[Federal Register: May 22, 2002 (Volume 67, Number 99)]
[Notices]
[Page 36034-36037]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22my02-91]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-10987]
Proposed Exemption; Metropolitan Life Insurance Company (MetLife)
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of proposed exemption.
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SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemption 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
requests 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 requests for a hearing (at least
three copies) should be sent to the Pension and Welfare Benefits
Administration (PWBA), 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. Interested persons are also invited to submit
comments and/or hearing requests to PWBA via e-mail or FAX. Any such
comments or requests should be sent either by e-mail to:
``moffittb@pwba.dol.gov'', or by FAX to (202) 219-0204 by the end of
the scheduled comment period. 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-1513, 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.
Metropolitan Life Insurance Company (MetLife) Located in New York, NY
[Application No. D-10987]
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) and section 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,
effective January 20, 2000 until May 18, 2000, to (1) the holding, by
MetLife Separate Account R.I. (the Separate Account), an index fund
managed by MetLife which holds plan assets, of 523 shares of common
stock (the Common Shares), issued by the Conning Corporation (Conning),
an affiliate of MetLife; (2) the acquisition, by MetLife, of certain
certificates, representing 523 shares of cancelled Conning Common
Shares (the Cancelled Conning Shares), from the Separate Account,
pursuant to the terms of a tender offer (the Tender Offer) and merger
agreement (the Merger Agreement); and (3) the delivery of the
certificates representing the 523 Cancelled Conning Shares to
ChaseMellon Shareholder Services, LLC (the Disbursing Agent), in
exchange for certain cash consideration.
This proposed exemption is subject to the following conditions:
(a) The decision by a Plan to invest in the Separate Account was
made by a Plan fiduciary which was independent of MetLife and its
affiliates.
(b) At all times, the Conning Common Shares represented less than
one percent of the assets of the Separate Account and less than one
percent of the value of the assets of the ERISA-covered Plans investing
therein.
(c) The exchange of the Cancelled Conning Shares by the Separate
Account was a one-time transaction for cash.
(d) The Separate Account and the Plans received the fair market
value for each Cancelled Conning Share on the date of the exchange.
(e) The consideration received by the Separate Account for its
Cancelled Conning Shares was the same consideration that was received
by (i) all shareholders who validly tendered their Conning Common
Shares pursuant to a Tender Offer and (ii) all holders of Cancelled
Conning Shares.
[[Page 36035]]
(f) The Separate Account paid no commissions, fees or other
expenses with respect to the exchange of the Cancelled Conning Shares
for cash.
(g) After the expiration of the Tender Offer and the consummation
of the Merger, the Separate Account delivered certificates representing
the Cancelled Conning Shares to the Disbursing Agent to exchange with
MetLife and its affiliates for cash.
(h) The terms of the exchange were no less favorable to the
Separate Account and the Plans than those obtainable in an arm's length
transaction engaged in by other similarly-situated holders of the
Cancelled Conning Shares.
Effective Date: If granted, this proposed exemption will be
effective from January 20, 2000 until May 18, 2000.
Summary of Facts and Representations
1. The parties to the transactions are described as follows:
a. MetLife, which maintains its principal executive offices at One
Madison Avenue, New York, New York, is a New York corporation that is
subject to supervision and examination by the Superintendent of
Insurance of the State of New York. MetLife is a wholly owned
subsidiary of MetLife, Inc., a Delaware corporation. Through its
subsidiaries and affiliates, MetLife, Inc. is a leading provider of
insurance and other financial services to individual and group
customers. MetLife and its affiliates serve approximately 9 million
households in the U.S. and companies and institutions with 33 million
employees and members.
MetLife also has international insurance operations in 12
countries. Among the variety of insurance products and service it
offers, MetLife and certain of its affiliates provide funding, asset
management and other services for thousands of employee benefit plans
subject to the provisions of Title I of the Act.
MetLife maintains pooled and single customer separate accounts in
which Title I pension, profit sharing, welfare benefit plans and thrift
plans invest. MetLife and/or its affiliates manage all or a portion of
the assets of such separate accounts. Additionally, MetLife has a
number of subsidiaries and affiliates that provide a variety of
financial services, including investment management and brokerage
services to Plans.
