Navistar International Transportation Corporation (Navistar); Located in Chicago, IL and the Supplemental Program Committee of the Navistar International Transportation Corporation Retiree Health Benefit and Life Insurance Plan (Supplemental Program Committee) Located in Euclid, OH

Federal RegisterJun 19, 1998

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application Nos. D-10470 and D-10576]

Navistar International Transportation Corporation (Navistar);

Located in Chicago, IL and the Supplemental Program Committee of the

Navistar International Transportation Corporation Retiree Health

Benefit and Life Insurance Plan (Supplemental Program Committee)

Located in Euclid, OH

AGENCY: Department of Labor.

ACTION: Notice of proposed amendments to Prohibited Transaction

Exemption (PTE) 93-69

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SUMMARY: This document contains a notice of pendency before the

Department of Labor (the Department) of proposed amendments to PTE 93-

69 [58 FR 51105, September 30, 1993]. PTE 93-69 provides an exemption

from certain prohibited transaction restrictions of the Employee

Retirement Income Security Act of 1974 for: (1) the acquisition and

holding by the Navistar International Transportation Corporation

Retiree Health Benefit and Life Insurance Plan (New Plan) of shares of

Class B Common Stock and Series A Preference Stock of Navistar

International Corporation (NIC); (2) the holding by the New Plan of

shares of NIC Common Stock resulting from the conversion of NIC Class B

Common Stock into such shares; (3) the extension of credit between

Navistar and the New Plan, which may occur in conjunction with

Navistar's annual obligation to advance funds to the Supplementary

Benefit Program Trust; and (4) the sale of shares of NIC Class B Common

Stock by the New Plan to Navistar. The proposed amendments, if granted,

would affect participants and beneficiaries of, and fiduciaries with

respect to the New Plan.

EFFECTIVE DATE: If granted, the proposed amendments will be effective

July 1, 1998.

DATES: Written comments and requests for a public hearing must be

received by the Department of Labor on or before the expiration of

August 3, 1998.

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

three copies) should be sent to the Office of Exemption Determinations,

Pension and Welfare Benefits Administration, room N-5649, U.S.

Department of Labor, 200 Constitution Avenue, NW., Washington DC 20210,

Attention: Application Nos. D-10470 and D-10576. The applications for

amendments and the comments received will be available for public

inspection in the Public Documents Room of the Pension and Welfare

Benefits Administration, U.S. Department of Labor, room N-5638, 200

Constitution Avenue, NW., Washington DC 20210.

FOR FURTHER INFORMATION CONTACT: Lyssa E. Hall of the Department of

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

SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency

before the Department of proposed amendments to PTE 93-69. The proposed

amendments were requested in applications filed by the Supplemental

Program Committee and Navistar pursuant to section 408(a) of the Act

and in accordance with procedures set forth in 29 CFR part 2570,

subpart B (55 FR 32836, 32847. August 10, 1990). One of the proposed

amendments would permit William Craig, a member of the Supplemental

Program Committee, to continue to serve on the NIC board of directors

beyond the termination of the Lock-up Period. The other amendment would

permit the sale of shares of NIC Common Stock by the New Plan to NIC or

Navistar for not less than adequate consideration as defined in section

3(18) of the Act.

Summary of Facts and Representations

The applications contain representations with regard to the

proposed amendments which are summarized below. Interested persons are

referred to the applications on file with the Department for the

complete representations of the applicants.

1. Background

(a) Navistar, a Delaware corporation headquartered in Chicago,

Illinois, is a manufacturer of large and medium size trucks and mid-

range diesel engines.

(b) NIC is a publicly-traded corporation which wholly owns

Navistar.

which is responsible for managing the assets of the Supplemental

Benefit Program Trust.

(d) In 1992 , Navistar proposed to terminate its retiree health and

life insurance benefit program and to replace it with a plan providing

a reduced schedule of benefits. The New Plan was created as part of the

1993 settlement of a class action which was filed by the Navistar

retirees against Navistar in response to the proposed

[[Page 33733]]

termination.1 The New Plan consists of two parts, the

Retiree Health Benefit Program and Trust (``Base Program'' and ``Base

Trust'') and the Supplemental Benefit Program and Trust. The

Supplemental Benefit Program Trust was initially funded with

approximately 255 million shares of NIC Class B Common Stock.

