Proposed Exemptions: General Motors Retirement Program, et al.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-09611, et al.]

Proposed Exemptions: General Motors Retirement Program, 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

Unless otherwise stated in the Notice of Proposed Exemption, all

interested persons are invited to submit written

[[Page 37678]]

comments, and with respect to exemptions involving the fiduciary

prohibitions of section 406(b) of the Act, requests for hearing 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, 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.

General Motors Retirement Program for Salaried Employes (the GM

Salaried Plan); General Motors Hourly Rate Employes Pension Plan

(the GM Hourly Plan); the Saturn Individual Retirement Plan for

Represented Team Members (the Saturn Plan); Saturn Personal Choices

Retirement Plan for Non-Represented Team Members (the Saturn Choices

Plan); and Employees' Retirement Plan for GMAC Mortgage Corporation

(the GMAC Plan; collectively, the Plans)

Located in New York, New York

Application Nos. D-09611, D-09612 and D-09809

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 section 406(a) of the Act and the

sanctions resulting from the application of section 4975 of the Code,

by reason of section 4975(c)(1)(A) through (D) of the Code shall not

apply, effective May 21, 1993, to the purchase by a partnership (the

Partnership) of a parcel of improved real property (the Property)

located in Washington, DC, from Collin Equities, Inc. (the Seller), a

party in interest with respect to the Plans, pursuant to an agreement

which provided that the Plans would invest in the Partnership upon

purchase of the Property, provided the following conditions are met:

(a) the terms of the purchase of the Property were no less

favorable to the Plans than those negotiated at arm's length in similar

circumstances with unrelated third parties;

(b) the fair market value of the Property was determined by an

independent, qualified appraiser;

(c) the Plans paid no commissions or fees in regard to the

transaction; and

(d) prior to investing in the Partnership an independent, qualified

fiduciary acting on behalf of the Plans, reviewed and recommended

approval of the transaction and determined that the transaction was in

the best interest of the Plans and the participants and beneficiaries

of such Plans.1

\1\ For purposes of this exemption reference to specific

provisions of title I of the Act, unless otherwise specified, refer

also to the corresponding provisions of the Code.

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EFFECTIVE DATE: If the proposed exemption is granted, the exemption

will be effective retroactively, as of May 21, 1993.

Summary of Facts and Representations

1. It is represented that the Plans are qualified under section

401(a) of the Code and were established by GM to provide retirement

benefits to its eligible salaried and hourly employees and to employees

of approximately twenty (20) GM affiliates worldwide.2 The Plans

which are the applicants for this proposed exemption are the GM

Salaried Plan, the GM Hourly Plan, the Saturn Plan, the Saturn Choices

Plan, and the GMAC Plan. As of October 1, 1993, the GM Salaried Plan,

the GM Hourly Plan, the Saturn Plan, and the Saturn Choices Plan

covered approximately 831,532 participants (both active employees and

retirees) and beneficiaries. In addition, as of June 21, 1994, there

were approximately 2,761 participants in the GMAC Plan.

\2\ It is represented that employers whose employees are covered

by the Plans are as follows: (1) GM; (2) Delco Electronics Service

Corporation; (3) Fisher Lumber Corporation; (4) GMAC; (5) GMAC,

Australia; (6) GMAC, Colombia, S.A. (7) GMAC, Continental; (8) GMAC,

International; (9) GMAC, South America; (10) General Motors

Investment Management Corporation; (11) General Motors Interamerica

Corporation; (12) General Motors Overseas Corporation; (13) General

Motors Overseas Distribution Corporation; (14) GMAC Capital

Corporation; (15) GM Personnel Services, Inc.; (16) Holdens Motor

Overseas Corporation; (17) Motors Insurance Corporation; (18) Motors

Trading Corporation; (19) Saturn Corporation; (20) MIC Re

Corporation; and (21) GMAC Mortgage Corporation.

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2. The control and management of the assets of the Plans (including

the investments described herein) are under the authority of the

Finance Committee (the Committee) of the Board of Directors of GM,

which is the ``named fiduciary'' (as such term is defined in the Act)

of the Plans. In this regard, it is represented that the Committee acts

on behalf of the Plans through duly authorized delegates. One such

delegate of the Committee is the General Motors Investment Management

Corporation (GMIMCO), a wholly-owned subsidiary of GM established in

1990. In this regard, GMIMCO serves as the investment manager for the

Plans. As of December 31, 1992, GMIMCO had approximately $7.7 billion

in assets under its management, including a portion of the assets of

the Plans.

GMIMCO maintains a staff of investment experts who work for the

Plans and for certain affiliates of GM.

[[Page 37679]]

GMIMCO is compensated by GM for the services it renders to the Plans,

and to the extent permitted by the Act, the Plans reimburse GM for

GMIMCO's expenses.3

\3\ The applicants state that any fees or expenses received by

GMIMCO for the provision of services to the Plans, the compensation

received by GMIMCO from GM, or the reimbursement by the Plans to GM

of expenses incurred by GMIMCO in the provision of such services

will satisfy the requirements as set forth in section 408(b)(2) of

the Act. However, the Department is providing no opinion as to

whether the payment of any fees, expenses, compensation, or

reimbursement under the circumstances described herein would satisfy

the requirements of section 408(b)(2) of the Act and the regulations

thereunder (see 29 CFR 2550.408b-2).

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3. It is represented that GM has established various trusts, exempt

from tax under section 501(a) of the Code, to hold and manage the

invested funds used for providing benefits under the Plans. In this

regard, certain assets of the GM Hourly Plan, the Saturn Plan, the

Saturn Choices Plan, and the GMAC Plan are held in one master trust

(the Hourly Trust), while certain assets of the GM Salaried Plan are

held in another master trust (the Salaried Trust). As of September 30,

1993, the aggregate fair market value of the assets of the Hourly Trust

and the Salaried Trust was approximately $19.7 billion and $20.8

billion, respectively.

It is represented that the Hourly Trust and the Salaried Trust are

the sole beneficial owners of the First Plaza Group Trust (the Group

Trust), a New York trust, which is also exempt from taxation under

section 501(a) of the Code. Mellon Bank, N.A. serves as trustee of the

Group Trust. GMIMCO has authority, responsibility, and control with

respect to the assets of the Plans invested in the Group Trust and also

serves as the independent fiduciary for the transaction described below

which is the subject of this proposed exemption. Further, in August

1990, the Plans engaged Sarofim Realty Advisory (Sarofim) (formerly FS

Realty Partners) of Dallas, Texas, an experienced real estate

investment advisory firm, to serve as non-discretionary investment

advisor to the Plans and to GMIMCO.

4. On August 9, 1991, the Group Trust entered into a subscription

agreement (the Subscription Agreement) with the Hines Acquisitions No.

1 Limited Partnership, a Texas limited partnership. The Hines

Acquisitions No. 1 Limited Partnership serves as the general partner

(the GP) in the Partnership in which the Plans are invested. The GP is

unrelated to GM, the Plans, or any other parties involved in the

transactions. The Partnership is a Texas limited partnership known as

the 1991 Acquisition Fund No. 1 Limited Partnership. It is represented

that the GP organized the Partnership for the purpose of acquiring,

improving, managing, operating, leasing, redeveloping, selling, and

disposing of commercial office and retail real estate. Pursuant to the

terms of the Subscription Agreement, the Group Trust agreed to become

the sole limited partner of the Partnership.

5. In connection with the formation of the Partnership, the GP and

the Group Trust executed a partnership agreement (the Partnership

Agreement) which was attached to and incorporated by reference into the

Subscription Agreement. It is represented that contributions to capital

of the Partnership under the Partnership Agreement were to be made 5

percent (5%) by the GP and 95 percent (95%) by the Group Trust.4

As of September 30, 1993, the percentages of the fair market value of

the Hourly Trust and the Salaried Trust committed through the Group

Trust to the Partnership were 0.48% and 0.46%, respectively.

\4\ It is represented that based on contributions of capital,

the Group Trust is a 95 percent (95%) limited partner in the

Partnership that owns the Property. However, under the terms of the

Partnership Agreement, in certain favorable scenarios with regard to

the internal rate of return, the General Partner's right to receive

distributions of profits can increase from 5 percent (5%) to 15

percent (15%). The Department, herein, is offering no relief from

any of the provisions of part 4, subpart B, of Title I of the Act

with respect to the receipt by the GP of compensation based on this

performance incentive feature in the Partnership Agreement.

