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

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## Record

- **Collection:** Federal Register
- **Document type:** Uncategorized Document
- **Published:** March 16, 1994

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-6014. Public record. Not legal advice.