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Secretary of Labor Hilda L. Solis
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EBSA Notices

Proposed Exemptions; The Masters, Mates and Pilots Pension Plan (the Pension Plan) and Individual Retirement Account Plan (the IRAP;Together, the Plans)   [9/22/2000]
[PDF]
[Federal Register: September 22, 2000 (Volume 65, Number 185)]
[Notices]               
[Page 57389-57400]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22se00-96]                         

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10800, et al.]

 
Proposed Exemptions; The Masters, Mates and Pilots Pension Plan 
(the Pension Plan) and Individual Retirement Account Plan (the IRAP; 
Together, the Plans)

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

[[Page 57390]]

proposed exemptions from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(the Act) and/or the Internal Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
request for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice. Comments and 
requests 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.

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 the Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Room N-5638, 200 Constitution Avenue, NW., 
Washington, DC 20210.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978, 5 U.S.C. App. 1 (1996), 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.

The Masters, Mates and Pilots Pension Plan (the Pension Plan) and 
Individual Retirement Account Plan (the IRAP; together, the Plans), 
Located in Linthicum Heights, Maryland

[Application Nos. D-10800 and D-10801]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2) 
and 407(a) of the Act and the sanctions resulting from the application 
of section 4975 of the Code, by reason of section 4975(c)(1)(A) through 
(E) of the Code, shall not apply to: (1) The transfer and sale by the 
Plans of their shares of stock (the AHL Stock or the Stock) in American 
Heavy Lift Shipping Company (AHL) to AHL Holdings, Inc. (AHL Holdings), 
in exchange for a note (the Note) from AHL Holdings to the Plans; (2) 
the holding of the Note by the Plans; (3) the guarantee (the Guarantee) 
of the Note to the Plans by AHL; (4) the continued holding of the AHL 
Stock by the Plans for the period from January 1, 1999 until the date 
of the sale of the Stock by the Plans to AHL Holdings; and (5) the 
holding by the Plans for a period of two years of any collateral, 
including the Stock, received by the Plans as a result of the exercise 
of their rights in the event of a default under the Note or under the 
Guarantee, provided that: (a) The Plans' independent fiduciary, 
Independent Fiduciary Services, Inc. (IFS), has determined that the 
transactions are appropriate for the Plans and in the best interests of 
the Plans' participants and beneficiaries; (b) the Plans' independent 
investment manager with respect to the Stock, Hellmold Associates, Inc. 
(HAI), negotiated the terms of the subject transactions with AHL 
Holdings and has made the decision for the Plans' to enter the subject 
transactions with AHL Holdings; (c) HAI continues to monitor the Plans' 
holding of the Note, determines at all times that such transaction 
remains in the best interests of the Plans and takes whatever actions 
are necessary to enforce the Plans' rights under the Note; (d) HAI has 
determined that the current fair market value of the Note is not less 
than the current fair market value of the Stock; and (e) HAI has 
determined that the proposed transactions have terms and conditions 
which are at least as favorable to the Plans as terms and conditions 
which would exist in similar transactions with unrelated parties.

EFFECTIVE DATE: With respect to the Plans' holding of the AHL Stock, 
this proposed exemption, if granted, will be effective from January 1, 
1999 until the date of the sale of the Stock by the Plans to AHL 
Holdings; with respect to the sale of the AHL Stock by the Plans to AHL 
Holdings, this proposed exemption, if granted, will be effective the 
date of publication of the grant in the Federal Register.

Summary of Facts and Representations

    1. The Pension Plan is a defined benefit plan that currently has 
approximately 5,026 participants. As of December 31, 1998, the Pension 
Plan had approximately $797,144,611 in assets. The IRAP is a defined 
contribution plan that currently has approximately 3,959 participants. 
As of December 31, 1998, the IRAP had approximately $163,618,557 in 
assets. The Plans principally cover members of the International 
Organization of Masters, Mates and Pilots (the Union).
    2. IFS is a registered investment advisor which serves as the Named 
Fiduciary for the Special Assets Portfolio of the Plans. The Special 
Assets Portfolio consists of various venture capital and other non-
liquid investments which were made by a former investment manager of 
the Plans, Tower Asset Management, Inc. (Tower), and which were the 
subject of protracted litigation (the Litigation) between the 
Department, Tower, the Plans and certain of their trustees, and certain 
plan participants.\1\ The Litigation ultimately was settled pursuant to 
Court Order entered by the United States District Court for the 
Southern District of New York (the Court).
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    \1\ In re Masters, Mates and Pilots Pension Plan and IRAP 
Litigation, Lead File No. 85 Civ. 9545 (VLB) (S.D.N.Y.)

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[[Page 57391]]

    3. In the course of the Litigation, IFS \2\ was appointed Named 
Fiduciary for the Plans' Special Assets Portfolio by Court Order dated 
September 18, 1990 (the Court Order). IFS assumed its responsibilities 
on November 8, 1990. The Court Order provided that the Named Fiduciary, 
rather than the Plans' trustees, has the ``* * * sole, exclusive, full 
and complete authority and discretion concerning the control, 
management and disposition of the Special Assets Portfolio.''
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    \2\ IFS was then known as ``Bear Stearns Fiduciary Services, 
Inc.''
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    4. Since February, 1987, the Plans have each owned 45 shares of the 
Stock, which Stock represents all of the outstanding shares of AHL. AHL 
is a Delaware corporation, headquartered in New Orleans, Louisiana, 
that is engaged in the shipping industry. Its principal assets consist 
of four double-hulled tankers, built in the 1950's as single-hulled 
ships and converted to double-hulled beginning in 1995 to comply with 
Federal law, that are used primarily for the transportation of 
petroleum products in the Jones Act trade (i.e., American-flagged 
tankers in the domestic intra-coastal trade). The Plans' Stock can be 
traced back to certain prior investments made by Tower and is held in 
the Plans' Special Assets Portfolio, along with the Plans' other 
remaining Tower-initiated investments.
    5. In connection with the double-hulling of the ships, AHL assumed 
significant long-term debt. AHL issued $125 million U.S. Government 
Ship Financing Bonds on May 12, 1995. AHL sold an additional $23.7 
million U.S. Government Ship Financing Bonds on December 18, 1996. 
Proceeds from the sales of bonds were deposited with the U.S. Treasury 
and may be used for ship construction pursuant to Title XI of the 
Merchant Marine Act. AHL was required to pay the following minimum 
amounts through sinking fund deposits:

1998--$3,326,000
1999--$3,568,000
2000--$3,827,000
2001--$4,104,000
Thereafter--$132,302,000