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Under the terms of the Partnership Agreement, the GP is, among

other things, responsible for all decisions regarding acquisition,

financing redevelopment, leasing, managing, and disposition of real

estate owned by the Partnership. The GP also retains oversight over

persons retained to provide assistance or services in connection with

such matters. In this regard, it is represented that the Partnership

has been and will be managed by the GP by affiliates of the GP, or

through independent contractors retained by the Partnership, pursuant

to the terms of third party management agreements, the form and content

of which has been approved by the Group Trust. Additional

responsibilities of the GP, include preparing budgets in connection

with acquisitions, operations, renovations, and improvements for each

property the Partnership owns and maintaining books, records, and bank

accounts for the Partnership. Further, the GP has the exclusive

responsibility to identify investment opportunities for the Partnership

and to negotiate the acquisition of such investment opportunities. As a

limited partner in the Partnership, the Group Trust does not have the

right to propose or negotiate acquisitions on behalf of the

Partnership. However, the Group Trust, acting through GMIMCO, does have

the right to approve all acquisitions by the Partnership which have

been negotiated by the GP.

6. In July, 1992, the GP identified the Property as the first long-

term investment opportunity for the Partnership. The Property is

described as a twelve story office building (the Building), built in

1991, located at 700 Eleventh Street, N.W. on 37,370 square feet of

land (the Land) at a subway station in the heart of downtown

Washington, DC. The Building, commonly referred to as the Edward

Bennett Williams Building, has 292,919 square feet of net rentable

office space, 8,803 square feet of net rentable retail space on the

first floor, and a five (5) level underground parking garage. It is

represented that, as of March 1, 1993, 55.2% of the Property was

leased. As of December 16, 1993, the tenants of the Property were: (1)

Williams & Connolly, a law firm, with a lease dated September 24, 1991;

(2) Kimberly-Clark Corporation, with a lease dated December 20, 1991;

and (3) Massachusetts Mutual Life Insurance Company, with a lease dated

April 30, 1993. It is represented that none of the lessees are parties

in interest with respect to the Plans.

At the time the Property was identified in July 1992, as a possible

investment for the Partnership, the GP entered into discussions with

the owner of the Property. The Seller is a Texas corporation which is

wholly-owned by Wells Fargo Bank, N.A. (Wells Fargo). It is represented

that unbeknownst to the GP in July 1992, Wells Fargo was then serving

as a fiduciary with respect to other assets of the Plans not involved

in the Partnership. Accordingly, the Seller, by virtue of being a

wholly-owned subsidiary of Wells Fargo, was a party in interest with

respect to the Plans when the GP negotiated the purchase of the

Property.

It is represented that after the principal business terms of the

transaction were established through competitive bidding with other

potential purchasers, the GP was selected by the Seller as the most

attractive buyer. It is represented that in October 1992, officials at

GMIMCO, following routine practices designed to avoid engaging in

prohibited transactions, identified the Seller as a subsidiary of a

service provider with

[[Page 37680]]

respect to the Plans, albeit one without any authority or

responsibility with respect to the assets involved in the subject

transaction.

Subsequently, on February 17, 1993, the GP and the Seller executed

a purchase and sale agreement (the Purchase Agreement) in which the

Seller agreed to sell the Property to the GP for a purchase price of

$60,000,000. For purposes of the Purchase Agreement, the Property

included: (a) the Land; (b) the Building; (c) the related tangible

personal property and fixtures (the Personalty); (d) all leases,

licenses, and occupancy agreements demising the space in the Building

(the Leases); (e) prepaid rents and deposits; (f) certain contracts

(e.g., warranties, indemnities, licenses, permits) to the extent

assignable without cost; (g) other miscellaneous property (e.g.,

telephone exchanges, trade names, trademarks, plans, drawings, surveys,

and technical descriptions; and (h) except as specifically limited or

excluded, all maintenance, service, and utility contracts that relate

to the ownership, maintenance, construction, repair, and/or operation

of the Land, the Building, the Personalty, and the Leases. In

accordance with the terms of the Purchase Agreement, the GP

subsequently, at closing on May 21, 1993, assigned its rights as

purchaser of the Property to the Partnership.

7. Pursuant to the terms of the Subscription Agreement, the GP and

the Group Trust agreed to form the Partnership on the date that the

Partnership first invested in real estate. Accordingly, prior to the

date the Partnership acquired the Property, it is represented that the

Partnership had no assets. In this regard, the capital contributions of

the Hourly Trust and the Salaried Trust committed through the Group

Trust to the Partnership were used to pay the Group Trust's pro rata

share of the purchase price for the Property. It is represented that

the Partnership acquired the Property at closing on May 21, 1993, for a

purchase price of $60,000,000.

8. An appraisal of the Property was performed independently by

Delta Associates, Inc. (Delta), a qualified appraisal firm in

Alexandria, Virginia. The appraisal report, dated April 5, 1993, was

prepared in conjunction with a loan disbursed at closing on May 21,

1993, by Credit Lyonnais Cayman Island Branch to the Partnership

secured by the Property. However, Delta has consented to the use of

such appraisal report in conjunction with this proposed exemption.

In the appraisal report, Delta estimated that, as of March 1, 1993,

the market value of the leased fee interest in the Property on an ``as

is'' basis was $72 million and on an ``as if stabilized'' basis was $88

million. In the opinion of Delta after the ``first stabilized year of

operation,'' assumed to be March 1995, the fair market value of the

leased fee interest in the Property will be $95 million. In addition,

Delta estimated that the ``insurable value'' of the Property, as of

March 1, 1993, was $47.4 million.

9. Subsequently, on December 16, 1993, the subject application for

retroactive exemption from the prohibited transaction restrictions of

the Act was filed on behalf of the Plans with the Department.

10. The applicants maintain that, while the issue is not free from

doubt, the Partnership is a real estate operating company, as defined

in 29 CFR Sec. 2510.3-101 and therefore the sale of the Property to the

Partnership by the Seller was not a direct prohibited transaction

between the Plans and a party in interest. In this regard, the

applicants obtained an opinion of counsel with respect to the issues of

whether the Partnership constituted a ``real estate operating company''

on the date of the purchase by the Partnership of the Property and

whether the purchase of the Property by the Partnership from the

Seller, a party in interest with respect to the Plans, constituted a

prohibited transaction under section 406 of the Act.

In the opinion of the applicants, no exemption from the

restrictions of section 406 of the Act relating to direct prohibited

transactions is necessary in connection with the sale of the Property

by a party in interest to the Partnership nor for receipt of any

compensation by the GP of the Partnership, because the purchase of the

Property by the Partnership did not involve assets of the Plans by

virtue of the operation of the Partnership as a ``real estate operating

company.'' 5

\5\ Under the ``plan asset'' regulations of the Department, as

set forth in 29 CFR Sec. 2510.3-101(h)(3), when a plan or a related

group of plans owns all of the outstanding equity interests (other

than director's qualifying shares) in an entity, its assets include

those equity interests and all of the underlying assets of the

entity. The applicants maintain that, while for purposes of

establishing a limited partnership under Texas law, a general

partner must be named in the certificate of limited partnership, the

GP, here, is obligated to contribute a significant amount of capital

to the Partnership and, thus, is participating in the Partnership

for reasons other than to satisfy the minimum state law requirements

for treatment of the Partnership as a partnership. Accordingly, the

applicants believe that the Partnership assets would not be treated

as plan assets for the purpose of applying the fiduciary

responsibility requirements of the Act.

In addition, under the ``plan asset'' regulations of the

Department, as set forth in 29 CFR Sec. 2510.3-101(e), an entity is

treated as a real estate operating company if at least 50 percent of

its assets are invested in real estate which is managed or developed

and with respect to which the entity has the right to substantially

participate directly in management or development activities.

Further, in the ordinary course of its business, the entity must

actually engage in real estate management or development activities.

The applicants maintain that they are comfortable in relying on

their own analysis that the Partnership operation meets these

requirements.

The Department, herein, is expressing no opinion whether the

underlying assets of the Partnership are ``plan assets'' or whether

the Partnership, as established or in the manner operated, satisfies

the definition of a ``real estate operating company.'' Further, the

Department is not proposing relief, herein, for any direct

transaction between the Partnership or the Plans and a party in

interest with respect to such Plans.

