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Grant of Individual Exemptions; Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis Professional Association Section 401(k) Profit Sharing Plan (et. al)   [3/21/2001]
[PDF]
[Federal Register: March 21, 2001 (Volume 66, Number 55)]
[Notices]               
[Page 15907-15909]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21mr01-110]                         

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 2001-09; Exemption Application 
No. D-10856, et al.]

 
Grant of Individual Exemptions; Trenam, Kemker, Scharf, Barkin, 
Frye, O'Neill & Mullis Professional Association Section 401(k) Profit 
Sharing Plan (et. al)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) 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).
    Notices were published in the Federal Register of the pendency 
before the Department of proposals to grant such exemptions. The 
notices set forth a summary of facts and representations contained in 
each application for exemption and referred interested persons to the 
respective applications for a complete statement of the facts and 
representations. The applications have been available for public 
inspection at the Department in Washington, DC. The notices also 
invited interested persons to submit comments on the requested 
exemptions to the Department. In addition the notices stated that any 
interested person might submit a written request that a public hearing 
be held (where appropriate). The applicants have represented that they 
have complied with the requirements of the notification to interested 
persons. No public comments and no requests for a hearing, unless 
otherwise stated, were received by the Department.
    The notices of proposed exemption were issued and the exemptions 
are being granted solely by the Department because, 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 proposed to the Secretary of 
Labor.

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990) and based upon 
the entire record, the Department makes the following findings:
    (a) The exemptions are administratively feasible;
    (b) They are in the interests of the plans and their participants 
and beneficiaries; and
    (c) They are protective of the rights of the participants and 
beneficiaries of the plans.

Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis Professional 
Association Section 401(k) Profit Sharing Plan (the Plan) Located in 
Tampa, Florida

    [Prohibited Transaction Exemption 2001-09; Exemption Application 
No. D-10856]

Exemption

    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 the sales by the individually directed accounts of 
certain participants (the Participants) in the Plan of certain limited 
partnership units (the Units) to the Participants, provided the 
following conditions are satisfied: (a) each sale is a one-time 
transaction for cash; (b) no commissions are charged in connection with 
the sales; (c) the Plan receives not less than the fair market value of 
the Units at the time of the transactions; and (d) the fair market 
value of the Units is determined by a qualified entity independent of 
the Plan and the Participants.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on January 25, 2001 at 66 FR 
7801.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Cranston Print Works Company General Employees' Retirement Plan (the 
Plan) Located in Cranston, Rhode Island

    [Prohibited Transaction Exemption 2001-10; Exemption Application 
No. D-10909]

Exemption

    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 purchase by the Plan of 
shares of common stock (the Stock) of Cranston Print Works Company 
(Cranston) from Cranston, the Plan's sponsor; (2) the Plan's holding of 
the Stock; (3) the acquisition and holding by the Plan of an 
irrevocable put option (the Put

[[Page 15908]]

Option) which permits the Plan to sell the Stock to Cranston at a price 
which is the greater of: (i) the fair market value of the Stock 
determined by an independent appraisal at the time of the exercise of 
the Put Option, or (ii) the price at which the Stock originally was 
sold by Cranston to the Plan; and (4) the possible future repurchase of 
the Stock by Cranston pursuant to the Put Option or a right of refusal, 
provided the following conditions are satisfied: (a) the purchase of 
the Stock by the Plan will be a one-time transaction for cash, and no 
commissions will be paid by the Plan with respect to the purchase; (b) 
the Stock will represent no more than 7.5% of the value of the assets 
of the Plan; (c) the Plan pays no more than the fair market value of 
the Stock on the date of the acquisition, as determined by an 
independent, qualified appraiser; (d) the transactions will be 
expressly approved on behalf of the Plan by a qualified, independent 
fiduciary based upon a determination that such acquisition is in the 
best interests of, and appropriate for, the Plan; (e) the Plan's 
independent fiduciary will monitor the holding of the Stock by the Plan 
and take whatever action is necessary to protect the Plan's rights, 
including, but not limited to, the exercising of the Put Option if the 
independent fiduciary, in its sole discretion, determines that such 
exercise is appropriate; (f) the purchase price per share for any 
shares of the Stock that are repurchased by Cranston pursuant to the 
right of first refusal will be the greater of: (i) the then current 
fair market value of the Stock, as determined by a bona fide third 
party purchase offer from an unrelated party, or (ii) the fair market 
value of the Stock, as determined by a contemporaneous independent 
appraisal; and (g) Cranston's obligation under the Put Option is 
secured by an escrow arrangement, as described in the notice of 
proposed exemption (the Notice), which is maintained by the Plan's 
independent fiduciary as long as the Plan continues to hold any shares 
of the Stock.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the Notice, which was published on December 6, 2000 at 65 FR 76304.

