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EBSA Notices

Proposed Exemptions From Certain Prohibited Transaction Restrictions   [6/13/2011]
[PDF]
Federal Register, Volume 76 Issue 113 (Monday, June 13, 2011)
[Federal Register Volume 76, Number 113 (Monday, June 13, 2011)]
[Notices]
[Pages 34260-34270]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-14520]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration


Proposed Exemptions From Certain Prohibited Transaction 
Restrictions

AGENCY: Employee Benefits Security 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 proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the 
Internal Revenue Code of 1986 (the Code). This notice includes the 
following proposed exemptions: D-11608, Russell Trust Company; and D-
11659, Pacific Capital Bancorp Amended and Restated Incentive and 
Investment and Salary Savings Plan

DATES: 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.

ADDRESSES: 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. All written comments and requests for a 
hearing (at least three copies) should be sent to the Employee Benefits 
Security Administration (EBSA), Office of Exemption Determinations, 
Room N-5700, 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 EBSA via e-mail or FAX. Any 
such comments or requests should be sent either by e-mail to: 
moffitt.betty@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 Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.
    Warning: If you submit written comments or hearing requests, do not 
include any personally-identifiable or confidential business 
information that you do not want to be publicly-disclosed. All comments 
and hearing requests are posted on the Internet exactly as they are 
received, and they can be retrieved by most Internet search engines. 
The Department will make no deletions, modifications or redactions to 
the comments or hearing requests received, as they are public records.

SUPPLEMENTARY INFORMATION: 

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).
    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.

[[Page 34261]]

Russell Trust Company (RTC or the Applicant); Located in Seattle, 
Washington; [Exemption Application No. D-11608]

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).

Section I--Covered Transactions

    If the proposed exemption is granted--
    (a) The restrictions of sections 406(a)(1)(A), (a)(1)(B), 
(a)(1)(D), 406(b)(1) and 406(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), (c)(1)(B), (c)(1)(D), and (c)(1)(E) of the 
Code, shall not apply, between September 14, 2009 and September 10, 
2010, inclusive, to an arrangement involving the following 
transactions:
    (1) The extension of credit, through a revised capital support 
agreement, to certain employee benefit plans (the Plans) invested, 
directly or indirectly, in the Russell Securities Lending Short-Term 
Investment Fund (the SecLending Fund) by the Frank Russell Company 
(FRC), the parent company of RTC and a party in interest with respect 
to the Plans, in connection with the SecLending Fund's holding of 
certain notes (the Notes) issued by Lehman Brothers Holdings Inc. or 
its affiliates (the Revised SecLending Fund CSA);
    (2) The extension of credit, through a revised capital support 
agreement, to certain Plans invested, directly or indirectly, in the 
RTC Russell Liquidity Fund (the Liquidity Fund) by FRC in connection 
with the Liquidity Fund's holding of the Notes (the Revised Liquidity 
Fund CSA);
    (3) The provision of a revised guarantee to FRC by its parent 
company, the Northwest Mutual Life Insurance Company (NML), a party in 
interest with respect to the Plans, in order to ensure FRC's foregoing 
capital support obligation to the SecLending Fund (the Revised 
SecLending Fund Guarantee);
    (4) The provision of a revised guarantee to FRC by NML in order to 
ensure FRC's foregoing capital support obligation to the Liquidity Fund 
(the Revised Liquidity Fund Guarantee);
    (5) The accrual and periodic payment of certain supplemental yield 
contributions by FRC to the SecLending Fund (the SecLending Fund 
Supplemental Yield Contributions); and
    (6) The accrual and periodic payment of certain supplemental yield 
contributions by FRC to the Liquidity Fund (the Liquidity Fund 
Supplemental Yield Contributions);
    (b) The restrictions of sections 406(a)(1)(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) and (E) of the 
Code shall not apply to the September 10, 2010 cash sale (the Sale) of 
all of the Notes held by both the SecLending Fund and the Liquidity 
Fund (taken together, the Funds) to FRC; provided that all of the 
conditions set forth below in Section II are satisfied.

Section II--Conditions

    (a) With respect to the arrangement involving (i) The Revised 
SecLending Fund CSA and the Revised Liquidity Fund CSA transactions 
(together, the Revised CSAs), (ii) the Revised SecLending Fund 
Guarantee and the Revised Liquidity Fund Guarantee transactions 
(together, the Revised Guarantees), and (iii) the SecLending Fund 
Supplemental Yield Contributions and the Liquidity Fund Supplemental 
Yield Contribution transactions (together, the Supplemental Yield 
Contributions):
    (1) The decision to enter into each of these transactions was made 
on behalf of the Funds (and the employee benefit plans invested, 
directly or indirectly, in the Funds) by an independent fiduciary (the 
Independent Fiduciary), who reviewed their terms and conditions of each 
of the foregoing transactions and determined that they were protective 
of, and in the interest of, the Funds and the Plans investing therein;
    (2) The foregoing transactions were entered into pursuant to 
written agreements that contained all of the relevant terms and 
conditions relating to such transactions; and
    (3) The Funds did not pay any fees, commissions or other expenses 
in connection with the foregoing transactions;
    (b) With respect to the Sale of the Notes by each Fund to FRC:
    (1) The Sale was a one-time transaction for cash;
    (2) In connection with the Sale, the applicable Fund received an 
amount which was equal to the greater of: (i) The market value of the 
Notes being sold on the date of the Sale; or (ii) the sum of the 
amortized cost of such Notes, plus any accrued but unpaid interest on 
such Notes through the earlier of the maturity date of the applicable 
Note or September 14, 2009, in each case calculated at the contract 
rate;
    (3) The Funds did not pay any fees, commissions or other expenses 
in connection with the Sale;
    (4) The decision to sell all of the Notes held by the Funds to FRC 
was made by an Independent Fiduciary, who determined that the Sale of 
the Notes was appropriate for, and in the best interests of, each of 
the Funds and the Plans invested, directly or indirectly, in the Funds, 
at the time of the Sale transaction;
    (5) The Independent Fiduciary has taken all appropriate actions 
necessary to safeguard the interests of the Funds, and of the employee 
benefit plans invested, directly or indirectly, in the Funds, in 
connection with the transaction;
    (6) If the exercise of any of FRC's rights, claims, or causes of 
action in connection with its ownership of the Notes results in 
recovering from the issuer of the Notes, or any third party, an 
aggregate amount that is in excess of the sum of: (i) The Sale price 
paid for the Notes by FRC; and (ii) interest on such Sale price paid 
from September 10, 2010 to September 14, 2010, inclusive, made by FRC 
to the Funds, then FRC will refund such excess amount promptly to the 
Fund (after deducting all reasonable expenses incurred in connection 
with the recovery);
    (c) RTC and its affiliates, as applicable, maintain, or cause to be 
maintained, for a period of six (6) years from the date of any covered 
transaction such records as are necessary to enable the person 
described below in paragraph (d)(1), to determine whether the 
conditions of this exemption have been met, except that:
    (1) No party in interest with respect to a plan which engages in 
the covered transaction, other than FRC, RTC and their affiliates, as 
applicable, shall be subject to a civil penalty under section 502(i) of 
the Act or the taxes imposed by section 4975(a) and (b) of the Code, if 
such records are not maintained, or not available for examination, as 
required, below, by paragraph (d)(1);
    (2) A separate prohibited transaction shall not be considered to 
have occurred solely because due to circumstances beyond the control of 
FRC, RTC or their affiliates, as applicable, such records are lost or 
destroyed prior to the end of the six-year period.
    (d)(1) Except as provided, below, in paragraph (d)(2), and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to, above, in paragraph (c) are 
unconditionally available at their customary location for examination 
during normal business hours by --

[[Page 34262]]

    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the Securities and 
Exchange Commission; or
    (B) Any fiduciary of any plan that engages in the covered 
transaction, or any duly authorized employee or representative of such 
fiduciary; or
    (C) Any employer of participants and beneficiaries and any employee 
organization whose members are covered by a plan that engages in the 
covered transaction, or any authorized employee or representative of 
these entities; or
    (D) Any participant or beneficiary of a plan that engages in the 
covered transaction, or duly authorized employee or representative of 
such participant or beneficiary;
    (2) None of the persons described, above, in paragraph (d)(1)(B)-
(D) shall be authorized to examine trade secrets of FRC, RTC or their 
affiliates, or commercial or financial information which is privileged 
or confidential; and
    (3) Should RTC refuse to disclose information on the basis that 
such information is exempt from disclosure, RTC shall, by the close of 
the thirtieth (30th) day following the request, provide a written 
notice advising that person of the reasons for the refusal and that the 
Department may request such information.

