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EBSA Notices

Proposed Exemptions From Certain Prohibited Transaction Restrictions   [11/14/2011]
[PDF]
Federal Register, Volume 76 Issue 219 (Monday, November 14, 2011)
[Federal Register Volume 76, Number 219 (Monday, November 14, 2011)]
[Notices]
[Pages 70495-70509]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29235]


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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-11637 HSBC-North America (U.S.) Tax 
Reduction Investment Plan; D-11679 Sammons Enterprises, Inc. Employee 
Stock Ownership ESOP; and D-11683 First Federal Bancshares of Arkansas, 
Inc. Employees' Savings and Profit Sharing 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

[[Page 70496]]

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 email or FAX. Any 
such comments or requests should be sent either by email 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.

HSBC-North America (U.S.) Tax Reduction Investment Plan (the Plan),
Located in Mettawa, Illinois, [Application No. D-11637].

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: Transactions

    If the proposed exemption is granted, effective March 2, 2009, the 
restrictions of sections 406(a)(1)(A) and 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,\1\ shall not 
apply:
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    \1\ 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 ADS Rights) by the 
Plan in connection with an offering (the Offering) of shares of stock 
(the Stock) in HSBC Holding, plc (Holdings) by Holdings, a party in 
interest with respect to the Plan,
    (2) To the holding of the ADS 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;

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 by the Plan of the ADS Rights occurred in 
connection with the Offering made available by Holdings on the same 
terms to all shareholders, such as the Plan, of American Depository 
Shares \2\ (the HSBC ADS) which represent the Stock of Holdings;
---------------------------------------------------------------------------

    \2\ American Depository Shares permit investment in foreign 
securities to trade on markets in the United States without many of 
the complications that would otherwise arise from such cross-border 
and cross-currency transactions.
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    (2) The acquisition of the ADS Rights by the Plan resulted from an 
independent act of Holdings, as a corporate entity, and all holders of 
the ADS Rights, including the Plan, were treated in the same manner 
with respect to the acquisition of such rights;
    (3) All holders of the ADS Rights, such as the Plan, received the 
same proportionate number of such rights based on the number of HSBC 
ADS held; and
    (4) All decisions regarding the ADS Rights made by the Plan were 
made by an independent, qualified fiduciary (the I/F) which:
    (a) Conducted a due diligence review of the Offering;
    (b) Determined whether or not to direct the Plan to vote in favor 
of the Offering; and
    (c) Evaluated a prudent strategy for disposition of the ADS Rights 
under the Offering that were allocated to the Plan.
    Effective Date: This proposed exemption, if granted, will be 
effective, on March 2, 2009, the date of the announcement of the 
Offering.

Summary of Facts and Representations

    1. The Plan is a defined contribution profit sharing plan, for 
eligible employees of HSBC North America Holdings, Inc. (the Employer) 
and its subsidiaries.
    The Plan is qualified under section 401(a) of the Code. In 
addition, the Plan contains a cash or deferred arrangement intended to 
qualify under section 401(k) of the Code.
    The Plan received a favorable determination letter, dated November 
14, 2008, from the Internal Revenue Service. Although the Plan has been 
amended since applying for the determination letter, the Plan 
administrator and counsel for the Plan believe that the Plan is 
designed and is currently being operated in compliance with the 
applicable requirements of the Code.

[[Page 70497]]

    As of September 30, 2009, the Plan had approximately 44,000 
participants. The fair market value of the total assets of the Plan, as 
of September 30, 2009, was $2.4 billion.
    2. The Plan provides for participant directed investment of 
contributions made to the Plan. Participants in the Plan may choose 
among investment options, including mutual funds managed by 
subsidiaries of the Employer and managed by Vanguard Fiduciary Trust 
Co. (Vanguard). Vanguard is the trustee of HSBC-North American (U.S.) 
Tax Reduction Investment Trust (the Trust) which holds the assets of 
the Plan. In addition, the Vanguard Group of Investment Companies is 
the record-keeper of the Plan.
    3. The application was filed on behalf of the Employer, a financial 
services company, which sponsors the Plan. The Employer, 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.
    It is represented that the Employer neither had nor exercised 
discretionary authority with respect to the ADS Rights acquired by the 
Plan pursuant to the Offering, and therefore, was not acting as 
fiduciary, as defined in section 3(21) of the Act. An administrative 
committee (the Committee) is the named fiduciary of the Plan with 
respect to daily administration of the Plan. The Committee, as a 
fiduciary of the Plan, is a party in interest with respect to the Plan, 
pursuant to section (3)(14)(A) of the Act.
    4. The Employer is a subsidiary of Holdings, a public limited 
liability company incorporated in England and Wales with operations 
worldwide. The Employer comprises all of the business interests of 
Holdings in the United States. As the parent of the Employer which 
sponsors the Plan, Holdings is a party in interest with respect to the 
Plan, pursuant to section 3(14)(E)of the Act.
    5. Holdings is the ultimate parent of the HSBC Group. The HSBC 
Group is not a separate legal entity, but rather the term, HSBC Group, 
is an informal collective reference to the legal entities wholly or 
partially owned by Holdings in Europe, Hong Kong, Asia Pacific, the 
Middle East, North America, and Latin America. The HSBC Group is not 
publicly traded on the London Stock Exchange (LSE) or any other stock 
exchange.
    6. The Stock of Holdings is traded on the LSE under the symbol 
HSBA. The Stock of Holdings is also traded on stock exchanges in Hong 
Kong, Paris, and Bermuda.
    In the United States, shares of HSBC ADS (each representing five 
(5) shares of the Stock of Holdings) are traded on the New York Stock 
Exchange (NYSE) under the symbol HBS. BNY Mellon, Inc. (BNY Mellon) is 
the depository bank that holds the Stock of Holdings in a custodial 
account and issues shares of HSBC ADS to investors in the United 
States.
    7. The shares of HSBC ADS are a permitted investment option under 
the terms of the Plan. In this regard, although employee contributions, 
as of March 28, 2003, may no longer be directed into the acquisition of 
shares of HSBC ADS, any shares of HSBC ADS acquired prior to March 28, 
2003, may continue to be held in participant accounts in the Plan.
    The aggregate fair market value of the assets of the Plan invested 
in shares of HSBC ADS, as reflected in the Plan's most recent annual 
report dated, December 31, 2008, is $98,679,000. The approximate 
percentage of the fair market value of the Plan's total assets, as of 
December 31, 2008, that is represented by investments in shares of HSBC 
ADS is 4.9 percent (4.9%).
    8. On March 2, 2009, Holdings announced its decision, as a 
corporate entity and issuer of securities, to issue, in connection with 
the Offering, up to 5,060,239,065 shares of Stock in the form of new 
ordinary shares, representing approximately 41.7 percent (41.7%) of the 
existing issued ordinary shares of Stock of Holdings, as of February 
27, 2009, the last business day prior to the announcement of the 
Offering. It is represented that Holdings made this decision for the 
sole purpose of raising additional capital. An aggregate of 
4,887,538,091 new ordinary shares of the Stock of Holdings were 
subscribed for in connection with the Offering. The gross proceeds from 
such subscriptions in connection with the Offering totaled 
[pound]12,072,952,215.50.
    Completion of the Offering was conditional upon approval from the 
shareholders of the Stock of Holdings and upon approval from the 
shareholders of the HSBC ADS, such as the Plan. The Offering was 
approved in a meeting (the General Meeting) held in London on March 19, 
2009.
    9. Under the terms of the Offering, all shareholders of the Stock 
of Holdings received certain rights (the Share Rights) to purchase, 
through the exercise of such Share Rights, the new ordinary shares of 
the Stock of Holdings being issued by Holdings in connection with the 
Offering. With respect to the Share Rights, under the terms of the 
Offering, five (5) Share Rights were issued for every twelve (12) 
shares of the Stock of Holdings, rounded down to the nearest whole 
number, held by each shareholder on March 13, 2009, (the Record Date). 
Each of the Share Rights permitted a shareholder of the Stock of 
Holdings to purchase one (1) additional share of such stock at 254 
pence per share.
    In addition, under the terms of the Offering, all shareholders of 
the HSBC ADS, such as the Plan, received ADS Rights to purchase HSBC 
ADS. With respect to the ADS Rights, under the terms of the Offering, 
five (5) ADS Rights were issued for every twelve (12) shares of the 
HSBC ADS, rounded down to nearest whole number, held by each holder of 
such shares, including the Plan, on the Record Date. Each of the ADS 
Rights permitted a holder, such as the Plan, to purchase one (1) 
additional share of the HSBC ADS for an estimated price of $17.75 per 
each share.
    As of March 13, 2009, the Record Date, the Plan held 2,067,667 
shares of the HSBC ADS \3\ on behalf of 10,562 participants and 
beneficiaries. Accordingly, based on a ratio of five (5) ADS Rights 
issued for every twelve (12) shares of the HSBC ADS held, rounded down 
to nearest whole number, on March 20, 2009, the Plan acquired 861,527 
ADS Rights.
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    \3\ Based on the conversion of one HSBC ADS to five (5) shares 
of Stock of Holdings, the Plan held the equivalent of 10.3 million 
shares of the Stock of Holdings or less than 0.1% of the outstanding 
shares of Stock of Holdings.
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    10. It is represented that there was no market for the ADS Rights 
acquired by the Plan, because the terms of the Offering stipulated that 
the ADS Rights were not transferrable and would not be admitted to 
trading on the NYSE or any other stock exchange. In order to sell the 
ADS Rights, holders of the ADS Rights, such as the Plan, had to convert 
their ADS Rights into Share Rights. The conversion ratio between the 
ADS Rights and the Share Rights was one to five (1:5). Therefore, it is 
represented that underlying the 861,527 ADS Rights acquired by the Plan 
in the Offering that there were 4,307,639 Share Rights.
    11. A market for the Share Rights did develop, and the Share Rights 
were listed on the LSE. In this regard, the Shares Rights began trading 
on the LSE on March 20, 2009, at 8 a.m. GMT.
    12. The Offering closed on March 31, 2009, at 5 p.m. EST with 
respect to the ADS Rights. The Offering closed on April 3, 2009, at 11 
a.m. BST with respect to the Share Rights. Pursuant to the terms of the 
Offering all unexercised rights expired and became worthless after the 
closing of the Offering.

