less than the fair market value of GA-7410 as determined at the time

of the Sale; and (4) the independent trustee for the Plan determines

the fair market value of GA-7410 and also determines that the Sale is

appropriate for the Plan and in the best interests of the Plan and its

participants and beneficiaries.

Summary of Facts and Representations

1. The Employer, a California corporation, was incorporated in

1984, and its securities are publicly traded on NASDAQ. The Employer is

engaged primarily in the research and development of human health care

products for the diagnosis, prevention, and treatment of viral diseases

and cancer. Currently, the Employer is conducting research on

therapeutics for AIDS, hepatitis, herpes, and drug resistant cancer.

2. The Plan is a defined contribution plan, with individual

accounts for the participants, which is intended to meet the

qualification requirements of sections 401(a) and 401(k) of the Code.

Also, the Plan intends to comply with section 404(c) of the Act and the

regulations thereunder whereby the participants of the Plan self-direct

the investments of their respective accounts in the Plan.

As of December 31, 1992, the Plan had 148 participants and total

assets of $966,657. Approximately 35 percent of the total assets,

valued at $343,108, were invested under GA-7410 in three different

guaranteed investment certificates (GCs) on behalf of 54 participants

in the Plan.

The Plan is administered by a committee of at least three

individuals (the Committee) that is appointed by the President or The

Board of Directors of the Employer.1 Among other things, the

Committee has the responsibility for selecting the optional investment

vehicles that are used by the participants when self-directing the

investments of their individual accounts in the Plan. Also, the

Committee appoints legal counsel, accountants, investment advisers, and

the trustee for the Plan.

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\1\The current Committee consists of four employees of the

Employer: Kenneth P. McCarthy, Vice President, Human Resources;

Robert Benson, Vice President and General Counsel; Michael Anderson,

Controller; LaVonne Young, Associate Scientist. (Mr. Michael

Anderson is represented by the applicant to be resigning his

position with the Employer and the Committee.)

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The current investment adviser for the Plan is Retirement Benefits

Planning (RBP), a California partnership, located in San Ramon,

California. RBP is registered under the Investment Advisers Act of 1940

and is retained by the Committee to advise the Committee on funding

policies; to monitor the quarterly performance of investments by the

Plan; and, based on the funding policy of the Plan, to advise the

Committee on new fund managers.

On September 26, 1991, the Bank of America National Trust and

Savings Association (Bank of America), located in San Francisco,

California, was appointed trustee (the Trustee) for the Plan. The

applicant represents that the Trustee, as the custodian of the assets

of the Plan, is to ensure that assets of the Plan are properly and

legally held in trust as required by the Act, and is to oversee the

establishment and maintenance of the investment and disbursement

accounts of the Plan.

3. The Plan authorizes the Employer to appoint the named

fiduciaries who are to select the optional investment vehicles offered

to participants of the Plan. After the named fiduciaries make a

selection of the investment vehicles, the Plan participants make their

own decisions as to which investment vehicles to invest the assets of

their individual accounts. At the selection and direction of previous

fiduciaries,2 from September 1, 1988, the effective date of the

Plan, until October 30, 1991, all assets in the Plan were invested in

GA-7410.3 The Mutual Benefit investment vehicles under GA-7410

included the GCs, providing for yields at a fixed rate of interest to

be paid at stated maturity periods, and two different variable annuity

accounts (``separate accounts''), designated as the Equity Growth

Account and the Aggressive Equity Account.

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\2\ The original fiduciaries, who were employees of the

Employer, have since left their employment and resigned as

fiduciaries of the Plan.

\3\The Department notes that the decision by the named

fiduciaries to offer GA-7410 as an investment vehicle is governed by

the fiduciary responsibility requirements of Part 4, Subtitle B,

Title I of the Act. In this regard, the Department is not proposing

relief herein for any violations of Part 4 of the Act which may have

arisen as a result of the acquisition and holding by the Plan of GA-

7410 issued by Mutual Benefit.

