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[Exemption Application No. D11050 et al.] Prohibited Transaction Exemption 200242; Grant of Individual Exemptions; Provident Mutual Life Insurance Company (Provident)   [9/4/2002]
[PDF]
[Federal Register: September 4, 2002 (Volume 67, Number 171)]
[Notices]               
[Page 56594-56600]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04se02-123]                         

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Exemption Application No. D11050 et al.]

 
Prohibited Transaction Exemption 200242; Grant of Individual 
Exemptions; Provident Mutual Life Insurance Company (Provident)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemption.

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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).
    A notice was published in the Federal Register of the pendency 
before the Department of a proposal to grant such exemption. The notice 
set forth a summary of facts and representations contained in the 
application for exemption and referred interested persons to the 
application for a complete statement of the facts and representations. 
The application has been available for public inspection at the 
Department in Washington, DC. The notice also invited interested 
persons to submit comments on the requested exemption to the 
Department. In addition the notice stated that any interested person 
might submit a written request that a public hearing be held (where 
appropriate). The applicant has represented that it has complied with 
the requirements of the notification to interested persons. No requests 
for a hearing were received by the Department. Public comments were 
received by the Department as described in the granted exemption.
    The notice of proposed exemption was issued and the exemption is 
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 exemption is administratively feasible;
    (b) The exemption is in the interests of the plan and its 
participants and beneficiaries; and
    (c) The exemption is protective of the rights of the participants 
and beneficiaries of the plan.

Provident Mutual Life Insurance Company (Provident) Located in Berwyn, 
PA

[Prohibited Transaction Exemption 200242; Exemption Application No. 
D11050]

Exemption

Section I. Covered Transactions
    The restrictions of section 406(a) of the Act and the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1)(A) through (D) of the Code,\1\ shall not apply to 
(1) the initial issuance, by Provident, of its common stock (Provident 
Shares) to the conversion agent (the Conversion Agent), as stockholder 
of record, on behalf of any eligible policyholder of Provident (the 
Eligible Member), including any Eligible Member which is an employee 
benefit plan (within the meaning of section 3(3) of the Act), an 
individual retirement annuity (within the meaning of section 408 or 
408A of the Code) or a tax sheltered annuity (within the meaning of 
section 403(b) of the Code) (each, a Plan), including a Plan sponsored 
by Provident for Provident employees (a Provident Plan); or (2) the 
exchange, by the Conversion Agent, of Provident Shares for common stock 
(Sponsor Class A Shares) issued by Nationwide Financial Services, Inc., 
(the Sponsor), or, the receipt of cash (Cash) or policy credits (Policy 
Credits) by an Eligible Member, in exchange for such Eligible Member's 
membership interest in Provident or in connection with the merger (the 
Merger) between Provident and the Eagle Acquisition Corporation, a 
wholly-owned subsidiary of the Sponsor, in accordance with the terms of 
a plan of conversion (the Plan of Conversion) and merger agreement (the 
Merger Agreement), adopted by Provident and implemented pursuant to the 
Pennsylvania Insurance Company Mutual-to-Stock Conversion Act, as 
amended, codified at 40 P.S. sections 911A to 929A (the Conversion Act) 
and the applicable provisions of the Pennsylvania Business Corporation 
Law of 1998.
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    \1\ For purposes of this exemption, references to provisions of 
Title I of the Act, unless otherwise specified, refer also to 
corresponding provisions of the Code.
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    In addition, the restrictions of section 406(a)(1)(E) and (a)(2) 
and section 407(a)(2) of the Act shall not apply to the receipt and 
holding, by a Provident Plan, of Sponsor Class A Shares, whose fair 
market value exceeds 10 percent of the value of the total assets held 
by such Plan.
    This exemption is subject to the general conditions set forth below 
in Section II.
Section II. General Conditions
    (a) The Plan of Conversion, including the Merger Agreement, is 
subject to approval, review and supervision by the Commissioner of 
Insurance of the Commonwealth of Pennsylvania (the Commissioner) and is 
implemented in accordance with procedural and substantive safeguards 
that are imposed