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Notwithstanding their reliance on the plan assets analysis

described above, the applicants continue to request retroactive relief

under section 406(a) for any indirect prohibited transaction that may

have occurred. The applicants point out that authority on the issue of

what constitutes an ``indirect'' prohibited transaction is still quite

sparse. In the opinion of the applicants, the following elements of the

subject transaction, taken together, raise an indirect prohibited

transaction issue: (1) the purchase of the Property by the Partnership

and the Group Trust's investment in such Partnership occurred on the

same day; (2) the Group Trust's investment provided the Partnership

with 95 percent (95%) of the funds used to cover the purchase price of

the Property; and (3) the Property and the Seller had been specifically

identified prior to the time the funds were forwarded by the Group

Trust to the Partnership. Further, of particular interest to this issue

is the fact that the Partnership is not designed to be a ``blind pool''

investment vehicle where a general partner, so long as it follows the

criteria set forth in a partnership agreement, has plenary discretion

to invest committed partnership funds in any real property meeting

those criteria and the unfettered ability to call funds from a limited

partner to complete such investments without any approval rights in

such limited partner. Rather, the Group Trust as subscriber had a right

to examine and approve or disapprove the specific investment

opportunity of the Partnership in the Property, although upon the

signing of the Subscription Agreement in 1991, the Group Trust became

committed to invest up to $95 million in the Partnership at such times

as appropriate investments were identified and the Partnership was

formed. Accordingly, at the time the Group Trust actually purchased its

interest in the Partnership and

[[Page 37681]]

forwarded its 95 percent (95%) pro rata share of the initial capital

call on the day of the closing, May 21, 1993, the Group Trust and the

GP knew that the proceeds of the purchase of its interest in the

Partnership would be forwarded almost immediately by the GP together

with the GP's own capital contribution on behalf of the Partnership, to

the Seller, a party in interest with respect to the Plans.

Although applicants' counsel in analyzing these elements concluded

that no indirect prohibited transaction occurred, counsel represents

that this conclusion is ``not entirely free from doubt,'' in part

because of the dearth of authority on what constitutes an indirect

prohibited transaction. The applicants believe that the investment by

the Group Trust in the Partnership could be viewed as an indirect sale

or exchange of property between the Plans and a party in interest, the

Seller, in violation of section 406(a)(1)(A) of the Act or a use of

plan assets by or for the benefit of a party in interest in violation

of section 406(a)(1)(D) of the Act. Accordingly, the applicants seek

retroactive relief from such provisions of the Act at closing on May

21, 1993, the date when the transaction was entered.

11. The applicants maintain that the requested retroactive

exemption is warranted, because the transaction was consummated under

conditions that assured that the rights of participants and

beneficiaries of the Plans were protected. In this regard, Sarofim

served as an advisor to GMIMCO with respect to, among other things,

whether to approve the acquisition of the Property by the Partnership

as proposed by the GP. Specifically, it is represented that Sarofim

reviewed and recommended the Partnership investment to GMIMCO and

recommended approval of the Property acquisition. Further, GMIMCO,

acting as investment manager on behalf of the Plans, after considering

the terms of the acquisition of the Property, as negotiated by the GP,

and the recommendations and analyses of Sarofim, made the ultimate

decision on behalf of the Plans and the Group Trust to invest in the

Partnership and to approve the acquisition of the Property by such

Partnership. It is represented that Sarofim is unaffiliated with the

Seller or Wells Fargo, and that there is no direct or indirect

affiliation between GMIMCO (or GM) and Wells Fargo or the Seller.

It is represented that the terms of the Partnership Agreement were

negotiated by GMIMCO and Sarofim, on behalf of the Plans, at arm's

length with the GP. Neither GMIMCO, GM, nor Sarofim have any direct or

indirect affiliation with the GP. Additionally, the terms of the

Partnership Agreement were negotiated at a time when the opportunity to

acquire the Property had not arisen.

The purchase price for the Property paid by the Partnership and the

non-price terms of the acquisition were negotiated on an arm's length

basis between unrelated parties, the GP and the Seller. Further, the

purchase of the Property was also reviewed and recommended by Sarofim

and approved by GMIMCO.

Although the Seller of the Property is a party in interest with

respect to the Plans, it is represented that this status resulted

solely by reason of the Seller's relationship to Wells Fargo, a service

provider with respect to other assets of Plans not involved in the

Partnership. In this regard, it is represented that Wells Fargo was not

a trustee of the Group Trust and had no authority, responsibility, or

control with respect to the assets of the Group Trust that were

invested in the Partnership. Further, it is represented that Wells

Fargo does not have, and did not exercise, any of the authority,

control or responsibility that makes it a fiduciary with respect to the

Plans in connection with the decision by the Plans (acting through

GMIMCO) to invest through the Group Trust in the Partnership or the

decision by the Plans (acting through GMIMCO) to approve the

Partnership's investment in the Property.

On August 9, 1991, at the time the Group Trust entered into the

Subscription Agreement, it is represented that there was no arrangement

for the Partnership to specifically acquire the Property. Rather, the

Partnership agreement called for the Group Trust to 95 percent (95%)

fund the purchase of a property once identified by the GP and agreed to

by GMIMCO. Neither the Plans, the Group Trust, GMIMCO, nor Sarofim

participated in the search for the Property. It is represented that the

GP had no knowledge of the relationship between Wells Fargo and the

Plans in July 1992, at the time the Property was identified as an

investment opportunity for the Partnership. It is further represented

that officials at GMIMCO did not know that the Seller was a subsidiary

of a service provider with respect to the Plans until October 1992. In

addition, Sarofim, an experienced real estate investment advisory firm,

has served since August 1990, as non-discretionary investment advisor

to the Plans and to GMIMCO. Accordingly, it is represented that the

Group Trust's commitment to become a limited partner in the Partnership

was not in any way conditioned on the acquisition of the Property.

11. It is represented that the transaction was in the interest of

the Plans and their participants and beneficiaries. In this regard, the

acquisition of the Property was consummated on terms customary in the

commercial real estate market after extensive negotiations between the

GP and the Seller who are unrelated. The purchase price was

competitively bid by the GP and approved by both Sarofim and GMIMCO. It

is represented that the GP negotiated a purchase price of $60 million

that is approximately 14 percent (14%) lower than the $69.9 million

dollar asking price for the Property. Further, Delta's appraisal of the

Property indicated a value for the Property of $72 million on an ``as

is'' basis in March, 1993, which was approximately 20 percent (20%)

above the purchase price paid by the Partnership. Accordingly, prior to

consummation of the acquisition of the Property at the $60 million

dollar purchase price, both GMIMCO and Sarofim specifically concluded

that the acquisition of the Property at the price negotiated by the GP

was in the best interest of the Plans.

It is represented that Sarofim analyzed at length the potential

acquisition of the Property taking into account various scenarios

regarding pricing, absorption/leasing, tenant finish costs, tenant

expansions, renewal of leases, residual capitalization rates, and

financing parameters. Based on this exhaustive analysis, Sarofim

recommended to the Plans a pricing range for the Property that would

warrant the Group Trust's approval of the acquisition by the

Partnership. It is represented that as the ultimate acquisition price

for the Property was within the recommended range, both Sarofim and

GMIMCO determined that the favorable pricing of the Property would help

produce an attractive return for the Plans and was thus in their best

interest.

It is further represented that the acquisition of the Property was

recommended to the Plans for the following reasons: (a) the Property is

a recently completed Class ``A'' building with high quality systems and

construction quality; (b) the Property has advantageous sub-surface

parking, which is a major leasing advantage in its market; (c) the

Property was 53 percent (53%) leased at the time of the transaction,

primarily to a prestigious national law firm with excellent credit; (d)

tenants have demonstrated a strong demand to lease vacant space in

[[Page 37682]]

commercial buildings located in the East End submarket of Washington,

DC over the past five (5) years; (e) the Property has direct access to

a major transfer station in the subway system; (f) the Property has

access to adjacent and nearby hotels and to retail amenities; (g) the

shape of the Property facilitates either full-floor users or multi-

tenant layouts; and (h) the recommended pricing range was considered

substantially below the replacement cost for the Property. Sarofim and

GMIMCO concluded that for all of the above reasons the acquisition of

the Property should help to form the core of real estate-related

investments for the Plans.