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4. On July 16, 1991, the Commissioner of Insurance for the State of

New Jersey (the Insurance Commissioner) placed Mutual Benefit in

conservatorship and rehabilitation, causing Mutual Benefit to suspend

all payments on Mutual Benefit accounts, including the GCs. On August

7, 1991, the Superior Court of New Jersey removed restrictions on

withdrawals of assets from Mutual Benefit which were maintained in

``separate accounts.'' This court order of August 7, 1991, enabled the

Plan to withdraw all its investment in GA-7410, except for the portion

invested in the GCs.

On September 27, 1991, the Employer requested that Mutual Benefit

transfer the assets of the Plan freed by the Order of the Superior

Court of New Jersey to the Bank of America as Trustee for the Plan. On

October 30, 1991, and November 14, 1991, Mutual Benefit transferred the

total sum of $414,262.92, which consisted of the value of the Plan

assets invested in the ``separate accounts'' under GA-7410. The

transfer of Plan assets to the Bank of America did not include the

remaining assets invested in Mutual Benefit GCs under GA-7410, which

are valued at $343,108 and make up approximately 35 percent of the

total assets of the Plan.

5. On November 10, 1993, the New Jersey Superior Court approved a

rehabilitation plan for Mutual Benefit. The terms of the rehabilitation

plan provided that either the Mutual Benefit GCs would be paid in full

with a reduced rate of interest over an extended period of time; or

alternatively, the investors in the GCs could choose not to participate

in the rehabilitation plan but instead, could choose to receive 45

percent of the value of their respective investment in the GCs.

In lieu of subjecting participants of the Plan to either of these

choices under the rehabilitation plan of the court, the Employer

proposes to purchase for cash the Mutual Benefit GA-7410. In this

regard, the Employer proposes to pay the Plan, in a one-time cash sale

transaction, the face value of the GCs. No expenses will be incurred by

the Plan from the proposed transaction. The payment to be made by the

Employer to the Plan will be the total amount paid by the Plan for the

GCs (less any withdrawals previously made under the GCs) plus accrued

interest. The amount of interest accrued to each GC to December 31,

1991, will be calculated by using the rates guaranteed under the terms

of each GC.4 Interest accrued on all three GCs after December 31,

1991, to the date of the Sale will be calculated at the rate of 4

percent for the period from January 1, 1992, through December 31, 1992,

and at the rate of 3\1/2\ percent for the period from January 1, 1993,

to the date of the proposed Sale. The 4 percent interest rate to be

used to calculate the amount of interest accumulated by the GCs for

1992, and the 3\1/2\ percent interest rate to be used to calculate the

amount of interest accumulated by the GCs for 1993 to the date of the

proposed Sale are rates of interest that were determined under the

rehabilitation plan ordered by the New Jersey Superior Court on

November 13, 1993.

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\4\Certificate No. 0001: 8.90 percent for the period September

1, 1988, to August 31, 1989, and 8.40 percent from September 1, 1989

to December 31, 1991.

Certificate No. 0002: 7.60 percent for the period September 1,

1989, to August 31, 1990, and 7.10 percent from September 1, 1990,

to December 31, 1991.

Certificate No. 0003: 7.75 percent for the period September 1,

1990, to August 31, 1991, and 7.25 percent from September 1, 1991,

to December 31, 1991.

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The applicant represents that the amount of the payment for GA-7410

will be determined on the date of the proposed Sale by the Bank of

America, as the independent trustee of the Plan.

6. The applicant represents that the proposed transaction will

relieve the Plan and its participants of any risk associated with

retaining the GCs and will permit the participants to redirect the

funds invested in the GCs to safer investments without any loss to the

individual accounts of the participants in the Plan. Furthermore, the

applicant represents that the proposed transaction will enable the Plan

to resume paying distributions out of the funds that were invested in

the GCs and due to participants under the terms of the Plan.

7. The Bank of America as the independent fiduciary of the Plan has

determined that the proposed transaction is in the best interests of

the Plan and its participants and beneficiaries, and is protective of

the rights of the participants and beneficiaries. The Bank of America

represents that the proceeds from the Sale will enable the Plan and its

participants and beneficiaries to avoid the continued risk associated

with holding the GCs under GA-7410. Also, the Bank of America

represents that the proposed transaction will permit the participants

to direct the proceeds from the Sale into safer investments and remove

their funds in the Plan from an illiquid investment.