[[Page 56595]]

under the laws of the Commonwealth of Pennsylvania.
    (b) The Commissioner reviews the terms of the options that are 
provided to Eligible Members of Provident as part of such 
Commissioner's review of the Plan of Conversion and Merger, and 
approves the Plan of Conversion and Merger following a determination 
that such Plan of Conversion is fair and equitable to all Eligible 
Members. The New York Superintendent of Insurance (the Superintendent) 
may object to the Plan of Conversion if he or she finds that such Plan 
of Conversion is not fair or equitable to all New York policyholders.
    (c) As part of their separate determinations, both the Commissioner 
and the Superintendent concur on the terms of the Plan of Conversion.
    (d) Each Eligible Member has an opportunity to vote at a special 
meeting to approve the Plan of Conversion and Merger after full written 
disclosure is given to the Eligible Member by Provident.
    (e) Any determination to receive Sponsor Class A Shares, Cash, or 
Policy Credits by an Eligible Member which is a Plan, pursuant to the 
terms of the Plan of Conversion, is made by one or more Plan 
fiduciaries that are independent of Provident and its affiliates and 
neither Provident nor any of its affiliates exercises any discretion or 
provides investment advice, within the meaning of 29 CFR 2510.321(c), 
with respect to such decisions.
    (f) After each Eligible Member is allocated a fixed component 
equivalent to approximately 20% of Provident Shares, additional 
consideration is allocated to Eligible Members based on actuarial 
formulas that take into account each policy's contributions to the 
surplus and asset valuation reserve of Provident, which formulas have 
been approved by the Commissioner.
    (g) In the case of an Eligible Member who is entitled to receive 
Provident Shares only upon consummation of the Merger, such Provident 
Shares are exchanged for Sponsor Class A Shares, Cash or Policy Credits 
in accordance with an election made by such Eligible Member.
    (h) In the case of a Provident Plan, the independent Plan fiduciary 
--
    (1) Votes on whether to approve or not to approve the proposed 
demutualization;
    (2) Elects between consideration in the form of Sponsor Class A 
Shares, Cash or Policy Credits on behalf of such Plans;
    (3) Reviews and approves Provident's allocation of Sponsor Class A 
Shares, Cash or Policy Credits received for the benefit of the 
participants and beneficiaries of the Provident Plans;
    (4) Votes on Sponsor Class A Shares that are held by the Provident 
Plans and disposes of such shares held by the Retirement Pension Plan 
for Certain Home Office, Managerial and Other Employees of Provident 
Mutual Life Insurance Company, which exceeds the limitation of section 
407(a)(2) of the Act, as soon as it is reasonably practicable, but in 
no event later than six months after the effective date (the Effective 
Date) of the Plan of Conversion and Merger;
    (5) Provides the Department with a complete and detailed final 
report as it relates to the Provident Plans prior to the Effective Date 
of the demutualization; and
    (6) Takes all actions that are necessary and appropriate to 
safeguard the interests of the Provident Plans and their participants 
and beneficiaries.
    (i) All Eligible Members that are Plans participate in the 
transactions on the same basis as all Eligible Members that are not 
Plans.
    (j) No Eligible Member pays any brokerage commissions or fees in 
connection with the receipt of Sponsor Class A Shares or Policy Credits 
or in connection with the implementation of the commission-free 
purchase and sale program.
    (k) All of Provident's policyholder obligations remain in force and 
are not affected by the Plan of Conversion or Merger.
    (l) The terms of the transactions are at least as favorable to the 
Plans as an arm's length transaction with an unrelated party.
Section III. Definitions
    For purposes of this exemption:
    (a) The term ``Provident'' means Provident Mutual Life Insurance 
Company and any of its affiliates as defined in paragraph (b) of this 
Section III.
    (b) An ``affiliate'' of Provident includes--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with Provident. (For purposes of this paragraph, the term ``control'' 
means the power to exercise a controlling influence over the management 
or policies of a person other than an individual.); and
    (2) Any officer, director or partner in such person.
    (c) The term ``Allocable Provident Shares'' means the number of 
Provident Shares determined in accordance with Section 3.1(c) of the 
Merger Agreement, representing the total number of Provident Shares 
that will be notionally allocated to Eligible Members in accordance 
with the Plan of Conversion and the ``Actuarial Contribution 
Memorandum'' (for purposes of allocating among Eligible Members the 
consideration that is actually to be distributed to Eligible Members in 
the form of Sponsor Class A Shares, Cash or Policy Credits). The 
Actuarial Contribution Memorandum sets forth the principles, 
assumptions and methodologies for the calculation of the Actuarial 
Contribution of Eligible Policies, which is the estimated past 
contribution of such Eligible Policy to Provident's statutory surplus 
and asset valuation reserve, plus the contribution that such policy is 
expected to make in the future, as calculated according to the 
principles, assumptions and methodologies set forth in the Plan of 
Conversion and its exhibits.
    (d) The term ``Eligible Member'' means the owner of an ``eligible 
policy,'' as provided by the records of Provident and by its articles 
of incorporation and bylaws, on the adoption date of the Plan of 
Conversion. (An ``Eligible Policy'' is defined as a policy that is in 
force on the adoption date.) Provident and any of its subsidiaries will 
not be Eligible Members with respect to any policy that entitles the 
policyholder to receive consideration, unless the consideration is to 
be utilized in whole or in part for a plan or program funded by that 
policy for the benefit of participants or employees who have coverage 
under that plan or program. Provident may deem a person to be an 
Eligible Member in order to correct any immaterial administrative 
errors or oversights.
    (e) With respect to the conversion of Provident from a mutual life 
insurance company to a stock insurance company (the Conversion), the 
term ``Policy Credit'' means consideration to be paid in the form of an 
increase in cash value, account value, dividend accumulations, face 
amount, extended term period or benefit payment, as appropriate, 
depending on the policy, or extension of the policy's expiration date. 
With respect to the Merger, the term ``Policy Credit'' means 
consideration to be paid in the form of an adjustment of policy values 
for certain policies under the Plan of Conversion.
    (f) The ``Effective Date'' means the date the actual Conversion and 
Merger will transpire. It is expected to occur in the latter part of 
the third quarter in 2002, however the exact date is not known at this 
time.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of