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\1\ Shy et al. v. Navistar International Corporation, et. al.,

Civil Action No. C-3-92-333 (S.D. Ohio, 1992) (Shy Settlement).

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Until the end of the Lock-up Period (July 1, 1998),2 the

NIC Class B Common Stock generally is restricted and has no voting or

transfer rights. The NIC Class B Common Stock certificates bear a

legend indicating that the stock has not been registered under the

Securities Act of 1933 and may not be sold or transferred. In addition,

under the terms of NIC's Certificate of Incorporation and pursuant to

the Shy Settlement, the Supplemental Benefit Program Trust could not

sell its Class B Common Stock until the end of the Lock-up Period,

except in a transaction approved by NIC's board of directors. On July

1, 1998 (or upon an earlier sale approved by the Board), the Class B

Common Stock will automatically convert to NIC Common Stock, a widely-

held publicly-traded New York Stock Exchange security with full voting

rights. After the Lock-up Period expires, a Registration Rights

Agreement gives the Supplemental Benefit Program Trust the right to

require NIC to register the Supplemental Benefit Program Trust's NIC

Common Stock and the exclusive right to sell NIC Common Stock to the

public for five years or until the sale of $500 million in NIC Common

Stock by the Supplemental Benefit Program Trust, whichever occurs

first. All decisions regarding management of the Supplemental Benefit

Trust, including decisions affecting the NIC stock, are made by a five-

person committee, the Supplemental Program Committee.

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\2\ The period beginning on the date of the contribution of

Class B Common Stock to the Supplemental Benefit Program Trust in

1993 until July 1, 1998 is the ``Lock-up Period''.

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PTE 93-69 provides, in part, that effective July 1, 1993, the

restrictions of sections 406(a), 406(b)(1), 406(b)(2) and 407(a) of the

Act shall not apply to the acquisition and holding by the New Plan of

Class B Common Stock, the extension of credit which may occur in

conjunction with Navistar's annual obligation to advance funds to the

Supplemental Benefit Trust the holding by the New Plan of shares of NIC

Common Stock resulting from the conversion of NIC Class B Common Stock

into such shares, or the sale of NIC Class B Common Stock by the New

Plan to Navistar. One of the conditions in the notice of proposed

exemption for PTE 93-69 3 requires in part, that:

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\3\ 58 FR 35467, 35468 (July 1, 1993).

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(1) the majority of the members of the Supplemental Program

Committee would be individuals who:

(a) Are not affiliates of Navistar, NIC or the UAW;

(b) Did not have any ownership interest in Navistar or NIC;

or partners of a person in which NIC has an ownership interest.

In commenting on the proposed exemption, the UAW requested that the

final exemption permit the Supplemental Program Committee to name one

of its non-UAW members to serve on NIC's board of directors. The UAW

represented that the failure to allow a non-UAW member of the

Supplemental Program Committee to serve on NIC's board of directors

would impair the Committee's ability to pursue the most prudent course

towards maximizing the value of the Supplemental Benefit Program Trust.

The UAW stated that the Supplemental Program Committee desired to make

[board] selections that would best facilitate the Committee's efforts

to protect its stake in the company. The UAW further stated that

without dual membership on the part of at least one of its

appointments, the Committee felt that its ability to act as an

effective ``watchdog'' over NIC's management would be materially

diminished. After considering the UAW's comment, the Department decided

to modify the final exemption to permit one of the three non-UAW

members of the Supplemental Program Committee to serve on NIC's board

of directors during the Lock-up Period. In this regard, William Craig

has served on NIC's board of directors as well as on the Supplemental

Program Committee up to the present time.

2. The Supplemental Program Committee's Requested Amendment

(a) In support of its application to amend PTE 93-69 to allow Mr.

Craig to continue to serve on both the board of directors of NIC and on

the Supplemental Program Committee, the Committee represents that Mr.

Craig has a broad background in, and extensive knowledge of the

trucking industry and, especially, NIC's role therein which has brought

important insights to the deliberations of the Supplemental Program

Committee. The Committee members have learned to rely on his judgement

and abilities as he has brought his wealth of experience to bear on

issues arising from his service as both a non-UAW member of the

Supplemental Program Committee and a member of NIC's board of

directors.