After reviewing the analysis of Sarofim, GMIMCO concluded that the

ownership of a substantial limited partnership interest in the

Partnership that acquired the Property for a price within the range

recommended would give the Plans the dual benefits of (1) stable

returns from participation in high quality office and retail buildings

in attractive urban real estate markets at advantageous prices, and (2)

joint investment with the GP and its affiliate, Hines LP, a national

real estate development and management firm with expertise in the

acquisition, management, and leasing of such properties. Accordingly,

both GMIMCO and Sarofim concluded that the proposed acquisition of the

Property was favorable to the Partnership and by extension to the

Plans.

12. The applicants maintain that the exemption is administratively

feasible, because the transaction involves a one-time event that has

been completed. In this regard, as the transaction has already been

consummated, it is represented that no ``ongoing'' involvement of the

Department will be required to implement the exemption.

13. In summary, the applicants represent that the proposed

transaction meets the statutory criteria of section 408(a) of the Act

because:

(a) the terms of the Partnership Agreement were negotiated at arm's

length between the GP, acting on behalf of the Partnership, and GMIMCO

and Sarofim, acting on behalf of the Plans;

(b) the terms of the Partnership Agreement were negotiated at a

time when the Property acquisition opportunity had not arisen;

(c) the terms of the Purchase Agreement for the Property were

negotiated at arm's-length between the GP and the Seller, who are

unrelated parties;

(d) the acquisition of the Property was consummated on terms

customary in the commercial real estate market;

(e) GMIMCO and Sarofim, respectively, an experienced real estate

investment manager and an advisor acting on behalf of the Plans,

reviewed, recommended, and approved the subject transaction;

(f) GMIMCO and Sarofim determined that the subject transaction was

feasible, in the interest of the Plans, and protective of the

participants and beneficiaries of such Plans;

(g) the fair market value of the Property was determined by Delta,

an independent, qualified appraiser;

(h) the Plans paid no commissions or fees in regard to the

transaction;

(i) the transaction involved a one-time event that has been

completed and does not require monitoring.

Notice to Interested Persons

It has been requested on behalf of the Plans that the Department

waive the requirement to separately notify each participant, retiree,

and beneficiary of the Plans of the proposed transaction. In this

regard, it is represented that the time and expense of individually

notifying such parties is substantial. Further, it is represented that

the interests of the current employees are identical to those of the

retirees, terminated participants, and beneficiaries with respect to

the exemption application. In this regard, the current employees can

effectively and adequately represent such interests. Moreover, several

groups of employees are represented by unions, which will be notified

as described in the paragraph below. Accordingly, the Department has

determined that the only practical form of providing notice to

interested persons is by posting on all bulletin boards normally used

for employee notices of this nature by all GM-affiliated employers

whose employees are covered by the Plans a copy of the notice of

pendency of this proposed exemption (the Notice) as published in the

Federal Register, a summary of the exemption request, as approved by

the Department (the Summary), together with the supplemental statement,

as required, pursuant to 29 CFR 2570.43(b)(2) (the Supplemental

Statement), which shall inform all interested persons of their right to

comment. Such posting shall occur within ten (10) days of the date of

the publication in the Federal Register of the Notice. In addition,

within ten (10) days of the publication of the Notice in the Federal

Register, GM will mail first-class to each of the unions representing

employees covered by the Plans a copy of the Notice, the Summary, and

the Supplemental Statement. The names of the unions specifically to be

notified are as follows: (1) International Union, United Automobile,

Aerospace and Agricultural Implement Workers of America; (2)

Brotherhood of Carpenters and Joiners of America; (3) International

Die-Sinkers Conference; (4) International Union of Electronic,

Electrical, Technical, Salaried Machine & Machine Workers, AFL-CIO; (5)

Pattern Makers League of North America, AFL-CIO; (6) International

Union of Operating Engineers; (7) Metal Polishers, Buffers, Platers and

Allied Workers International Union; (8) International Brotherhood of

Electrical Workers; (9) International Association of Machinists; (10)

International Brotherhood of Teamsters, Chauffeurs, Warehousemen and

Helpers of America; (11) United Rubber, Cork, Linoleum and Plastic

Workers of America; (12) Sign, Pictorial and Display Union, Brotherhood

of Painters, Decorators and Paperhangers; (13) United Plant Guard

Workers of America; and (14) Automotive, Petroleum and Allied

Industries Employe Union.

For Further Information Contact: Angelena C. Le Blanc of the

Department, telephone (202) 219-8883 (This is not a toll-free number.)

John B. Toomey Rollover IRA (the IRA)

Located in Lorton, Virginia

[Application No. D-09819]

Proposed Exemption

The Department is considering granting an exemption under the

authority of 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 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 installment sale of 36.2 shares of common stock (the Stock) in

JBT Holding Corporation (JBT) by the IRA 6 to JBT, a disqualified

person with respect to the IRA; provided that: (a) the purchase price

JBT pays for the Stock is the greater of $410,146 or the fair market

value of the Stock on the date of the sale; (b) the fair market value

of the Stock is determined by a qualified independent appraiser, as of

the date of the sale; (c) the terms of the transaction are no less

favorable to the IRA than those negotiated at arm's length with

unrelated third parties in similar circumstances; (d) the trustee of

the IRA monitors compliance with the terms of

[[Page 37683]]

the transaction throughout the duration of the installment sale; (e)

the IRA receives a cash downpayment of no less than $210,146 on the

date of the sale and thereafter receives three (3) equal annual

installment payments of $66,667, the first of which is due and payable

December 31, 1995, plus interest at the fair market rate of interest,

as determined by an independent, qualified third party, as of the date

of the transaction, on the outstanding balance of the installment

payments, payable annually until all the installment payments have been

made by JBT on or before December 31, 1997; (f) the outstanding balance

of the installment payments at no time exceeds 25 percent (25%) of the

value of the assets of the IRA; (g) the outstanding balance on the

installment payments is secured by a recorded first mortgage interest

in real property pledged by JBT in favor of the IRA; (h) the collateral

which secures the installment payments has a value, as determined by an

independent, qualified appraiser, which at all times is no less than

150 percent (150%) of the outstanding balance of the installment

payments; and (i) the IRA pays no commissions, fees, or other expenses

in connection with the transaction.

\6\ Pursuant to 29 CFR 2510.3-2(d), the IRA is not within the

jurisdiction of Title I of the Act. However, there is jurisdiction

under Title II of the Act, pursuant to section 4975 of the Code.

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Summary of Facts and Representations

1. The IRA is a self-directed IRA described in section 408(a) of

the Code. John B. Toomey (Mr. Toomey), the applicant for exemption, is

the creator of the IRA, and the sole participant and beneficiary in the

IRA. It is represented that Advest, Inc., located in Washington, DC,

serves as the trustee of the IRA and has custody over the Stock held in

the IRA. However, Mr. Toomey has investment discretion over the assets

of the IRA, including the Stock, and therefore, is a fiduciary and a

disqualified person with respect to the IRA, pursuant to section

4975(e)(2)(A) of the Code. As of September 9, 1994, the IRA had

approximately $810,775 in total assets. As of September 9, 1994,

approximately 50.6 percent (50.6%) of the IRA's assets consisted of JBT

Stock. The remaining portion of the IRA's assets are held in other

securities and cash. It is represented that the IRA acquired the JBT

Stock as a result of a rollover by Mr. Toomey of a distribution to him

of his vested benefits from a PAYSOP/401(k) plan (the PAYSOP), a tax

qualified pension plan sponsored by VSE Corporation (VSE).

2. VSE, a Delaware corporation with offices in Alexandria,

Virginia, is engaged in the business of providing engineering services.

In 1992, due to differences between Mr. Toomey and other members of the

VSE management group regarding future business activities, VSE was

split into two separate groups, pursuant to a tax free reorganization

under section 368(a)(1)(D) of the Code. To effectuate such

reorganization, JBT, a Delaware corporation with offices located in

Lorton, Virginia, was created in August 6, 1992. As part of the

reorganization, VSE transferred all of the issued and outstanding

shares of stock in three (3) VSE subsidiaries to JBT in exchange for

all of the shares of JBT Stock. The exchange agreement was approved by

VSE stockholders on October 17, 1992 and became effective October 31,

1992. In a concurrent transfer, VSE distributed all of the JBT Stock to

Mr. Toomey, the members of his immediate family, and the PAYSOP in

exchange for an aggregate of 808,649 shares of VSE common stock which

these parties owned on October 17, 1992. Concurrent with the exchange

of stock pursuant to the reorganization, Mr. Toomey separated from

service from VSE and received a lump sum distribution as a participant

in the VSE PAYSOP and in another pension plan sponsored by a VSE

affiliate. It is represented that this distribution was rolled over

within the sixty (60) day rollover period into the IRA. It is

represented that a part of this rollover distribution consisted of the

JBT Stock which in the reorganization had been exchanged for shares of

VSE common stock held in the PAYSOP.