[[Page 56596]]

proposed exemption published on June 18, 2002 at 67 FR 41506.

Written Comments

    The Department received one written comment with respect to the 
proposed exemption. The comment, which was submitted by Provident, is 
intended to inform the Department of certain developments in connection 
with the insurer's proposed demutualization. In this regard, Provident 
has provided the following additional information in order to update 
the proposed exemption:
    1. Number of Plan Policyholders. Representation 3 of the Summary of 
Facts and Representations (the Summary) states, in relevant part, that, 
as of December 31, 2000, Provident had over 1,050 outstanding policies 
and contracts held in connection with Plans. Provident explains that 
the number of benefit plan policyholders has been determined to be 
higher than the 1,050 originally estimated, and it indicates that the 
present estimate is approximately 3,500 benefit plan policyholders.
    2. The Commissioner's Review of the Plan of Conversion. 
Representation 8 of the Summary states, in part, that the Plan of 
Conversion, including the Merger, must be approved by the Commissioner 
who will approve it if, after holding a public hearing, he or she 
determines that the Plan of Conversion complies with all provisions of 
Pennsylvania law and is fair and equitable to the company and the 
policyholders. Provident explains that the Commissioner approved the 
Plan of Conversion on July 31, 2002, pursuant to the Conversion Act, 
following a public hearing which was held on May 23, 2002.
    3. Consultants Hired to Assist the Commissioner. Representation 9 
of the Summary provides that the Commissioner may hire additional 
consultants to assist in making his determination on Provident's 
demutualization. Provident notes that the Commissioner has hired 
Stevens & Lee as legal advisers and The Blackstone Group as financial 
consultants.
    4. Limitation on Payment of Cash or Policy Credits. Representation 
14 of the Summary states that ``[u]nder the current terms of the Merger 
Agreement, the amount of Cash or Policy Credits that may be paid or 
funded with Cash supplied by the Sponsor is limited so that no more 
than 20 percent of the total number of Eligible Members receiving 
consideration provided or funded by the Sponsor (including Eligible 
Members receiving Sponsor Class A Shares) will receive Cash of Policy 
Credits.'' Representation 14 also states that ``the parties to the 
Merger have agreed to waive this limitation if the Internal Revenue 
Service (the Service) issues certain tax rulings.'' Provident explains 
that the Service has issued such favorable rulings.
    In response to Provident's comment letter, the Department notes the 
foregoing clarifications and updates to the proposed exemption. For 
further information regarding the comment and other matters discussed 
herein, interested persons are encouraged to obtain copies of the 
exemption application file (Exemption Application No. D11050) the 
Department is maintaining in this case. The complete application file, 
as well as all supplemental submissions received by the Department, are 
made available for public inspection in the Public Disclosure Room of 
the Pension and Welfare Benefits Administration, Room N1513, U.S. 
Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210.
    Accordingly, after giving full consideration to the entire record, 
including the written comment, the Department has decided to grant the 
exemption subject to the modifications described above.

FOR FURTHER INFORMATION CONTACT: Ms. Anna M.N. Mpras of the Department, 
telephone (202) 6938565. (This is not a toll-free number.)