In addition, the Bank of America represents that in its capacity of

independent fiduciary for the Plan it will calculate the value of GA-

7410, as stated above, on the date of the Sale to determine the price

that the Employer will pay for its purchase of GA-7410.

8. In summary, the applicant represents that the transaction

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

reasons: (a) The Plan will receive in a one-time transaction cash for

the Mutual Benefit GCs, an amount equal to their face value plus

accrued interest as of the date of Sale, which a qualified, independent

fiduciary has determined to be not less than the fair market value of

the Mutual Benefit GCs; (b) the transaction will enable the Plan and

its participants and beneficiaries to avoid any risk that would be

associated with the continued holding of the Mutual Benefit GCs, and

will permit the directing of assets to safer investments; (c) the Plan

will not incur any expenses with respect to the proposed transaction;

and (d) the Trustee has determined that the Sale at the proposed price

is in the best interests of the participants and beneficiaries of the

Plan.

FOR FURTHER INFORMATION CONTACT: Mr. C. E. Beaver of the Department,

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

Southern Union Company, Southern Union Savings Plan (the Plan) Located

in Austin, TX

[Application No. D-9594]

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)

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 to: (1) The past acquisition by

the Plan of certain transferable stock rights (the Rights) pursuant to

a stock rights offering (the Offering) by Southern Union Company (the

Employer), the sponsor of the Plan; (2) the past holding of the Rights

by the Plan during the subscription period of the Offering; and (3) the

disposition or exercise of the Rights by the Plan; provided that the

following conditions are satisfied:

(A) The Plan's acquisition and holding of the Rights occurred in

connection with the Offering made available to all shareholders of

common stock of the Employer;

(B) The Plan's acquisition and holding of the Rights resulted from

an independent act of the Employer as a corporate entity, and all

holders of the common stock of the Employer, including the Plan, were

treated in the same manner with respect to the Offering; and

(C) All decisions regarding the holding and disposition of the

Rights by the Plan were made, in accordance with Plan provisions for

individually-directed investment of participant accounts, by the

individual Plan participants whose accounts in the Plan received Rights

in connection with the Offering, including all determinations regarding

the exercise or sale of the Rights received through the Offering

(except for those participants who failed to file timely and valid

instructions concerning the Rights, in which case the Rights were

sold).

EFFECTIVE DATE: This exemption, if granted, will be effective as of

November 30, 1993.

Summary of Facts and Representations

1. The Employer, a natural gas company, is a Delaware Corporation

with corporate headquarters in Austin, Texas. As of November 30, 1993,

there were issued and outstanding 5,252,110 shares of Employer common

stock (the Common Stock), of which 54,463 shares, or about 1.04

percent, were held by the Plan. The Plan is a defined contribution

employee benefit plan intended to satisfy the requirements of sections

401(a) and 401(k) of the Code. The Plan provides for individual

participant accounts (the Accounts) and participant-directed investment

of the Accounts among four investment funds, one of which invests

exclusively in the Common Stock (the Stock Fund). Participants can also

choose to invest in an equity fund, a balanced portfolio fund and a

fixed income fund.5 Each participant may have as many as four

Accounts under the Plan, including a tax-deferred personal

contributions account, a rollover account, a post-tax personal

contributions account and an employer contributions account. As of

November 30, 1993, there were 810 participants in the Plan, of which

773 had at least one Account with an investment in the Stock Fund. As

of that same date, the Plan held total assets of approximately

$6,047,003. The trustee of the Plan is Merrill Lynch Trust Company of

Texas (the Trustee).

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\5\The Department expresses no opinion as to whether the Plan

provisions satisfy the requirements of section 404(c) of the Act and

the regulations promulgated thereunder.

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2. The Employer represents that it decided to commence the Offering

as a means of raising equity capital in connection with the anticipated

purchase of certain natural gas operations located in Missouri. The

Employer represents that this decision was reached after consultation

with the Employer's financial advisors and that the Offering was

extended to all holders of the Common Stock.

3. On November 30, 1993 (the Record Date), the Employer commenced

the Offering by issuing to all record holders of the Common Stock .38

Rights6 for each share of Common Stock held.