[[Page 70498]]

    13. To avoid engaging in a prohibited transaction, it is 
represented that the Plan considered whether or not to accept the ADS 
Rights. In this regard, the ADS Rights were accepted, because refusing 
to accept such rights might constitute a breach of the Employer's 
fiduciary duties to the Plan and to its participants and beneficiaries.
    14. Although the Plan provides for participant directed investment, 
the applicant represents that it was not practicable to initiate and 
implement a participant level ``pass through'' voting during the proxy 
vote for the General Meeting, relating to the approval of the Offering, 
nor was it practicable to initiate and implement a participant level 
``pass through'' of the exercise or sale of the ADS Rights, due to the 
short duration of time between when such rights were acquired by the 
Plan and when such rights expired under the terms of the Offering.
    On March 12, 2009, the Employer first contacted U.S. Trust, Bank of 
America Private Wealth Management, acting on behalf of Bank of America, 
National Association (BANA),\4\ to discuss BANA serving as the I/F for 
the Plan with respect to the Offering. On March 13, 2009, BANA issued 
an engagement agreement to the Employer to be retained as the I/F for 
the Plan with respect to the Offering. The Employer, as sponsor of the 
Plan and settlor of the Trust, amended section 6.5(i) of the Trust 
agreement, effective March 16, 2009, to retain BANA, to act as 
investment manager and I/F on behalf of the Plan.
---------------------------------------------------------------------------

    \4\ It is represented that Evercore Trust subsequently acquired 
the business within BANA that performed the services as I/F with 
respect to the subject transactions. Norman Goldberg, the individual 
who supervised BANA's work in connection with this matter and who 
signed the April 9, 2009, letter from BANA, is currently employed 
with Evercore Trust, as Managing Director.
---------------------------------------------------------------------------

    15. BANA had sole authority to vote the shares of the HSBC ADS held 
under the Plan and to direct Vanguard to exercise or otherwise dispose 
of the ADS Rights acquired and held by the Trust, pursuant to the 
Offering. Specifically, BANA was responsible for: (i) Conducting a due 
diligence review of the Offering; (ii) determining whether or not to 
direct the Committee to vote in favor of the Offering at the General 
Meeting; and (iii) if the Offering were approved at the General Meeting 
to prudently evaluate a disposition strategy under the Offering for the 
ADS Rights that were allocated to the Plan.
    With regard to the responsibility of BANA to instruct Vanguard, the 
Trustee of the Trust, on how to vote at the General Meeting held on 
March 19, 2009, it is represented that BANA performed an independent 
financial analysis of Holdings to determine the need for additional 
capital and the potential benefits of additional capital. BANA 
determined that Holdings appeared to be adequately capitalized, and 
that Holdings had taken steps to restructure its operations to better 
position itself for the future, in light of recent turmoil across a 
wide range of markets and industries, and in particular the financial 
services industry. Accordingly, it is represented that on March 16, 
2009, BANA instructed Vanguard to vote the Plan's shares of the HSBC 
ADS in favor of the Offering at the General Meeting.
    It is represented that on March 20, 2009, the participants and 
beneficiaries in the Plan whose accounts held shares of the HSBC ADS 
received their pro rata share of the ADS Rights. In this regard, BANA 
was responsible for analyzing and recommending a course of action for 
such rights received by such accounts.
    As stated in the HSBC Rights Issue Prospectus (the Prospectus), 
issued by Holdings on March 17, 2009, shareholders of the HSBC ADS, 
including the Plan, were permitted to elect among the following three 
(3) options: (a) Exercise all or part of the ADS Rights for the 
purchase of shares of the HSBC ADS; (b) direct BNY Mellon to sell the 
Share Rights underlying the ADS Rights; (c) surrender the ADS Rights 
and receive Share Rights.

Option (A) Exercise All or Part of the ADS Rights

    Under this option, a holder of the ADS Rights, including the Plan, 
could exercise all or only a part of the ADS Rights acquired in 
conjunction with the Offering and could purchase shares of HSBC ADS. In 
order to exercise the ADS Rights, a holder, such as the Plan, would 
have to deposit 110% of the subscription price for the HSBC ADS upon 
the exercise of each of the ADS Rights. The additional amount over and 
above the subscription price for the HSBC ADS was to increase the 
likelihood that the agent would have sufficient funds to pay the final 
subscription price for the HSBC ADS in light of a possible appreciation 
of Pounds Sterling against the U.S. dollar between the instruction date 
and the end of the subscription period, and to pay applicable United 
Kingdom stamp duty reserve taxes, and to pay any currency conversion 
expenses. It is represented that BANA understood that the Plan lacked 
available unallocated funds needed to exercise all of the ADS Rights.
    The Plan could surrender a portion of the ADS Rights to BNY Mellon 
and direct BNY Mellon to sell the Share Rights underlying such ADS 
Rights, in order for the Plan to raise sufficient funds to exercise its 
remaining ADS Rights. According to BANA, this transaction would have 
resulted in the Plan receiving Pounds Sterling from the sale of the 
Share Rights, which would then have had to be converted back into U.S. 
dollars in order for the Plan to purchase shares of the HSBC ADS 
through the exercise of the remaining ADS Rights. The conversion from 
Pounds Sterling to U.S. dollars would have had to have been executed at 
the then-prevailing exchange rate. In the opinion of BANA, given the 
volatility in the foreign exchange markets and the uncertainty in 
future exchange rates, there was no guarantee that the Plan would have 
been able to convert the proceeds from the sale of the Share Rights 
into sufficient funds to exercise the remaining ADS Rights. If the Plan 
had received insufficient funds to exercise the remaining ADS Rights, 
such rights would have been deemed to have been declined and would have 
lapsed. Accordingly, for the reasons summarized above, BANA determined 
that the Plan would not select Option (A).