Chiquita Processed Foods 401(k) Retirement Savings Plan (the 401(k) 
Plan) and the Chiquita Savings and Investment Plan (the Savings Plan; 
collectively the Plans) Located in New Richmond, WI and Cincinnati, OH, 
Respectively

[Prohibited Transaction Exemption 200243; Exemption Application Nos. 
D11063 and D11064]

Exemption

    The restrictions of sections 406(a), 406(b) and 407(a) of the Act 
and the sanctions resulting from the application of section 4975 of the 
Code,\2\ by reason of section 4975(c)(1)(A) through (E) of the Code, 
shall not apply, effective March 19, 2002, to (1) the acquisition and 
holding by the Plans of certain new warrants (the Warrants) to purchase 
new common stock (the New Common Stock) issued by Chiquita Brands 
International, Inc. (the Employer), a party in interest with respect to 
the Plans; and (2) the subsequent exercise of the Warrants, as directed 
by participants in the Plans.
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    \2\ For purposes of this exemption, references to provisions of 
Title I of the Act, unless otherwise specified, refer also to 
corresponding provisions of the Code.
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    This exemption is subject to the following conditions:
    (a) The Plans had little, if any, ability to affect the negotiation 
or confirmation of either the Plan of Reorganization of Chiquita filed 
by the Employer on November 28, 2001 under Chapter 11 of Title 11 of 
the United States Code (the Bankruptcy Code), the First Amended Plan of 
Reorganization of Chiquita, subsequently filed under the Bankruptcy 
Code by the Employer on January 18, 2002, or the Second Amended Plan of 
Reorganization of Chiquita (the Second Amended POR), subsequently filed 
under the Bankruptcy Code by the Employer on March 7, 2002.
    (b) The acquisition and holding of the Warrants did not occur until 
the Second Amended POR had been confirmed.
    (c) The Plans acquired the Warrants automatically in connection 
with the Employer's bankruptcy proceedings and without any unilateral 
action on their part.
    (d) All shareholders, including the Plans, were treated in a like 
manner with respect to the issuance of the Warrants.
    (e) The Warrants represented less than 25 percent of the assets of 
either Plan.
    (f) Any decision to exercise the Warrants acquired by the Plans in 
connection with the Employer's bankruptcy will be made by the 
participants in accordance with the terms of a warrant agreement, as 
well as in accordance with the Plan provisions for individually-
directed investment of participant accounts.
    (g) The Plans did not pay any fees or commissions in connection 
with the receipt of the Warrants, nor will the Plans pay any fees or 
commissions in connection with the holding or exercise of the Warrants.
    (h) The trustees of the Plans will not allow participants to 
exercise the Warrants held by their individual accounts in the Plans 
unless the fair market value of the New Common Stock exceeds the 
exercise price of the Warrants.

EFFECTIVE DATE: This exemption is effective as of March 19, 2002.
    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 June 18, 2002 at 67 FR 
41513.

FOR FURTHER INFORMATION CONTACT: Ms. Anna M.N. Mpras of the Department, 
telephone (202) 6938565. (This is not a toll-free number.)

[[Page 56597]]

Goldman Sachs & Co. (Located in New York, NY) and its Affiliates

[Prohibited Transaction Exemption 200244; Application No. D11084]