Summary of Facts and Representations

    1. RTC is a trust company organized under the laws of the State of 
Washington that is subject to regulation by the Washington State 
Department of Financial Institutions. RTC provides a wide range of 
fiduciary and investment management services to a broad array of 
institutional clients, including employee benefit plans subject to the 
Act and the Code. RTC serves as discretionary trustee for several 
commingled employee benefit fund trusts. RTC has numerous affiliates 
and is a subsidiary of FRC, a Washington corporation. FRC, in turn, is 
a subsidiary of NML.
    2. The Applicant represents that the SecLending Fund is a separate 
fund of the Russell Trust Company Commingled Employee Benefit Funds 
Trust (the Trust), a group trust that is exempt from federal income tax 
pursuant to Rev. Rul. 81-100. The SecLending Fund is used as an 
investment vehicle for cash collateral received in connection with 
securities lending activities. The Applicant also represents that, on 
all dates relevant to the requested exemption, the SecLending Fund had 
Plan investors who were subject to the Act and the Code. The Liquidity 
Fund (like its predecessor fund, the Russell Short-Term Investment 
Fund, or STIF Fund) is a cash sweep vehicle that does not engage in 
securities lending activities. The Applicant represents that, on all 
dates relevant to the requested exemption, the assets of both the 
Liquidity Fund and its predecessor, the STIF Fund, constituted ``plan 
assets'' subject to the Act because each of the foregoing funds were 
collective trust funds maintained by a bank, and included Plan 
investors who were subject to the Act and the Code. In this connection, 
the Applicant represents that, under 29 CFR section 2510.3-
101(h)(1)(ii), when a plan acquires or holds an interest in such a 
common or collective fund of a bank, its assets are deemed to include 
an undivided interest in each of the underlying assets of such fund.
    Each of the Funds is bank-maintained for purposes of the Act, and 
RTC serves as a discretionary trustee for each Fund. The Funds are 
short-term investment funds that seek to maintain a constant net asset 
value, or ``NAV,'' equal to $1.00 per unit. RTC has investment 
discretion with respect to the assets of the Funds, and makes all 
determinations with respect to the purchase, sale, and holding of the 
assets by the Funds (within the investment parameters established for 
each Fund).
    3. The Applicant represents that, as of September 15, 2008, 
numerous collective investment funds maintained by RTC or its 
affiliates (the RTC CIFs) were direct investors in the STIF Fund. 
Further, numerous Plans were indirectly invested in the SecLending Fund 
and the STIF Fund through their investment in the RTC CIFs. One Plan 
sponsored by RTC or its affiliates had a direct (rather than an 
indirect) investment in the STIF Fund.

The Lehman Notes

    4. On September 15, 2008, both the SecLending Fund and the STIF 
Fund held Notes issued by Lehman Brothers Holdings Inc. or its 
affiliates (the Lehman Issuers). The SecLending Fund acquired all of 
the Notes described in this proposed exemption between September of 
2007 and March of 2008, while the STIF Fund acquired the Notes between 
September of 2007 and August of 2008. The decision both to acquire and 
to hold the Notes was made by RTC in its capacity as trustee and 
investment manager for each of the foregoing funds. Prior to investing 
in the Notes, the Applicant represents that RTC conducted an 
investigation of the potential investment, examining and considering 
the economic and other terms of the Notes. RTC represents that the 
investment in the Notes was consistent with the applicable investment 
policies and objectives of both the SecLending Fund and the STIF Fund. 
At the time they were acquired by the foregoing funds, the Notes were 
rated at least ``A'' or ``A+'' by both Moody's and S&P rating agencies. 
Based on its consideration of the relevant facts and circumstances, RTC 
determined that it was prudent and appropriate to acquire the Notes.\1\
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    \1\ The Department is expressing no opinion herein regarding 
whether the acquisition and holding of the Notes on, before, or 
after September 15, 2008 by either the SecLending Fund or the STIF 
Fund (or its successor fund, the Liquidity Fund) violated any of the 
fiduciary responsibility provisions of Part 4 of Title I of the Act. 
In this regard, the Department notes that section 404(a) of the Act 
requires, among other things, that a fiduciary of a plan 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 investment decisions 
on behalf of a plan. Section 404(a) of the Act also states that a 
plan fiduciary should diversify the investments of a plan so as to 
minimize the risk of large losses, unless under the circumstances it 
is clearly prudent not to do so.
    Moreover, the Department is not providing any opinion herein as 
to whether a particular category of investments or investment 
strategy would be considered prudent or in the best interests of a 
plan as required by section 404 of the Act. The determination of the 
prudence of a particular investment or investment course of action 
must be made by a plan fiduciary after appropriate consideration of 
those facts and circumstances that, given the scope of such 
fiduciary's investment duties, the fiduciary knows or should know 
are relevant to the particular investment or investment course of 
action involved, including a plan's potential exposure to losses and 
the role the investment or investment course of action plays in that 
portion of the plan's portfolio with respect to which the fiduciary 
has investment duties (see 29 CFR 2550.404a-1). The Department also 
notes that in order to act prudently in making investment decisions, 
a plan fiduciary must consider, among other factors, the 
availability, risks and potential return of alternative investments 
for the plan. Thus, a particular investment by a plan, which is 
selected in preference to other alternative investments, would 
generally not be prudent if such investment involves a greater risk 
to the security of a plan's assets than other comparable investments 
offering a similar return or result.
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The Initial Capital Support Agreements and Guarantees

    5. On September 15, 2008, each of the Lehman Issuers filed for 
Chapter 11 bankruptcy protection. As a consequence of the Lehman 
Issuers' bankruptcy filing, the market value of the Notes decreased 
substantially and the market for the Notes became relatively illiquid, 
with prices for actual trades being substantially lower than the 
SecLending Fund's and the STIF Fund's amortized cost for the Notes. In 
this connection, the Applicant determined that FRC should immediately 
provide capital support to both the SecLending Fund and the STIF Fund 
in an amount sufficient to maintain a constant NAV of

[[Page 34263]]