    In addition to this $148.7 million of debt (the MARAD Loans), AHL 
also borrowed $3.35 million from Avondale Industries, Inc. (the 
Avondale Loan), one of the nation's leading shipbuilding companies. 
This amount, together with interest at approximately 7.5%, is due to be 
repaid in 20 years or earlier under certain circumstances if cash flow, 
as defined, exceeds certain minimum amounts. The payment of principal 
and interest is secured by a second mortgage on AHL's ships. No 
payments are anticipated to be due in the next five years.
    6. Since AHL is an employer of employees covered under the Plans, 
the AHL Stock constitutes employer securities under section 407(d)(1) 
of the Act. The applicants represent that the Stock constituted 
qualifying employer securities within the meaning of section 407(d)(5) 
of the Act at the time of its acquisition, but as of January 1, 1993, 
the AHL Stock may have ceased to be a qualifying employer security 
because the Stock is wholly-owned by the Plans and thus may not meet 
the requirements of section 407(f) of the Act. However, the applicants 
state that the Plans' continued holding of the Stock was exempt from 
the prohibited transaction restrictions of the Act pursuant to 
Prohibited Transaction Class Exemption No. 79-15 (44 FR 26979, May 8, 
1979) as a result of a court order, dated November 2, 1992, entered in 
the Litigation (the PTE 79-15 Order). Under the terms of the PTE 79-15 
Order, this exemption was effective until the later of: (a) December 
31, 1993; or (b) December 31, 1994, provided the Plans made application 
to the Department for an exemption to permit the continued holding of 
the Stock. The Plans did file a request for an exemption in timely 
fashion, and thus the exemption provided under the PTE 79-15 Order was 
automatically extended to December 31, 1994. On December 19, 1994, the 
Department granted Prohibited Transaction Exemption 94-85 (PTE 94-85; 
59 FR 65403), which continued the exemption for the holding of the 
Stock by the Plans until the later of: (a) December 31, 1995, or (b) 
December 31, 1996, provided another application for exemption was filed 
with the Department prior to December 31, 1995. Another exemption 
application was filed prior to December 31, 1995, so that PTE 94-85 
remained effective until December 31, 1996. On October 2, 1996, the 
Department granted Prohibited Transaction Exemption 96-73 (61 FR 
51463), which continued the exemption for the holding of the Stock by 
the Plans until the later of: (a) December 31, 1997, or (b) December 
31, 1998, provided another application for exemption was filed with the 
Department prior to December 31, 1997. Another exemption application 
was filed on October 15, 1997, so that PTE 96-73 remained in effect 
until December 31, 1998. That application was later withdrawn, and a 
revised application was filed on August 13, 1999. The applicant has 
requested that the exemption proposed herein be made retroactive to 
January 1, 1999 with respect to the holding of the Stock by the Plans.
    7. While IFS, in its capacity as Named Fiduciary, has ultimate 
investment management responsibility for the Special Assets Portfolio, 
it does not exercise investment management discretion over the 
portfolio's assets on a day-to-day basis. Rather, as contemplated by 
the Court Order, responsibility for the day-to-day management and 
supervision of the portfolio's assets has been delegated at all times 
to independent investment managers selected by IFS. With respect to the 
Plans' investment in the Stock, such responsibility was first delegated 
to Sunwestern Advisors, L.P. (Sunwestern), which served as the 
investment manager for this investment until July 14, 1992. Effective 
that date, Sunwestern's responsibilities were assumed by a new 
investment manager, Potomac Asset Management, Inc. (Potomac). On 
October 15, 1996, IFS appointed HAI as the investment manager for 
certain investments of the Plans, including the AHL Stock. HAI 
continues to serve in that capacity.
    8. HAI is a private investment banking firm offering financial 
advisory services and investment management services. HAI has 
specialized in working with troubled companies or their creditors to 
raise capital, divest businesses and restructure liabilities, whether 
in or outside bankruptcy. HAI is also the general partner of a hedge 
fund that invests primarily in the securities of distressed companies. 
HAI is registered with the Securities and Exchange Commission as an 
investment advisor and broker/dealer. HAI is located in New York, New 
York. Since its retention, HAI has devoted substantial time and effort 
to developing a thorough understanding of AHL's business and financial 
condition. As required by the terms of its engagement, HAI has provided 
IFS with quarterly reviews of AHL's financial results and operations, 
including the status of ships under construction, charter status, and 
the status of collective bargaining negotiations, including 
negotiations involving the transaction which is the subject of this 
proposed exemption.
    9. The applicants have requested an exemption that would permit the 
Plans to sell their AHL Stock to AHL Holdings. Subsequently, all of the 
shares of AHL Holdings (Holdings Stock) will be acquired by a newly 
created ESOP to be established by AHL. The ESOP is represented by the 
ESOP Committee. The ESOP Committee is a five-person ad hoc committee of 
AHL employees represented by the Union.

[[Page 57392]]

The ESOP Committee has functioned as an advisory group to the Union and 
its advisors in connection with the collective bargaining negotiations 
that resulted in the proposed transaction.\3\
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    \3\ In this regard, the applicant states that the acquisition of 
the Holdings Stock by the ESOP will be covered by the statutory 
exemption available under section 408(e) of the Act, because the 
Holdings Stock is considered ``qualifying employer securities'' 
pursuant to section 407(d)(5) of the Act. The Department is 
providing no opinion in this proposed exemption as to whether the 
acquisition and holding by the ESOP of Holdings Stock would be 
covered by section 408(e) of the Act and the regulations thereunder. 
In addition, the Department is not providing any relief herein for 
any transactions by the ESOP involving the Holdings Stock.
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    10. In connection with the transaction involving the transfer of 
the AHL Stock, the Union and AHL have adopted a new conditional eight-
year collective bargaining agreement (CBA), which took effect in part 
on September 1, 1997, and will take effect in full upon the closing of 
the proposed transaction. The new CBA provides for a 7.5% reduction in 
base wages and vacation pay by Union members, certain benefit 
concessions and a reduction in crew size. On August 31, 2002, the wage 
rate reductions and other benefit modifications (the CBA Concessions) 
to the CBA adopted pursuant to agreement between the Union and AHL will 
be terminated and certain wages and benefit provisions will be restored 
to their 1996 levels. In addition, AHL will continue to benefit from 
certain productivity improvements in the new agreement.
    According to AHL and the Union, the modifications to the CBA would 
reduce AHL's actual cash compensation costs by more than $1,500 per 
day, per ship--or more than seventeen percent of AHL's actual cash 
compensation costs under the prior collective bargaining agreement--for 
a period through August 31, 2002. The net present value of these 
proposed contractual reductions in wages, staffing and pension 
contributions and benefits over five years, as estimated by AHL and the 
Union, exceeds $7.7 million.
    11. AHL Holdings will issue the Note to the Plans in exchange for 
the Stock.\4\ The Note will have a six-year term and a stated principal 
value of $6.9 million. The Note will have an interest rate of nine 
percent for the initial three years and ten percent for the remaining 
three years. The interest will be payable semi-annually (with a total 
of twelve interest payments), but the first six semi-annual interest 
payments will be ``payable in kind'', i.e., accrued and added to the 
principal amount of the Note. A single $2.5 million payment will be due 
on the fifth anniversary of the date of issuance of the Note, and the 
remaining principal balance will be due at the conclusion of the six-
year term.
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    \4\ The Department wishes to note that ERISA's general standards 
of fiduciary conduct would apply to the proposed acquisition and 
holding of the Note by the Plans and the proposed acquisition and 
holding of the Stock by the ESOP, and that satisfaction of the 
conditions of this proposal should not be viewed as an endorsement 
of the investments by the Department. Section 404(a) of the Act 
requires, among other things, that a plan fiduciary discharge his 
duties with respect to a plan solely in the interest of the plan's 
participants and beneficiaries and in a prudent fashion. 
Accordingly, the plan fiduciary must act prudently with respect to 
the decision to enter into an investment transaction. The Department 
further emphasizes that it expects the plan fiduciary to fully 
understand the benefits and risks associated with engaging in a 
specific type of investment, following disclosure to such fiduciary 
of all relevant information. In addition, such plan fiduciary must 
be capable, either directly or indirectly through the use of hired 
professional experts, of monitoring the investment, including any 
changes in the value of the investment. Thus, in considering an 
investment, a fiduciary should take into account its ability to 
provide adequate oversight of the particular investment.
    The Department also wishes to note that it reserves the right to 
investigate and take any other action with respect to the 
transaction which is the subject of the proposed exemption.
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    Principal may be pre-paid at any time, without penalty. In order to 
provide an incentive for the repayment of principal, in the event that 
at least $250,000 of principal is prepaid in cash at one time, the 
final principal payment will be reduced by an amount calculated in 
accordance with the following formula:

(1+R/2) to the Y power times the Prepayment Amount

Where
Y=Number of semi-annual periods until maturity.
R=Semi-Annually Compounded Discount Rate.