Option (B) Direct BNY Mellon To Sell the Share Rights Underlying the 
ADS Rights

    Under this option, HSBC established a process by which a holder of 
ADS Rights, including the Plan, could elect to liquidate such ADS 
Rights by directing BNY Mellon to attempt to sell the underlying Share 
Rights on the LSE. Unlike Option (A) above, under Option (B), the Plan 
was not required to deposit any funds in order for BNY Mellon to 
liquidate the Plan's ADS Rights. Further, it is represented that BNY 
Mellon, as depository and as a premier trading firm that was familiar 
with the transaction, had appropriate trading accounts already in place 
to facilitate the trading, had the expertise and the processes in place 
to sell the Share Rights underlying the ADS Rights within the permitted 
time period. Notwithstanding the fact that there was some currency risk 
from the conversion of Pounds Sterling into U.S. dollars, according to 
the I/F, Option (B), offered the Plan an expedited, low cost, 
frictionless way to liquidate the Plan's interests in the ADS Rights. 
In this regard, it is represented that under Option (B), the Plan did 
not have to pay any brokerage commissions in

[[Page 70499]]

connection with the liquidation of its holding in ADS Rights.

 Option (C) Surrender ADS Rights and Receive Share Rights

    Under this option, a holder of ADS Rights, including the Plan, 
could elect to exchange such rights for the underlying Share Rights and 
to sell such Share Rights or exercise such Share Rights to purchase the 
Stock of Holdings on the LSE. To do so, the Plan would have had to 
direct BNY Mellon to cancel the ADS Rights and to deliver the 
underlying Share Rights to a brokerage account set up by the Plan at a 
firm in the United Kingdom that trades on the LSE. To surrender the ADS 
Rights and receive the underlying Share Rights, the Plan would have had 
to pay a 1.5% stamp tax. Finally, the Plan would have had to direct the 
broker to sell all of the Share Rights, or to exercise all of the Share 
Rights, or to sell sufficient Share Rights to generate the funds needed 
to exercise the Plan's remaining Share Rights. To sell and/or exercise 
the Share Rights through a broker selected by BANA on behalf of the 
Plan, BANA would have had to negotiate the brokerage fees and other 
expenses that the Plan would have had to pay such broker for the sale 
and/or exercise of the Share Rights. Additionally, the Plan would have 
had to assume the risks and responsibilities attendant to the Share 
Rights, including effecting the exercise or sale of such rights.
    According to BANA, Option (C) presented a number of issues to the 
Plan that could have resulted in higher trading costs. As there was no 
market for the ADS Rights, the sale of such rights required conversion 
into the underlying Share Rights. The conversion of the ADS Rights and 
receipt of Share Rights would have required the Plan, rather than BNY 
Mellon, to sell the Share Rights and to receive the proceeds 
denominated in Pounds Sterling. In addition, the Plan would have had to 
effect a foreign exchange conversion at the then-prevailing exchange 
rate, repatriate the funds back into the U.S. (possibly paying any 
applicable taxes), and then either deposit the proceeds in participant 
accounts or use the proceeds to purchase shares of HSBC ADS on the 
NYSE. Furthermore, the Plan would have had to pay wire fees to move the 
proceeds back to the U.S. BANA points out that during this process, the 
share price of both the Stock of Holdings on the LSE and the share 
price of the HSBC ADS on the NYSE would be fluctuating and could 
possibly have moved against the Plan. Accordingly, BANA determined that 
the uncertainty of the stock markets and the foreign exchange markets, 
along with the costs associated with executing the different trades and 
repatriating the funds back to the U.S. and the uncertainty related to 
trade settlement and execution, might have resulted in higher trading 
costs to the Plan, and therefore, lower proceeds to Plan participants. 
For the foregoing reasons, BANA determined that Option (C) was not in 
the interest of the Plan.
    The applicant provided the following chart which compares the three 
(3) options, discussed above, and assesses the risks associated with 
each of the three (3) options:

------------------------------------------------------------------------
                                         Option (B)
                       Option (A)        Direct BNY        Option (C)
                    Exercise All or    Mellon to Sell     Surrender ADS
      Risks         Part of the ADS   the Share Rights     Rights and
                         Rights        Underlying the     Receive Share
                                         ADS Rights          Rights
------------------------------------------------------------------------
Plan Funding       Risk: High         Risk: Low         Risk: High
In order to        The Plan lacked    No funds were     The Plan lacked
 exercise the ADS   available          required for      available
 Rights, the Plan   unallocated        BNY Mellon to     unallocated
 needed to          funds needed to    sell the ADS      funds needed to
 deposit 110% of    exercise the ADS   Rights            exercise the
 the 254 pence      Rights. To         (technically to   Share Rights it
 per share          generate the       sell the Share    would receive
 subscription       necessary funds,   Rights            after
 price with BNY     the Plan would     underlying the    surrendering
 Mellon.            have had to        ADS Rights) on    the ADS Rights,
                    direct BNY         the public        meaning the
                    Mellon to sell a   market.           Plan's most
                    portion of the                       viable
                    Plan's ADS                           alternative
                    Rights                               would have been
                    (technically to                      to sell the
                    sell the Share                       Share Rights it
                    Rights                               received. In
                    underlying the                       order to
                    ADS Rights) to                       exercise the
                    raise sufficient                     Share Rights,
                    cash to exercise                     the Plan would
                    its remaining                        have had to
                    ADS Rights.                          first sell a
                                                         portion of the
                                                         Share Rights to
                                                         raise
                                                         sufficient cash
                                                         to exercise the
                                                         remaining
                                                         rights. This
                                                         would raise
                                                         other risks as
                                                         outlined
                                                         herein.
Operational Risks  Risk: High         Risk: Low         Risk: High

[[Page 70500]]

 
                   In order to        HSBC had          The Plan would
                    exercise the ADS   established a     have been
                    Rights, the Plan   process to        responsible for
                    would have had     liquidate ADS     selecting a
                    to first sell a    Rights through    broker to sell
                    portion of the     BNY Mellon. BNY   the Share
                    ADS Rights         Mellon is a       Rights on the
                    (technically to    premier trading   open market. To
                    sell the Share     firm that was     do so, the Plan
                    Rights             familiar with     would have had
                    underlying the     the               to set up a
                    ADS Rights) to     transaction,      brokerage
                    raise sufficient   was well-suited   account at a
                    funds to           to execute all    firm in London
                    exercise its       options           that trades on
                    remaining ADS      available to      the LSE. This
                    Rights. The        shareholders,     would have
                    uncertainty of     and offered       entailed a
                    the proceeds       competitive       number of
                    from this sale     fees. BNY         risks,
                    (due to            Mellon also had   including the
                    constantly         appropriate       time to set up
                    changing foreign   trading           and verify an
                    exchange rates,    accounts          account and the
                    a fluctuating      already in        lesser
                    price for the      place to          familiarity by
                    Share Rights,      facilitate the    the broker
                    and uncertainty    trading.          (compared with
                    as to the timing                     BNY Mellon)
                    of any such                          with the
                    sale) made it                        transaction. In
                    impossible to                        addition, no
                    accurately                           other broker
                    calculate the                        selected on
                    number of Share                      behalf of the
                    Rights to sell                       Plan was likely
                    in order to                          to have had the
                    raise sufficient                     market access
                    proceeds to                          and the trading
                    exercise the                         volume enjoyed
                    remaining ADS                        by BNY Mellon.
                    Rights. The Plan
                    could have
                    either raised
                    insufficient
                    funds, leaving
                    it holding
                    unexercised (and
                    possibly
                    unsellable) ADS
                    Rights which
                    would have
                    lapsed; or would
                    have ended up
                    with excess
                    cash.
Timing Risks       Risk: Moderate-    Risk: Low         Risk: High
                    High
The Plan received  It was understood  The Plan needed   The Plan needed
 the ADS Rights     that the Plan      to direct BNY     to convert the
 on March 20,       did not have       Mellon to sell    ADS Rights into
 2009. Under the    cash available     the ADS Rights    Share Rights,
 terms of the       to exercise the    (technically,     set up
 Offering, the      ADS Rights and     the Share         brokerage
 ADS Rights         the Plan was not   Rights            accounts at a
 expired on March   intending to       underlying the    firm in London
 31, 2009 and the   sell other         ADS Rights)       that trades on
 Share Rights       investments to     before such       the LSE, and
 expired on April   raise sufficient   rights expired.   either sell all
 3, 2009. BANA      cash. Because of   As the            of the Share
 had only 10        the timing of      depository and    Rights or sell
 business days      the Offering,      a premier         sufficient
 from the date on   the Plan would     trading firm,     Share Rights to
 which the          have had to        BNY Mellon        generate the
 Prospectus         instruct BNY       already had the   funds needed to
 describing the     Mellon at the      expertise and     exercise the
 terms of the       same time with     processes in      remaining
 Offering was       respect to both    place to sell     rights. This
 issued to          the sale and the   the ADS Rights    option
 evaluate the       exercise of the    within the        presented the
 options            ADS Rights; cash   permitted         greatest timing
 available to the   also had to be     period.           risks because
 Plan, decide       deposited at                         any delay in
 which of the       this time for                        setting up the
 options was in     the exercise of                      brokerage
 the best           the ADS Rights.                      accounts or
 interest of the    Even assuming                        executing the
 Plan's             the Plan could                       sales could
 participant and    have immediately                     have resulted
 beneficiaries,     monetized (for                       in the ADS
 and carry out      deposit with BNY                     Rights expiring
 its decision.      Mellon) its                          and becoming
                    expected                             worthless.
                    proceeds from
                    the sale of the
                    ADS Rights,
                    Option (A)
                    nonetheless
                    presented
                    moderate timing
                    risk, because if
                    insufficient
                    funds were
                    generated from
                    the sale, there
                    was not enough
                    time to
                    supplement the
                    cash to ensure
                    the remaining
                    ADS Rights could
                    be exercised. If
                    the necessary
                    funds were not
                    generated in
                    time the ADS
                    Rights would
                    have expired and
                    likely become
                    worthless.
Trading Costs      Risk: Low          Risk: Low         Risk: High