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\6\The Department notes that the Rights do not constitute

``qualifying employer securities'' within the meaning of section

407(d)(5) of the Act.

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The number of Rights actually distributed to each shareholder was

rounded up to the nearest whole Right. Each Right entitled its holder

to purchase one share of Common Stock (the Basic Subscription

Privilege) at an exercise price of $25.00 per share. Each Right also

included the right to subscribe (the Additional Subscription

Privilege), at the exercise price of $25.00 per share, for an

additional, unlimited number of shares of Common Stock (Additional

Shares) remaining after satisfaction of subscriptions pursuant to the

Basic Subscription Privilege. Only owners of the Common Stock who

exercised the Basic Subscription Privilege in full were entitled to

exercise the Additional Subscription Privilege. All funds submitted in

exercise of Additional Subscription Privileges were deposited in escrow

with Chemical Bank pending satisfaction of all Basic Subscription

Privilege subscriptions. If the number of Additional Shares available

to satisfy Additional Subscription Privilege requests were insufficient

to meet all such requests, the available Additional Shares were to be

allocated pro rata among all Additional Subscription Privilege

subscribers in proportion to the number of shares purchased by them

through exercise of the Basic Subscription Privilege. The Employer

authorized the issuance of up to 2,000,000 Additional Shares through

the Offering, which also featured a standby purchase agreement which is

not involved in the exemption proposed herein. Under the standby

purchase agreement certain individuals agreed to purchase any shares

not purchased by holders of the Rights.

The Employer represents that the Offering did not involve any

guarantee or other assurance that any market for the Rights would

develop or remain available during the Offering. However, the Rights

traded on the American Stock Exchange through December 22, 1993.7

The Offering expired at 5 p.m. on December 23, 1993, at which time no

further exercising of Rights occurred.

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\7\The common stock of the Employer is also traded on the

American Stock Exchange.

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4. In anticipation of the Offering, the Plan and its related trust

agreement (the Trust Agreement) were amended to establish procedures

which would permit each Plan participant with an Account balance

invested in the Stock Fund (collectively, the Invested Participants) as

of November 30, 1993 to elect to either exercise or sell the Rights

attributable to his Account. The Employer represents that on December

3, 1993, all Invested Participants were sent, by first class United

States mail, a copy of the prospectus relating to the Offering

published by the Employer, a letter from the Trustee providing

information about the Offering and describing the procedures for

participant elections with respect to the Offering, and an election

form. The election forms sent to Invested Participants enabled each of

them to direct the Plan's third party administrator to instruct the

Plan's broker to exercise the Rights allocable to the Invested

Participant's Accounts or to sell such Rights on the open market.

Invested Participants' instructions to sell Rights were executed as

they were received. As provided in the Plan and Trust Agreement, as

amended, the Rights of any Invested Participant8 who failed to

submit an election form by the due date, or submitted an invalid

election form, were sold on the open market on December 22, 1993. The

Employer represents that such required sales were disclosed to the

Invested Participants in the informational documents sent on December

3, 1993.

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\8\The Employer represents that no Rights attributable to the

Accounts of Invested Participants subject to the provisions of

section 16(b) of the Securities Exchange Act of 1934 (collectively,

the section 16(b) Participants) were sold. Section 16(b)

Participants were allowed to exercise Rights and subscribe for

Additional Shares under the Additional Subscription Privilege on the

same basis as other Invested Participants. Persons subject to

section 16(b) are officers, directors, and 10% or more shareholders

of the Employer. The Employer represents that there were six section

16(b) Participants.

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5. Rights were exercisable and Additional Shares could be

subscribed for under the Additional Subscription Privilege by an

Invested Participant only to the extent of non-Stock Fund investments

available in his or her Accounts. If such investments in an Invested

Participant's Accounts were insufficient to pay the exercise price for

all the Rights that the Invested Participant instructed should be

exercised, any Rights that could not be exercised were sold on the open

market on December 22, 1993. The Employer represents that such required

sales were disclosed in the informational documents sent to Invested

Participants on December 3, 1993. For each Invested Participant who

directed the exercise of Rights attributable to his or her Accounts,

the funds needed to pay the exercise price were obtained by liquidating

the non-Stock Fund investments in the Invested Participant's Accounts

based upon the values of such investments as of the close of the market

on December 20, 1993. The Employer represents that the actual

liquidations of non-Stock investments took place on December 21, 1993.