    If the Prepayment Amount is between $250,000--$499,999, the Annual 
Discount Rate is 8.00% and the Semi-Annually Compounded Discount Rate 
is 7.85%.
    If the Prepayment Amount is between $500,000--$749,999, then the 
Annual Discount Rate is 12.00% and the Semi-Annually Compounded 
Discount Rate is 11.66%.
    If the Prepayment Amount is between $750,000--$999,999, the Annual 
Discount Rate is 15.00% and the Semi-Annually Compounded Discount Rate 
is 14.48%.
    If the Prepayment Amount is $1,000,000 or more, the Annual Discount 
Rate is 17.50% and the Semi-Annually Compounded Discount Rate is 
16.79%.
    If more than one prepayment is made, subsequent prepayments are 
entitled to be calculated at the larger discount rate applicable to the 
cumulative amount of prepayments made.
    The applicant represents that the prepayment formula results in a 
lesser discount the closer the prepayment is to the Note's maturity. 
Additionally, aside from the prepayment dollar amounts, different 
discount rates have been assigned to different size prepayments, so 
that the greater the prepayment, the greater the reduction in 
principal. Therefore, a prepayment received sooner rather than later 
will result in a greater discount from principal, and a larger 
prepayment will also obtain a greater discount than a smaller one. As 
an example, a $500,000 prepayment made as soon as the Note is issued 
will result in a reduction of $986,910 from the final principal payment 
six years later. In contrast, a $500,000 prepayment made in the third 
year of the six-year Note will only result in a reduction of $702,460 
from the final principal payment.
    The Note given by AHL Holdings will be secured by: (1) A pledge of 
all of the AHL Stock, none of which will be released until the Note is 
paid in full; (2) the Guarantee of AHL, subordinated to AHL's 
obligations under the MARAD and Avondale Loans; (3) a pledge of the 
cash in an escrow account to be established for all wage increases 
under the collective bargaining agreement beginning March 1, 2003, none 
of which will be released until the Note is paid in full; and (4) if 
practicable, a third mortgage on AHL's assets, subordinated to the 
MARAD and Avondale Loans. AHL will periodically provide the Plans with 
certain confidential financial information. Effective as of the date of 
the closing of the transaction, AHL's Board of Directors (the AHL 
Board) will consist of seven members, one of whom will be designated by 
HAI (acting as investment manager for the Plans), two of whom will be 
selected by the ESOP Committee and the Union (the Employee Directors), 
and one of whom will be designated by AHL (the Management Director). 
There will be three independent directors who will be jointly selected 
by the Employee Directors and the Management Director. On the date the 
Plans receive their first cash payment under the terms of the Note 
(i.e., $893,000), HAI's power to designate a member of the AHL Board 
will end. HAI will have the power to designate (on behalf of the Plans) 
one director of AHL Holdings until the Note is fully repaid. The ESOP, 
as 100% shareholder of AHL Holdings, will elect the rest of AHL 
Holdings' Board. The applicant represents that by requiring at least 
one director to be elected by the Plans, and further precluding (1) the

[[Page 57393]]

incurrence of any debt, (2) any bankruptcy filing, or (3) any amendment 
to its Articles without the unanimous consent of the AHL Holdings Board 
(and therefore of the Plans' director), the ESOP cannot abrogate AHL 
Holdings' requirement to repay the Note to the Plans in full, or return 
ownership of 100% of AHL to the Plans upon any default under the Note.
    Certain extraordinary actions cannot be taken by AHL without the 
affirmative vote of at least 6 of the 7 directors of AHL, including: A 
merger, consolidation or combination of AHL with another person or 
entity; any aggregate investment of $1 million in another person or 
entity in the maritime shipping business; a sale or issuance of stock 
or other equity securities which would give another person or entity 
more than 35% of AHL's common stock on a fully diluted basis, except 
for issuances necessary to permit AHL to avoid bankruptcy or 
repossession of AHL vessels; a sale, lease, transfer or disposition of 
more than 32% of AHL's assets, subject to certain exceptions; the 
appointment of a new CEO; or certain other changes relating to the 
composition, removal, replacement, committee structure, or consensus 
provisions of the AHL Board.
    The AHL Holdings Articles of Incorporation will provide that AHL 
Holdings may not: (1) Incur any new debt; (2) declare voluntary 
bankruptcy; or (3) amend its Articles, without the unanimous consent of 
the AHL Holdings Board.
    12. The applicants represent that AHL Holdings and AHL will be 
motivated to make payments on the Note in a full and timely fashion. 
The Note will default if AHL Holdings fails to make a required cash 
interest payment for any single payment period. In the event of 
default, AHL Holdings will have 45 days to cure the default. If AHL 
Holdings does not cure the default within 45 days, the holders of the 
Note will enjoy standard public debt provisions with respect to events 
of default. In addition, the Notes will contain cross-default 
provisions with respect to the covenants of AHL contained in the 
Guarantee.\5\ These public debt provisions include approximately 25 
affirmative and negative covenants made by AHL which, if violated, 
would trigger a default on the Note. The affirmative covenants include 
covenants to: Make timely payments of principal and interest on the 
Note; to maintain a principal office in New Orleans; to keep proper 
books and records in accordance with GAAP (i.e., generally accepted 
accounting principles); to properly pay all taxes; to keep AHL's 
properties and assets in good condition, repair and working order; to 
comply with all applicable laws and government rules and regulations; 
to maintain sufficient insurance; to render periodic financial 
statements; and to notify the Plans of any material adverse changes in 
the business, affairs or financial condition of AHL. The negative 
covenants include prohibitions on: The acquisition of significant 
assets in the ordinary course of business; the redemption of 
outstanding stock; the incurrence of indebtedness except for tax 
liabilities; the incurrence of any liens except permitted liens and 
obligations included in the ordinary course of business; the 
declaration of dividends in cash or in stock; the guaranty of any third 
party obligations; the dissolution, sale, consolidation or merger of 
AHL; transactions with affiliated persons on terms less favorable than 
comparable transactions with non-affiliates; investments or loans to 
any other company; and the sale and leaseback of assets in excess of 
$250,000.
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    \5\ If AHL Holdings defaults on its obligations on the Note, AHL 
must meet its obligations under the Guarantee. AHL Holdings may not 
incur any additional debt (see rep. 11, above). If AHL defaults on 
any of its obligations, then AHL Holding's Note will also be in 
default (by virtue of the cross-default provision).
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    In the event of default, the Plans will be in a position to 
foreclose on the pledged AHL Stock \6\ and to demand payment from AHL 
under its Guarantee. Events of default include the falsity of any 
representation or warranty in any material respect given; a payment 
default; failure to observe or perform any affirmative or negative 
covenant which continues unremedied for more than 30 days after written 
notice thereof; a default under the MARAD Loan (see rep. 5, above) 
documents (i.e., cross-default with MARAD) unless such default is 
waived by MARAD; the suspension or discontinuance of business by AHL or 
the commencement of any bankruptcy or similar proceeding by or against 
AHL; the entry of an order, judgment or decree of dissolution of AHL; 
the entry of a money judgment against AHL in excess of $500,000 that 
has not been stayed pending appeal; if any of the operative documents 
should be declared unenforceable; and finally, if the Internal Revenue 
Service determines that the ESOP does not qualify under section 
4975(e)(7) of the Code. If AHL was forced into bankruptcy for 
nonperformance, the Plans' unsecured claim (as a creditor) against the 
estate would be superior to the claims of all other equity holders. AHL 
will provide the Plans with the Guarantee, which will contain covenants 
and events of default identical in form to the covenants and events of 
default contained in subordinated public debt, because the Note will be 
subordinated to all of AHL's funded indebtedness.
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    \6\ If the Plans were to foreclose on the pledged Stock, the 
Plans' subsequent holding of that Stock could create the same 
prohibited transactions for which PTEs 94-85 and 96-73 were granted. 
Thus, the applicants have requested that should this scenario arise, 
the exemption proposed herein would permit the Plans to hold such 
Stock for a period of two years after the foreclosure.
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    13. HAI has reviewed the proposed transactions and made a 
determination that they are appropriate for the Plans and in the best 
interests of their participants and beneficiaries. HAI represents that, 
under the CBA in effect prior to September 1, 1997, the labor costs of 
AHL were too high for AHL to be profitable or even survive. As a part 
of the collective bargaining process, the Union recognized that cost 
concessions were necessary and agreed to put them into effect in return 
for the proposed ESOP transaction. In connection with the CBA signed on 
September 1, 1997 (see rep. 10, above), certain of the new labor 
contract cost savings were implemented as of that date, resulting in 
escrowed cash savings of $2,148,400 as of October 31, 1999. If the 
subject proposed transaction were not to take effect, AHL would be 
required to return these amounts, which it would not be financially 
capable of doing. Therefore, failure to approve the proposed ESOP 
transaction could render AHL insolvent.
    HAI further represents that because of its belief that AHL could 
not be profitable and service its debt when due without these CBA 
Concessions, and because the Union refused to make such cost 
concessions to any third party, it was not possible to attempt to sell 
AHL as a going concern to anyone other than the ESOP.
    14. HAI completed a financial evaluation of AHL as of December 31, 
1997, and represents that, as of December 31, 1999, there has been no 
material change in the financial condition of AHL. HAI represents that 
AHL could be liquidated, but given the extremely large debt load 
incurred to convert AHL's four ships to double-hull (i.e., the MARAD 
Loan and the Avondale Loan; see Rep. 5, above), and because of the 
provision in the CBA that obligates AHL to make a payment to the Union 
of $2.5 million if it sells its four ships and Union members are not 
employed thereon, it is extremely unlikely that, if AHL were 
liquidated, there would be any net value remaining to the AHL Stock 
owned by the Plans. HAI has calculated that a one-year