[[Page 70501]]

 
                   This option        This option       The Plan would
                    presented low      presented low     have incurred
                    risk since the     risk since the    an estimated
                    Plan would have    Plan would not    1.5% stamp tax
                    incurred the       have had to pay   to surrender
                    same costs         brokerage         the ADS Rights
                    described in       commissions for   and receive the
                    Option (B) in      the sale of the   underlying
                    order to sell a    ADS Rights        Share Rights.
                    portion of the     (technically,     In addition,
                    ADS Rights         the Share         BANA would have
                    (technically,      Rights            had to
                    the Share Rights   underlying the    negotiate and
                    underlying the     ADS Rights)       the Plan would
                    ADS Rights)        through BNY       have had to pay
                    through BNY        Mellon. The       brokerage fees
                    Mellon to raise    Plan would have   for the sale or
                    sufficient cash    had to have       exercise of the
                    to exercise its    paid an ADS       Share Rights.
                    remaining ADS      depository fee    Furthermore,
                    Rights.            of $0.02 per      the Plan would
                   In order to         ADS Right, any    have had to pay
                    exercise the       applicable        wire fees to
                    remaining ADS      taxes, and any    move the
                    Rights, the Plan   other             proceeds back
                    needed to          applicable fees   to the U.S.
                    deposit 110% of    and expenses of   This option
                    the 254 pence      BNY Mellon, as    presented the
                    per share          provided under    highest risk
                    subscription       the deposit       since it could
                    price with BNY     agreement, pro    have resulted
                    Mellon. 110% of    rata to the       in higher
                    the subscription   holders of the    trading costs
                    price needed to    ADS Rights who    to the Plan
                    be deposited in    directed BNY      with
                    order to cover     Mellon to sell    uncertainty
                    possible           the ADS Rights.   related to
                    exchange rate                        trade
                    fluctuations,                        settlement and
                    applicable                           execution, as
                    United Kingdom                       well as
                    stamp duty                           requiring
                    reserve taxes,                       additional
                    and any currency                     trades to
                    conversion                           convert any
                    expenses.                            shares of Stock
                                                         of Holdings
                                                         acquired into
                                                         HSBC ADS.
Foreign Exchange   Risk: High         Risk: Low         Risk: Moderate
 Rates
                   Although certain   BNY Mellon would  The extent of
                    foreign exchange   need to convert   this risk
                    rate risks were    the proceeds      varied
                    involved in all    from the sale     depending on
                    three options,     of the ADS        whether BANA
                    this option        Rights            decided to sell
                    presented the      (technically,     all of the
                    highest risk to    the Shares        Share Rights or
                    the Plan since     Rights            sell a portion
                    foreign exchange   underlying the    of the Share
                    rate               ADS Rights)       Rights to raise
                    fluctuations       into U.S.         sufficient
                    could have         dollars at the    proceeds to
                    prevented the      prevailing        execute the
                    Plan's ability     rate. The risk    remaining Share
                    to exercise all    is low since      Rights. The
                    of the ADS         the same          risk would have
                    Rights. The Plan   conversion is     been similar to
                    would have         needed to         Option (A) had
                    needed to sell a   convert the       BANA decided to
                    portion of the     proceeds under    sell some of
                    ADS Rights         any of the        the Share
                    (technically,      three options     Rights to
                    the Shares         into U.S.         exercise the
                    Rights             dollars.          remaining Share
                    underlying the                       Rights. The
                    ADS Rights) in                       risk would have
                    order to                             been similar
                    generate the                         too or less
                    funds needed to                      than that in
                    exercise the                         Option (B) had
                    remaining ADS                        BANA decided to
                    Rights. If the                       sell all of the
                    funds generated                      Share Rights,
                    were                                 as BANA would
                    insufficient due                     have controlled
                    to a change in                       the timing of
                    foreign exchange                     the sale.
                    rates, the Plan
                    likely would not
                    have had time to
                    sell additional
                    ADS Rights in
                    order to
                    generate the
                    additional funds
                    needed to
                    exercise the
                    remaining ADS
                    Rights.
------------------------------------------------------------------------

    Accordingly, it is represented that for the reasons cited above, on 
March 23, 2009, BANA chose Option (B), above, and instructed Vanguard, 
as Trustee, in turn to instruct BNY Mellon, as depository agent, to 
liquidate the entire position of ADS Rights \5\ from the Plan and to 
convert the proceeds \6\ received from such sale in Pounds Sterling 
into U.S. dollars.\7\ It is represented that the Share Rights 
underlying the Plan's ADS Rights that BNY Mellon was directed to sell 
were aggregated by BNY Mellon with the Share Rights underlying other 
ADS Rights that BNY Mellon was directed to sell by other holders of ADS 
Rights. Based on information provided by BNY Mellon, the aggregated 
Share Rights underlying the ADS Rights were sold throughout the period 
beginning on March 27, 2009 and ending on April 3, 2009, at an average 
price of 147 pence, after expenses.\8\ Accordingly, it is represented 
that the Plan received total net proceeds of $7,291,066.81, on April 7, 
2009, from the liquidation of the Plan's ADS Rights. It is represented 
that the proceeds represented less than .5% of the fair market value of 
the total assets of the Plan determined, as of September 30, 2009.
---------------------------------------------------------------------------

    \5\ The applicant has not requested, nor is the Department, 
herein, providing any relief from section 406 of the Act with 
respect to decision to liquidate the Plan's entire position of ADS 
Rights.
    \6\ The applicant has not requested, nor is the Department, 
herein, providing any relief from section 406 of the Act with 
respect to the foreign exchange transaction in connection with the 
conversion from Pounds Sterling into U.S. dollars.
    \7\ The responsible plan fiduciary must determine, consistent 
with its responsibilities under section 404 of the Act, whether the 
Plan suffered any losses with respect to the liquidation of the ADS 
Rights and the conversion of the proceeds into US Dollars by BNY 
Mellon and takes appropriate action in light of the potential 
magnitude of the recovery and the risks and costs of pursuing legal 
action on behalf of the Plan.
    \8\ It is represented that on March 27, 2009, the Share Rights 
traded in a range of 132 pence to 162 pence. On the same date, the 
HSBC ADS traded in a range of $28.26 to $29.02. At the close of 
trading on March 27, 2009, the Share Rights closed on the LSE at 147 
pence, and the HSBC ADS closed on the NYSE at $28.47.
---------------------------------------------------------------------------