Because the per unit selling prices of the non-Stock Fund

investments on December 21, 1993 were generally less than the market

values of such units at the close of the market on December 20, 1993, a

shortfall of funds occurred. To the extent this shortfall caused an

Invested Participant to have insufficient funds available to exercise

all of the Rights the Invested Participant had elected to exercise, the

excess Rights were sold on the open Market on December 22, 1993 and the

proceeds were allocated to the Accounts of the Participants whose

Rights were sold.

6. In the event that the market price for the Common Stock,

including any applicable brokerage commissions and other expenses, at

10 a.m. C.S.T. on December 23, 1993 was less than $25.00 per share (the

exercise price under the Offering), the Plan and Trust Agreement, as

amended, provided that Rights would not be exercised. However, in the

above situation, an Invested Participant was permitted to: (a) Elect in

anticipation of such circumstances that the proceeds otherwise

available to fund the exercise of Rights and the purchase of Additional

Shares under the Additional Subscription privilege be used instead to

purchase shares of the Common Stock on the open market, or (b) in the

absence of such an election, refrain from purchasing any Common Stock,

either through exercise of the Rights or on the open market. The

Employer represents that at 10 a.m. C.S.T. on December 23, 1993, the

exercise price of a Right was less than the market price for a share of

the Common Stock on the American Stock Exchange, after giving effect to

any applicable brokerage commissions and other expenses. Accordingly,

the Plan's broker exercised all Rights for which directions to exercise

were submitted by the Invested Participants.

7. The Employer represents that in order to allow sufficient time

to perform the administrative procedures required to review participant

election forms and implement elections, including, as required, the

liquidation of non-Stock Fund investments, the procedure for

participant elections with respect to the Offering included timing

deadlines for the filing of instructions in advance of the expiration

of the Offering. Accordingly, Invested Participants were required to

return the election forms by 11 a.m. C.S.T. on December 20, 1993.

8. The Employer represents that the following is a summary of the

Offering:

(a) The Plan received a total of 20,682 Rights in connection with

the Offering.

(b) A total of 1,653,001 Rights were exercised on December 23,

1993. Eighty-four of the 773 Invested Participants directed the

exercise of Rights, resulting in the exercise of 3,715 Rights, or about

.23 percent of the total number of Rights exercised.

(c) Fifty-eight Invested Participants directed the exercise of a

number of Rights the exercise price of which exceeded their non-Stock

investments available for liquidation. In accordance with the Plan and

Trust Agreement, as amended, in such instances, any Rights that could

not be exercised were sold, resulting in the sale of 262 Rights.

(d) Among the Invested Participants, 101 affirmatively directed

that the Rights allocated to their Accounts be sold, resulting in the

sale of 3,413 Rights.

(e) Among the Invested Participants, 594 did not respond.9 In

accordance with the Plan and Trust Agreement as amended, the Rights

allocated to the Accounts of these Invested Participants (who were not

section 16(b) Participants) were sold, resulting in the sale of 12,182

Rights; and the Rights allocated to the Accounts of these Invested

Participants who were section 16(b) Participants were allowed to lapse,

resulting in the lapse of 1,110 Rights.

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\9\The results reported above indicate a total of 779 Invested

Participants, although there were only 773 Invested Participants as

of the Record Date of the Offering. Because certain Invested

Participants directed that some of their Rights be exercised and

that some be sold, those Invested Participants were counted twice.

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(f) A total of 346,999 Additional Shares were issued through the

Additional Subscription Privilege, including 800 shares, or about .2305

percent of the total, acquired by the Plan on behalf of 24 Invested

Participants who elected to exercise the Additional Subscription

Privilege.

(g) An additional 313,528 Additional Shares had been requested, but

were not acquired, through the Additional Subscription Privilege,

requiring the return of $7,838,200 to oversubscribing shareholders. The

Plan subscribed for 800 Additional Shares under the Additional

Subscription Privilege and received all 800 Additional Shares.