In their capacities as fiduciaries of Plans, MetLife and its
affiliates may be either directed by an independent Plan fiduciary or a
Plan participant that has the ability to direct investments in his or
her Plan account under the Plan document. Alternatively, in those cases
in which a MetLife affiliate manages investments, such as the Separate
Account described herein, MetLife represents that the affiliate does
not exercise any discretionary authority over the decision to invest
the Plan's assets in the Separate Account. Instead, an independent Plan
fiduciary is responsible for such investment decisions.
b. Conning, a Missouri corporation located in St. Louis, Missouri,
provides asset management services primarily to insurance companies and
institutional investors. In addition, Conning manages private equity
funds investing in insurance and insurance-related companies and it
conducts in-depth research on the insurance industry. On April 19,
2000, as a result of a merger, Conning became an indirect, wholly owned
subsidiary of MetLife and a privately-held corporation.
c. CC Merger Sub, Inc. (CC Merger Sub), a Missouri corporation, was
an indirect, wholly owned subsidiary of MetLife. Through CC Merger Sub,
MetLife offered to purchase all of the outstanding Conning Common
Shares that were not owned by MetLife or its affiliates under the terms
of a Tender Offer and Merger described in detail below. On April 19,
2000, CC Merger Sub was merged with and into Conning. As a result of
the merger, CC Merger Sub ceased to exist.
d. ChaseMellon Shareholder Services, LLC, otherwise referred to in
this proposed exemption as the ``Disbursing Agent,'' was appointed by
MetLife and Conning for purposes of receiving certificates representing
Cancelled Conning Shares and transmitting cash payments to the holders
of the surrendered certificates.
2. MetLife is the investment manager of the Separate Account, which
is an insurance company pooled separate account that seeks to replicate
the performance of the Russell 2000 Index and is available for
investment by Plans subject to the Act. The Separate Account is
passively-managed in that the choice of stocks purchased and sold, and
the volume purchased and sold, are made according to the Russell 2000
Index rather than according to the active evaluation of investments.
MetLife represents that the process for the establishment and
operation of the Separate Account is disciplined in that objective
rules are established. Moreover, MetLife states that the Separate
Account is managed utilizing an analytical computer program that
determines the appropriate rebalancing necessary to meet the investment
objective.
3. At the time of the transactions described herein, nine ERISA-
covered Plans (none of which were sponsored by MetLife and its
affiliates) invested in the Separate Account, along with certain
municipal plans that were not subject to ERISA. These Plans held
undivided, pro rata interests in the Separate Account's assets,
including the Conning Common Shares, which were acquired by the
Separate Account on January 20, 2000 in an open market transaction. As
of April 19, 2000, the Separate Account had total assets of
approximately $45.6 million. Of the total assets, the Conning Common
Shares represented 0.014 percent of the assets in the Separate Account
and 0.075 percent of the value of the ERISA-covered Plans that were
invested in such account.
4. The Separate Account acquired the Conning Common Shares in a
Nasdaq transaction that was executed by the program trading desk at
Credit Suisse First Boston, which acted as broker. The Conning Common
Shares were purchased on the same day as part of the regular portfolio
rebalance occurring on that day. Of the 73,400 shares of Conning Common
Shares traded on January 20, 2000, the Separate Account purchased 523
shares of stock for an acquisition price of $11.239 per share or an
aggregate acquisition price of $5,877.98.
MetLife represents that the Conning Common Shares were purchased by
the Separate Account in order to avoid a tracking error and to conform
the Separate Account with the Russell 2000 Index. MetLife also
represents that at no time did the Conning Common Shares represent more
than 5 percent of the value of the Russell 2000 Index.
5. MetLife requests an administrative exemption from the Department
with respect to the holding of 523 Conning Common Shares (and
subsequently, 523 Cancelled Conning Shares) by the Separate Account. As
discussed below, MetLife also requests exemptive relief with respect to
the delivery of certificates representing 523 Cancelled Conning Shares
to the Disbursing Agent in exchange for cash consideration of $12.50
per Cancelled Conning Share, resulting in the acquisition of such
shares by MetLife. If granted, the exemption will be effective from
January 20, 2000 until May 18, 2000.
MetLife believes that retroactive exemptive relief is appropriate
given the beneficial nature of the exchange, the fact that the
transaction could not be avoided if applicable provisions of the
Federal securities laws and relevant provisions of the Act that are the
subject of this application were complied with, and the fact that the
Conning Common
[[Page 36036]]
Shares held by the Separate Account constituted a de minimus portion of
the exchange transaction.