[[Page 57394]]

bankruptcy and liquidation process, including shut-down, marketing and 
legal expenses estimated at $3 million, would likely produce a negative 
$3.1 million equity value for the Plans if the MARAD Loan were to be 
paid off at face, with no accrued interest. If the MARAD Loan had to be 
repurchased at the 106% premium called for in its indenture, the equity 
value for the Plans would be a negative $12 million. HAI's analysis 
assumed that a third party would pay as much for the AHL ships, with 
their old engine rooms, as for a completely new ship. HAI represents 
that the likelihood is that the actual recoveries would be 
substantially lower than those described above, and would certainly 
leave no value for the AHL Stock. Thus, HAI believes there would be no 
value remaining to the Plans' ownership of the Stock in the event of a 
liquidation of AHL. HAI has concluded, accordingly, that if the subject 
transaction does not take place, the likely value of the AHL Stock is 
zero. If the transaction were to take place, HAI has concluded that the 
net present value of the AHL Stock is equal to the net present value of 
the Note to be received. Using 10% to 15% as the appropriate discount 
rates, HAI has estimated the present value of the Note to be in the 
range of $5.2 to $6.1 million.
    15. IFS represents that, based upon its own analysis of the 
situation and continuing close evaluation of HAI's activities as 
investment manager, it believes that the Plans' equity investment in 
AHL is in dire circumstances. Although IFS recognizes that the proposed 
sale of the Stock is not ideal (largely because of the seller 
financing), IFS strongly believes that it is preferable to the only 
other alternative, which is bankruptcy. IFS represents that absent 
completion of the proposed transaction, the Plans' equity interest is 
likely to be worth little or nothing. By contrast, with the 
transaction, (a) AHL's cost structure (and thus, its only chance for 
survival) will improve dramatically, and (b) the Plans will exchange an 
equity security for a fixed income instrument, thus gaining a priority 
position in the event of AHL's bankruptcy. In short, IFS represents 
that without the transaction, the Plans' equity investment in AHL is in 
severe jeopardy, but with the improved protections including the 
Guarantee and the escrow, the Plans will be in a superior position as a 
debtholder in a more viable company.
    16. Arthur Anderson LLP (AA), an independent accounting firm, has 
reviewed the balance sheets and income statements of AHL as of June 30, 
1999. AA, in a report dated September 2, 1999, has opined that ``if the 
cost savings and the resulting funds [from the ESOP transaction] are 
not realized in the full amount and on the schedule contemplated, [AHL] 
may not be able to meet its obligations timely'', and that ``[t]he 
uncertainties related to these matters raise substantial doubt about 
[AHL]'s ability to continue as a going concern.''
    17. The ESOP Committee also represents that it believes the subject 
transactions are necessary to prevent the insolvency of AHL. The ESOP 
Committee reached this conclusion after extremely extensive 
negotiations with the Plans, in which it exerted every effort to 
achieve the best deal it could. In acquiring AHL Holdings, the ESOP is 
in essence acquiring the possibility that AHL will become profitable 
again. There is risk in this transaction, particularly given AHL's 
recent financial performance. However, there is also the possibility 
that the investment in AHL Stock by AHL Holdings will be profitable, 
which in turn will make the value of Holdings Stock pay off for the 
ESOP participants.
    18. In summary, the applicant represents that the proposed 
transactions satisfy the criteria contained in section 408(a) of the 
Act because: (a) The Plans' independent investment manager, HAI, has 
determined that the transactions are appropriate for the Plans and in 
the best interests of the Plans' participants and beneficiaries; (b) 
HAI has made this determination based upon its finding that if AHL were 
to be liquidated, it is unlikely that there would be any value 
remaining to the Plans' ownership of the Stock; (c) AA, the independent 
accountant for AHL, concurs in the opinion that if the proposed 
transactions are not consummated, there is substantial doubt about 
AHL's ability to meet its obligations and to continue as a going 
concern; (d) IFS, the Plans' independent fiduciary, has also determined 
that the transactions are appropriate for the Plans and in the best 
interests of the Plans' participants and beneficiaries; (e) HAI, the 
Plans' independent investment manager, will continue to monitor the 
Plans' holding of the Note, determine at all times that such 
transaction remains in the best interests of the Plans and take 
whatever actions are necessary to enforce the Plans' rights under the 
Note; and (f) the ESOP Committee has determined that the transaction is 
in the best interests of the AHL employees who will become ESOP 
participants.

Notice To Interested Persons

    The applicant represents that the notice to interested persons 
required by 29 CFR 2570.43 will be effected by publication of a copy of 
this notice of proposed exemption and the required supplemental 
statement in The Master, Mate and Pilot. This publication is a 
newspaper published by the Union and is received by participants and 
beneficiaries of the Plans, including retirees. The notice will be 
published within 30 days of the publication of this notice of proposed 
exemption in the Federal Register. Comments and requests for a public 
hearing are due within 60 days of the publication of this notice of 
proposed exemption in the Federal Register.