3. JBT is the parent holding company of three (3) wholly owned

subsidiaries: (a) Metropolitan Capital Corporation (MetCap); (b) Design

& Production, Inc. (D&P); and (c) Starr Management Corporation (Starr).

It is represented that, as of December 31, 1993, on a consolidated

financial statement the total assets of JBT and its subsidiaries was

$20,318,107. Mr. Toomey is the president and the chief executive

officer of JBT. Mr. Toomey also serves on the Board of Directors of

JBT.

MetCap, a Delaware Corporation incorporated in 1970, is an

investment company that provides venture capital to companies which, in

general, are closely-held, non-mature small business concerns. Mr.

Toomey is the president and chief executive officer of MetCap. MetCap

pays a management and administrative services fee to JBT.

D&P, incorporated in Virginia in 1949 under the name Industrial

Display, Inc., is an exhibit and graphics design firm which fabricates

and installs custom exhibits and audio-visual systems for museums,

trade shows, theme parks, and other exhibitions under fixed-price

contracts with various governments and private industries. D&P owns the

building which includes the offices and shop of JBT in Lorton,

Virginia. Julian F. Barnwell, a minority shareholder and member of the

Board of JBT is the President of D&P.

Starr, a Delaware corporation established in 1972, primarily

engages in property management and secondarily in property development.

Starr owns the collateral which will secure the outstanding balance of

the installment payments with respect to the proposed transaction. Mr.

Toomey is the president and chief executive officer of Starr. Starr

pays a management and administrative services fee to JBT.

4. The stock of JBT is closely held by Mr. Toomey, his immediate

family, and his IRA. Mr. Toomey and his family own a 96.38 percent

(96.38%) interest or 963.8 shares out of the 1000 issued and

outstanding shares of JBT Stock. The IRA owns a 3.62 percent (3.62%)

interest in JBT or 36.2 shares of the 1,000 issued and outstanding

shares of JBT Stock. As Mr. Toomey and his family are the only

shareholders of the Stock, other than the IRA, there is concern that

potential conflicts of interest may arise between the actions Mr.

Toomey takes on behalf of his IRA and the business decisions he makes

with respect to JBT. Mr. Toomey is also concerned that the

diversification and liquidity of the IRA portfolio is limited by the

IRA's continued holding of the Stock. Accordingly, Mr. Toomey requests

an exemption to permit JBT to purchase the Stock from the IRA. In this

regard, JBT is a disqualified person with respect to the IRA, pursuant

to section 4975(e)(2)(G) of the Code, because fifty percent (50%) of

the Stock of JBT is owned by Mr. Toomey, a fiduciary and disqualified

person with respect to the IRA.

5. JBT has offered to purchase the 36.2 shares of the JBT Stock

currently held by the IRA at the greater of $410,146 or the fair market

value of the Stock on the date of the sale. However, in this regard, it

is represented that JBT would suffer a large cash drain in paying all

of the purchase price to the IRA in a single lump sum. For this reason,

JBT proposes to purchase the Stock in an installment sale. It is

represented that immediately upon execution of the transaction JBT will

receive all of the Stock from the IRA in exchange for a cash

downpayment of $210,146 of the purchase price made to the IRA.

Thereafter, it is represented that JBT will pay off the remaining

portion of the purchase price of the Stock in three (3) equal annual

installment payments of $66,667. The first of the installment payments

is due and payable December 31, 1995. Further, JBT proposes to pay

[[Page 37684]]

annually interest at the rate of 10 percent (10%) per annum on the

outstanding balance of the installment payments, until all installment

payments have been made on or before December 31, 1997. In this regard,

C.S. Burke III (Mr. Burke), Senior Vice President of Burke & Herbert

Bank and Trust Company of Alexandria, Virginia, after reviewing the

terms of the transaction, stated, in a letter dated December 29, 1994,

that the terms of the proposed transaction are commercially reasonable

with regard to common banking practices of which he is familiar, carry

a reasonable rate of interest, and have terms which conform to standard

lending practices. It is further represented that Mr. Burke will

determine that the interest rate paid by JBT on the outstanding balance

of the installment payments will not be less than the fair market

interest rate, as of the date the transaction is entered. With regard

to the payment of interest by JBT, Loretta S. Sebastian, vice president

and secretary of JBT, has represented in a letter dated December 28,

1994, that she is the corporate official responsible for ensuring that

all installment payments, plus interest payable to the IRA, shall be

paid timely and completely by JBT when due.

It is anticipated that the outstanding balance of the installment

payments at no time will exceed 25 percent (25%) of the value of the

assets of the IRA and will be secured by the value of the Stock and by

a recorded first mortgage interest in the value of two (2) parcels of

real property (the Properties). It is represented that upon

satisfactory payment of the third and final installment payment to the

IRA, the mortgages encumbering the Properties shall be cancelled and

the 36.2 shares of JBT Stock then held by JBT shall be retired.

6. The two Properties which JBT will pledge to secure the

outstanding balance of the installment payments are described as three

bedroom residential townhouse condominiums in the Mill Creek

Condominium development. The Properties, located at 758 and 762 Belle

Field Road on Solomons Island in Dowell, Maryland, are rented for $950

and $995 a month, respectively. Both of the Properties were five (5)

years of age in 1993, and are listed in good condition.

7. On September 1, 1993, the Properties were appraised by Ruth

Hendricks and John W. Hersman, SRA, of Maryland Appraisal Services,

Inc., located in Prince Frederick, Maryland. The appraisers are

independent in that they have no present or prospective interest in the

Properties and no personal interest or bias with respect to the parties

involved. The appraisers are qualified to value the Properties in that

each is certified by the State of Maryland and are members of

professional organizations.

As of June 1, 1993, the property located at 758 Belle Field Road

was appraised at $200,000. As of June 2, 1993, the property located at

762 Belle Field Road was appraised at $195,000. It is represented that

the aggregate appraised fair market value of the two Properties is

$395,000 which will constitute approximately 198% of the total

installment payments due to the IRA after the downpayment has been made

by JBT.

8. It is represented that selling the Stock to JBT is in the

interest of the IRA and that the proposed transaction will increase the

liquidity of the IRA and facilitate distributions required by law. In

this regard, as Mr. Toomey is presently seventy (70) years of age, and

it is represented that in the near future the IRA will need more cash

than it currently holds in order to make distributions in a timely

manner and in the correct amount to Mr. Toomey.

Further, as the JBT Stock constitutes more than 50% of the value of

the total assets of the IRA, the IRA's portfolio lacks diversification.

In this regard, it is represented that the proposed transaction is in

the interest of the IRA in that a non-liquid, non-performing asset will

be replaced at not less than its fair market value by an asset that is

both liquid and performing.

9. It is represented that the transaction is feasible in that the

IRA will incur no commissions, fees, or other expenses in connection

with the transaction. In this regard, Mr. Toomey has represented that

he will be personally responsible for any and all costs incurred as a

result of the proposed transaction. Further, Mr. Toomey represents that

the cost of the exemption application and of notifying interested

persons will be borne by JBT.

10. It is represented that the purchase price for the Stock

proposed by JBT is protective of the IRA in that the IRA will receive

the greater of $410,146 or the fair market value of the Stock on the

date of the sale, as determined by a qualified independent appraiser.

In this regard, for the purpose of determining the fair market value of

the Stock, a valuation of JBT and its subsidiaries was prepared in a

Business Valuation Report dated July 20, 1994, by Councilor, Buchanan &

Mitchell, P.C., a certified public accounting firm with offices in

Bethesda, Maryland (the CPA). According to the CPA, the value of JBT

and its subsidiaries, as of December 31, 1993, was $15,107,258, and the

value of the 1,000 shares of Stock issued and outstanding equaled

$15,107 per share. However, in the opinion of the CPA, a 25 percent

(25%) discount on the adjusted net assets of JBT should be imposed for

lack of marketability. In this regard, the CPA considered the

illiquidity of JBT's corporate assets and the related costs to market

and consummate sales transactions for the unrelated business operations

of the JBT subsidiaries, as negative influences on the value of JBT.