6. Prior to the Separate Account's acquisition of the Conning
Common Shares, MetLife acquired control of 8.3 million Conning Common
Shares when it purchased all of the issued and outstanding shares of
capital stock of GenAmerica Corporation from General American Mutual
Holding Company, a Missouri mutual holding company. The transaction
took place on January 6, 2000. At the time of the transaction,
GenAmerica Corporation owned all of the issued and outstanding shares
of capital stock of General American Life Insurance Company, which
owned all of the issued and outstanding shares of capital stock of
GenAm Holding Company, the record owner of the 8.3 million Conning
Common Shares. The Conning Common Shares acquired by MetLife
represented approximately 60.4 percent of the outstanding Conning
Common Shares.
7. In accordance with the terms of the Merger Agreement by and
between Conning, MetLife and CC Merger Sub, on March 20, 2000, MetLife
(through CC Merger Sub) commenced the Tender Offer to acquire the
remaining 39.6 percent of the outstanding Conning Common Shares that
MetLife did not control. The purchase price was established at $12.50
per Conning Common Share and the consideration was payable in cash.
April 17, 2000 was fixed as the expiration date of the Tender Offer.
However, this date could be extended by MetLife.
Under the Merger Agreement, MetLife's acceptance of and payment for
all of the Conning Common Shares tendered and not validly withdrawn in
the Tender Offer were subject to the condition that Conning shareholder
approval of the Merger would be ensured if the number of tendered
Conning Common Shares, when combined with the Conning Common Shares
that MetLife already controlled, exceeded two-thirds of the outstanding
Conning Common Shares. Thus, the objective of the Tender Offer and the
Merger was to make Conning an indirect, wholly owned subsidiary of
MetLife.
8. MetLife and CC Merger Sub believed that the consideration to be
received in the Tender Offer and the Merger was fair (both in terms of
price and procedure) to the Conning stockholders that were unaffiliated
with MetLife for the following reasons:
z The Conning Special Committee, which concluded that the Tender
Offer and the Merger were fair to, advisable and in the best interests
of Conning and its stockholders, had approved the Tender Offer and the
Merger Agreement, following a thorough review with independent
financial and legal advisers.
z Based upon the recommendation of the Conning Special Committee
and other considerations, the Conning Board of Directors determined
that the Tender Offer and the Merger were fair to, advisable and in the
best interests of Conning stockholders and unanimously approved the
Tender Offer and the Merger Agreement.
z On March 9, 2000, the Conning Special Committee received a
written fairness opinion from Salomon Smith Barney to the effect that,
subject to the various assumptions and limitations set forth in that
opinion, as of the date thereof, the cash consideration of $12.50 per
Conning Common Share which was to be received by Conning stockholders
in the Tender Offer and the Merger was fair to Conning stockholders
(other than MetLife or Conning and their respective wholly owned
subsidiaries) from a financial point of view.
z The Merger Agreement was negotiated at arm's length for over six
weeks with the Conning Special Committee, which acted independently,
with the assistance of financial and legal advisers and on behalf of
Conning stockholders unaffiliated with MetLife.
z Conning's historical financial performance and MetLife's
projections of Conning's future financial performance took into account
MetLife's assumption of investment management responsibility over the
general account assets of General American Life Insurance Company.
z Conning's business and earnings prospects, near- and long-term
business risks, the competitive business environment in which Conning
operated and business and valuation trends in Conning's business
industry were considered.
z The cash consideration of $12.50 per share to be paid in the
Tender Offer and the Merger for the Conning Common Shares would
represent (a) a premium of approximately 30.7 percent above the closing
price of Conning Common Shares on the last trading day before MetLife
announced its initial proposal to acquire Conning; (b) a premium of
approximately 44 percent above the average of the closing prices for
Conning Common Shares over the 20 trading days immediately before
MetLife publicly announced the proposal to acquire Conning; and (c) a
premium of approximately 48.1 percent above the closing price for
Conning Common Shares on each of December 14, 15 and 16, 1999,
approximately one month before MetLife announced its initial proposal
to acquire Conning.
z The structure of the transaction was designed to result in
Conning stockholders, other than MetLife and its affiliates, receiving
the consideration in the Tender Offer and the Merger at the earliest
possible time; and
z MetLife's internally-prepared financial analysis was considered.
This analysis included the development of projections, a review of
Credit Suisse First Boston's review of comparable current market prices
and historical transaction prices of Conning's peer group, and a
discounted cash flow analysis to determine the value of Conning Common
Shares as supporting the fairness of the Tender Offer and the Merger to
stockholders that were not affiliated with MetLife.