    It is represented that the proceeds from the transactions were 
distributed, after accounting for the ADS depository's fees paid to BNY 
Mellon of

[[Page 70502]]

up to $0.02 per each share of HSBC ADS and expenses, pro rata to the 
shareholders of the ADS Rights, including the Plan.\9\
---------------------------------------------------------------------------

    \9\ The applicant has not requested, nor is the Department, 
herein, providing any relief from section 406 of the Act for the 
receipt of depository's fees by BNY Mellon in connection with the 
sale of the Share Rights underlying the ADS Rights.
---------------------------------------------------------------------------

    With regard to expenses, in addition to the ADS depository fees, 
the Plan paid foreign exchange charges incurred by BNY Mellon with 
respect to the conversion of Pounds Sterling to U.S. dollars. It is 
represented that on March 27, 2009, 1.4554 was the foreign exchange 
rate for converting Pounds Sterling to U. S. dollars. It is represented 
that this rate was obtained from OANDA \10\ Corporation and reflects 
the average rate for converting Pounds Sterling into U.S. dollars on 
March 27, 2009. The foreign exchange charges were allocated pro rata to 
all holders of ADS Rights who directed BNY Mellon to sell the Share 
Rights underlying the ADS Rights, and the Plan's pro rata share of such 
foreign exchange charges were deducted from the final amount that the 
Plan received from the sale of such rights. It is represented that BANA 
does not have information as to the amount of such charges.\11\ 
Further, the Prospectus also indicated that holders of ADS Rights who 
directed BNY Mellon to sell the Share Rights underlying their ADS 
Rights would have to pay any applicable taxes, and any other applicable 
fees and expenses of BNY Mellon, as provided under the deposit 
agreement,\12\ with such fees and expenses allocated pro rata to all 
holders of ADS Rights who directed BNY Mellon to sell the Share Rights 
underlying their ADS Rights. It is represented that BANA does not have 
information on whether any such fees or expenses were applicable to the 
Share Rights underlying the ADS Rights sold by BNY Mellon on behalf of 
the Plan.
---------------------------------------------------------------------------

    \10\ OANDA uses innovative computer and financial technology to 
provide Internet-based forex trading and currency information 
services to everyone, from individuals to large corporations, from 
portfolio managers to financial institutions. OANDA is a market 
maker and a source for currency data. It has access to one of the 
world's largest historical, high frequency, filtered currency 
databases.
    \11\ The applicant has not requested, nor is the Department 
providing any relief for the receipt of fees by BNY Mellon with 
respect to the foreign exchange transaction in connection with the 
conversion from Pounds Sterling into U.S. dollars.
    \12\ The applicant has not requested, nor is the Department, 
herein, providing any relief from section 406 of the Act with 
respect to receipt of any other applicable fees and expenses by BNY 
Mellon, as provided under the deposit agreement.
---------------------------------------------------------------------------

    16. The Employer 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 ADS 
Rights by the Plan in connection with the Offering by Holdings, and (b) 
for the holding of the ADS Rights by the Plan during the subscription 
period of the Offering. It is represented that the ADS Rights acquired 
by the Plan satisfy the definition of ``employer securities,'' pursuant 
to section 407(d)(1) of the Act, but 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 in 
violation of section 407(a) of the Act, for which the applicant has 
requested relief from sections 406(a)(1)(A) and 406(a)(1)(E), 
406(a)(2), and 407(a)(1)(A). The subject transactions also raise 
conflict of interest issues by fiduciaries of the Plan for which relief 
from the prohibitions of 406(b)(1) and 406(b)(2) of the Act is needed.
    17. It is represented that the subject transactions have already 
been consummated. In this regard, the Plan acquired the ADS Rights 
pursuant to the Offering on March 20, 2009, and held such rights 
pending the liquidation of such rights. It is represented that there 
was insufficient time between the date the Plan acquired the ADS Rights 
and the date such rights expired, to apply for and be granted an 
exemption. Accordingly, the Employer is seeking a retroactive exemption 
to be granted, effective as of March 2, 2009, the date that Holdings 
announced the Offering.
    18. The applicant represents that the proposed exemption is 
feasible. In this regard, it is represented that the subject 
transactions are customary for the industry involved, as evidenced by 
the fact that the Department has granted individual administrative 
exemptions under similar circumstances. Further, the Employer bore the 
costs of the application for exemption, and the cost of the fee payable 
to BANA, and will bear the cost of notifying interested persons of the 
publication of the proposed exemption.
    19. The applicant represents that the transactions which are the 
subject of this proposed exemption are in the interest of the Plan, 
because if the Plan had not participated in the Offering, those 
participants and beneficiaries whose accounts were invested in shares 
of HSBC ADS on the Record Date would not have received the benefit 
received by all other shareholders of the Stock of Holdings and 
shareholders of HSBC ADS.
    20. The applicant represents that the proposed exemption provides 
sufficient safeguards for the protection of the Plan and its 
participants and beneficiaries. In this regard, the interests of the 
participants and beneficiaries of the Plan were independently 
represented at all times during the subject transactions by BANA. 
Further, BANA concluded that the most prudent course of action that the 
Plan could take with respect to the disposition of the ADS Rights and 
the course of action that was in the best interest of the affected 
participants and beneficiaries was to liquidate the ADS Rights under 
Option (B). Further, it is represented that the report prepared by BANA 
confirms that the subject transactions were administrative feasible, in 
the interest of, and protective of the rights of the Plan and its 
participants and beneficiaries.
    21. In summary, the applicant 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 ADS Rights occurred in 
connection with the Offering made available by Holdings on the same 
terms to all shareholders of the HSBC ADS, including the Plan;
    (b) The acquisition of the ADS Rights by the Plan resulted from an 
independent act of Holdings as a corporate entity, and all holders of 
the ADS Rights, including the Plan, were treated in the same manner 
with respect to the acquisition of such rights;
    (c) All shareholders of HSBC ADS, such as the Plan, received the 
same proportionate number of ADS Rights based on the number of shares 
of HSBC ADS held; and
    (d) All decisions regarding the disposition of the ADS Rights made 
on behalf of the Plan were made by BANA, acting as the I/F.

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 
participants and beneficiaries of the Plan whose accounts in the Plan 
held Stock.
    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.

[[Page 70503]]

    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.)
    Sammons Enterprises, Inc. Employee Stock Ownership ESOP, (the 
ESOP), Located in Dallas, Texas, Application No. D-11679].

Proposed Exemption

    The Department of Labor (the Department) is considering granting an 
exemption under the authority of section 408(a) of the Act in 
accordance with procedures set forth in 29 CFR Part 2570, Subpart B (55 
FR 32836, 32847, August 10, 1990). If the proposed exemption is 
granted, the restrictions of sections 406(a)(1)(A) and (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), (D) and (E) of the Code, shall not apply to the personal 
holding company consent dividend election (the Consent) with respect to 
Sammons Enterprises, Inc. (Sammons), by the trustee of the ESOP, 
provided that the following conditions are satisfied:
    (a) The trustee of the ESOP is an independent, qualified fiduciary 
(the I/F), acting on behalf of the ESOP, which determines prior to 
entering into the transaction that the transaction is feasible, in the 
interest of, and protective of the ESOP and the participants and 
beneficiaries of the ESOP;
    (b) Before the ESOP enters into the proposed transaction, the I/F 
reviews the transaction, and determines whether or not to approve the 
transaction, in accordance with the fiduciary provisions of the Act;
    (c) The I/F monitors compliance with the terms and conditions of 
this proposed exemption, as described herein, and ensures that such 
terms and conditions are at all times satisfied;
    (d) Sammons provides to the I/F, in a timely fashion, all 
information reasonably requested by the I/F to assist it in making its 
decision whether or not to approve the transaction;
    (e) The consent dividend will represent no more than two percent 
(2%) of the ESOP's assets in any taxable year within the timeframe of 
the exemption proposed herein;
    (f) Shares of Sammons stock are held in an ESOP suspense account, 
and are allocated each year to each eligible ESOP participant at the 
maximum level permitted under the Code;
    (g) All of the requirements of section 565 of the Code are met with 
respect to the Consent; and
    (h) All shareholders of Sammons are requested to consent to the 
dividend in the manner prescribed under section 565 of the Code.
    Temporary Nature of Exemption: This exemption, if granted, will 
expire at the earlier of (i) the first day of the first fiscal year of 
Sammons next following the fiscal year in which falls the fifth 
anniversary of the date of grant of the exemption; and (ii) the first 
day upon which the ESOP fails to own at least 99% of the issued and 
outstanding shares of Sammons.