Written Comments

    The Department received 11 written comments and two requests for a 
public hearing from interested persons in response to the Notice. One 
of the commentators who had requested a hearing subsequently met with 
the Chairman of the Board of Directors of Cranston. The commentator and 
his attorney have indicated to the Department that their questions and 
concerns regarding the proposed transaction have been addressed. Thus, 
this commentator states that he now approves of the transaction and 
desires to see the exemption granted as it was proposed. Accordingly, 
the commentator has withdrawn his request for a hearing.
    The remaining ten comments question the prudence of the Plan's 
investment in the Stock, particularly in light of the decline in value 
of the Stock in recent years. In addition, some commentators have 
alleged that senior level managers at Cranston have made poor 
management decisions which have adversely impacted the profitability of 
the company.
    The Plan's independent fiduciary, State Street Bank and Trust 
Company (the Bank) of Boston, Massachusetts, responded to the comments 
as follows.
    The Bank represents that in evaluating whether to cause the Plan to 
acquire the Stock, the Bank and its independent financial advisor, 
Willamette Management Associates (Willamette), engaged in an extensive 
due diligence process. First, the Bank has reviewed the Plan's 
investment guidelines and objectives for the Plan's investments, as 
well as the Plan's existing investments, and determined that investment 
in the Stock would be appropriate. Willamette provided a financial 
analysis of Cranston and the relevant industry. Willamette is prepared 
to provide a written opinion that states (i) that the consideration to 
be paid by the Plan for the Stock is not greater than fair market 
value; and (ii) that such acquisition is fair to the Plan from a 
financial point of view.
    The Bank represents that as part of the due diligence process, 
representatives of the Bank and Willamette met with Cranston management 
and reviewed the factors influencing past corporate performance as well 
as business plans for the future. Willamette reviewed the financial 
statement of Cranston for the years ending 1997, 1998, and 1999 and 
unaudited statements from 2000 in order to make their determinations. 
The Bank has also reviewed those financial statements.
    The Bank represents that in evaluating the possible purchase of the 
Stock, the Bank and Willamette probed into the reasons for its past 
decline. The decline was found to be attributable primarily to the 
Cranston Apparel Fabrics division. The Bank represents that throughout 
the 1990's the domestic textile industry as a whole declined 
significantly due to the increase in apparel imports and consumer 
demand for value-priced garments. The Bank notes that, at the present 
time, only about 15% of the apparel acquired in the United States is 
actually sewn here. Reviewing Cranston's current situation, the Bank 
states that it is clear that changes have been made by Cranston's 
management which have put the company in a more favorable position. 
Specifically, Cranston implemented a major restructuring in 1996 and 
1998, closing two plants which specialized in apparel fabrics printing. 
These closings have curtailed a significant portion of Cranston's 
losses related to this troubled industry. Currently, Cranston is 
primarily composed of three diversified businesses: trucking, chemical, 
and textile manufacturing (i.e., non-apparel fabrics). The current fair 
market value of the Stock reflects the business projections for these 
operating divisions of Cranston.
    The Bank states that the above information provided the basis for 
assessing the prudence of an investment in the Stock. The Plan's 
proposed investment in the Stock was further reviewed by the Bank's 
Fiduciary Committee (the Committee). The Committee is composed of 
senior management of the Bank. The Committee received a presentation of 
the due diligence process related to the Stock that was performed by 
the Bank. Willamette also presented a financial analysis of Cranston 
and the Stock. The valuation methodologies employed by Willamette were 
the comparable company method and the capitalization of earnings 
method. These methods are commonly used by financial advisors in 
valuing closely-held companies. The Committee also discussed the Put 
Option, which provides that if the independent fiduciary (i.e., the 
Bank) determines that the Stock is no longer a prudent investment for 
the Plan, it may require Cranston to repurchase the Stock at the 
greater of (i) the price paid for the Stock by the Plan, or (ii) the 
fair market value at the date the Put Option is exercised.
    After the granting of this exemption, the Bank represents that it 
will convene another Committee meeting to consider finalizing the 
purchase of the Stock. This meeting will involve an update by 
Willamette related to Cranston's financial situation and the Stock. The 
purpose of the meeting will be to ensure that the purchase price to be 
paid by the Plan will not exceed the Stock's current fair market value 
and that the investment is still prudent.
    Therefore, the Bank, acting as the Plan's independent fiduciary 
with