Therefore, no amounts were required to be returned to the Plan.

(h) The Employer represents that all elections filed by Invested

Participants with respect to the Offering were observed by Coopers &

Lybrand, the Plan's third party administrator, and executed by Merrill

Lynch, Pierce, Fenner & Smith Incorporated, the Plan's broker, and that

all Invested Participants were notified adequately in advance of the

termination date of the Offering of the procedure for making elections

with respect to Rights attributable to their Accounts. Accordingly, the

Employer represents that all actions taken on behalf of the Plan

relating to the Offering, with respect to the Accounts, were pursuant

to express participant directions or express default provisions of the

Plan and Trust Agreement. The Employer represents that the procedures

for default were fully disclosed in the election form and explanatory

materials sent to Invested Participants, and were consistent with the

participant directed nature of investments under the Plan.

9. In summary, the applicant represents that the transactions

satisfied the criteria of section 408(a) of the Act for the following

reasons: (a) The Plan's acquisition of the Rights resulted from an

independent act of the Employer; (b) With respect to all aspects of the

Offering, all holders of the Common Stock were treated in the same

manner, including the Plan; (c) All decisions with respect to the

Plan's acquisition, holding and control of the Rights were made by the

individual Invested Participants whose Accounts held interests in the

Stock Fund, except for those Participants who failed to file timely and

valid election forms, in which case the Rights were sold; and (d) The

acquisition and holding of Rights by the Plan affected 773 of the

Plan's 810 participants whose Accounts held only about 1.04% of the

Common Stock outstanding as of the Record Date of the Offering.

FOR FURTHER INFORMATION CONTACT: Ms. Virginia J. Miller of the

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

Meridian Trust Company Employee Benefit Equity Fund and Fixed

Income Fund (the Funds) Located in Malvern, PA

[Application Nos. D-9447 and D-9448]

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, effective April 30, 1992, the restrictions of sections

406(a) and 406(b) (1) and (2) of the Act and the sanctions resulting

from the application of section 4975 of the Code, by reason of section

4975(c)(1) (A) through (E) of the Code, shall not apply to the past

sale for cash of certain notes (the Notes) from the Funds to Meridian

Asset Management, Inc. (Meridian), a party in interest with respect to

the Funds, provided that the following conditions were met at the time

of the sale:

1. The terms of the sale were at least as favorable as those the

Funds could have obtained in an arm's-length transaction with an

unrelated party;

2. Meridian paid the unpaid principal balance plus accrued interest

on the Notes as of the time of sale;

3. The fair market value of the Notes was determined by a qualified

independent appraiser to be less than the unpaid principal balance plus

accrued interest;

4. The Funds received all cash as a result of the transaction; and

5. The Funds paid no fees or commissions in regard to the sale.

effective date: If granted, this proposed exemption will be effective

as of April 30, 1992.

Summary of Facts and Representations

1. Meridian provides investment management and trust services to

individuals, corporations and institutions. The sponsor of the Funds is

Meridian Trust Company, a wholly-owned subsidiary of Meridian, which is

a bank with trust powers organized under the laws of the Commonwealth

of Pennsylvania. The Funds are collective trust funds in which pension

plans invest. The Pennsylvania Department of Banking requires

Pennsylvania banking institutions which maintain common and collective

trust funds to administer such funds in accordance with regulations

issued by the Office of the Comptroller of the Currency. However, the

applicant represents that Meridian, the purchaser of the Notes, is not

a bank and is not subject to regulation by the Office of the

Comptroller of the Currency. As of December 31, 1991, the Equity Fund

had total net assets of $218,891,767 while those of the Fixed Income

Fund equaled $127,863,109.

2. On September 13, 1989, the Funds purchased the Notes for a total

of $3,959,100 on the recommendation of K. Lawrence Neill (Neill), an

employee at that time of Meridian Investment Company, a wholly-owned

subsidiary of Meridian, and a fiduciary with respect to the Funds. The

Notes consist of two notes issued by Safe Harbor Marina, Inc. (Safe

Harbor) in the principal amounts of $2,300,000 placed with the Equity

Fund and $1,659,100 placed with the Fixed Income Fund. The Notes

provided for payment of principal and interest twice yearly for a term

of 10 years at an interest rate of 12 percent per annum. The proceeds

of the Notes were to be used to help fund the construction of a marina

and related facilities on Lake Erie in Erie County,

Pennsylvania.10 The applicant represents that there is no

relationship between Meridian (or any of its affiliates) and Safe

Harbor.