Summary of Facts and Representations

    1. Sammons Enterprises, Inc. (Sammons) is a multi-faceted, global 
holding corporation headquartered in Dallas, Texas that owns and 
operates businesses and manages an investment portfolio across a 
diverse range of industries. Sammons was founded by Charles A. Sammons 
in 1962. Its roots originate in Dallas, Texas, where Mr. Sammons began 
Reserve Life Insurance Company in 1938, providing the foundation for 
what has grown into Sammons. Beginning in the early 1950's, Mr. Sammons 
began to diversify Sammons' operations, purchasing interests in the 
communications, industrial products distribution, insurance, travel and 
hospitality industries. Sammons has now concentrated its investments 
into three sectors--life insurance/annuities, equipment distribution, 
and hospitality and real estate.
    2. The Sammons Enterprises, Inc. Employee Stock Ownership ESOP (the 
ESOP) was originally established in 1978 and, prior to 2010, had 
acquired approximately 4% of Sammons' outstanding shares. Prior to his 
death in 1988, almost all of Sammons' outstanding shares, other than 
those owned by the ESOP, were owned by Charles A. Sammons. At the time 
of his death, Mr. Sammons' shares passed to a charitable remainder 
trust with his widow Elaine D. Simmons as lifetime beneficiary. In 
1997, Congress amended the Internal Revenue Code of 1986, as amended 
(the Code) to permit an ESOP and its related trust to be a beneficiary 
of a charitable remainder trust. This change in law allowed the ESOP to 
be named remainder beneficiary of the charitable trust established by 
Mr. Sammons. In January 2010, following the death of Mrs. Sammons, all 
of the Sammons shares held in the charitable remainder trust were 
transferred to the ESOP. The ESOP made no payment for the shares 
received from the charitable remainder trust.
    3. As a result of the transfer to the ESOP, it presently owns 
99.997% of Sammons' outstanding shares. The remaining 258 shares 
(representing .003% of Sammons' outstanding shares) are owned by 12 
individuals who are former Sammons employees and ESOP participants who 
received their shares as part of their ESOP distributions.
    4. As of December 31, 2010, the Sammons stock was valued by the 
ESOP's independent appraiser at $512 per share. The aggregate fair 
market value of the ESOP's Sammons share holdings is 
$4,099,394,048.\13\ The ESOP had approximately 1,064 participants as of 
the end of the 2010 plan year.
---------------------------------------------------------------------------

    \13\ The applicant represents that, consistent with the 
requirements of the Act, including definitions of ``adequate 
consideration'' and ``current value'' found in Act sections 3(18) 
and 3(26), the value of the Sammons stock held by the ESOP is 
determined in good faith by the Plan's trustee, GreatBanc Trust 
Company, based upon valuations by the Plan's independent appraiser 
as required under Code section 401(a)(28)(C), and taking into 
account those factors determined to be relevant under Revenue 
Procedure 59-60 and the Department's Proposed Regulation section 
2510.3-18. The applicant represents that, consistent with its 
fiduciary responsibilities under ERISA, it will, as the ESOP's 
independent trustee, continue to value the Sammons stock held by the 
ESOP in good faith based upon valuations performed by a qualified 
independent appraiser engaged by the Plan to ensure that all 
transactions are conducted at fair market value. The applicant 
further represents that Sammons regularly evaluates the performance 
of the qualified independent fiduciary under the terms of the ESOP 
Trust, and, as part of that evaluation, Sammons also regularly 
evaluates the performance of the ESOP's independent appraiser which 
is engaged on behalf of the ESOP by the qualified independent 
fiduciary.
---------------------------------------------------------------------------

    5. Although the ESOP is not leveraged, under a special structure 
established pursuant to section 664(g) of the Code, the shares acquired 
from the charitable remainder trust are held in an ESOP suspense 
account, and are currently allocated each year to each eligible ESOP 
participant at the maximum level permitted under Code section 
664(g)(7), i.e., 25% of compensation (up to a maximum allocation of 
$45,000).\14\
---------------------------------------------------------------------------

    \14\ The Code provides for a maximum allocation of $30,000, 
adjusted annually for cost-of-living. For 2011, the maximum 
allocation is $45,000.
---------------------------------------------------------------------------

    6. The trustee of the ESOP trust is the applicant, GreatBanc Trust 
Company (GreatBanc). GreatBanc is nationally recognized as a highly 
skilled independent ERISA trustee specializing in ESOPs and ESOP 
transactions. GreatBanc's management team and staff have an average of 
over 20 years' experience in the financial services industry, and 
include legal and

[[Page 70504]]

regulatory experts and investment management professionals who hold the 
Chartered Financial Analyst designation. GreatBanc serves as trustee or 
independent fiduciary for over 200 ESOPs and other qualified plans 
sponsored by both public and private companies, and has fiduciary 
responsibility for over $18 billion in plan assets. Fees received by 
GreatBanc for fiduciary services to the Sammons ESOP currently 
represent approximately 3% of GreatBanc's annual revenue.
    7. As a result of its closely held nature and the types of revenue 
generated by certain of its lines of business, Sammons is potentially 
subject each year to a set of federal tax rules referred to as 
``personal holding company taxes'' (PHCT). Although Sammons is a 
subchapter ``C'' corporation and pays its full share of corporate 
income taxes, the applicant represents that these PHCT rules can 
subject Sammons to a significant federal tax burden over and above that 
applied to most other companies. Given the ESOP's almost complete 
ownership of Sammons, these additional taxes would operate to the 
direct detriment of the ESOP and its participants.
    8. The applicant represents that the pertinent sections of the Code 
were first adopted in 1934 at a time when federal corporate tax rules 
were substantially lower than individual tax rates. This rate 
differential prompted wealthy individuals to place their passive 
investments in controlled corporations, with the idea that ongoing 
investment earnings could grow and be reinvested in substantially 
greater amounts than if held directly by the individual investor. The 
PHCT rules seek to thwart this strategy by imposing an additional tax, 
at the highest individual tax rate, on the corporation's 
``undistributed personal holding company income.'' By thus equalizing 
corporate and individual tax rates, the incentive to place the 
individual's investment portfolio in a corporate structure is removed. 
Currently, the PHCT rate is 15%, which equates to the top individual 
rate on capital gains and qualifying dividends.\15\ Because this 
special tax regime is designed to preclude tax arbitrage by the 
controlled corporations of individual investors, it only applies if 50% 
or more of a company's stock is owned by five or fewer individuals. For 
this purpose, the ESOP is considered to be a single individual, 
notwithstanding its 1,604 participants, and thus the 50% ownership 
threshold is exceeded.
---------------------------------------------------------------------------

    \15\ Over the years since its enactment, the PHCT rate has 
ranged as high as 85%.
---------------------------------------------------------------------------