Accordingly, the CPA determined that the discounted value per share of

the Stock equalled $11,330. Based on this evaluation, it is represented

that the aggregate fair market value of the 36.2 shares of the JBT

Stock held by the IRA was $410,146, as of December 31, 1993. It is

represented that neither the professionals who worked on this valuation

nor the officers or directors of the CPA have any financial interest in

JBT, nor was the fee contingent on the value reported for the Stock.

It is further represented that the terms of the proposed

transaction are no less favorable to the IRA than those negotiated at

arm's length with unrelated third parties in similar circumstances. In

this regard, Mr. Burke, an independent qualified third party has

determined that the terms of the proposed transaction are commercially

reasonable and conform to standard lending practices and that the

interest rate is reasonable. It is further represented that Mr. Burke

will determine that the interest rate paid by JBT on the outstanding

balance of the installment payments will not be less than the fair

market interest rate, as of the date the transaction is entered.

Further, the interests of the IRA will be protected throughout the

duration of the transaction. In this regard, it is represented that a

new legal document will be drawn that appoints Advest Bank as trustee

for the limited and express purpose of holding and enforcing the

provisions of the proposed transaction. It is anticipated that the

assets which are the subject this proposed exemption will be held

separately from other IRA assets which are under the custody of Advest,

Inc. To accomplish this, a separate custody account will be established

at Advest Bank. It is represented that Advest Bank will be responsible

for collecting from JBT the installment payments and the interest when

due. It is represented that the cash so received by Advest Bank will be

transferred on a trustee-to-trustee basis into the IRA at Advest Inc.

In the event JBT defaults, it is represented that Advest Bank will

foreclose on the Properties which serve

[[Page 37685]]

as collateral and secure the outstanding balance of the installment

payments in order to protect the IRA.

11. In summary, Mr. Toomey, the applicant, represents that the

proposed transaction meets the statutory criteria of section 4975(c)(2)

of the Code because:

(a) the purchase price JBT pays for the Stock will be the greater

of $410,146 or the fair market value of the Stock on the date of the

sale;

(b) the fair market value of the Stock will be determined by a

qualified independent appraiser, as of the date of the sale;

(c) the terms of the transaction will be no less favorable to the

IRA than those negotiated at arm's length with unrelated third parties

in similar circumstances;

(d) Advest Bank, acting as trustee on behalf of the IRA, will

monitor compliance with the terms of the transaction throughout the

duration of the installment sale;

(e) the IRA will receive a cash downpayment of no less than

$210,146 on the date of the sale and thereafter will receive three (3)

equal annual installment payments of $66,667, the first of which is due

and payable December 31, 1995, plus interest at the fair market rate of

interest, as determined by an independent, qualified third party, as of

the date of the transaction, on the outstanding balance of the

installment payments, payable annually until all the installment

payments have been made by JBT on or before December 31, 1997;

(f) the outstanding balance of the installment payments will at no

time exceed 25 percent (25%) of the value of the assets of the IRA;

(g) the outstanding balance on the installment payments will be

secured by a recorded first mortgage interest in real property pledged

by JBT in favor of the IRA;

(h) the collateral which will secure the installment payments has a

value, as determined by an independent, qualified appraiser, which at

all times will be no less than 150 percent (150%) of the outstanding

balance of the installment payments; and

(i) the IRA will pay no commissions, fees, or other expenses in

connection with the transaction.

Notice to Interested Persons: Because Mr. Toomey is the only

participant in the IRA, it has been determined that there is no need to

distribute the notice of proposed exemption to interested persons.

Comments and requests for a hearing are due thirty (30) days after

publication of this notice in the Federal Register.

For Further Information Contact: Angelena C. Le Blanc of the

Department (202) 219-8883. (This is not a toll-free number.)

John L. Rust Co. Profit Sharing Plan (the Plan) Located in

Albuquerque, New Mexico [Application No. D-09943]

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 past and proposed purchases by the Plan

of certain leases of equipment (the Leases) from John L. Rust Co.

(Rust), the Plan sponsor and a party in interest with respect to the

Plan, and (2) the agreement by Rust to indemnify the Plan against any

loss relating to the Leases and also to repurchase any Leases that are

in default in accordance with paragraph (E) below, provided that the

following conditions are met:

A. Any sale of Leases to the Plan will be on terms at least as

favorable to the Plan as an arm's length transaction with an unrelated

third party would be.

B. Subsequent to the date of publication of this proposed

exemption, the acquisition of a Lease from Rust shall not cause the

Plan to hold immediately following the acquisition (i) more than 25% of

the current value (as that term is defined in section 3(26) of the Act)

of Plan assets in customer notes and Leases sold by Rust or (ii) more

than 10% of Plan assets in the aggregate of Leases with and customer

notes of any one entity.

C. Prior to the purchase of each Lease, an independent, qualified

fiduciary must determine that the purchase is appropriate and suitable

for the Plan and that any Lease purchase is a fair market value

transaction.

D. The independent fiduciary, on behalf of the Plan, will monitor

the terms of the Leases and the exemption and take whatever action is

necessary to enforce the rights of the Plan.

E. Upon default by the lessee on any payment due under a Lease,

Rust has agreed to repurchase the Lease from the Plan at the payout

value 7 as of the date of the default, without discount, and to

indemnify the Plan for any loss suffered. The occurrence of any of the

following events shall be considered events of default for purposes of

this section: The lessee's failure to pay any amounts due hereunder

within five days after receipt of written notice from the Plan's

independent fiduciary, or the lessee's failure to pay any amounts due

hereunder within 30 days after payment becomes past due, if earlier;

the lessee's failure to perform any other obligation under this

agreement within ten days of receipt of written notice from the Plan's

independent fiduciary; abandonment of the equipment by the lessee; the

lessee's cessation of business; the commencement of any proceeding in

bankruptcy, receivership or insolvency or assignment for the benefit of

creditors by the lessee; false representation by the lessee as to its

credit or financial standing; attachment or execution levied on

lessee's property; or use of the equipment by third parties without

lessor's prior written consent.

\7\ ``Payout value'' of a Lease is defined as the price that the

lessee would pay at any point in time to obtain title to the leased

property.

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

F. The Plan receives adequate security for the Lease. For purposes

of this exemption, the term adequate security means that the Lease is

secured by a perfected security interest in the leased property which

will name the Plan as the secured party.

G. Insurance against loss or damage to the leased property from

fire or other hazards will be procured and maintained by the lessee and

the proceeds from such insurance will be assigned to the Plan.

H. The Plan shall maintain for the duration of any Lease which is

sold to the Plan pursuant to this exemption, records necessary to

determine whether the conditions of this exemption have been met. The

Plan will continue to maintain the records for a period of six years

following the expiration of the Lease or the disposition by the Plan of

the Lease. The records referred to above must be unconditionally

available at their customary location for examination, for purposes

reasonably related to protecting rights under the Plan, during normal

business hours by the Internal Revenue Service, the Department of

Labor, Plan participants, any employer organization any of whose

members are covered by the Plan, or any duly authorized employee or

representative of the above described persons.

Temporary Nature of Exemption

Effective Date: The proposed exemption, if granted, will be

effective December 30, 1985. However, the proposed exemption is

temporary and, if granted, will expire five years from

[[Page 37686]]

the date the exemption is granted with respect to the Plan's future

purchases of Leases. The Plan may hold the Leases pursuant to the terms

of the exemption subsequent to the end of the five year period.

Summary of Facts and Representations

1. The Plan is a profit sharing plan which currently has 302

participants and assets with an approximate aggregate fair market value

of $14,587,290. Rust, which does business as Rust Tractor Co. in

Albuquerque, New Mexico, is in the business of selling heavy

construction equipment. The Plan's trustee is Sunwest Bank of

Albuquerque, N.A. (the Bank).

2. On April 3, 1985, the Department published Prohibited

Transaction Class Exemption 85-68 (PTE 85-68, 50 FR 13293) which

permits, under certain conditions, a plan to purchase and hold customer

notes (Notes) from an employer of employees covered by the plan. The

applicant represents that the Plan has acquired and held many Notes

from Rust since 1985 in compliance with the terms and conditions of PTE

85-68.8

\8\ In this proposed exemption, the Department expresses no

opinion with respect to the applicability of PTE 85-68 to the Plan's

acquisition and holding of such Notes.