Exemption

Section I--Transactions
    The restrictions of section 406(a)(1)(A) through (D) of the Act and 
the sanctions resulting from the application of section 4975 of the 
Code, by reason of section 4975(c)(1)(A) through (D) of the Code,\3\ 
shall not apply as of March 22, 2002, to:
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    \3\ For purposes of this exemption, references to specific 
provisions of Title I of the Act, unless otherwise specified, refer 
to the corresponding provisions of the Code.
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    (a) The lending of securities, under certain exclusive borrowing 
arrangements, to:
    (1) Goldman, Sachs & Co. (Goldman) and any affiliate of Goldman 
that, now or in the future, is a U.S. registered broker-dealer, a 
government securities broker or dealer or U.S. bank (together with 
Goldman, the ``U.S. Broker-Dealers'');
    (2) Goldman Sachs Canada Inc., which is subject to regulation in 
Canada by the Ontario Securities Commission and the Investment Dealers 
Association;
    (3) Goldman Sachs International and Goldman Sachs Equity Securities 
(U.K.), which are subject to regulation in the United Kingdom by the 
Financial Services Authority (the UK FSA) (formerly, the Securities and 
Futures Authority (the UK SFA));
    (4) Goldman, Sachs & Co. oHG, which is subject to regulation in 
Germany by the Deutsche Bundesbank and the Federal Banking Supervisory 
Authority, e.g., der Bundesaufsichtsamt fu[uuml]r das Kreditwesen (the 
BAK);
    (5) Goldman Sachs (Japan) Ltd., which is subject to regulation in 
Japan by the Financial Services Agency and the Tokyo Stock Exchange;
    (6) Goldman Sachs Australia Pty Limited, which is subject to 
regulation in Australia by the Australian Securities & Investments 
Commission (the ASIC);
    (7) Goldman, Sachs & Co. Bank, which is subject to regulation in 
Switzerland by the Swiss Federal Banking Commission; and
    (8) Any broker-dealer or bank that, now or in the future, is an 
affiliate of Goldman which is subject to regulation by the Ontario 
Securities Commission and the Investment Dealers Association in Canada, 
the UK FSA in the United Kingdom, the Deutsche Bundesbank and/or the 
BAK in Germany, the Financial Services Agency and the Tokyo Stock 
Exchange in Japan, the ASIC in Australia or the Swiss Federal Banking 
Commission in Switzerland (each such affiliated foreign broker-dealer 
or bank referred to as a ``Foreign Borrower,'' and, together with the 
U.S. Broker-Dealers, collectively referred to as the ``Borrowers''), by 
employee benefit plans, including commingled investment funds holding 
assets of such plans (Plans) with respect to which Goldman or any of 
its affiliates is a party in interest; and
    (b) The receipt of compensation by Goldman or any of its affiliates 
in connection with securities lending transactions, provided that the 
following conditions set forth in Section II, below, are satisfied.
Section II--Conditions
    (a) For each Plan, neither the Borrower nor any affiliate has or 
exercises discretionary authority or control over the Plan's investment 
in the securities available for loan, nor do they render investment 
advice (within the meaning of 29 CFR 2510.321(c)) with respect to those 
assets.
    (b) The party in interest dealing with the Plan is a party in 
interest with respect to the Plan (including a fiduciary) solely by 
reason of providing services to the Plan, or solely by reason of a 
relationship to a service provider described in section 3(14)(F), (G), 
(H) or (I) of the Act.
    (c) The Borrower directly negotiates an exclusive borrowing 
agreement (the Borrowing Agreement) with a Plan fiduciary which is 
independent of the Borrower and its affiliates.
    (d) The terms of each loan of securities by a Plan to a Borrower 
are at least as favorable to such Plan as those of a comparable arm's-
length transaction between unrelated parties, taking into account the 
exclusive arrangement.
    (e) In exchange for granting the Borrower the exclusive right to 
borrow certain securities, the Plan receives from the Borrower either 
(i) a flat fee (which may be equal to a percentage of the value of the 
total securities subject to the Borrowing Agreement from time to time), 
(ii) a periodic payment that is equal to a percentage of the value of 
the total balance of outstanding borrowed securities, or (iii) any 
combination of (i) and (ii) (collectively, the Exclusive Fee). If the 
Borrower pledges cash collateral, any earnings generated by such cash 
collateral shall be returned to the Borrower; provided that the 
Borrower may, but shall not be obligated to, agree with the independent 
fiduciary of the Plan that a percentage of the earnings on the 
collateral may be retained by the Plan and/or the Plan may agree to pay 
the Borrower a rebate fee and retain any earnings on the collateral 
(the Shared Earnings Compensation). If the Borrower pledges non-cash 
collateral, any earnings on the non-cash collateral shall be returned 
to the Borrower; provided that the Borrower may, but shall not be 
obligated to, agree to pay the Plan a lending fee (the ``Lending 
Fee'')(the Lending Fee and the Shared Earnings Compensation are 
referred to herein as the ``Transaction Lending Fee''). The Transaction 
Lending Fee, if any, shall be either in addition to the Exclusive Fee 
or an offset against such Exclusive Fee. The Exclusive Fee and the 
Transaction Lending Fee may be determined in advance or pursuant to an 
objective formula, and may be different for different securities or 
different groups of securities subject to the Borrowing Agreement. Any 
change in the Exclusive Fee or the Transaction Lending Fee that the 
Borrower pays to the Plan with respect to any securities loan requires 
the prior written consent of the independent fiduciary of the Plan, 
except that consent is presumed where the Exclusive Fee or the 
Transaction Lending Fee changes pursuant to an objective formula. Where 
the Exclusive Fee or the Transaction Lending Fee changes pursuant to an 
objective formula, the independent fiduciary of the Plan must be 
notified at least 24 hours in advance of such change and such 
independent Plan fiduciary must not object in writing to such change, 
prior to the effective time of such change.
    (f) The Borrower may, but shall not be required to, agree to 
maintain a minimum balance of borrowed securities subject to the 
Borrowing Agreement. Such minimum balance may be a fixed U.S. dollar 
amount, a flat percentage of portfolio value or other percentage 
determined pursuant to an objective formula.
    (g) By the close of business on or before the day on which the 
loaned securities are delivered to the Borrower, the Plan receives from 
the Borrower (by physical delivery, book entry in a securities 
depository located in the United States, wire transfer, or similar 
means) collateral consisting of U.S. currency, securities issued or 
guaranteed by the U.S. Government or its agencies or instrumentalities, 
irrevocable bank letters of credit issued by a U.S. bank other than 
Goldman or an affiliate of Goldman, or any combination thereof, or 
other collateral permitted under Prohibited Transaction Exemption 816 
(46 FR 7527, Jan. 23 1981, as amended at 52 FR 18754, May 19, 1987) 
(PTE 816) (as amended or