$1.00 per unit for each of the foregoing funds.
    Accordingly, on September 15, 2008, FRC entered into separate 
capital support agreements with both the SecLending Fund (the Initial 
SecLending Fund CSA) and the STIF Fund (the STIF Fund CSA). The 
Applicant explains that, pursuant to these agreements (which, taken 
together, constitute the Initial CSAs), FRC contractually agreed to 
provide on-going capital support to both the SecLending Fund and the 
STIF Fund with respect to the Notes, up to the lesser of: (a) An agreed 
upon ``maximum contribution amount'' ($75,000,000 for the STIF Fund and 
$70,000,000 for the SecLending Fund), which amounts equaled the 
aggregate par value of the Notes held by the SecLending Fund and the 
STIF Fund, as applicable, as of September 15, 2008; (b) the difference 
between the amortized cost of such Notes and any proceeds received by 
either the SecLending Fund or the STIF Fund as a result of the 
subsequent sale or other disposition of the Notes by either fund; or 
(c) the minimum capital contribution amount necessary for each of the 
foregoing funds to maintain an NAV of $0.995 per unit, after taking 
into account the market value of the Notes held or disposed of by such 
fund. On the same date, NML contracted to guarantee FRC's capital 
support obligations to both the SecLending Fund (under the Initial 
SecLending Fund Guarantee) and the STIF Fund (under the STIF Fund 
Guarantee). The Applicant represents that, at all times relevant to 
this exemption, NML has maintained a rating of AAA by Standard & 
Poor's.
    The Applicant represents that each of the Initial CSAs, as well as 
the Initial SecLending Fund Guarantee and the STIF Fund Guarantee 
(which, taken together, constitute the Initial Guarantees) were set to 
expire on September 15, 2009 unless, prior to that date, the SecLending 
Fund and the STIF Fund received either full cash repayment of the Notes 
or capital contributions from FRC and NML equal to the respective 
maximum contribution amounts pursuant to the Initial CSAs. Each of the 
Initial CSAs and Initial Guarantees also contained a repayment 
provision stipulating that, in the event that either the SecLending 
Fund or the STIF Fund received a capital contribution from FRC (or from 
NML, as guarantor) with respect to a Note and subsequently received 
additional payments from or on behalf of the Lehman Issuer in respect 
of the Note, such fund would repay to FRC (if NML had received 
contributions equal to its capital contribution) the lesser of: (i) The 
amount of such capital contribution; or (ii) the amount of such 
subsequent payments, provided that in no event would such repayment 
cause the respective fund's NAV per share to fall below $0.995 or such 
greater amount as required by any nationally-recognized statistical 
rating organization (NRSRO).\2\
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    \2\ The Department expresses no opinion herein as to the role of 
an NRSRO in determining whether a fund's net asset value per share 
has fallen below $0.9950.
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    6. The Applicant represents that the decision to enter into the 
Initial CSAs was a fund-level decision made by RTC (similar to any 
decision to acquire or dispose of assets) that was intended to limit 
the downside risk for both the SecLending Fund and the STIF Fund with 
respect to the Notes, while preserving the upside potential for the 
foregoing funds, and that this determination did not represent any 
change to the funds' goals or investment strategies or any deviation 
from the funds' investment parameters. The Applicant further represents 
that the relative rights and interests of the Plans with respect to 
both the SecLending Fund and the STIF Fund (and the RTC CIFs having an 
interest in each fund) and the terms and conditions of any agreements 
between RTC and the Plans were not affected by this decision.
    The Applicant maintains that the terms of the Initial CSAs and 
Initial Guarantees executed on September 14, 2008 to provide capital 
support to both the SecLending Fund and the STIF Fund constituted a 
lending of money or other extension of credit from a party in interest 
to an employee benefit plan that satisfied the conditions contained in 
a class exemption, Prohibited Transaction Exemption (PTE) 80-26; for 
this reason, the Applicant is not seeking an individual exemption for 
the period of time during which the Initial CSAs and Initial Guarantees 
were in force.\3\
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    \3\ Section IV of PTE 80-26 (as amended at 71 FR 17920, Apr. 7, 
2006) provides that, effective as of December 15, 2004, the 
restrictions of section 406(a)(1)(B) and (D) and section 406(b)(2) 
of the Act, and the taxes imposed by section 4975(a) and (b) of the 
Code, by reason of section 4975(c)(1)(B) and (D) of the Code, shall 
not apply to the lending of money or other extension of credit from 
a party in interest or disqualified person to an employee benefit 
plan, nor to the repayment of such loan or other extension of credit 
in accordance with its terms or written modifications thereof, if:
    (a) No interest or other fee is charged to the plan, and no 
discount for payment in cash is relinquished by the plan, in 
connection with the loan or extension of credit;
    (b) The proceeds of the loan or extension of credit are used 
only--
    (1) For the payment of ordinary operating expenses of the plan, 
including the payment of benefits in accordance with the terms of 
the plan and periodic premiums under an insurance or annuity 
contract, or
    (2) For a purpose incidental to the ordinary operation of the 
plan;
    (c) The loan or extension of credit is unsecured;
    (d) The loan or extension of credit is not directly or 
indirectly made by an employee benefit plan;
    (e) The loan is not described in section 408(b)(3) of ERISA and 
the regulations promulgated thereunder (29 CFR 2550.408b-3) or 
section 4975(d)(3) of the Code and the regulations promulgated 
thereunder (26 CFR 54.4975-7(b)); and
    (f) (1) Any loan described in section IV(b)(1) that is entered 
into on or after April 7, 2006 and that has a term of 60 days or 
longer must be made pursuant to a written loan agreement that 
contains all of the material terms of such loan.
    (2) Any loan described in (b)(2) of this paragraph that is 
entered into for a term of 60 days or longer must be made pursuant 
to a written loan agreement that contains all of the material terms 
of such loan.
    The Department offers no opinion herein as to whether each of 
the applicable conditions for exemptive relief contained in PTE 80-
26 were satisfied in this particular instance.
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Transfer of the Assets of the STIF Fund to the Liquidity Fund

    7. On September 11, 2009, RTC reorganized the STIF Fund, and 
transferred all of the assets of the STIF, including the Notes held by 
the STIF Fund that were subject to the STIF Fund CSA, to the Liquidity 
Fund. In connection with this reorganization, the Liquidity Fund became 
the beneficiary of both FRC's capital support obligations under the 
STIF Fund CSA and of NML's guarantee of FRC's foregoing capital support 
obligation pursuant to the STIF Fund Guarantee.

The Retention of an Independent Fiduciary

    8. As noted previously, the terms of both the Initial CSAs and the 
Initial Guarantees were set to expire on September 15, 2009. Expiration 
of the Initial CSAs, however, would have triggered a contractual 
obligation that the Funds liquidate the Notes in the market. The 
Applicant further represents that the Funds' liquidation of the Notes 
would, in turn, have triggered the payment of FRC's capital support 
obligations to the Funds. The Applicant states that the capital support 
payments required under the Initial CSAs represented the amount that 
would have been necessary to permit each Fund to maintain an NAV of 
$0.995 per unit. Accordingly, it is represented that, because both FRC 
and RTC did not believe that it would be in the best interest of either 
Fund to liquidate the Notes upon the expiration of the Initial CSAs on 
September 15, 2009, FRC and RTC determined to seek the amendment and 
extension of the Initial CSAs and the Initial Guarantees for one year, 
through an expiration date of September 15, 2010.

[[Page 34264]]

    When, in September 2009, RTC determined that it would be necessary 
and in the best interest of the Funds to extend the terms of the 
Initial CSAs, RTC considered that such amendments would not qualify for 
relief in reliance upon PTE 80-26. In this connection, the Applicant 
represents that, had the Initial CSAs not included termination dates 
(i.e., September 15, 2009), RTC could have continued to rely upon the 
exemptive relief provided under PTE 80-26; however, given these fixed 
termination dates, the amendment and renewal of the terms of the 
Initial CSAs could have been interpreted as depriving the Funds of 
payments to which they were contractually entitled to receive. 
Alternatively, the Applicant represents that the delay of such payments 
could have been construed as an extension of credit from the Funds to 
FRC, which would not have been permitted under PTE 80-26 or any other 
class exemption.\4\ In light of these assumptions, the Applicant 
engaged Fiduciary Counselors Inc. (hereinafter the Independent 
Fiduciary) to negotiate and approve, on behalf of each Fund (and the 
Plans invested, directly or indirectly, in each Fund) the amendment and 
extension of the term of the Initial CSAs for an additional 12 months; 
this engagement was formalized under a letter agreement dated August 
25, 2009 (the Engagement Letter).
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    \4\ The Department offers no opinion herein concerning whether 
any exemptive relief for which the Applicant may have been eligible 
under PTE 80-26 on or before September 15, 2009 would have expired 
upon the termination of the Initial CSAs and the Initial Guarantees. 
Moreover, the Department offers no opinion herein concerning the 
Applicant's contention that the inclusion of termination dates in 
the Initial CSAs and the Initial Guarantees would have made the 
Applicant ineligible for exemptive relief under PTE 80-26 after 
September 15, 2009.
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    9. Pursuant to the Engagement Letter, the Independent Fiduciary was 
retained to represent the Funds through September 15, 2010. The 
Independent Fiduciary represents that it is both an ``investment 
adviser'' within the meaning of the Investment Advisers Act of 1940 and 
a ``qualified professional asset manager'' within the meaning of PTE 
84-14. The Applicant further represents that the Independent Fiduciary 
has provided independent fiduciary services to clients since its 
incorporation in 1999.
    Under the terms of the Engagement Letter, the Independent Fiduciary 
assumed responsibility for, among other things: (1) Negotiating, on 
behalf of each Fund, the terms of any amendments to the Initial CSAs on 
behalf of each Fund and determining that such terms were fair and 
reasonable to each Fund; (2) determining whether to enter into any 
amendments on behalf of each Fund and directing RTC to sign any such 
amendments; (3) monitoring the future capital support agreements on a 
going-forward basis, including negotiating the terms, and determining 
the fairness and reasonableness, of any modifications, extensions, or 
renewals thereof; and (4) determining on behalf of each Fund whether to 
liquidate the Notes, and determining the fairness and reasonableness of 
any proposed sale of the Notes to RTC or an affiliate of RTC. The 
Independent Fiduciary also assumed the same duties on behalf of the 
Funds with respect to the negotiation and approval of any extension to, 
and amendment of, the Initial Guarantees made by NML.