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\1\0The Department expresses no opinion as to whether

fiduciaries with respect to the Funds violated any of the fiduciary

responsibility provisions of part 4 of title I of the Act in

investing in the Notes. Section 404(a)(1) of the Act requires, among

other things, that fiduciaries must act prudently and solely in the

interest of plan participants and beneficiaries.

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3. The Safe Harbor project did not meet its original opening date

for a number of reasons. A payment due on the Notes in October 1990 was

not made and, under their terms, the Notes then went into default.

Meridian subsequently arranged for an independent inspection of the

Safe Harbor project in order to determine what actions, if any, it

should take to protect the principal and interest due on the Notes.

Eventually a payment of $50,000 from Safe Harbor to Neill (presumably

in exchange for his recommendation of the investment) and the existence

of fiscal irregularities were discovered. In April 1993 Neill pleaded

guilty to one count of receiving money to influence the business of a

financial institution.

4. The Notes are unrated and, according to the applicant, no market

exists for them. No principal or interest payments have been made on

the Notes since 1990. The Notes have been restructured several times

and the issuer remains financially troubled. On April 30, 1992,

Meridian purchased the Notes from the Funds for the total purchase

price of $4,794,184 in cash, consisting of the then unpaid principal

amount of the Notes plus the accrued but unpaid interest at the rate

specified in the Notes. Of the total purchase price, $2,785,134 was

paid to the Equity Fund and $2,009,050 was paid to the Fixed Income

Fund. The applicant states that the Notes were in default at the time

of purchase. The Funds paid no fees in connection with the sale of the

Notes to Meridian.

5. The applicant obtained a statement dated August 16, 1993, from

Gabriel F. Nagy (Nagy) of Keeley Management Company (Keeley) located in

Radnor, Pennsylvania, concerning the sale of the Notes by the Funds to

Meridian. Nagy stated that Keeley is an investment banking firm

regularly engaged in the valuation of businesses and significant

interests therein. According to Nagy, Keeley is not in any way

connected with Meridian or any of its affiliates. Keeley analyzed the

prices at which defaulted corporate debt securities were trading on or

around April 30, 1992. Sixteen publicly traded bond issues were

identified with a maturity date of 1998 or 1999, approximately the same

as that of the Notes.

Placing emphasis on bonds which were in default but where

bankruptcy proceedings were not noted, Keeley concluded that the Notes

had a fair market value of no more than 50 percent of their aggregate

outstanding principal value as of the time of purchase of the Notes by

Meridian. In a letter dated November 11, 1993, Keeley indicated that

the fair market value of notes of this kind, which have been in default

for some time with no reasonable prospect of cure, is always less than

the unpaid principal balance plus accrued unpaid interest on the notes.

6. In summary, the applicant represents that the transaction

satisfied the statutory criteria of section 408(a) of the Act because:

(1) Meridian paid the unpaid principal amount plus accrued interest for

the Notes; (2) an appraiser independent of Meridian and its affiliates

has determined that this amount was well in excess of the fair market

value of the Notes; (3) the Notes were in default at the time of

purchase by Meridian; (4) the purchase removed from the Funds debt

obligations on which no principal or interest has been paid since 1990;

and (5) the Funds received all cash as a result of the transaction.

FOR FURTHER INFORMATION CONTACT: Paul Kelty of the Department,

telephone (202) 219-8883. (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 accurately describe all

material terms of the transaction which is the subject of the

exemption. In the case of continuing exemption transactions, if any of

the material facts or representations described in the application

change after the exemption is granted, the exemption will cease to

apply as of the date of such change. In the event of any such change,

application for a new exemption may be made to the Department.

Signed at Washington, DC, this 10th day of March 1994.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 94-6014 Filed 3-15-94; 8:45 am]

BILLING CODE 4510-29-P