The applicant further notes that Mr. Craig's current dual service

has only served to enhance the value of his views to the Supplemental

Program Committee. He has demonstrated both a dedication to furthering

the interests of the shareholders of NIC and an acute sensitivity to

the importance that successful resolution of labor-management issues

confronting NIC has to the future success of NIC and the health and

welfare of its employees and retirees.

In addition, the Supplemental Program Committee states that the

unique perspective afforded Mr. Craig as a result of the dual service

permitted under PTE 93-69 and the distinct background and abilities he

brings to this dual service provides a function that the Supplemental

Program Committee believes it can ill afford to lose.

(b) In commenting on the proposed exemption, the UAW represented

that the potential for conflict regarding dual membership, if any, is

minimal. To the extent any conflicts were to arise a Committee/board

members' conduct would be reviewable under ERISA's fiduciary standards

and, moreover, the Committee would, in such circumstances, be empowered

to remove such individual from the NIC board, if appropriate.

have been briefed and understand the limits that are placed on Mr.

Craig under federal and state securities laws relating to Mr. Craig's

ability to make disclosures to the Committee regarding information he

obtains at meetings of the board of directors of NIC. Despite those

limitations, the Supplemental Program Committee members believe that

Mr. Craig's continuing dual service on the Committee and on the board

of directors of NIC is critical to the Supplemental Benefit Plan's

success. The Committee further noted that Mr. Craig will have available

to him, at all times, two different, expert legal advisors, one for his

service on the Supplemental Program Committee and one in his role on

NIC's board of directors.

(d) In summary, the Supplemental Program Committee believes that

the requested amendment to permit Mr. Craig to continue in his dual

roles will assist the Supplemental Program Committee in its future

planning and

[[Page 33734]]

help to ensure the future stability of the Supplemental Benefit Program

Trust.

4. Navistar's Requested Amendment

Upon the expiration of the Lock-up Period, the NIC Class B Common

Stock will automatically convert to NIC Common Stock. Navistar requests

an amendment to PTE 93-69 to permit the Supplemental Benefit Program

Trust to sell NIC Common Stock to either NIC or Navistar after the

expiration of the Lock-up Period for not less than adequate

consideration as defined in section 3(18) of the Act. Navistar

represents that having the ability to sell NIC Common Stock to NIC or

Navistar will provide the Supplemental Benefit Program Trust with an

additional market for the stock. In this regard, Navistar notes that

NIC Common Stock is widely traded on the New York Stock Exchange, thus

pricing issues associated with non-publicly traded securities would not

be present in these transactions.

The proposed amendments, if granted, will be subject to the express

condition that the material facts and representations contained in the

applications are true and complete, and that the applications

accurately describe all material terms of the transactions to be

consummated pursuant to the proposed amendment.

Notice to Interested Persons

Because of the large number of potentially interested parties, it

is not possible to provide a separate copy of notice of the proposed

amendment to each participant. The only practical form of notice to

interested parties is the Federal Register. The Committee will,

however, provide notices to both NIC and the UAW. Also, the

Supplemental Program Committee will supply copies of the notice to

union locals and chapters of salaried employee retiree organizations

for posting or other possible distribution to retirees. Provision of

notice in this manner can be accomplished within 15 working days of

publication.

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 does not relieve a fiduciary or other

party in interest from certain other provisions of the Act, 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.

(2) The proposed amendments to PTE 93-69, if adopted, will not

extend to transactions prohibited under section 406(b)(3) of the Act.

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

Act, the Department must find that the exemption is administratively

feasible, in the interest of the plan and of its participants and

beneficiaries and protective of the rights of participants and

beneficiaries of the plan; and

(4) The proposed amendments to PTE 93-69, if adopted, will be

supplemental to, and not in derogation of, any other provisions of the

Act, including statutory or administrative exemptions. 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.

Written Comments and Hearing Requests

All interested persons are invited to submit written comments or

requests for a hearing on the pending exemption to the address above,

within the time period set forth above.

All comments will be made a part of the record. Comments received

will be available for public inspection with the applications for

amendment at the address set forth above.

Proposed Amendments

Under section 408(a) of ERISA and in accordance with the procedures

set forth in 29 CFR Part 2570, Subpart B [55 FR 32836, 32847 August 10,

1990], the Department proposes to amend PTE 93-69 as set forth below in

italics in the republished exemption below.