For Further Information Contact: Gary H. Lefkowitz of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

John L. Rust Co. Profit Sharing Plan (the Plan), Located in 
Albuquerque, New Mexico

[Application No. D-10877]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2) 
of the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, shall not apply to (1) the proposed 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 is on terms at least as favorable 
to the Plan as an arm's length transaction with an unrelated third 
party.
    B. Subsequent to the date of publication of the proposed exemption, 
the acquisition of a Lease from Rust shall not cause the Plan to hold 
immediately following the acquisition (1) more than 25% of the current 
value (as that term is defined in section 3(26)

[[Page 57395]]

of the Act) \7\ of Plan assets in customer notes (Notes) and Leases 
sold by Rust or (2) more than 10% of Plan assets in the aggregate of 
Leases with and Notes of any one entity.
---------------------------------------------------------------------------

    \7\ According to section 3(26) of the Act, the term ``current 
Value'' means fair market value where available and otherwise the 
fair market value as determined in good faith by a trustee or a 
named fiduciary pursuant to the terms of the plan and in accordance 
with regulations of the Secretary [of Labor], assuming an orderly 
liquidation at the time of such determination.
---------------------------------------------------------------------------

    C. Prior to the purchase of each Lease, an independent, qualified 
fiduciary determines 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, monitors 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 repurchases the Lease from the Plan at the payout value \8\ as of 
the date of the default, without discount, and indemnifies 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: (1) 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; (2) 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; (3) 
abandonment of the equipment by the lessee; (4) the lessee's cessation 
of business; (5) the commencement of any proceeding in bankruptcy, 
receivership or insolvency or assignment for the benefit of creditors 
by the lessee; (6) false representation by the lessee as to its credit 
or financial standing; (7) attachment or execution levied on lessee's 
property; or (8) use of the equipment by third parties without lessor's 
prior written consent.
---------------------------------------------------------------------------

    \8\ ``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 is procured and maintained by the lessee and the 
proceeds from such insurance is assigned to the Plan.
    H. The Plan maintains 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 
continues 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, Plan 
participants, any employee 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 Dates: The proposed exemption, if granted, will be 
temporary and will be effective from September 21, 2000 through 
September 21, 2005 with respect to the Plan's future purchases of 
Leases. The Plan may hold the Leases acquired 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 502 
participants and assets with an approximate aggregate fair market value 
of $34,303,504. 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 Wells Fargo Bank New 
Mexico, 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 from an employer of employees covered by the plan. The applicant 
represents that the Plan has acquired and held many such customer notes 
(i.e., the Notes) from Rust since 1985 in compliance with the terms and 
conditions of PTE 85-68.\9\
---------------------------------------------------------------------------

    \9\ 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 to the Notes, the Plan also acquired from Rust, from 
December 30, 1985 through September 21, 1995, 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. When the applicant realized that the Leases might not be 
exempt under PTE 85-68, it requested retroactive relief from the 
Department with respect to the Plan's past acquisition of such Leases, 
and also requested an exemption to permit the Plan to purchase 
additional Leases from Rust over a five year period. The Department 
granted the requested relief in PTE 95-87 (60 FR 49010, September 21, 
1995).
    4. The applicant represents that, since the issuance of PTE 95-87, 
the Plan has acquired from Rust approximately 50 Leases. The applicant 
now requests prospective relief for an additional five (5) years, upon 
the expiration of PTE 95-87 on September 21, 2000.
    5. 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 (i.e., the class exemption for customer notes), 
but for the fact that these were Leases and not Notes. The applicant 
further represents that the conditions of PTE 95-87 (i.e., the current 
individual exemption for Leases) have been satisfied and will continue 
to be satisfied with respect to future purchases by the Plan of Leases. 
The applicant specifies that the conditions of PTE 95-87 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-obligor 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. 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 has been for a 
price and on terms and conditions no less favorable to the Plan, and in 
many

[[Page 57396]]

respects more favorable, than such transactions have in the past been 
engaged in between Rust and third party financial institutions. Mr. 
Seward represents that due to the high rate of return on these Notes/
Leases, they are excellent investments which bear no risk of loss since 
Rust has guaranteed the repurchase of any Note/Lease which might 
default;
    (c) At no time has the value of the Notes/Leases held by the Plan 
approached 50% of the Plan's assets. In accordance with PTE 95-87, less 
than 25% of the Plan assets has been and will be involved in these 
transactions. As of December 31, 1999, the Notes/Leases comprised only 
4.1% of the Plan's assets. 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. At no time will the Notes/Leases of any 
one customer exceed 10% of the Plan's assets.
    (d) Rust will continue to guarantee immediate repayment of any 
defaulted obligation. The applicant represents that there have been 
zero defaults of the Leases since the issuance of PTE 95-87;
    (e) The Plan will continue to receive 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 will extend beyond the 60 
month period applicable to Notes secured by heavy equipment.
    6. 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 of the subject Lease transactions. 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 involving Notes sold to the Plan 
which have gone into default (prior to the issuance by the Department 
of PTE 95-87), 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.
    7. In summary, the applicant represents that the proposed sales of 
the Leases by the Employer to the Plan will 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 
additional condition that no more than 10% of Plan assets can 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 Mr. Seward and the Bank on behalf of the 
Plan; (c) perfected security interests will be filed on the equipment 
related to each Lease; 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.)

Richard E. Lobenherz Profit Sharing Plan (the Plan), Located in 
Charlevoix, Michigan

[Application No. D-10895]

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 of certain unimproved real property (the Land) by the 
Plan to Richard E. Lobenherz (Mr. Lobenherz), a disqualified person 
with respect to the Plan,\10\ provided that the following conditions 
are satisfied:
---------------------------------------------------------------------------

    \10\ Because Mr. Lobenherz is the sole owner of the Plan sponsor 
and the only participant in the Plan, there is no jurisdiction under 
Title I of the Employee Retirement Income Security Act of 1974 (the 
Act) pursuant to 29 CFR 2510.3-3(b). However, there is jurisdiction 
under Title II of the Act pursuant to section 4975 of the Code.
---------------------------------------------------------------------------

    (a) The proposed sale will be a one-time transaction for cash;
    (b) The Plan will receive the current fair market value for the 
Land established at the time of the sale by a qualified, independent 
appraiser;
    (c) The Plan will pay no real estate expenses or commissions 
associated with the sale; and
    (d) The sale will provide the Plan with greater liquidity and 
further diversification of the Plan's assets.

Summary of Facts and Representations

    1. The Plan, which was originally known as the ``Richard E. 
Lobenherz Keogh Plan'' (the Keogh Plan), was established on April 5, 
1986 by Mr. Lobenherz, who was the sole sponsor, trustee and 
participant. In 1991, the Keogh Plan was converted and restated as the 
current Plan. At the time of conversion, Mr. Lobenherz flied an 
application with the Internal Revenue Service (the Service) and 
subsequently obtained a Favorable Determination Letter from the Service 
with respect to the qualifications of the current Plan.
    2. As of December 31, 1999, the Plan had $786,209 in net assets 
available for benefits. Mr. Lobenherz is the sponsor, trustee, and the 
only participant in the Plan. He is also a sole proprietor, who is an 
independent contractor and real estate broker licensed in the State of 
Michigan. Recently, Mr. Lobenherz retained an independent party, 
Citizens Bank and Trust (CBT) of Saginaw, Michigan, to serve as the 
Plan's custodian, trustee and investment manager.
    3. In May of 1998, the Plan purchased the Land from the Bruce K. 
Shanahan Trust, an unrelated third party, for $60,000 in cash. The Land 
was acquired by the Plan for capital appreciation purposes and it was 
considered by Mr. Lobenherz to be a good long-term investment. The Land 
consists of approximately 80 acres of vacant

[[Page 57397]]

agricultural land that is located in Hayes Township, Charlevoix County, 
Michigan. The Land is legally described as:

    ``That portion of the west \1/2\ of the northwest \1/4\ of 
Section 17, Town 34 North, Range 7 West, lying North of U.S.-31, and 
also; that part of the Northwest \1/4\ of the Southwest \1/4\ of 
Section 17, Town 34 North, Range 7 West, lying north of Highway 
U.S.-31.''