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

3. In addition, the Plan has also acquired from Rust, since

December 30, 1985, approximately 76 Leases. These Leases are secured

leases which were accepted by Rust in the normal course of its primary

business activity as the seller of heavy construction equipment. The

Leases involve equipment which is leased to third parties. The

applicant represents that the Plan acquired the Leases from Rust in the

belief that such transactions were also covered by PTE 85-68. The

applicant has now requested retroactive relief with respect to the

Plan's past acquisition of such Leases, and has also requested an

exemption to permit the Plan to purchase additional Leases from Rust

over a five year period.

4. The applicant represents that each of the transactions involving

the Plan's acquisition of the Leases would have satisfied the

conditions of PTE 85-68, but for the fact that these were Leases and

not Notes. The applicant further represents that these conditions will

continue to be satisfied with respect to future purchases by the Plan

of Leases. The applicant specifies that the conditions of PTE 85-68

have been satisfied in the following manner:

(a) Prior to the purchase of any Lease, the transaction has been

reviewed by Mr. Charles R. Seward, C.P.A., an independent certified

public accountant who is the Plan's independent fiduciary with respect

to this series of transactions. Mr. Seward performs no other services

for either Rust or the Plan. On-going review of the performance of the

customer-obligors is performed by the Bank, the Plan's independent

trustee. In the event that a default in payment occurs, Rust is

notified by the Bank and an immediate repurchase is effected for cash;

(b) The transactions have been on terms at least as favorable to

the Plan as an arm's-length transaction with an unrelated party would

be. The Plan's independent fiduciary, Mr. Seward, has represented that

each transaction that he has approved for the Plan involving a Note or

Lease has been in the best interests of the Plan and its participants.

Mr. Seward further represents that each such transaction was for a

price and on terms and conditions no less favorable to the Plan, and in

many respects more favorable, than such transactions have in the past

been engaged in between Rust and third party financial institutions;

(c) At no time has the value of the Notes/Leases held by the Plan

approached 50% of the Plan's assets. As of December 31, 1992, the

Notes/Leases represented 17.9% of the Plan's assets, and they

represented 12.2% as of December 31, 1993. At no time have the Notes/

Leases of any one customer exceeded 10% of the Plan's assets. With

respect to Notes and Leases acquired by the Plan subsequent to the

publication of this proposed exemption, the applicant represents that

the value of such Notes and Leases in the aggregate will constitute no

more than 25% of the total value of Plan assets.

(d) Rust has guaranteed immediate repayment of any defaulted

obligation. The applicant represents that there have been defaults in

only two of the 76 Leases, and Rust has repurchased both of those

Leases;

(e) The Plan receives a perfected security interest in the tangible

personal property purchased from Rust in return for the Note/Lease;

(f) The obligor is required to insure the collateral against fire

and other hazards; and

(g) None of the terms of the Notes/Leases extends beyond the 60

month period applicable to Notes secured by heavy equipment.

5. The applicant represents that the Leases create essentially the

same risk and obligations on the parties as a sale transaction, and

thus pose no greater risk of loss to the Plan than in the case of the

acquisition of a Note which is subject to PTE 85-68. To date the Plan

has suffered no loss on any subject Lease transaction. Before entering

into either a Note or Lease, Rust performs the same type of due

diligence and requests the same type of financial information from the

prospective purchaser/lessee. The agreements governing the transactions

are very similar in that:

(a) Both transactions provide for monthly installments to pay for

the use and possession of the equipment;

(b) Financing statements are filed by Rust in connection with both

transactions;

(c) Upon default, Rust may accelerate the lessee/purchaser's

obligations and immediately regain possession of the subject equipment;

(d) In the event of default under either transaction, Rust is

entitled to its enforcement costs, including reasonable attorneys'

fees;

(e) Both types of transactions contain warranty disclaimers and

sell/lease the subject equipment ``AS IS WHERE IS'' with no express or

implied warranties except the pass-through of the manufacturer's

warranties;

(f) When either a Note or a Lease is sold to the Plan, an identical

form of guarantee is executed by Rust in favor of the Plan as required

by PTE 85-68. In the few transactions sold to the Plan which have gone

into default, Rust has performed under its guarantees and the Plan has

suffered no loss;

(g) Under New Mexico law, there is no practical difference in the

rights and obligations of Rust between the subject Lease transactions

and sales transactions involving Notes. The essential terms and

conditions of the two types of transactions are identical.

6. In summary, the applicant represents that the proposed sales of

the Leases by the Employer to the Plan meet the requirements of section

408(a) of the Act, because: (a) the sales will be limited to a five

year period and will be limited to 25% of Plan assets with the

condition that no more than 10% of Plan assets be invested in the

Leases or Notes of any one customer; (b) the decision to purchase a

Lease will be made by Mr. Seward acting as independent fiduciary for

the Plan, and the customer/obligor's performance under the Lease will

be monitored by the Bank acting as independent fiduciary on behalf of

the Plan; (c) perfected security interests will be filed on the

equipment; and (d) Rust will agree to indemnify the Plan against any

loss related to the Leases and to repurchase any Leases that are in

default.

For Further Information Contact: Mr. Gary Lefkowitz of the

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

[[Page 37687]]

Leavitt Group Profit Sharing and Retirement

Savings Plan (the Plan)

Located in Cedar City, Utah

[Application No. D-09979]

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 certain real property (the Property) to the Cedar

Development Corporation (CDC), 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 suffer any loss nor incur any expense from the

proposed transaction; and (3) the Plan receives as consideration from

the Sale the greater of either $310,000 or the fair market value of the

Property as determined by a qualified, independent appraiser on the

date of the Sale.

Summary of Facts and Representations

1. The Plan is a defined contribution plan within the meaning of

section 3(34) of the Act and a qualified profit sharing plan under

section 401(a) of the Code and includes a cash or deferred arrangement

under section 401(k) of the Code. Its related trust is exempt from

taxation under section 501(a) of the Code. Effective October 1, 1994,

the Plan adopted an investment policy allowing all participants of the

Plan to direct investments of their Plan accounts into funds selected

by the administrator of the Plan.

As of October 1, 1994, the Plan had 163 participants and total

assets of $5,317,000, of which approximately 5.8 percent is invested in

the Property.

The Plan was established effective January 1, 1975, by Security

Enterprises Limited (SEL) and has since been adopted by some 40

entities affiliated with SEL, including CDC.

The fiduciary of the Plan is Dane O. Leavitt, who is the sole

shareholder of Dane O. Leavitt, Inc. that owns one-seventh of SEL. Mr.

Leavitt also holds a one-seventh interest, as a shareholder, in CDC,

and is the Secretary of CDC. Mr. Leavitt is also the President of Dixie

Insurance Agency which is the corporate general partner of SEL.

2. SEL is a Nevada limited partnership established December 27,

1972. It is owned equally by 7 corporations of which each corporation

is wholly-owned by either one shareholder or by two, who are husband

and wife. The individual shareholders are all related family members.

SEL is engaged primarily in owning and providing services for

affiliated insurance agencies.

CDC, a Nevada corporation that is wholly-owned by the same family

members who control SEL, was established on February 14, 1966, and is

engaged primarily in the ownership and development of real estate. CDC

is also one of the sponsoring employers of the Plan.

3. The Property consists of 517.2 acres of mountain property, with

attendant water rights, that is located on an area of Southwest Utah,

known as Kamarra Mountain, in Iron County. The primary use of the area

is for agricultural rangeland and recreation. Over the years the Plan

leased the Property to unrelated persons for grazing purposes and has

not undertaken any development of the Property. The Property has not

produced any significant income for the Plan. Currently it is

generating approximately $1,800 per year in grazing fees from local

cattlemen and wool growers. Annual property taxes paid by the Plan have

averaged under $100.

The Plan acquired the Property on January 16, 1981, by warranty

deed executed by Barbara S. Williams.\9\ Barbara Williams was not a

party in interest with respect to the Plan nor related in anyway to any

of the sponsors of the Plan or their shareholders. Barbara Williams

conveyed the Property to the Plan as repayment of a $194,889.39 loan on

January 16, 1981, made by the Plan, which enabled Barbara Williams to

redeem the Property from a foreclosure sale instituted by the State

Bank of Southern Utah. The Plan used this loan of $194,889.39 as the

initial value for the Property. Since 1981 the Plan expended an

additional $69,200 for physical improvements to the Property, legal

fees, and payment of liens to obtain clear title to the Property. Based

on appraisals, the Property increased in value during the period from

1981 to 1984, and then, during the period from 1984 to 1991 decreased

in value. The announcement of anticipated MX Missile sites in the area

that the Property is located caused a wave of land speculation

throughout southern Utah. When there was a later announcement that the

MX Missile system would not be built, land values plummeted in the area

of the Property. The Plan has attempted to sell the Property by

contacting realtors in the area and entered into several single party

listing agreements. None of the agreements resulted in any offers to

purchase the Property. In the spring of 1986 and again in 1987, the

Plan advertised the Property for sale in newspapers of major cities in

Utah, Nevada, Arizona, and California. Several bids were received by

the Plan and one was accepted; however, the proposed purchaser

defaulted and the sale was not consummated. The applicant represents

that it is doubtful that the Plan could sell the Property for its

current appraised value of $310,000 because of the property values in

the areas of the Property. Two realtors from Cedar City, Utah in

letters concur with applicant's conclusion as to the improbability of

selling the Property at its current appraised value.