Transactions

If the exemption is granted, the restrictions of sections 406(a),

406(b)(1), 406(b)(2) and 407(a) of the Act shall not apply to (1) the

acquisition and holding by the Navistar International Transportation

Corporation Retiree Health Benefit and Life Insurance Plan (the New

Plan) of shares or Class B Common Stock and Series A Preference Stock

of Navistar International Corporation (NIC); (2) the holding by the New

Plan of shares of NIC Common Stock resulting from the conversion of NIC

Class B Common Stock into such shares; (3) the extension of credit

between Navistar and the New Plan, which may occur in conjunction with

Navistar's annual obligation to advance funds to the Supplemental

Benefit Program Trust; (4) the sale of shares of NIC Class B Common

Stock by the New Plan to Navistar; and (5) the sale of shares of NIC

Common Stock by the New Plan to NIC or Navistar, provided that:

(a) All decisions regarding the management of the Supplemental

Benefit Program Trust, including determinations affecting NIC stock

held by such Trust, are made by the Supplemental Program Committee;

(b) The Supplemental Program Committee will take whatever action is

necessary to protect the New Plan's rights with respect to the

transaction;

Plan to Navistar, each Class B share will be valued at the average

closing price per share of NIC Common Stock during the 30 day trading

period immediately prior to the date Navistar acquires the Class B

Shares, but in no case will the price be less than adequate

consideration as defined in section 3(18) of the Act;

(d) With respect to the sale of NIC Common Stock by the New Plan to

Navistar or NIC, in no case will the price be less than adequate

consideration as defined in section 3(18) of the Act;

(e) The Supplemental Program Committee shall maintain, for a period

of six years, the records necessary to enable the persons described in

paragraph (f) below to determine whether the conditions of this

exemption have been met, except that (a) a prohibited transaction will

not be considered to have occurred if, due to circumstances beyond the

control of the Supplemental Program Committee, the records are lost or

destroyed prior to the end of the six year period, and (b) no party in

interest other than the Supplemental Program Committee shall be subject

to the civil penalty that may be assessed under section 502(i) of the

Act if the records are not maintained, or are not available for

examination as required by paragraph (f) below; and

(f)(1) Except as provided in section (2) of this paragraph and

notwithstanding any provisions of subsections (a)(2) and (b) of section

504 of the Act, the records referred to in paragraph (e) above shall be

unconditionally available at their customary location during business

hours by:

(A) Any duly authorized employee or representative of the

Department;

(B) The UAW or any duly authorized representative of the UAW;

authorized representative of such participant or beneficiary.

[[Page 33735]]

(2) None of the persons described above in subparagraphs (B) and

secrets of NIC or Navistar or commercial or financial information which

is privileged or confidential.

(g) For purposes of this exemption:

(1) The majority of the members of the Supplemental Program

Committee will be individuals who:

(A) Are not affiliates of Navistar, NIC or the UAW;

(B) Do not have any ownership interest in Navistar or NIC;

or partners of a person in which NIC has any ownership interest;

(D) Have acknowledged in writing acceptance of fiduciary

responsibility;

(E) Do not receive more than 5 percent of their annual gross income

(excluding retirement income and directors fees received) for any

taxable year in the aggregate from Navistar, UAW or any affiliate

thereof; and

(F) Will not acquire any property from, sell any property to or

borrow any funds from NIC, UAW, or any affiliate thereof, during the

period that such individual serves as a member of the supplemental

Program Committee and continuing for a period of 6 months after such

individual ceases to be a member of the Supplemental Program Committee

or negotiate any such transaction during the period that such

individual serves as a member of the Supplemental Program Committee.

Notwithstanding (A) and (C) above, William Craig is not precluded

from serving on NIC's board of directors while also serving as a member

of the Supplemental Program Committee.

(2) An affiliate of another person means:

(A) Any person directly or indirectly, through one or more

intermediaries, controlling, controlled by, or under common control

with such other person;

(B) Any officer, director, partner, employee, relative (as defined

in section 3(15) of the Act), a brother, a sister, or a spouse of a

brother or sister of such other person; and

officer director or partner.

(3) Control means the power to exercise a controlling influence

over the management or policies of a person other than an individual.

Signed at Washington, D.C., this 16th day of June, 1998.

Ivan Strasfeld,

Director of Exemptions Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 98-16336 Filed 6-18-98; 8:45 am]

BILLING CODE 4510-29-P

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