The Land is adjacent to Big Rock Nuclear Power Plant, which is 
presently in the second year of a five year decommissions program, and 
the Charlevoix Country Club (the Club), of which Mr. Lobenherz is a 15% 
shareholder.\11\ At the time of purchase, the Land represented 
approximately 15% of the Plan's total assets. As of December 31, 1999, 
the Land represented approximately 8.9% of the total value of the 
Plan's assets.
---------------------------------------------------------------------------

    \11\ It is represented that the Club has nine other shareholders 
aside from Mr. Lobenherz. These shareholders are not related to Mr. 
Lobenherz or the Plan.
---------------------------------------------------------------------------

    4. The applicant represents that the Land has not produced any 
income since it was acquired by the Plan. In addition, the applicant 
states that the Land has not been used by or leased to anyone, 
including disqualified persons. Furthermore, the Plan has paid 
aggregate real estate taxes for the Land in the total amount of 
$3,112.45. The Plan also paid $300 for one appraisal, which was dated 
February 8, 2000 (the Appraisal), as discussed below. Therefore, the 
Plan's total acquisition and holding costs in connection with its 
ownership of the Land is $63,412.45.
    5. The Land was appraised as of February 8, 2000 (i.e., the 
Appraisal), by A. Kenneth Smith (Mr. Smith), GRI, who is an independent 
state certified real estate appraiser in the State of Michigan. Mr. 
Smith is employed with Mid-Michigan Engineering & Survey Co., a real 
estate appraisal and consultation business located in Big Rapids, 
Michigan.
    In determining the fair market value of the Land, Mr. Smith relied 
primarily on the Sales Comparison Approach. On the basis of the 
Appraisal, Mr. Smith placed the fair market value of the Land at 
$70,000, as of February 8, 2000. The applicant represents that Mr. 
Smith maintains that the Land's adjacency to the Club does not merit a 
premium above fair market value. In this regard, Mr. Smith considered, 
among other things, that the Club passed on the opportunity to acquire 
the Land at an earlier time, and also the Club is not in the financial 
position to expand. Thus, even though Mr. Lobenherz is a 15% 
shareholder of the Club, no premium above the fair market value of the 
Land is merited for purposes of a sale of the Land to Mr. Lobenherz.
    By letter dated June 28, 2000, Mr. Smith stated that he was aware 
that the Appraisal was being submitted by the applicant to the 
Department as part of the exemption request described herein. In that 
letter, Mr. Smith also indicated that the value of the Land had not 
changed since his original valuation.
    6. CBT, as the Plan's newly appointed custodian, trustee and 
investment manager, has requested that the Plan divest itself of the 
Land because it is non-income producing. Therefore, the applicant 
requests an administrative exemption from the Department which will 
allow Mr. Lobenherz to purchase the Land from the Plan in a one-time 
cash transaction. The applicant represents that the proposed 
transaction will be in the best interest and protective of the Plan 
because the Plan will pay no real estate commissions or expenses 
(including transfer taxes) associated with the sale. In addition, Mr. 
Lobenherz will pay the Plan the current fair market value of the Land, 
as determined by Mr. Smith in an updated appraisal at the time of the 
sale. Further, the sale of the Land will increase the liquidity of the 
Plan's portfolio, provide the Plan with the opportunity to reinvest the 
proceeds of the sale in investments that will yield greater returns, 
and permit greater diversification of the Plan's assets.
    7. In summary, the applicant represents that the proposed 
transaction will satisfy the statutory criteria for an administrative 
exemption under section 4975(c)(2) of the Code because:
    (a) The proposed sale will be a one-time transaction for cash;
    (b) The Plan will receive the current fair market value for the 
Land established at the time of the sale by a qualified, independent 
appraiser;
    (c) The Plan will pay no real estate expenses or commissions 
associated with the sale; and
    (d) The sale will provide the Plan with greater liquidity, an 
opportunity to achieve greater investment returns, and will permit 
further diversification of the Plan's assets.

Notice to Interested Persons

    Because Mr. Lobenherz is the sole participant in the Plan, 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 from the date of publication of the 
notice of proposed exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan of the Department 
at (202) 219-8883. (This is not a toll-free number.)

I.B.E.W. LU 567 Electrical Joint Apprenticeship and Training Trust 
Fund (the Training Plan) and Money Purchase Retirement Plan of 
Local 567, I.B.E.W (the M/P Plan) (collectively, the Plans), 
Located in Falmouth, MA

[Application Nos. L-10906 and D-10907, respectively.]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act (or ERISA) 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, effective 
August 31, 2000, to the leases (the Leases) of certain office space and 
supplemental facilities (the Leased Space) to the Plans by Local 567 
I.B.E.W. Building Corporation (the Building Corporation), an entity 
which is wholly owned by Local 567 of the International Brotherhood of 
Electrical Workers (the Union), a party in interest with respect to the 
Plans, provided that the following conditions are satisfied:
    (1) The terms of the Leases are at least as favorable to the Plans 
as those obtainable in an arm's length transaction with an unrelated 
party;
    (2) A qualified, independent appraiser determines annually the fair 
market rental value of the Leased Space;
    (3) The Lease payments are adjusted annually by an independent 
fiduciary to assure that such Lease payments are not greater than the 
fair market rental of the Leased Space. The Lease payments are reduced, 
if the fair market rental value, as determined by the independent 
fiduciary, decreases;
    (4) An independent fiduciary determines that the transactions are 
appropriate for the Plans and in the best interest of the Plans' 
participants and beneficiaries;
    (5) The independent fiduciary monitors the terms of the 
transactions and conditions of this exemption, if granted, at all 
times, and takes whatever actions are necessary and proper to enforce 
the Plans' rights under the Leases and protect the participants and 
beneficiaries of the Plans. (Such independent fiduciary duties also 
include, but are not limited to, negotiating any required amendments to

[[Page 57398]]

the Leases on behalf of the Plans to make certain the terms of the 
Leases are commercially reasonable.); and
    (6) The annual fair market rental amount for the Leased Space will 
not exceed 5% of each of the Plan's total assets.

EFFECTIVE DATE: If granted, this proposed exemption will be effective 
as of August 31, 2000.