[[Page 15909]]

respect to the proposed purchase by the Plan of the Stock, will ensure 
that the transaction is appropriate for, and in the best interests of, 
the Plan. In addition, the Bank represents that it will monitor the 
proposed holding of the Stock by the Plan and will take whatever 
actions are necessary to safeguard the interests of the Plan in 
accordance with the terms and conditions of the final exemption.\*\
    With respect to the request for a hearing made by one commentator 
that was not withdrawn, the Department has determined that a public 
hearing is not necessary in this case. In addition, the Department is 
satisfied that the exemption contains adequate independent safeguards 
to protect the interests of the Plan and of its participants and 
beneficiaries. Accordingly, based on all of the information contained 
in the record, including the comments submitted and the applicant's 
response thereto, the Department has determined to grant the exemption 
as proposed.
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    \*\ The Department notes that any decision made by the Bank as 
the Plan's independent fiduciary with respect to the approval of the 
acquisition of the Stock, the continued retention of the Stock by 
the Plan, and the exercise of the Plan's rights under the Put Option 
shall be fully subject to the fiduciary responsibility provisions of 
the Act. However, by granting this exemption, the Department is not 
expressing an opinion regarding whether any actions taken by the 
Bank would be consistent with its fiduciary obligations under Part 4 
of Title I of the Act. In this regard, section 404(a) requires, 
among other things, that a plan fiduciary act prudently, solely in 
the interest of the plan's participants and beneficiaries, and for 
the exclusive purpose of providing benefits to participants and 
beneficiaries when making decisions on behalf of a plan. In 
addition, section 409 provides, in part, that a fiduciary with 
respect to a plan who breaches any of the responsibilities, 
obligations, or duties imposed upon fiduciaries by Title I of the 
Act shall be personally liable to make good to such plan any losses 
to the plan resulting from each such breach, and to restore to such 
plan any profits of such fiduciary which have been made through use 
of assets of the plan by the fiduciary, and shall be subject to such 
other equitable or remedial relief as the court may deem 
appropriate, including removal of such fiduciary.
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    Interested persons are invited to review the complete exemption 
file, which is available for public inspection in the Public Disclosure 
Room of the Pension and Welfare Benefits Administration, Room N-1513, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, 
D.C. 20210.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions to which the exemptions 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) These exemptions are supplemental to and not in derogation of, 
any other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional 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
    (3) The availability of these exemptions is subject to the express 
condition that the material facts and representations contained in each 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, D.C., this 15th day of March, 2001.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 01-7045 Filed 3-20-01; 8:45 am]
BILLING CODE 4510-29-P