    9. According to the applicant, the PHCT only applies if the 
corporation earns over 60% of what is referred to as its ``adjusted 
ordinary gross income'' from sources such as interest, dividends, rents 
and royalties. Although these particular forms of income may be 
suggestive of purely passive investments, they are defined under the 
Code in such a way that income from actively conducted trades or 
businesses can fall within their purview. For example, one Sammons 
subsidiary actively rents and sells industrial equipment to businesses 
in various states. The subsidiary employs approximately 450 workers who 
service and maintain this equipment. Although this business is an 
active, operating venture, it generates rental income which is subject 
to being characterized as personal holding company income. According to 
the applicant, these tax rules not only potentially subject Sammons, 
and, indirectly, the ESOP, to a tax burden which has nothing to do with 
the original purpose for which the tax rules were enacted, they also 
distort the ways in which Sammons must operate its businesses, to the 
detriment of the ESOP and its participants.
    10. Sammons' business planning is thus significantly influenced by 
the potential application of the PHCT, and otherwise desirable business 
activities are avoided or structured in a less efficient manner so that 
Sammons may maintain its tax obligations at the same level as that 
applicable to its competitors.
    11. Because the PHCT is applied to the company's undistributed 
personal holding company income, it is possible to avoid the tax by 
paying to the company's shareholders dividends equivalent to the amount 
of the company's personal holding company taxable income. The applicant 
represents that while the payment of such a dividend would resolve the 
PHCT problem, it is not an attractive alternative for (a) investors who 
would prefer to have the dividend amount remain invested in the company 
in order to fund future growth, or (b) companies that lack the 
liquidity to pay the required dividend.
    12. In response to these concerns, section 565 of the Code allows 
companies to pay what is called a ``consent dividend.'' In the case of 
a consent dividend, the shareholder agrees to recognize current income 
on a ``deemed dividend'' that is not actually distributed to the 
shareholder in cash. Rather, the shareholder is treated, for tax 
purposes, as if it had received the dividend (on which it will be 
taxed), and then made a capital contribution to the company in 
equivalent amount. The amount of the consent dividend remains within 
the company to be utilized in furtherance of the company's objectives 
and shareholders' interests.
    13. The applicant has requested an exemption to permit the Plan, 
based upon the discretionary determination of GreatBanc as trustee and 
independent fiduciary, to utilize the consent dividend process 
available to shareholders under Code section 565. If, in a year in 
which Sammons would otherwise be subject to the PHCT, the ESOP were 
able to elect to ``receive'' a consent dividend in an amount sufficient 
to represent a complete distribution of Sammons' personal holding 
company income, Sammons would be able to achieve significant tax 
savings at virtually no cost to the ESOP. This is because the ESOP, 
being a tax-exempt entity, would have no tax liability as a result of 
``receiving'' the consent dividend. The applicant states that this 
represents a legitimate and appropriate use of the consent dividend 
process under Code section 565, and is entirely consistent with the 
language and purpose of that Code section, as well as the provisions of 
sections 401(a) and 501(a) of the Code.
    14. For example, if a $5 million distribution were required in 
order to avoid imposition of the PHCT upon Sammons, a $5 million 
consent dividend would save Sammons, at the current surtax rates, 
$750,000. Virtually \16\ the entire amount of this savings would inure 
to the benefit of the ESOP and its participants (because the ESOP 
presently owns 99.997% of the outstanding shares of Sammons). 
Importantly, this approach would also allow the consent dividend amount 
(and not just the tax savings) to continue to build share values within 
a successful and growing business.
---------------------------------------------------------------------------

    \16\ The use of the term ``virtually'' both here and in 
representation 13, above, acknowledges the fact that the non-ESOP 
shareholders of Sammons might elect not to participate in the 
consent dividend process. These individuals currently hold .003% of 
Sammons' outstanding shares, and would receive a de minimis dividend 
payment if they elect not to participate in the consent dividend 
process.
---------------------------------------------------------------------------

    15. The applicant represents that the ESOP's participation in the 
consent dividend process will permit Sammons to manage its businesses 
and conduct long-range business planning without the need to structure 
its operations, or to forego potentially profitable opportunities and 
initiatives, so as to avoid the generation of personal holding company 
income. This will create greater opportunities for corporate growth and 
the enhancement of shareholder value, which will inure

[[Page 70505]]

directly to the benefit of the ESOP and its participants and 
beneficiaries. The ESOP will incur no economic detriment by 
participating in the consent dividend process, because Sammons does not 
otherwise pay dividends.\17\ Thus, the ESOP would not be foregoing the 
option of receiving current cash dividends by consenting to receive the 
undistributed personal holding company income as a deemed dividend. 
Rather, the proposed transaction would permit Sammons to deploy its 
capital on a tax efficient basis in accordance with the provisions of 
the Code. Nevertheless, if GreatBanc determines in any year that it is 
not prudent and in the best interests of the ESOP and its participants 
and beneficiaries to participate in the consent dividend process, the 
Plan will be under no obligation to provide its consent. In such case, 
it will be up to Sammons' board and management to determine how best to 
address Sammons' tax position and obligations.
---------------------------------------------------------------------------

    \17\ Sammons paid a relatively small dividend while Mrs. Sammons 
was alive. No dividends have been paid since her death, and Sammons 
does not anticipate paying dividends in the future.
---------------------------------------------------------------------------

    16. In summary, the applicant represents that the subject 
transaction satisfies the criteria contained in section 408(a) of the 
Act because: (a) The trustee of the ESOP, GreatBanc, is an independent, 
qualified fiduciary, acting on behalf of the ESOP, which determines 
prior to entering into the transaction that the transaction is 
feasible, in the interest of, and protective of the ESOP and the 
participants and beneficiaries of the ESOP; (b) Before the ESOP enters 
into the proposed transaction, GreatBanc will review the transaction, 
and determine whether or not to approve the transaction, in accordance 
with the fiduciary provisions of the Act; (c) GreatBanc will monitor 
compliance with the terms and conditions of this proposed exemption, as 
described herein, and ensure that such terms and conditions are at all 
times satisfied; (d) Sammons will provide to GreatBanc, in a timely 
fashion, all information reasonably requested by the GreatBanc to 
assist it in making its decision to consent (the Consent) to treat as a 
dividend from Sammons the amount specified in the Consent; (e) The 
consent dividend will represent no more than two percent (2%) of the 
ESOP's assets in any taxable year within the timeframe of the exemption 
proposed herein; (f) Shares of Sammons stock are held in an ESOP 
suspense account, and are allocated each year to each eligible ESOP 
participant at the maximum level permitted under the Code; (g) The 
dividend meets all of the requirements of section 565 of the Code to be 
treated as a consent dividend; (h) All shareholders of Sammons are 
requested to Consent to the dividend in the manner prescribed under 
section 565 of the Code; and (i) Because the ESOP owns 99.997% of 
Sammons' outstanding stock, the tax savings realized by Sammons from 
the subject transaction would inure directly to the benefit of the ESOP 
and its participants and beneficiaries.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department, 
telephone (202) 693-8546. (This is not a toll-free number.)
    First Federal Bancshares of Arkansas, Inc. Employees' Savings and 
Profit Sharing Plan (the Plan), Located in Harrison, Arkansas, 
[Application No. D-11683].

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: Transactions

    If the proposed exemption is granted, effective May 10, 2011, 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,\18\ shall not 
apply:
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    \18\ 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) of First Federal Bancshares of Arkansas, Inc. 
(Bancshares) by Bancshares, 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 Bancshares on the same 
terms to all shareholders of the Stock of Bancshares;
    (2) The acquisition of the Rights by the Plan resulted from an 
independent act of Bancshares, 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 Bancshares held by such shareholder;
    (4) The Rights were acquired pursuant to provisions under the Plan 
for individually directed investments of the accounts of the individual 
participants (the Invested Participants), all or a portion of whose 
accounts in the Plan hold the Stock;
    (5) The decisions with regard to the holding and disposition of the 
Rights by the Plan were made by each of the Invested Participants in 
accordance with the provisions under the Plan for individually-directed 
accounts; and
    (6) No brokerage fees, no commissions, no subscription fees, and no 
other charges were paid by the Plan with respect to the Offering, and 
no brokerage fees, no commissions, and no 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, May 10, 2011, the commencement date of the Offering.