Summary of Facts and Representations

    1. The Training Plan, which operates under a formal Trust Agreement 
dated January 1, 1994, is a collectively-bargained multi-employer joint 
apprenticeship training plan. The Training Plan is sponsored by the 
members of the Electrical Contractors Association of Greater Boston 
Inc.--Portland, Maine Division of the Boston Chapter, N.E.C.A. (the 
Employers), which have negotiated the collective employment contract 
with the Union. The Training Plan provides training and educational 
benefits to electrical apprentices and journeymen. Such benefits are 
funded by contributions made by the Employers to the Training Plan, 
pursuant to certain collective bargaining agreements between the Union 
and the Employers. As of August 31, 1999, the Training Plan had 87 
participants and $178,149 in net assets available for benefits.
    2. The M/P Plan, which was established on June 1, 1981, is a 
defined contribution, participant-directed plan that is sponsored by 
the Employers. The M/P Plan provides retirement benefits that are 
funded by contributions made by the Employers pursuant to certain 
collective bargaining agreements between the Union and the Employers. 
As of August 31, 1999, the M/P Plan had 564 participants, all of whom 
are members of the Union. As of March 31, 1999, the M/P Plan had 
$14,570,601 in net assets available for benefits.
    3. The Training Plan is administered by six trustees (the 
Trustees), three of whom are appointed by the Union (Union Trustees) 
and three of whom are appointed by the Employers (the Employer 
Trustees). The Union Trustees with respect to the Training Plan are 
Milton McBreairty (Mr. McBreairty), John Stevens and Kevin Murphy. The 
Employer Trustees for the Training Plan are Thomas Driscoll (Mr. 
Driscoll), Mario Gowell and Steve Stewart. The Employer Trustees are 
not affiliated with either the Union or the Building Corporation.
    The M/P Plan is also administered by three Union Trustees and three 
Employer Trustees. The Union Trustees for the M/P Plan are Mr. 
McBreairty, Donald Berry and Gene Ellis. The Employer Trustees for the 
M/P Plan are Mr. Driscoll, David Bradbury and John Penney. The Employer 
Trustees are not affiliated either with the Union or the Building 
Corporation.
    4. The applicants represent that the Training Plan required space 
for its administrative offices and training facilities. Similarly, the 
M/P Plan also required office space for its administrative personnel. 
Therefore, on August 31, 2000, the Building Corporation acquired a 10 
year old two-unit warehouse building (Building I) from Atlantis 
Development Building Corporation (Atlantis), an unrelated party, for 
$425,000. Building I is located at 238 Goddard Road, Lewiston, Maine. 
It was purchased by the Building Corporation as a replacement for 
another building located at 240 Gray Road, Falmouth, Maine (Building 
II), which the Building Corporation intends to sell to an unrelated 
party by September 30, 2000.
    5. The applicants state that both Plans currently occupy space in 
Building II, which also houses administrative offices of the Union and 
serves as the Union meeting hall. The applicants note that the M/P 
Plan's use of Building II is the subject of a prior administrative 
exemption granted by the Department which is known as Prohibited 
Transaction Exemption (PTE) 94-16, (59 FR 8027, February 17, 1994). PTE 
94-16 permits, in relevant part, the leasing of 360 square feet of 
office space in Building II by the Building Corporation to the M/P 
Plan. The applicants state that although the Lease would constitute the 
payment by the M/P Plan for office space to a party in interest within 
the meaning of section 408(b)(2) of the Act and the lease would 
otherwise meet the requirements of 29 CFR 2550.408b-2, and be 
statutorily exempt from section 406(a) of the Act, further exemptive 
relief was required because the Union Trustees of the M/P Plan 
participated in the decision to have the M/P Plan engage in the Lease 
in violation of section 406(b)(2) of the Act. The applicants represent 
that the M/P Plan has complied with all of the terms and conditions of 
PTE 94-16 since the exemption was granted.
    6. In addition, the applicants explain that the Training Plan 
leased office space in Building II from the Building Corporation and 
state that the Training Plan used certain other space for training-
related purposes. The applicants represent that the Training Plan's 
leasing of office space in Building II satisfies the requirements for 
statutory exemptive relief under section 408(b)(2) of the Act and the 
regulations that have been promulgated thereunder (see 29 CFR 
2550.408b-2).
    Moreover, the applicants believe that the other space in Building 
II, which has been used by the Training Plan for training-related 
purposes, is covered by Prohibited Transaction Class Exemption (PTCE) 
78-6 (43 FR 23024, May 30, 1978). PTCE 78-6 permits certain lease 
transactions involving collectively bargained multiple employer 
apprenticeship and training plans, provided the conditions therein are 
met.\12\
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    \12\ The Department expresses no opinion herein on whether the 
Training Plan's leasing or use of space in Building II has complied 
with the conditions required under PTCE 78-6 or provisions of 
section 408(b)(2) of the Act. The Department notes that the 
appropriate Training Plan fiduciaries must make such determinations.
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    7. The applicants state that the Training Plan wished to relocate 
and consolidate its office space and training facilities in one 
location. Previously, training and educational classes were held in 
rented facilities over the entire State of Maine, and such programs 
were constrained by the time and space limitations of such facilities. 
Therefore, the applicants believed that Building I, rather than 
Building II, would provide a central geographic location for the 
Training Plan's administrative offices and training facilities.
    Similarly, the applicants note that the M/P Plan required 
additional administrative office space. Thus, Building I's central 
geographic location and proximity to other Union facilities and 
services used by participants in the M/P Plan were thought by the 
applicants to make it an ideal location for office space for such Plan.
    Therefore, the applicants request an administrative exemption from 
the Department to permit, effective August 31, 2000, the Leases, by the 
Building Corporation to the Plans, of certain office space and 
supplemental facilities space (i.e., the Leased Space) in Building I. 
The applicants represent that the participation by the Union Trustees 
for both plans in the decision to have the respective Plans engage in 
the Leases does not permit that portion of the Leased Space between the 
Plans and the Building Corporation pertaining to office space from 
otherwise meeting the requirements of section 408(b)(2) of the Act and 
the Department's regulations relating thereto. The applicants explain 
that the Trust documents for the Plans require that a majority of the 
Plans' Trustees, which includes at least one Union Trustee from each 
Plan, vote to cause the Plans to enter into any transaction, such as 
the subject Leases. However, if the Union Trustees for both

[[Page 57399]]

Plans exercise their fiduciary authority to cause the Plans to enter 
into the Leases, the applicants state that the transactions may violate 
section 406(b)(2) of the Act because of the adverse interests of the 
Plans and the Building Corporation.
    Again, the Department expresses no opinion herein on whether each 
Lease constitutes the payment by a plan for office space to a party in 
interest under circumstances which would be statutorily exempt from the 
prohibitions of section 406(a) of the Act by reason of section 
408(b)(2) of the Act.
    8. The Training Plan is initially leasing 1,949 square feet of 
space in Building I from the Building Corporation. However, it is 
anticipated that upon the termination of an unrelated third party's 
lease in Building I on June 30, 2001, the Training Plan will expand and 
reconfigure part of Building I so that the Training Plan will have 
8,600 square feet for office space and training facilities.
    The M/P Plan is initially leasing 400 square feet of space in 
Building I for its administrative offices. It is also anticipated that 
this Plan will lease an additional 800 square feet in Building I for 
its administrative offices once certain unrelated third parties 
terminate their respective leases in Building I.
    9. Both the Training Plan Trustees and the M/P Plan Trustees 
negotiated with the Building Corporation the respective leasing 
agreements for their Plans. In this regard, each Lease is a triple-net 
lease having an initial term of a five years which commenced on August 
31, 2000, and two consecutive five year renewal terms. Rent is being 
paid monthly in advance under the Leases, and will equal the fair 
market rental value of the Leased Space as determined by a qualified, 
independent appraiser. Currently, the Leases specify that the Training 
Plan will pay $730.09 per month ($8,761 per year) in rent and the M/P 
Plan will pay $150 per month ($1,800 per year) in rent. These monthly 
rentals reflect the values prior to the reconfiguration. The rental 
amounts will be increased following the reconfiguration.
    The applicants represent that the annual fair market rental amount 
under the Leases will involve approximately one percent (1%) of the M/P 
Plan's total assets and less than five percent (5%) of the Training 
Plan's total assets. However, in no event will the annual fair market 
rental amount for the Leased Space exceed five percent (5%) of each 
Plan's total assets.
    Other terms of the Leases will be at least as favorable to the 
Plans as the terms obtainable in an arm's length transaction with an 
unrelated party. Further, the Leases may be terminated by the Plans 
without penalty, on sixty days prior written notice to the Building 
Corporation, should any provision of such Leases become disadvantageous 
to the Plans.
    In addition, the Leases contain specific provisions designed to be 
beneficial to the Plans, such as the tenant's right to a ten-day 
written notice of payment default, and the tenant's right to take 
action on behalf of the defaulting landlord and set off such costs 
against the rent. The applicants note that these conditions cannot be 
obtained in the open market without having to pay a higher rental to 
reflect the increased costs and risks to the landlord.
    10. On October 12, 1999, Brian D. Diskin (Mr. Diskin), a Certified 
General Appraiser, who is employed by Maineland Appraisal Consultants 
of Portland, Maine (Maineland) as an independent commercial real estate 
appraiser, completed a competitive rental market study of Building I 
(the Study). As stated above, Building I was constructed at its present 
location (i.e., 238 Goddard Road, Lewiston, Maine) in 1990, and it 
consists of a manufacturing warehouse containing two units.
    Mr. Diskin relied on the Market Comparison Approach to determine 
the fair market rental value of Building I. Mr. Diskin considered 
rental amounts being charged for other warehouse/industrial properties 
in the same geographic area as Building I, and he determined that the 
market rents for such properties there ranged from $4 to $6 per square 
foot, depending upon such factors as location, size and utility of the 
particular facility.
    In the Study, Mr. Diskin noted that there were two tenants in 
Building I: RF Technologies (RF) \13\ and the Building Corporation, 
both of which leased space from Atlantis, the former owner, until the 
August 31, 2000 sale of Building I to the Building Corporation. Mr. 
Diskin explained that RF's original lease, which commenced on April 4, 
1994, was in its fourth renewal period, which is set to expire on June 
30, 2001. Mr. Diskin indicated that RF's lease provides for a rental 
payment of $4.25 per square foot. In addition, he explained that this 
lease is triple net and requires RF to pay its pro rata share of common 
area expenses.
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    \13\ The applicants state that RF, a manufacturing business that 
currently occupies approximately one-half of Building I, is not a 
party in interest with respect to either Plan, and is otherwise 
unrelated to the Plans, the Employers and the Union.
---------------------------------------------------------------------------