[[Page 56598]]

superseded)\4\ having, as of the close of business on the preceding 
business day, a market value or, in the case of letters of credit a 
stated amount, equal to not less than 102 percent of the then market 
value of the securities lent. Such collateral will be deposited and 
maintained in an account which is separate from the Borrower's accounts 
and will be maintained with an institution other than the Borrower. For 
this purpose, the collateral may be held on behalf of the Plan by an 
affiliate of the Borrower that is the trustee or a custodian of the 
Plan. If maintained by an affiliate of the Borrower, the collateral 
will be segregated from the assets of such affiliate.
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    \4\ PTE 816 provides an exemption under certain conditions from 
section 406(a)(1)(A) through (D) of the Act and the corresponding 
provisions of section 4975(c) of the Code for the lending of 
securities that are assets of an employee benefit plan to a U.S. 
broker-dealer registered under the Securities Exchange Act of 1934 
(the 1934 Act) (or exempted from registration under the 1934 Act as 
a dealer in exempt Government securities, as defined therein) or to 
a U.S. bank, that is a party in interest with respect to such plan.
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    (h) If the market value of the collateral at any time falls below 
100 percent (or such higher percentage as the Borrower and the 
independent fiduciary of the Plan may agree upon) of the market value 
of the loaned securities, the Borrower delivers additional collateral 
on the following day to bring the level of the collateral back to at 
least 102 percent. The level of the collateral is monitored daily by 
the Plan or its designee, which may be Goldman or any of its affiliates 
which provides custodial or directed trustee services in respect of the 
securities covered by the Borrowing Agreement for the Plan. The 
applicable Borrowing Agreement shall give the Plan a continuing 
security interest in, title to, or the rights of a secured creditor 
with respect to the collateral and a lien on the collateral.
    (i) Before entering into a Borrowing Agreement, the Borrower 
furnishes to the Plan the most recent publicly available audited and 
unaudited statements of its financial condition, as well as any 
publicly available information which it believes is necessary for the 
independent fiduciary to determine whether the Plan should enter into 
or renew the Borrowing Agreement.
    (j) The Borrowing Agreement contains a representation by the 
Borrower that, as of each time it borrows securities, there has been no 
material adverse change in its financial condition since the date of 
the most recently furnished statements of financial condition.
    (k) The Plan receives the equivalent of all distributions made 
during the loan period, including, but not limited to, any cash 
dividends, interest payments, shares of stock as a result of stock 
splits, and rights to purchase additional securities, that the Plan 
would have received (net of tax withholdings) \5\ had it remained the 
record owner of the securities.
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    \5\ The Department notes the Applicants' representation that 
dividends and other distributions on foreign securities payable to a 
lending Plan are subject to foreign tax withholdings and that the 
Borrower will always put the Plan back in at least as good a 
position as it would have been had it not loaned securities.
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    (l) The Borrowing Agreement and/or any securities loan outstanding 
may be terminated by either party at any time without penalty (except 
for, if the Plan has terminated its Borrowing Agreement, the return to 
the Borrower of a pro-rata portion of the Exclusive Fee paid by the 
Borrower to the Plan) whereupon the Borrower delivers securities 
identical to the borrowed securities (or the equivalent thereof in the 
event of reorganization, recapitalization, or merger of the issuer of 
the borrowed securities) to the Plan within the lesser of five business 
days of written notice of termination or the customary settlement 
period for such securities.
    (m) In the event that the Borrower fails to return securities in 
accordance with the Borrowing Agreement and paragraph (l) above, the 
Plan's remedy will be the right under the Borrowing Agreement to 
purchase securities identical to the borrowed securities and apply the 
collateral to payment of the purchase price. If the collateral is 
insufficient to satisfy the Borrower's obligation to return the Plan's 
securities, the Borrower will indemnify the Plan in the U.S. against 
any losses resulting from its use of the borrowed securities equal to 
the difference between the replacement cost of securities and the 
market value of the collateral on the date the loan is declared in 
default together with expenses incurred by the Plan plus applicable 
interest at a reasonable rate including reasonable attorneys fees 
incurred by the Plan for legal action arising out of default on the 
loans, or failure by the Borrower to properly indemnify the Plan.
    (n) Except as otherwise provided herein, all procedures regarding 
the securities lending activities, at a minimum, conform to the 
applicable provisions of PTE 816 (as amended or superseded), as well as 
to applicable securities laws of the United States, Canada, the United 
Kingdom, Germany, Japan, Australia, or Switzerland, as appropriate.
    (o) Only Plans with total assets having an aggregate market value 
of at least $50 million are permitted to lend securities to the 
Borrower; provided, however, that--
    (1) In the case of two or more Plans which are maintained by the 
same employer, controlled group of corporations or employee 
organization (the Related Plans), whose assets are commingled for 
investment purposes in a single master trust or any other entity the 
assets of which are ``plan assets'' under 29 CFR 2510.3101 (the Plan 
Asset Regulation), which entity is engaged in securities lending 
arrangements with the Borrower, the foregoing $50 million requirement 
shall be deemed satisfied if such trust or other entity has aggregate 
assets which are in excess of $50 million; provided that if the 
fiduciary responsible for making the investment decision on behalf of 
such master trust or other entity is not the employer or an affiliate 
of the employer, such fiduciary has total assets under its management 
and control, exclusive of the $50 million threshold amount attributable 
to plan investment in the commingled entity, which are in excess of 
$100 million.
    (2) In the case of two or more Plans which are not maintained by 
the same employer, controlled group of corporations or employee 
organization (the Unrelated Plans), whose assets are commingled for 
investment purposes in a group trust or any other form of entity the 
assets of which are ``plan assets'' under the Plan Asset Regulation, 
which entity is engaged in securities lending arrangements with the 
Borrower, the foregoing $50 million requirement is satisfied if such 
trust or other entity has aggregate assets which are in excess of $50 
million (excluding the assets of any Plan with respect to which the 
fiduciary responsible for making the investment decision on behalf of 
such group trust or other entity or any member of the controlled group 
of corporations including such fiduciary is the employer maintaining 
such Plan or an employee organization whose members are covered by such 
Plan). However, the fiduciary responsible for making the investment 
decision on behalf of such group trust or other entity--
    (i) Has full investment responsibility with respect to plan assets 
invested therein; and
    (ii) Has total assets under its management and control, exclusive 
of the $50 million threshold amount attributable to plan investment in 
the commingled entity, which are in excess of $100 million. (In 
addition, none of the entities described above are formed