The 2009-2010 Payment of Supplemental Yield Contributions to the Funds

    10. The Applicant represents that the Independent Fiduciary 
reviewed the terms of the Initial CSAs and Initial Guarantees in place 
at the time of its engagement, and the proceeds that each Fund would 
receive if these instruments expired as scheduled and were not 
extended. Upon reviewing the terms of the Initial CSAs, the Independent 
Fiduciary determined that it would be in the best interests of the 
investors in each Fund for FRC to make additional periodic cash 
contributions, or Supplemental Yield Contributions, to each Fund. By 
letter agreement dated September 14, 2009, FRC agreed, after 
negotiation with the Independent Fiduciary, to pay the Supplemental 
Yield Contributions to each Fund. The amount of such contributions 
would be determined by a mathematical formula. The first step of this 
formula would require computing the sum of (a) the amount of capital 
support that would have been required under the Initial CSAs as of 
September 14, 2009, had the Notes been sold by the Funds at the 
September 14, 2009 closing market price, and (b) the market value of 
the Notes as of September 14, 2009 based upon the closing market price 
on such date (the date prior to the date that accrual of such 
Supplemental Yield Contributions commenced). The sum resulting from the 
first step of the formula (i.e., the Base Amount) would then be 
multiplied by an annual interest rate figure equal to (a) t he 3-month 
LIBOR (expressed as an annual rate) as quoted by Bloomberg at end of 
day print on September 14, 2009, and updated every three months 
thereafter, plus (b) 0.15 percent. If any Notes were sold by a Fund 
after September 14, 2009, the Supplemental Yield Contributions would be 
proportionately reduced based on the par value of such sold Notes as a 
proportion of the aggregate par value of the Notes. The Supplemental 
Yield Contributions would accrue daily beginning on September 15, 2009, 
and would be paid to the Funds in arrears on a monthly basis. The 
Supplemental Yield Contributions would also not reduce or offset any of 
FRC's obligations under the proposed revision of the capital support 
agreements. FRC's obligation to make Supplemental Yield Contributions 
to the Funds pursuant to the September 14, 2009 letter agreement would 
cease only upon the occurrence of a termination event under the 
proposed revision of the capital support agreements (such as the sale 
of all of the Notes held by the Funds). Because accrual of the 
Supplemental Yield Contributions would commence on September 15, 2009, 
the Independent Fiduciary determined that, in the event of such sale, 
RTC (or its affiliate) would not be required to pay interest for any 
purchased Notes with respect to the period following September 14, 
2009.
    11. The following chart documents the monthly payment of accrued 
Supplemental Yield Contributions that were made by FRC to the Funds 
during the years 2009 and 2010, pursuant to the foregoing contractual 
arrangements:

------------------------------------------------------------------------
                                           Supplemental
                                               yield       Supplemental
                                           contributions       yield
                                              to the       contributions
                                            SecLending        to the
                                               fund       liquidity fund
------------------------------------------------------------------------
September 2009 (9/14/09 through 9/30/09)      $13,910.18      $12,647.38
October 2009............................       25,365.61       23,062.88
November 2009...........................       24,547.37       22,318.91
December 2009...........................       24,000.34       21,821.54
January 2010............................       23,014.31       20,925.03
February 2010...........................       20,787.12       18,900.02
March 2010..............................       23,135.59       21,035.30
April 2010..............................       22,485.94       20,444.63
May 2010................................       23,235.47       21,126.11
June 2010...............................       31,220.59       28,386.33
July 2010...............................       39,163.17       35,608.04
August 2010.............................       39,163.17       35,608.04
September 2010 (9/1/10 through 9/14/10).       17,686.68       16,081.05
                                         -------------------------------
    Total Supplemental Yield                  327,715.54      297,965.26
     Contributions Paid by FRC to the
     Funds:.............................
------------------------------------------------------------------------

The 2009 Revision of the CSAs and the Guarantees

    12. In addition to requiring FRC to make Supplemental Yield 
Contributions to the Funds, the Independent Fiduciary (in a letter to 
RTC dated September 14, 2009) directed RTC and FRC to execute,

[[Page 34265]]

on behalf of each Fund, revised capital support agreements between FRC 
and each of the Funds (namely, the Revised CSAs), as well as revised 
guarantees by NML of FRC's capital support obligations to each of the 
Funds under the Revised CSAs (namely, the Revised Guarantees). Each of 
the foregoing contracts were executed on September 14, 2009. The 
Applicant represents that a new provision was included in each of the 
Revised CSAs stipulating that if all of the Notes were sold after 
September 14, 2009 (or another event occurs triggering FRC's capital 
support obligations under each of the Revised CSAs, the total amount of 
capital support payable to each Fund under each of the Revised CSAs 
would be no less than the Base Amount, minus the sum of (a) The 
proceeds actually received by the Fund from the disposition of the 
Notes, plus (b) all payments received by the Fund in respect of the 
Notes to the extent not already included in (a), and excluding the 
amount of any Supplemental Yield Contributions. The Independent 
Fiduciary determined that this provision, in conjunction with the 
Supplemental Yield Contributions, would help to ensure that each Fund's 
total recovery with respect to the Notes and the required capital 
support would not decline as a result of the adoption of the Revised 
CSAs.
    Further, the Independent Fiduciary determined it to be appropriate 
and in the best interest of the Funds to include a new provision in 
each of the Revised CSAs stipulating that, in the event the Funds 
determined to sell some or all of the Notes to RTC or an affiliate of 
RTC (through either a single transaction or series of transactions with 
each Fund), the purchase price for such Notes would be equal to the 
greater of (a) The market value of such Notes on the date of any such 
transaction, or (b) the sum of (i) the amortized cost of such Notes to 
be sold in such transaction, plus (ii) any accrued but unpaid interest 
through the earlier of the maturity date of the applicable Note or 
September 14, 2009 (the date prior to the date that accrual of the 
Supplemental Yield Contributions commenced) calculated at the contract 
rate.
    It is represented that each of the Revised CSAs, as well as the 
Revised SecLending Fund Guarantee and the Revised Liquidity Fund 
Guarantee (which, taken together, constitute the Revised Guarantees) 
were set to expire on September 15, 2010 (unless, prior to that date, 
the Funds received either full cash payment for the Notes or capital 
contributions from FRC and NML equal to their respective maximum 
contribution amounts under each of the Revised CSAs). It is further 
represented that the Funds paid no fees or commissions in connection 
with the negotiation of either the Revised CSAs and Guarantees or the 
payment of the Supplemental Yield Contributions, nor for the 
Independent Fiduciary's services relating to such matters.
    13. The Applicant represents that the Revised CSAs and the Revised 
Guarantees, as well as the Supplemental Yield Contributions, benefitted 
the investors in the Funds because the Independent Fiduciary determined 
that they placed the Funds in a position that was at least as favorable 
as that which would have been obtained had the Initial CSAs and 
Guarantees expired by their terms on September 15, 2009 and FRC and NML 
had made payments to the Funds in satisfaction of its capital support 
obligations. The Applicant also represents that the Revised CSAs and 
the Revised Guarantees provided the Funds the opportunity to seek 
recovery of their amortized cost or the full par value of the Notes, 
either through recovery from the Lehman Issuers, liquidation on the 
market or a potential sale to RTC or its affiliate. The Supplemental 
Yield Contributions were intended to ensure that the Funds remained in 
a position that was at least as favorable as if FRC had satisfied its 
capital support obligations upon expiration of the Initial CSAs on 
September 15, 2009 and the proceeds were invested in instruments 
providing a comparable yield. The Applicant also states that the 
Revised CSAs contained new provisions ensuring that the Funds would 
receive an aggregate amount not less than the Base Amount in connection 
with any sale of the Notes (or other event that would otherwise trigger 
FRC's capital support obligations). The foregoing arrangements were 
negotiated by and determined to be fair, reasonable and in the best 
interest of each of the Funds by the Independent Fiduciary.