\9\ The Department notes that the decisions to acquire and hold

the Property are governed by the fiduciary responsibility provisions

of Part 4 of Title I of the Act. In this regard 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 Property.

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

Mr. Bradford C. Schmutz, a Certified General Appraiser, State of

Utah, located in Cedar City, Utah, determined the fair market value of

the Property was $310,000, as of November 30, 1994. Mr. Schmutz

represented that the Property has been personally inspected by him on

various dates, although not on the date of the appraisal determination,

because of snow conditions. He describes the Property as having 517.2

acres, agricultural mountain grazing land with a small, old cabin and

some ponds on the Property. The Property is located at an elevation

from approximately 7,000 feet to 8,600 feet. The winter months with the

snow pack make the area impassible except by snowmobile.

4. CDC proposes to purchase the Property from the Plan for cash for

the greater of either $310,000 or the fair market value as determined

by appraisal at the time of the Sale. The applicant represents that the

Plan will not incur any costs associated with the proposed Sale and

will suffer no loss.

The applicant represents that the proposed transaction will be in

the best interests of the Plan and its participants and beneficiaries

because the Plan will recover all the funds spent in acquiring and

holding the Property to the date of the Sale. In addition, the

applicant represents that the Plan will not continue to hold an

illiquid investment which has proven difficult to sell, and the funds

received from the Sale can be

[[Page 37688]]

put to better use in income producing assets at the direction of

participants. This will assist the Plan in achieving its goal of having

all Plan assets invested at the direction of Plan participants pursuant

to the Plan's current investment policy. Furthermore, it is represented

by the applicant that all costs in connection with the exemption

application will be paid by the sponsor of the Plan.

5. In summary, the applicant represents that the proposed

transaction will satisfy the criteria of section 408(a) of the Act

because (a) the Sale involves a one-time transaction for cash; (b) the

Plan will not incur any expenses or losses from the Sale, (c) the Plan

will receive as consideration from the Sale the greater of either

$310,000 or the fair market value of the Property as determined by a

qualified, independent appraiser on the date of the Sale; (d) the Sale

will permit the Plan to obtain liquid funds that can be reinvested at

the direction of the participants in higher yielding and more liquid

assets; and (e) the Plan will not have to risk its assets in the

development of the Property.

For Further Information Contact: Mr. C.E. Beaver of the Department,

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

Rollover Individual Retirement Accounts for Joseph Shepard, Located

in Jacksonville, Florida; William Haspel, Located in Bethesda,

Maryland; and Richard Geisendaffer, Paul Petryszak, William Kroh and

Rolf Graage, Located in Baltimore, Maryland (collectively, the IRAs)

[Application Nos. D-10054-10059]

Proposed Exemption

The Department is considering granting an exemption under the

authority of 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 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 sale by the IRAs of all the common stock (the Stock) of

Purchase Port Services, Inc. (PPS) held by the IRAs to PPS, provided

that the following conditions are satisfied: (1) the sale of Stock by

each IRA is a one-time transaction for cash; (2) no commissions or

other expenses are paid by the IRAs in connection with the sale; and

(3) the IRAs receive the greater of: (a) the fair market value of the

Stock as determined by a qualified independent appraiser as of May 31,

1995, or (b) the fair market value of the Stock as of the time of the

sale.10

\10\ Pursuant to 29 CFR 2510.3-2(d), the IRAs are not within the

jurisdiction of Title I of the Act. However, there is jurisdiction

under Title II of the Act pursuant to section 4975 of the Code.

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

Effective Date: If the proposed exemption is granted, the exemption

will be effective July 31, 1995.

Summary of Facts and Representations

1. The IRA participants are officers, shareholders, directors and/

or key employees of PPS. PPS has authorized one class of Stock, of

which 30,000 shares are issued and outstanding. Approximately 72.09% of

the Stock is individually owned by the shareholders whose IRAs are the

subject of this proposed exemption. The remaining 27.91% of the Stock

is held by the IRAs.

2. The Stock held by the IRAs was acquired in 1984 by two profit

sharing plans, the GK Management, Inc. Profit Sharing Plan and the Port

Management Services, Inc. Profit Sharing Plan (the Plans). The Stock

ownership by the Plans resulted from self- directed investments made by

the Plans' participants.

3. The Plans were terminated in 1988 because they could not satisfy

the requirements of section 401(a)(26) of the Code, which became

effective on January 1, 1989. Upon the termination of the Plans, the

Stock of each participant under the Plans was rolled over to self-

directed IRAs established for the benefit of each participant. These

rollovers were made in accordance with the provisions of section 402 of

the Code as then in effect.

4. Business and income tax considerations have compelled PPS to

consider making an election to be taxed as a ``Subchapter S''

Corporation under section 1362(a) of the Code. However, IRAs cannot be

shareholders of an ``S'' corporation. Accordingly, the applicants have

requested an exemption to permit the IRAs to sell all of their shares

of the Stock (8,374 in the aggregate) to PPS at their fair market

value.

5. There is no established market for PPS Stock. PPS obtained an

appraisal of the Stock dated May 31, 1995 from Barry Goodman, CFA, CPA,

CBA, ASA, an independent business consultant and financial analyst in

Washington, D.C. The applicants represent that Mr. Goodman is

independent of the IRAs, their participants and PPS. Mr. Goodman has

appraised the Stock as having a fair market value of $825.30 a share as

of May 31, 1995.

6. The applicants have requested the exemption proposed herein to

permit PPS to purchase all of the Stock held in their IRAs. PPS will

pay the greater of (i) the fair market value of the PPS Stock as of May

31, 1995 as established by Mr. Goodman's appraisal, or (ii) the fair

market value of the Stock as of the date of the sale. The IRAs will pay

no fees, commissions or other expenses in connection with the

transactions.

7. The applicants represent that presently the assets of each of

the IRAs consist almost entirely of appreciated PPS Stock. Therefore,

the IRAs have virtually no diversity and no liquidity. The applicants

further represent that, as a practical matter, the only potential

purchasers of the Stock at full fair market value are the IRA

participants and PPS, with the effect that the IRAs would have great

difficulty disposing of the Stock in a transaction at full value that

did not involve a sale to disqualified persons. The IRA participants

have attained, or will shortly attain, age 59\1/2\; therefore, it will

be appropriate for the IRAs to commence distribution to their

participants in the near term. Thus, the applicants represent that the

proposed exemption will be in the interest of the IRA participants and

their beneficiaries because it would make the IRAs liquid, provide

diversity, maximize the value of the PPS Stock held by the IRAs, and

permit cash distributions to the IRA participants (and/or to their

beneficiaries) when such distributions are appropriate and/or required

by the Code.

8. In summary, the applicants represent that the proposed

transactions satisfy the criteria contained in section 4975(c)(2) of

the Code because: (a) the proposed sales will be one-time transactions

for cash; (b) no commissions or other expenses will be paid by the IRAs

in connection with the sales; (c) the IRAs will be receiving not less

than the fair market value of the Stock as determined by a qualified,

independent expert; and (d) each of the IRA participants is the only

participant in his IRA, and each has determined that the proposed

transaction is appropriate for and in the best interest of his IRA and

desires that the transaction be consummated with respect to his IRA.

Notice to Interested Persons: Because each of the IRA participants

is the only participant in his own IRA, it has been determined that

there is no need to distribute the notice of proposed exemption to

interested persons. Comments and requests for a hearing are due 30 days

after publication of this notice in the Federal Register.

For Further Information Contact: Gary H. Lefkowitz of the

Department,

[[Page 37689]]

telephone (202) 219-8881. (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 18th day of July 1995.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 95-17961 Filed 7-20-95; 8:45 am]

BILLING CODE 4510-29-P