[[Page 56599]]

for the sole purpose of making loans of securities.)
    (p) Prior to any Plan's approval of the lending of its securities 
to the Borrower, a copy of this exemption (and the notice of pendency) 
is provided to the Plan, and the Borrower informs the independent 
fiduciary that the Borrower is not acting as a fiduciary of the Plan in 
connection with its borrowing securities from the Plan.\6\
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    \6\ The Department notes the Applicants' representation that, 
under the exclusive borrowing arrangements, neither the Borrower nor 
any of its affiliates will perform the essential functions of a 
securities lending agent, e.g., the Applicants will not be the 
fiduciary who negotiates the terms of the Borrowing Agreement on 
behalf of the Plan, the fiduciary who identifies the appropriate 
borrowers of the securities or the fiduciary who decides to lend 
securities pursuant to an exclusive arrangement. However, the 
Applicants or their affiliates may monitor the level of collateral 
and the value of the loaned securities.
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    (q) The independent fiduciary of the Plan receives monthly reports 
with respect to the securities lending transactions, including but not 
limited to the information set forth in the following sentence, so that 
an independent Plan fiduciary may monitor such transactions with the 
Borrower. The monthly report will list for a specified period all 
outstanding or closed securities lending transactions. The report will 
identify for each open loan position, the securities involved, the 
value of the security for collateralization purposes, the current value 
of the collateral, the rebate or premium (if applicable) at which the 
security is loaned, and the number of days the security has been on 
loan. At the request of the Plan, such a report will be provided on a 
daily or weekly basis, rather than a monthly basis. Also, upon request 
of the Plan, the Borrower will provide the Plan with daily 
confirmations of securities lending transactions.
    (r) In addition to the above conditions, all loans involving a 
Foreign Borrower must satisfy the following supplemental requirements:
    (1) Such Foreign Borrower is a registered broker-dealer subject to 
regulation in Canada by the Ontario Securities Commission and the 
Investment Dealers Association, in the United Kingdom by the UK FSA, in 
Germany by the Deutsche Bundesbank and the BAK, in Japan by the 
Financial Services Agency and the Tokyo Stock Exchange, in Australia by 
the ASIC, or in Switzerland by the Swiss Federal Banking Commission;
    (2) Such Foreign Borrower is in compliance with all applicable 
provisions of Rule 15a6 (17 CFR 240.15a6) under the Securities Exchange 
Act of 1934 (the 1934 Act) which provides foreign broker-dealers a 
limited exception from United States registration requirements;
    (3) All collateral is maintained in United States dollars or in 
U.S. dollar-denominated securities or letters of credit or such other 
collateral as may be permitted under PTE 816 (as amended or 
superseded);
    (4) All collateral is held in the United States and the situs of 
the Borrowing Agreement is maintained in the United States under an 
arrangement that complies with the indicia of ownership requirements 
under section 404(b) of the Act and the regulations promulgated under 
29 CFR 2550.404(b)1; and
    (5) Prior to entering into a transaction involving a Foreign 
Borrower, the Foreign Borrower must:
    (i) Agree to submit to the jurisdiction of the United States;
    (ii) Agree to appoint an agent for service of process in the United 
States, which may be an affiliate (the Process Agent);
    (iii) Consent to the service of process on the Process Agent; and
    (iv) Agree that enforcement by a Plan of the indemnity provided by 
the Foreign Borrower will occur in the United States courts.
    (s) Goldman or the Borrower maintains, or causes to be maintained, 
within the United States for a period of six years from the date of 
such transaction, in a manner that is convenient and accessible for 
audit and examination, such records as are necessary to enable the 
persons described in paragraph (t)(1) to determine whether the 
conditions of the exemption have been met, except that--
    (1) A prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of Goldman and/or 
its affiliates, the records are lost or destroyed prior to the end of 
the six year period; and
    (2) No party in interest other than the Borrower shall be subject 
to the civil penalty that may be assessed under section 502(i) of the 
Act, or to the taxes imposed by section 4975(a) and (b) of the Code, if 
the records are not maintained, or are not available for examination as 
required below by paragraph (t)(1).
    (t)(1) Except as provided in subparagraph (t)(2) of this paragraph 
and notwithstanding any provisions of subsections (a)(2) and (b) of 
section 504 of the Act, the records referred to in paragraph (s) are 
unconditionally available at their customary location for examination 
during normal business hours by --
    (i) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service or the Securities and Exchange 
Commission (SEC);
    (ii) Any fiduciary of a participating Plan or any duly authorized 
representative of such fiduciary;
    (iii) Any contributing employer to any participating Plan or any 
duly authorized employee representative of such employer; and
    (iv) Any participant or beneficiary of any participating Plan, or 
any duly authorized representative of such participant or beneficiary.
    (2) None of the persons described above in subparagraphs 
(t)(1)(ii)(t)(1)(iv) are authorized to examine the trade secrets of 
Goldman or its affiliates or commercial or financial information which 
is privileged or confidential.