The 2010 Sale of the Notes to FRC by the Funds

    14. At a meeting of its investment committee on September 2, 2010, 
the Independent Fiduciary discussed and approved the terms of a 
proposed sale of the Notes by the Funds to FRC. Pursuant to this 
determination, RTC and FRC negotiated the terms of the Sale of the 
Notes with the Independent Fiduciary. The Independent Fiduciary 
concluded that the Sale transaction would benefit the investors in the 
Funds because it would permit the Funds to recover an amount equal to 
or in excess of its amortized cost for each of the Notes and maintain 
an NAV per unit of at least $0.995, while also retaining a right to 
recover amounts received by FRC in excess of the sale price for the 
Notes. In addition, under the terms of the Sale negotiated by the 
Independent Fiduciary, each Fund would continue to earn interest under 
the Supplemental Yield Agreements until the settlement of the 
transaction, and would be entitled to additional amounts in the event 
that FRC subsequently recovered an amount greater than the sale price 
adjusted for interest accrued through the date of the refund to the 
relevant Fund.\5\ Given these factors, the Independent Fiduciary 
determined that the terms of the Sale were fair and reasonable to each 
Fund. Accordingly, by the terms of a letter dated September 8, 2010, 
the Independent Fiduciary directed in writing that all of the Notes 
held by each of the Funds be sold to FRC.
---------------------------------------------------------------------------

    \5\ In this connection, the Independent Fiduciary stipulated 
that should FRC, through the exercise of any of its rights, claims, 
or causes of action related to its ownership of any Notes after the 
Sale date, recover from the Lehman Issuers or any third party an 
aggregate amount that was in excess of the sum of (a) the purchase 
price paid for the Notes by FRC and (b) interest on such purchase 
price from and after the date of the Sale transaction (determined at 
the rate of interest equal to the rate of interest applicable to the 
Supplemental Yield Contributions), FRC would refund such excess 
promptly to the applicable Fund (after deducting all reasonable 
expenses incurred in connection with the recovery).
---------------------------------------------------------------------------

    15. In accordance with the Independent Fiduciary's direction, the 
Sale of all of the Notes from the Liquidity Fund to FRC was executed on 
September 10, 2010, and settled two business days later on September 
14, 2010 for an aggregate price of $75,296,431; similarly, the Sale of 
all of the Notes from the SecLending Fund to FRC was executed on 
September 10, 2010, and settled two business days later on September 
14, 2010 for an aggregate price of $70,436,820. The Applicant 
represents that the Sale resulted in an NAV for the Liquidity Fund of 
$1.0000 per unit and for the SecLending Fund of $0.9991 per unit.\6\ 
For each Note, the foregoing amounts paid by FRC (which were computed 
in accordance with the formula specified in the Revised CSAs with each 
of the Funds) represented the sum of (i) The applicable Fund's 
amortized cost of the Note ($75,000,000 in the aggregate for the 
Liquidity Fund and $70,000,000 for the SecLending Fund), plus (ii) any 
accrued but unpaid interest on the

[[Page 34266]]

Notes that was owed by the Lehman Issuers through the earlier of the 
maturity date of the applicable Note or September 14, 2009, calculated 
at the contract rate ($296,431 of aggregate interest for the Liquidity 
Fund, and $436,820 in aggregate interest for the SecLending Fund).\7\ 
The following chart summarizes the par values and the September 10, 
2010 sale prices \8\ of the various Notes held by each of the Funds:
---------------------------------------------------------------------------

    \6\ The Applicant represents that as of the close of business on 
September 10, 2010, the net asset value of the Liquidity Fund's 
portfolio was approximately $2,137,000,000, or $1.0000 per unit. As 
of the close of business on September 10, 2010, the net asset value 
of the SecLending Fund's portfolio was approximately $1,767,000,000, 
or $0.9991 per unit.
    \7\ Pursuant to the terms of the Revised CSAs, the one-time 
payment to the Funds of accrued but unpaid interest on the Notes 
owed by the Lehman Issuers was separate from, and in addition to, 
the accrual and payment of the Supplemental Yield Contributions to 
the Funds that commenced on September 15, 2009.
    \8\ The Applicant further represents that, prior to the 
consummation of the Sale, the Independent Fiduciary confirmed that 
the sale price calculated pursuant to the formula discussed above 
for each Note was greater than the market value of such Note as 
determined by reference to price quotes provided by two major 
investment brokers (since no transaction on the Notes was available 
through Bloomberg). Specifically, Barclays provided a quote of 
$19.25 (representing a bid price per unit received for each Note as 
of September 10, 2010), and J.P. Morgan provided a quote of $19.00 
(representing the bid price per unit for each Note as of September 
10, 2010). These prices reflect a decrease of approximately 81% from 
the par value of the Notes.

----------------------------------------------------------------------------------------------------------------
                                                                Aggregate     Acquisition price &
                Fund                        Lehman note         par value             date            Sale price
----------------------------------------------------------------------------------------------------------------
Liquidity Fund......................  Lehman Brothers Disc     $10,000,000  $9,981,000 (acquired 8/  $10,000,000
                                       (52525MJF6).                          22/08).
                                      Maturity Date: 9/18/08;
                                       Face Interest Rate:
                                       2.80%.
                                      Lehman Brothers V/R       35,000,000  35,000,000 (acquired 8/   35,218,410
                                       (52517P5C1).                          28/07).
                                      Maturity date: 9/26/08;
                                       Face Interest Rate:
                                       3.75%.
                                      Lehman Brothers V/R       30,000,000  30,000,000 (acquired 2/   30,078,021
                                       (52525KAB8).                          11/08).
                                      Maturity Date: 3/11/09;
                                       Face Interest Rate:
                                       3.75%.
                                                              --------------------------------------------------
    Total...........................  .......................  $75,000,000  $74,981,000............  $75,296,431
----------------------------------------------------------------------------------------------------------------
SecLending Fund.....................  Lehman Brothers V/R      $40,000,000  $40,000,000 (acquired 8/ $40,249,611
                                       (52517P5C1).                          28/07).
                                      Maturity Date: 9/26/08;
                                       Face Interest Rate:
                                       5.51%.
                                      Lehman Brothers V/R       30,000,000  30,000,000 (acquired 8/   30,187,209
                                       (52517P5C1).                          28/07).
                                      Maturity Date: 9/26/08;
                                       Face Interest Rate:
                                       5.51%.
                                                              --------------------------------------------------
    Total...........................  .......................  $70,000,000  $70,000,000............  $70,436,820
----------------------------------------------------------------------------------------------------------------