9. At the expiration date of the Tender Offer on April 17, 2000,
5.3 million Conning Common Shares were validly tendered and not
withdrawn. When combined with the 8.3 million Conning Common Shares
that MetLife already controlled, such shares then gave MetLife control
of approximately 98 percent of the outstanding Conning Common Shares.
Accordingly, pursuant to the Merger Agreement and Missouri law, on
April 19, 2000, MetLife acquired all remaining Conning Common Shares
that were the subject of the Tender Offer by consummating the Merger.
In this regard, all outstanding Conning Common Shares that were the
subject of the Tender Offer (except for those shares where the
shareholders asserted their dissenters' rights under Missouri law) were
automatically cancelled, retired and converted into the right to
receive cash consideration equivalent to $12.50 per former Conning
Common Share. (Such cancelled shares are referred to as the ``Cancelled
Conning Shares.'') Also, the separate corporate existence of CC Merger
Sub was terminated and Conning, as the surviving corporation in the
Merger, became an indirect, wholly owned subsidiary of MetLife.
Moreover, on April 19, 2000, MetLife caused Conning's share
transfer books to be closed and all Conning Common Shares to be de-
listed from Nasdaq and de-registered under the Securities Exchange Act
of 1934, as amended. As a result of these actions, there was no public
market for any Conning Common Shares (all of which were now controlled
by MetLife) or any Cancelled Conning Shares (523 of which were held by
the Separate Account).
10. To comply with applicable provisions of the Federal securities
laws, MetLife deemed it inappropriate for the Separate Account to sell
its Conning Common Shares on the open
[[Page 36037]]
market. Instead, the Separate Account continued to hold its 523 Conning
Common Shares and it did not tender these shares in the Tender Offer.
Subsequently, the 523 Conning Common Shares held by the Separate
Account were converted into 523 Cancelled Common Shares.
On May 18, 2000, the Separate Account delivered its 523 Cancelled
Conning Shares to the Disbursing Agent in exchange for the same $12.50
per share consideration that was received by all other Conning
shareholders in the Tender Offer and the Merger. Thus, the Separate
Account received $6,538 in cash from MetLife.\1\ The exchange caused
the ERISA-covered Plans that were participating in the Separate Account
to receive a premium for such shares. Had the Separate Account disposed
of the Conning Common Shares on the open market at $8.44 per share
approximately one month before MetLife announced its initial proposal
to acquire all of the outstanding shares of such stock, the Separate
Account would have received only $4,414. MetLife represents that this
amount would have been further reduced by sales commissions.
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\1\ The Separate Account had also received $26.15 in dividends
from MetLife that were attributable to its ownership of the Conning
Common Shares. This meant that the Separate Account's total net
earnings with respect to the Conning Common shares was $685.68
(6,537.50 - $5,877.98 + $26.15).
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11. In summary, it is represented that the transactions satisfied
the statutory criteria for an exemption under section 408(a) of the Act
because:
(a) The decision by a Plan to invest in the Separate Account was
made by a Plan fiduciary which was independent of MetLife and its
affiliates.
(b) The Conning Common Shares represented less than one percent of
the assets of the Separate Account and less than one percent of the
assets of the ERISA-covered Plans investing therein.
(c) The exchange of the Cancelled Conning Shares by the Separate
Account was a one-time transaction for cash.
(d) The Separate Account and the Plans received the fair market
value for each Cancelled Conning Share on the date of the exchange.
(e) The consideration received by the Separate Account for its
Cancelled Conning Shares was the same consideration received by (i) all
shareholders who validly tendered their Conning Common Shares pursuant
to a Tender Offer and (ii) all holders of Cancelled Conning Shares.
(f) The Separate Account paid no commissions, fees or other
expenses in connection with the exchange of the Cancelled Conning
shares to MetLife and its affiliates for cash.
(g) After the expiration of the Tender Offer and the consummation
of the exchange, the Separate Account delivered certificates to the
Disbursing Agent representing the Cancelled Conning Shares.
(h) The terms of the exchange were no less favorable to the
Separate Account and the Plans than those obtainable in an arm's length
transaction engaged in by other similarly-situated holders of the
Cancelled Conning Shares.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 693-8556. (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 17th day of May, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 02-12828 Filed 5-21-02; 8:45 am]
BILLING CODE 4510-29-P