Section III--Definitions

    (a) An ``affiliate'' of a person means:
    (i) any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person. (For purposes of this paragraph, the term ``control'' 
means the power to exercise a controlling influence over the management 
or policies of a person other than an individual);
    (ii) any officer, director, employee or relative (as defined in 
section 3(15) of the Act) of any such other person or any partner in 
any such person; and
    (iii) any corporation or partnership of which such person is an 
officer, director or employee, or in which such person is a partner.
    (b) The term ``Foreign Borrower'' or ``Foreign Borrowers'' means 
Goldman Sachs Canada Inc. or any broker-dealer or bank, now or in the 
future, that is an affiliate of Goldman subject to regulation in Canada 
by the Ontario Securities Commission and the Investment Dealers 
Association, Goldman Sachs International and Goldman Sachs Equity 
Securities (U.K.) or any broker-dealer or bank, now or in the future, 
that is an affiliate of Goldman subject to regulation in the United 
Kingdom by the UK FSA, Goldman, Sachs & Co. oHG or any broker-dealer or 
bank, now or in the future, that is an affiliate of Goldman subject to 
regulation in Germany by the Deutsche Bundesbank and the BAK, Goldman 
Sachs (Japan) Ltd. or any broker-dealer or bank, now or in the future, 
that is an affiliate of Goldman subject to regulation in Japan by the 
Financial Services Agency and the Tokyo Stock Exchange, Goldman Sachs 
Australia Pty Limited or any broker-dealer or bank, now or in the 
future, that

[[Page 56600]]

is an affiliate of Goldman subject to regulation in Australia by the 
ASIC, Goldman, Sachs & Co. Bank or any broker-dealer or bank, now or in 
the future, that is an affiliate of Goldman subject to regulation in 
Switzerland by the Swiss Federal Banking Commission.
    (c) The term ``Borrower'' includes Goldman, the U.S. Broker-
Dealers, and the Foreign Borrowers.
    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 July 3, 2002 at 67 FR 
44633.

EFFECTIVE DATE: This exemption is effective as of March 22, 2002.

FOR FURTHER INFORMATION CONTACT: Karen E. Lloyd, U.S. Department of 
Labor, telephone (202) 6938540. (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 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) This exemption is 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 this exemption is subject to the express 
condition that the material facts and representations contained in the 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, DC, this 29th day of August, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 02-22540 Filed 9302; 8:45 am]
BILLING CODE 451029P