    16. The Applicant represents that, with the execution of the Sale 
on September 10, 2010, the terms of Revised CSAs, the Revised 
Guarantees, and the agreement concerning the accrual and payment of the 
Supplemental Yield Contributions each ceased to be effective as of that 
date. On September 14, 2010, the Sale transaction was settled when each 
of the Funds received the sale price of the Notes from FRC. The 
Applicant further represents that, while FRC's obligation to accrue the 
Supplemental Yield Contributions technically terminated on September 
10, 2010, FRC and RTC (following discussions with the Independent 
Fiduciary) determined that these contributions would continue to accrue 
(and would be paid on) the date that the Sale settled. Accordingly, the 
final installment of the Supplemental Yield Contributions to the Funds 
was paid on the settlement date of September 14, 2010.
    17. In summary, the Applicant represents that the transactions 
described herein satisfied the statutory criteria of section 408(a) of 
the Act and section 4975(c)(2) of the Code because: (a) The 
transactions were easily identifiable, have been completed, and will 
not require ongoing monitoring; (b) The Revised CSAs, the Revised 
Guarantees, and the Supplemental Yield Contributions were negotiated 
and documented, and were monitored by the Independent Fiduciary through 
their expiration; (c) The Sale was a one-time transaction for cash that 
was negotiated by the Independent Fiduciary, and neither of the Funds 
bore any brokerage commissions, fees or other expenses in connection 
with the Sale; (d) The transactions enabled the Funds, and the 
participating investors therein, including the Plans invested therein, 
to receive (i) Continued capital support from FRC with respect to the 
Notes under the Revised CSAs (guaranteed by NML) and (ii) periodic 
payment of the Supplemental Yield Contributions; (e) The Independent 
Fiduciary determined the foregoing arrangements placed the Funds in a 
position that was at least as favorable as the position they would have 
been in had the Initial CSAs and the Initial Guarantees expired by 
their terms; (f) The Revised CSAs and the Revised Guarantees provided 
the Funds the opportunity to seek recovery of their amortized cost, the 
full par value, or at least a greater portion of the par value of the 
Notes, either through recovery from the Lehman Issuers, liquidation on 
the market, or a potential Sale to RTC or its affiliates; and (g) the 
Independent Fiduciary determined that it would be in the best interests 
of the investors in each Fund for FRC to make Supplemental Yield 
Contributions to each Fund.
    Notice to Interested Persons: Notice of the proposed exemption 
shall be given 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. Comments and requests for a 
hearing are due forty-five (45) days after publication of the notice in 
the Federal Register.
    For Further Information Contact: Mr. Mark Judge of the Department 
at (202) 693-8550 (This is not a toll-free number).

Pacific Capital Bancorp Amended and Restated Incentive and Investment 
and Salary Savings Plan (the Plan); Located in Santa Barbara, 
California; [Application No. D-11659]

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).

[[Page 34267]]

Section I: Transactions

    If the proposed exemption is granted, effective October 27, 2010, 
the restrictions of sections 406(a)(1)(A), 406(a)(1)(E), 406(a)(2), 
406(b)(1), 406(b)(2), and 407(a)(1)(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) and 4975(c)(1)(E) of the Code,\9\ shall not 
apply:
---------------------------------------------------------------------------

    \9\ For purposes of this proposed exemption, references to 
specific provisions of Title I of the Act, unless otherwise 
specified, refer also to the corresponding provisions of the Code.
---------------------------------------------------------------------------

    (1) To the acquisition of certain rights (the Rights) by the Plan 
in connection with an offering (the Offering) of shares of the common 
stock (the Stock) in Pacific Capital Bancorp (Bancorp) by Bancorp, a 
party in interest with respect to the Plan, and
    (2) To the holding of the Rights received by the Plan during the 
subscription period of the Offering; provided that the conditions as 
set forth in section II of this proposed exemption were satisfied for 
the duration of the acquisition and holding.

Section II: Conditions

    The relief provided in this exemption is conditioned upon adherence 
to the material facts and representations described, herein, and as set 
forth in the application file and upon compliance with the conditions, 
as set forth in this proposed exemption.
    (1) The receipt of the Rights by the Plan occurred in connection 
with the Offering and was made available by Bancorp on the same terms 
to all shareholders of the Stock of Bancorp;
    (2) The acquisition of the Rights by the Plan resulted from an 
independent act of Bancorp, as a corporate entity, and all holders of 
the Rights, including the Plan, were treated in the same manner with 
respect to the acquisition of such Rights;
    (3) Each shareholder of the Stock, including the Plan, received the 
same proportionate number of Rights based on the number of shares of 
Stock of Bancorp held by such shareholder;
    (4) The Board of Directors of Bancorp (the Board) decided that the 
Offering should be made available to all shareholders of the Stock, 
including the Plan, as record owner of the Stock held in the Plan on 
behalf of the accounts of the individual participants (the Invested 
Participants) all or a portion of whose accounts in the Plan are 
invested in the Stock, in accordance with provisions under such Plan 
for individually-directed investment of such accounts;
    (5) The decision to exercise the Rights or to refrain from 
exercising the Rights was made by each of the Invested Participants in 
accordance with the provision under the Plan for individually-directed 
accounts; and
    (6) No brokerage fees, commissions, subscription fees, or any other 
charges were paid by the Plan with respect to the Offering, and no 
brokerage fees, commissions, or other monies were paid by the Plan to 
any broker in connection with the exercise of the Rights.
    Effective Date: This proposed exemption, if granted, will be 
effective, October 27, 2010, the date the Plan acquired the Rights.

Summary of Facts and Representations

    1. The Plan is a defined contribution profit sharing plan. Bancorp 
is the sponsor of the Plan. The Plan is intended to satisfy the 
requirements under section 401(a), 401(k) and 401(m) of the Code. The 
Plan is a participant directed account plan intended to satisfy the 
requirements of section 404(c) of the Act.
    As of August 30, 2010, the Plan had approximately 1,417 
participants. The fair market value of the total assets of the Plan, as 
of August 30, 2010, was $64,324,228.
    The Compensation & Benefits Committee (the Committee) became the 
fiduciary responsible for Plan matters on October 2010. The Committee 
is comprised of non-employee members of the Board of Bancorp. It is 
represented the members of the Committee satisfy the independence 
requirements of NASDAQ, the Code, and various banking laws and 
regulations. As a fiduciary with respect to the Plan, the Committee is 
a party in interest to the Plan, pursuant to section 3(14)(A) of the 
Act.
    On December 1, 2007, the Charles Schwab Trust Company (Charles 
Schwab Trust), a California chartered non-depository trust company, 
became the directed trustee for the Plan. Charles Schwab Trust also 
serves as custodian for the Plan. As custodian, Charles Schwab Trust 
executes investment directions in accordance with participants' written 
or electronic instructions. In addition Charles Schwab Corporate and 
Retirement Services (CSC) is the broker for the Plan. As service 
providers to the Plan, Charles Schwab Trust and CSC are parties in 
interest to the Plan, pursuant to section 3(14)(B) of the Act.
    2. The Plan offers to participants the following permitted 
investment options in which to invest all or a portion of such 
participants' account balances: (a) The Stock, (b) a variety of money 
market funds, (c) common collective trusts, (d) mutual funds, and (e) 
self-directed accounts. Charles Schwab Stable Value Fund is the common 
collective trust fund in which Plan assets are invested. Certain Plan 
assets are also invested in mutual funds managed by an affiliate of 
Charles Schwab Trust.
    3. The application was filed on behalf of Bancorp, a bank holding 
company, located in Santa Barbara, California. Pacific Capital Bank, 
National Association (the Bank) is a wholly-owned subsidiary of 
Bancorp. The Bank is a full-service, state-chartered commercial bank 
located in California whose deposits are insured by the Federal Deposit 
Insurance Corporation. As of June 30, 2010, the Bank had $7.1 billion 
in assets. The Bank, as an employer any of whose employees are covered 
by the plan, is a party in interest with respect to the Plan, pursuant 
to section 3(14)(C) of the Act. Substantially all of the activities of 
Bancorp are conducted through the Bank. Bancorp, as the parent of the 
Bank, is a party in interest with respect to the Plan, pursuant to 
section 3(14)(E) of the Act.
    4. The Stock of Bancorp is listed for quotation on the NASDAQ 
Global Select Market under the symbol PCBC. The total number of shares 
of Stock outstanding, as of August 18, 2010, was 47,406,579. During the 
period beginning on October 19, 2010 and ending on November 15, 2010, 
the Stock was trading on the NASDAQ at prices ranging between $0.73 and 
$0.42 per share.
    The Stock is a ``qualifying employer security,'' as defined under 
section 407(d)(5) of the Act and 4975(e) of the Code.
    5. On April 29, 2010, Bancorp and the Bank entered into an 
investment agreement with SB Acquisition Company LLC, a wholly-owned 
subsidiary of Ford Financial Fund, L.P. (the Investor) for the sale to 
the Investor of 225,000,000 shares of Stock at $0.20 per share and 
455,000 shares of mandatorily convertible participating voting 
preferred stock at $1,000 per share. The aggregate consideration paid 
to Bancorp by the Investor for these securities was $500 million in 
cash. Before accounting for any issuance of Stock pursuant to the 
Offering, the Investor owned approximately 86 percent (86%) of the 
outstanding Stock.
    As a condition of the investment agreement with the Investor, 
Bancorp agreed to commence the Offering, which is the subject of this 
proposed exemption, whereby shareholders of record would receive non-
transferable rights to purchase a number of shares of