    Mr. Diskin also noted that the Building Corporation had entered 
into a lease with Atlantis on September 1, 1999 for a five year term. 
This lease, which was terminated when the Building Corporation 
purchased Building I from Atlantis on August 31, 2000, required the 
Building Corporation to pay Atlantis $4.50 per square foot in rent and 
it contained a 3% escalator provision for increasing the rental amount 
each year. The Building Corporation was also responsible for paying its 
pro rata share of the common area expenses.
    In the Study, Mr. Diskin concluded that as of October 6, 1999, the 
current fair market rent for space in Building I under a triple net 
lease would range between $4.25 and $4.50 per square foot.
    11. The Trustees of each Plan have also retained Maineland to serve 
as the independent fiduciary for the Plans in connection with the 
subject Leases. On October 25, 1999, the Plans' Trustees signed a 
Fiduciary Engagement Agreement (the Agreement) with Maineland whereby 
Maineland agreed to: (a) Evaluate the fair market rental value of 
Building I; (b) review, on behalf of the Plans, the provisions of each 
Lease (and any proposed amendments thereto), and make a determination 
and recommendation to the Trustees whether such Leases would be in the 
best interest and protective of the Plans; and (c) monitor the Lease 
transactions at least annually (or more frequently, upon written 
request by a Trustee) to ensure that the rental amounts for the Leased 
Space remain at fair market rental for Building I, and the Leases 
continue to be protective and in the best interest of the Plans.
    In the Agreement, Maineland states that it has been advised by 
legal counsel regarding its fiduciary obligations under ERISA, and it 
understands and accepts its duties as an ERISA fiduciary on behalf of 
the Plans with respect to the Leases.
    12. In a letter dated December 16, 1999, Frank R. Montello, the 
president of Maineland (Mr. Montello), has made specific 
representations regarding Maineland's functions as the Plans' 
independent fiduciary for the Leases. Mr. Montello states that 
Maineland is completely independent of the Plans, the Union, the 
Employers and other entities affiliated with the Plans. Mr. Montello 
also states that the fees received by Maineland will not exceed one 
percent (1%) of Maineland's annual gross income (including all 
appraisal fees) for each fiscal year that Maineland acts as the Plans' 
independent fiduciary for the Leases.
    Based on the Study completed by Mr. Diskin (described in paragraph 
10

[[Page 57400]]

above), Mr. Montello has deemed the Leases to be administratively 
feasible, protective of the Plans and in the best interest of the 
Plans. In this regard, under the terms of the Leases, the Plans have 
the right to terminate the Leases upon sixty (60) days advance written 
notice to the Building Corporation. Such termination will be without 
penalty.
    Mr. Montello states that the Agreement requires Maineland to 
reevaluate the terms of the Leases upon a written request from the 
Plans' Trustees. After reconfiguration of the spaces in Building I, 
Maineland will evaluate the fairness of the rental amounts and the 
commercial reasonableness of the Leases to ensure that the Plans' 
interests continue to be protected under the terms of the Leases. The 
applicants maintain that the reconfiguration cost for the space is 
anticipated to be nominal (i.e., no more than a few thousand dollars).
    13. The Agreement requires Maineland to reevaluate any proposed 
amendment to a Lease. In a second letter to the Department dated June 
13, 2000, Mr. Montello has confirmed that the Agreement gives 
Maineland, as the independent fiduciary, authority to take any actions 
which may be necessary to protect the interest of the Plans and the 
Plans' participants and beneficiaries with respect to the Lease 
transactions. This authority includes directing the amendment or 
termination of either Lease, if Maineland, as the independent 
fiduciary, determines that the terms of such Leases cease being 
commercially reasonable for the Plans. Mr. Montello states that these 
provisions in the Agreement will protect each Plan's interests in the 
event that the Building Corporation wishes to amend the Lease or adjust 
the amount of rent charged after the necessary space in Building I is 
reconfigured.
    However, the applicants represent, and Maineland will ensure, that 
the rents paid by the Plans for the Leased Space will remain at an 
amount equal to the fair market value of the Leased Space. In addition, 
the annual fair market rental amount paid by the Plans for the Leased 
Space will, at no time, exceed 5% of each Plan's total assets, and will 
not adversely affect either Plan's ability to make necessary payments 
for benefits or expenses required under the terms of the Plans.
    Maineland represents that it will direct the Trustees whether the 
Plans should either terminate or renew the Leases for each five year 
extension period. In this regard, the applicants make a request 
regarding a successor independent fiduciary (the Successor). 
Specifically, if it becomes necessary in the future to appoint the 
Successor to replace Maineland, the applicants will notify the 
Department sixty (60) days in advance of the appointment of the 
Successor. Any Successor will have the responsibilities, experience and 
independence similar to those of Maineland.
    14. In summary, the applicants represent that the transactions 
satisfy the statutory criteria for an exemption under section 408(a) of 
the Act because:
    (a) The terms of the Leases are at least as favorable to the Plans 
as those obtainable in an arm's-length transaction with an unrelated 
party;
    (b) Maineland, as the Plans' independent fiduciary, has determined 
and will make subsequent determinations, whenever appropriate, that the 
terms and conditions of the Leases are in the best interest and 
protective of the Plans;
    (c) The fair market rental amount of Building I and the Leased 
Space has been determined and will be determined by a qualified, 
independent appraiser;
    (d) The annual fair market rental amount for the Leased Space does 
not exceed and will not exceed 5% of each of the Plan's total assets; 
and
    (e) Maineland, as the independent fiduciary, has monitored and will 
continue to monitor the terms and conditions of the Leases, at all 
times, and will take whatever actions are necessary and proper to 
enforce the Plans' rights thereunder.

Notice To Interested Persons

    The applicants represent that they will distribute, by first class 
mail, a copy of the notice of pendency of this proposed exemption (the 
Notice) within seven (7) days of the date such Notice is published in 
the Federal Register. Such Notice will be given to all interested 
persons, including all participants in the Plans, all employees in the 
Plans, and all Union members. The distribution to interested persons 
shall include a copy of the Notice, as published in the Federal 
Register, and a supplemental statement, as required pursuant to 29 CFR 
2570.43(b)(2), which shall inform interested persons of their right to 
comment on and/or request a hearing with respect to the proposed 
exemption.
    Comments and requests for a public hearing with respect to the 
proposed exemption are due within thirty-seven (37) days following the 
publication of the Notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan of the Department, 
telephone (202) 219-8883. (This is not a toll-free number).

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which, among other things, require a fiduciary 
to discharge his duties respecting the plan solely in the interest of 
the participants and beneficiaries of the plan and in a prudent fashion 
in accordance with section 404(a)(1)(b) of the Act; nor does it affect 
the requirement of section 401(a) of the Code that the plan must 
operate for the exclusive benefit of the employees of the employer 
maintaining the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries, and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 18th day of September, 2000.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 00-24387 Filed 9-21-00; 8:45 am]
BILLING CODE 4510-29-P