[[Page 34268]]

Stock equal to 20 percent (20%) of the then outstanding shares of 
Stock, at a purchase price equal to $0.20 per share. It is represented 
that the Rights were non-transferable to allow only legacy shareholders 
of the Stock the opportunity to purchase additional shares of the Stock 
to help offset the share dilution such shareholders incurred when the 
Stock was acquired by the Investor. Accordingly, Bancorp, as a 
corporate entity and issuer of securities, announced in connection with 
the Offering the issuance of up to 726,975,565 shares of Stock, as 
required by the investment agreement: (a) To raise equity capital; and 
(2) to provide existing shareholders the opportunity to purchase common 
stock at the same price per share paid by the Investor for the Stock. 
Bancorp intends to use the net proceeds from the Offering for general 
corporate purposes, including an investment in the Bank.
    6. Under the terms of the Offering, all shareholders of the Stock 
of Bancorp, such as the Invested Participants, received at no charge 
the Rights to purchase, through the exercise of such Rights, the Stock 
being issued by Bancorp in connection with the Offering. With respect 
to the Rights, under the terms of the Offering, 15.335 Rights were 
issued for every share of the Stock held by each shareholder on August 
30, 2010, (the Record Date). All Rights were rounded down to the 
nearest whole number for each shareholder. For example, an Invested 
Participant's account in the Plan that held 543 shares of Stock, as of 
the Record Date, would entitle such Invested Participant to 8,326 
Rights (15.335 x 543 = 8,326.905 rounded down to 8,326), pursuant to 
the Offering, which in turn would permit an Invested Participant to 
purchase 8,326 shares of Stock.
    It is represented that the Rights were not listed, traded or quoted 
on NASDAQ or on any other stock exchange or trading market. Further, 
the terms of the Offering stipulated that the Rights could not be sold, 
assigned or transferred.
    7. The Rights could only be exercised in whole numbers. Upon 
exercise, each of the Rights permitted a shareholder of the Stock of 
Bancorp to purchase one (1) additional share of Stock at a subscription 
price of $0.20 per share. A shareholder had the right to choose to 
exercise some, all, or none of his Rights. The exercise of any of the 
Rights was irrevocable. It is represented that there were no over-
subscription rights associated with the Offering. The Rights could be 
exercised beginning October 18, 2010, the date of the issuance of the 
prospectus describing the Offering. The Offering closed with respect to 
the exercise of the Rights on November 19, 2010, at 5 p.m. New York 
City time. Pursuant to the terms of the Offering all unexercised Rights 
expired and became worthless after the closing of the Offering.
    8. It is represented that on the Record Date, the Plan was the 
record owner of 1,573,450 shares of Stock which were allocated to the 
individual accounts of the 1,417 Invested Participants. The aggregate 
fair market value of the assets of the Plan invested in shares of the 
Stock, on the Record Date, based on a closing price of $0.859 on that 
date was $1,351,593.55. The approximate percentage of the fair market 
value of the Plan's total assets invested in the Stock is 2.1 percent 
(2.1%). As of the Record Date, 1,573,450 shares of Stock constituted 
approximately 3.32 percent (3.32%) of the 47,406,579 shares of Stock 
outstanding.
    Based on the ratio of 15.335 Rights for each share of Stock held, 
the Plan acquired 24,128,855 Rights as a result of the Offering. It is 
represented that the Rights held by the Plan for the accounts of 
Invested Participants were plan assets. It is represented that 
11,751,048 shares of Stock were subscribed for by the Plan. Of the 
Rights received by the Plan on behalf of accounts of the Invested 
Participants, all Rights were either exercised or expired.
    It is represented that the Committee recommended to the Board that 
it was in the best interest of the Invested Participants to provide 
such Invested Participants with an opportunity to participate in (and 
the ability to make the decision not to participate in) the Offering 
which would prevent dilution of such Interested Participants' interest 
in Bancorp from the exercise of the Rights by other shareholders of 
Bancorp. Accordingly, the Board after considering the Committee's 
recommendation concluded, as a matter of California Corporations law 
and as a matter of fairness, that the Rights should be made available 
to all shareholders of Bancorp, including the Plan, as record owner of 
the Stock. In this regard, the Plan holds title to the Stock on behalf 
of the accounts of the Invested Participants, in accordance with 
provisions under such Plan for individually-directed investment of such 
accounts. The Offering was approved by the Board on April 28, 2010, 
August 18, 2010, and August 27, 2011. It is represented that all 
members of the Board participated in each vote to approve the Offering 
and each vote was unanimously approved by the Board.
    On the dates of approval, the Board was comprised of eleven (11) 
individuals, two (2) of whom are employees of Bancorp or a subsidiary. 
The following table identifies the members of the Board and the 
Committee and each member's respective ownership interests in Bancorp, 
as of August 27,  2010:
---------------------------------------------------------------------------

    \10\ This ownership percentage is based on 47,406,579 common 
shares of Stock outstanding on August 18, 2010.

----------------------------------------------------------------------------------------------------------------
                                                                   Ownership
                     Name                          Number of      percentage         Employed by Bancorp or
                                                 shares owned        \10\                  subsidiary
----------------------------------------------------------------------------------------------------------------
Edward E. Birch...............................           6,485           0.014  No.
H. Gerald Bidwell.............................               0           0.000  No.
Richard S. Hambleton, Jr., Committee Member...           6,485           0.014  No.
D. Vernon Horton..............................           9,317           0.020  Yes.
                                                                                Mr. Horton provides services to
                                                                                 Bancorp on a part-time basis.
S. Lachlan Hough..............................               0           0.000  No.
Roger C. Knopf................................             363           0.001  No.
George S. Leis................................           6,318           0.013  Yes.
                                                                                Mr. Leis was the CEO of Bancorp
                                                                                 at the time of the Offering and
                                                                                 is currently the Chief
                                                                                 Operating Officer of Bancorp.
William R. Loomis, Committee Member...........               0           0.000  No.
John R. Mackall...............................          10,909           0.023  No.

[[Page 34269]]

 
Richard A. Nightingale, Committee Member......          15,204           0.032  No.
Kathy J. Odell, Committee Member..............           7,285           0.015  No.
----------------------------------------------------------------------------------------------------------------

    9. Enclosed with a form letter mailed to each participant in the 
Plan, on October 19, 2010, Bancorp provided a copy of the prospectus 
which described the Offering, a document providing frequently asked 
questions and answers regarding the Offering for Plan participants, an 
election form for Plan participants, and a return envelope addressed to 
BNY Mellon Shareowner Services (BMSS), the subscription agent.
    10. In order to exercise the Rights, Invested Participants had to 
complete an election form, deliver such form to BMSS, the subscription 
agent, liquidate sufficient existing investments in the Plan in order 
to generate the full subscription price in cash, transfer such cash to 
the Schwab Value Advantage Money Institutional Prime Shares Fund by the 
close of business on the fourth (4th) business day (November 15, 2010) 
prior to the expiration of the Offering on November 19, 2010. It is 
represented that the date, November 15, 2010, provided the third party 
administrator with four (4) days within which to compile the exercise 
elections of the Invested Participants, update the Plan records, and 
forward such exercise elections to the subscription agent.
    It is represented that 404 Invested Participants out of 1,417 
decided to exercise the Rights. In this regard, the Rights of such 
Invested Participants were executed on November 19, 2010.\11\ It is 
represented that November 19, 2010, the last day of the Offering, was 
selected as the exercise date with respect to the Rights held under the 
Plan for the purpose of providing a protective cut-off date, where if 
on such date the exercise price of the Rights was greater than the 
trading price of the Stock, the election to exercise would not be 
honored and the Rights would be canceled. The Invested Participants 
exercised 11,751,048 Rights. As a result of this exercise, the Invested 
Participants received 11,751,048 shares of Stock. Accordingly, it is 
represented that the Plan received total gross proceeds of 
$2,350,209.60 as a result of participation in the Offering.
---------------------------------------------------------------------------

    \11\ It is represented that the Invested Participants rely on 
the relief provided by the statutory exemption, pursuant to section 
408(e) of the Act for the exercise of the Rights. The Department is 
offering no view, as to whether the requirements of the statutory 
exemption provided in section 408(e) of the Act have been satisfied. 
Further, the Department, herein, is not providing any relief with 
respect to the exercise of the Rights.
---------------------------------------------------------------------------

    11. It is represented that no brokerage fees, commissions, 
subscription fees, or any other charges were paid by the Plan with 
respect to the Offering, and no brokerage fees, commissions, or other 
monies were paid by the Plan to any broker in connection with the 
exercise of the Rights. It is further represented that Bancorp did not 
charge any fees or sales commissions to issue the Rights or to issue 
the Stock upon the exercise of the Rights.
    12. It is represented that, as soon as practicable after the 
expiration of the Offering, BMSS, as the subscription agent, arranged 
for the distribution of the Stock purchased as a result of the exercise 
of the Rights. It is further represented that the Stock purchased in 
connection with the Offering was eligible for trading on NASDAQ by the 
Invested Participants at any time after such Stock was credited to such 
participants' accounts.
    13. Bancorp has requested an exemption with respect to the 
transactions which are the subject of this proposed exemption. In this 
regard, relief has been requested: (a) For the acquisition of the 
Rights by the Plan in connection with the Offering by Bancorp, and (b) 
for the holding of the Rights by the Plan during the subscription 
period of the Offering. It is represented that the Rights acquired by 
the Plan satisfy the definition of ``employer securities,'' pursuant to 
section 407(d)(1) of the Act. As the Rights were not stock or a 
marketable obligation, such Rights do not meet the definition of 
``qualifying employer securities,'' as set forth in section 407(d)(5) 
of the Act. Accordingly, the subject transactions constitute an 
acquisition and holding on behalf of a plan, of an employer security 
which is not a qualifying employer security, in violation of section 
407(a) of the Act, for which the applicant has requested relief from 
sections 406(a)(1)(A), 406(a)(1)(E), 406(a)(2), and 407(a)(1)(A) of the 
Act. The subject transactions also raise conflict of interest issues by 
fiduciaries of the Plan for which relief from the prohibitions of 
section 406(b)(1) and 406(b)(2) of the Act has been requested.
    14. It is represented that the subject transactions have already 
been consummated. In this regard, the Plan acquired the Rights pursuant 
to the Offering on October 27, 2010, and held such Rights pending the 
closing of the Offering on November 19, 2010. As there was insufficient 
time between the dates when the Plan acquired the Rights and when such 
Rights expired, to apply for and be granted an exemption, Bancorp is 
seeking a retroactive exemption to be granted, effective as of October 
27, 2010, the date that the Plan acquired the Rights.
    15. Bancorp represents that the proposed exemption is 
administratively feasible. In this regard, the acquisition and holding 
of the Rights by the Plan were one-time transactions that involved a 
distribution of the Rights to all shareholders at no cost. It is 
represented that it is customary for the industry involved to make a 
rights offering available to all shareholders.
    16. Bancorp represents that the transactions which are the subject 
of this proposed exemption are in the interest of the Plan, because the 
subject transactions represented a valuable opportunity to the accounts 
of the Invested Participants in the Plan to buy the Stock at a 
discount. It is represented that this discount could be realized by 
selling the Stock immediately after the exercise of the Rights and 
investing the proceeds from such sale of the Stock in other investment 
options under the Plan. If the Plan had not participated in the 
Offering, the Invested Participants whose accounts in the Plan were 
invested in shares of the Stock on the Record Date would not have 
received the benefit all other shareholders of the Stock received.
    Bancorp represents that denial of the requested exemption would 
result in the imposition of a tax to be paid by any disqualified person 
who participated in the prohibited transaction. Thus, the denial of the 
exemption would result in an economic loss to Bancorp, to its 
shareholders, and therefore to the Invested Participants.
    17. Bancorp represents that the proposed exemption provides 
sufficient safeguards for the protection of the Plan and its 
participants and beneficiaries. In this regard, the participation in 
the Offering protected the accounts of the Invested Participants in the 
Plan from having their interest in the Stock being diluted as a result 
of the Offering.
    It is further represented that the interests of the accounts of 
Invested Participants in the Plan were adequately

[[Page 34270]]

protected in the decision for the Plan to acquire and hold the Rights 
in that such decision was made by the Board which was independent of 
management and Bancorp.
    The accounts of Invested Participants in the Plan were protected 
against economic loss in that, if on November 15, 2010, the trading 
price of the Stock was not greater than $0.20 per share, all Rights 
that such Invested Participants had elected to exercise would be 
immediately cancelled.
    18. In summary, Bancorp represents that the subject transactions 
satisfy the statutory criteria of section 408(a) of the Act and section 
4975(c)(2) of the Code because:
    (a) The receipt by the Plan of the Rights occurred in connection 
with the Offering made available by Bancorp on the same terms to all 
shareholders of the Stock of Bancorp;
    (b) The acquisition of the Rights by the Plan resulted from an 
independent act of Bancorp, as a corporate entity, and all holders of 
the Rights, including the Plan, were treated in the same manner with 
respect to the acquisition of such Rights;
    (c) Each shareholder of the Stock, including the Plan, received the 
same proportionate number of Rights based on the number of shares of 
Stock of Bancorp held by such shareholder;
    (d) The Board decided that the Offering should be made available to 
all shareholders of the Stock, including the Plan, as record owner of 
the Stock held in the Plan on behalf of the accounts of the Invested 
Participants, all or a portion of whose accounts in the Plan are 
invested in the Stock, in accordance with provisions under such Plan 
for individually-directed investment of such accounts;
    (e) The decision to exercise the Rights or to refrain from 
exercising the Rights was made by each of the Invested Participants in 
accordance with the provision under the Plan for individually-directed 
accounts; and
    (f) No brokerage fees, commissions, subscription fees, or any other 
charges were paid by the Plan with respect to the Offering, and no 
brokerage fees, commissions, or other monies were paid by the Plan to 
any broker in connection with the exercise of the Rights.

Notice to Interested Persons

    The persons who may be interested in the publication in the Federal 
Register of the Notice of Proposed Exemption (the Notice) include 
current participants and beneficiaries, former participants and 
beneficiaries, who were participants and beneficiaries as of the Record 
Date, alternate payees, the Committee, the Board, and the 
administrator, all trustees of the plan, and any other parties 
determined to be ``interested persons.''
    It is represented that each of these classes of interested persons 
will be notified of the publication of the Notice by first class mail, 
within fifteen (15) days of publication of the Notice in the Federal 
Register. Such mailing will contain a copy of the Notice, as it appears 
in the Federal Register on the date of publication, plus a copy of the 
Supplemental Statement, as required, pursuant to 29 CFR 2570.43(b)(2), 
which will advise all interested persons of their right to comment and 
to request a hearing.
    All written comments and/or requests for a hearing must be received 
by the Department from interested persons within 45 days of the 
publication of this proposed exemption in the Federal Register.
    For Further Information Contact: Ms. Angelena C. Le Blanc of the 
Department, telephone (202) 693-8540. (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 8th day of June, 2011.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 2011-14520 Filed 6-10-11; 8:45 am]
BILLING CODE 4510-29-P