Summary of Facts and Representations

    1. The Plan is defined contribution profit sharing plan adopted 
effective June 1, 2006.\19\ The Plan provides for a cash and deferred 
arrangement, i.e. a 401(k) plan. The Plan is a participant directed 
account plan designed and operated to comply with the requirements of 
section 404(c) of the Act. The fair market value of the total assets of 
the Plan, as of May 10, 2011, was $3.579 million.
---------------------------------------------------------------------------

    \19\ Bancshares also maintained a qualified Employee Stock 
Ownership Plan which was merged into the Plan, effective June 1, 
2006.
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    2. Bancshares is the sponsor of the Plan for its subsidiaries. 
Bancshares is also the administrator for the Plan and the fiduciary 
responsible for Plan matters. As a fiduciary with respect to the Plan, 
Bancshares is a party in interest to the Plan, pursuant to section 
3(14)(A) of the Act.
    3. Since June 5, 2009, Reliance Trust Company (RTC) has served as 
the

[[Page 70506]]

directed trustee and custodian for the Plan. As directed trustee and 
custodian, RTC is a party in interest to the Plan, pursuant to section 
3(14)(A) of the Act. As service providers to the Plan, both Bancshares 
and RTC are parties in interest to the Plan, pursuant to section 
3(14)(B) of the Act.
    4. The Plan offers to participants a wide variety of 
institutionally managed collective trust index funds from which the 
Plan participants may choose to invest. One of the investment options 
under the Plan is the First Federal Employer Stock Fund (the Stock 
Fund). As of May 10, 2011, the Plan had approximately 231 participants 
of which 180 participant held shares in the Stock Fund.
    5. The Stock Fund allows participants in the Plan to invest in the 
Stock of Bancshares. The Stock is a ``qualifying employer security,'' 
as defined under section 407(d)(5) of the Act and 4975(e) of the Code. 
The Stock ($0.01 par value) is listed for quotation on the NASDAQ 
Global Select Market (NASDAQ) under the symbol, FFBH. It is represented 
that the Stock is the same class of shares available to other 
investors.
    Investment in the Stock Fund is entirely voluntary. Plan 
participants may invest in the Stock Fund up to 25 percent (25%) of any 
contributions remitted to the Plan. Features of the Stock Fund include:
    (a) Neither Bancshares nor its subsidiaries contribute any capital 
Stock to the Plan. Instead all employer contributions are made in cash, 
and the Stock is acquired for the Plan only as a result of participant-
directed investment decisions;
    (b) Upon direction from a Plan participant to invest in the Stock 
Fund, RTC, acting as directed trustee, purchases the Stock on the open 
market at the prevailing market price;
    (c) Bancshares, as the administrator of the Plan, has the 
responsibility of coordinating with RTC, regarding the administrative 
procedures to implement participant investment decisions regarding the 
Stock, but otherwise has no authority with respect to the Stock Fund;
    (d) Upon the settlement of a trade implementing a participant's 
direction to invest in the Stock Fund, RTC becomes the shareholder of 
record and the Plan participant becomes the beneficial owner; and
    (e) The Plan provides that participants are entitled to direct 
Bancshares, as the administrator of the Plan, regarding the voting of 
shares of the Stock held in their accounts, and that RTC shall follow 
such directions.
    6. The application was filed on behalf of Bancshares, a unitary 
savings and loan holding company established in January 1996. 
Bancshares is a Texas corporation.\20\ However, the shareholders 
approved the reincorporation of Bancshares from Texas to Arkansas 
during the annual meeting of shareholders held on June 22, 2011. 
Bancshares is in the process of making the requisite filings to 
complete the reincorporation. Bancshares has its principal place of 
business in Harrison, Arkansas. Bancshares does not employ any persons 
other than officers of First Federal Bank (the Bank), and Bancshares 
uses the support staff of the Bank from time to time. Substantially all 
of the activities of Bancshares are conducted through the Bank. As of 
March 31, 2011, Bancshares had $577.7 million in total assets, $542.9 
million in total liabilities and $34.8 million in stockholders' equity.
---------------------------------------------------------------------------

    \20\ The shareholders have approved the reincorporation of 
Bancshares from Texas to Arkansas during the annual meeting of 
shareholders held on June 22, 2011. Bancshares is in the process of 
making the requisite filings to complete the reincorporation.
---------------------------------------------------------------------------

    7. The Bank is a wholly-owned subsidiary of Bancshares. Bancshares, 
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. The Bank is a community 
bank and a federally chartered saving and loan association formed in 
1934 with a main office and full service branches in North central and 
Northwest Arkansas. As of March 31, 2011, the Bank had $577.7 million 
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.
    8. As part of its recapitalization plan, Bancshares and the Bank, 
on January 26, 2011, entered into an investment agreement with Bear 
State Financial Holdings, LLC (Bear State), a private equity investment 
group. The investment agreement set forth the terms and conditions of 
the recapitalization plan which consisted of the following:
    (a) As a condition of the investment agreement with Bear State, 
Bancshares agreed to commence the Offering which is the subject of this 
proposed exemption, whereby shareholders of record would receive the 
Rights. In a press release, dated January 28, 2011, Bancshares, as a 
corporate entity, announced the Offering, and on the same date, in 
connection with the Offering, announced the issuance of up to 2,908,071 
shares of Stock;
    (b) On May 3, 2011, Bear State purchased from the United States 
Department of the Treasury (the Treasury) for $6 million aggregate 
consideration: (i) 16,500 shares of Bancshares' Fixed Rate Cumulative 
Perpetual Preferred Stock, Series A (the Preferred Stock), including 
accrued but unpaid dividends thereon; and (ii) a related warrant (the 
TARP Warrant), dated March 6, 2009, which provided for the purchase of 
321,847 shares of the Stock at an exercise price of $7.69 per share. 
Both the TARP Warrant and the Preferred Stock were previously issued to 
the Treasury through the Troubled Asset Relief Program--Capital 
Purchase Program;
    (c) Bancshares amended its Articles of Incorporation to cause a 
one-for-five stock split (the Reverse Stock Split) that occurred on May 
3, 2011, in which the outstanding shares of the Stock decreased from 
4,846,785 to approximately 969,357;
    (d) On May 3, 2011, Bancshares sold to Bear State: (i) 15,425,262 
post-Reverse Stock Split shares (the First Closing Shares) of the Stock 
at $3.00 per share in a private placement, and (ii) a warrant (the 
Investor Warrant) which provided for the purchase of 2 million post-
Reverse Stock Split shares of the Stock at an exercise price of $3.00 
per share;
    (e) On May 3, 2011, Bear State paid Bancshares aggregate 
consideration of approximately $46.3 million for the First Closing 
Shares and the Investor Warrant, consisting of: (i) $40.3 million in 
cash, and (ii) Bear State's surrender of the Preferred Stock and the 
TARP Warrant to Bancshares for a $6 million credit against the purchase 
price of the First Closing Shares; and
    (f) Pursuant to the investment agreement, Bear State agreed to 
backstop the Offering by purchasing in a second private placement for a 
purchase price of $3.00 per share, any Stock not subscribed for in the 
Offering, subject to an overall limitation on Bear State's ownership of 
94.9 percent (94.9%) of the Stock.\21\ In this regard, the backstop 
commitment would ensure that Bancshares would raise net proceeds after 
expenses of approximately $8.5 million through the Offering. It is 
represented that Bancshares used the net proceeds from the Offering for 
general corporate purposes, including capital contributions to the 
Bank.
---------------------------------------------------------------------------

    \21\ It is represented that because the Offering was fully 
subscribed, Bear State was not required to purchase any shares of 
Stock in a second private placement to backstop the Offering.
---------------------------------------------------------------------------

    8. In addition to providing Bancshares with an opportunity to raise 
equity

[[Page 70507]]

capital, the Offering also provided existing shareholders with the 
opportunity to purchase the Stock at the same price per share paid by 
Bear State for the 15,425,262 post-Reverse Split shares of Stock Bear 
State acquired on May 3, 2011.
    9. The total number of shares of Stock outstanding, as of the 
commencement date of the Offering on May 10, 2011, was 16,394,619. At 
the close of business on May 10, 2011, the Stock was trading on the 
NASDAQ at $9.07 per share. After giving effect to the 2,908,071 shares 
of Stock issued in connection with the Offering, the issued and 
outstanding shares of Stock totaled 19,302,690. The closing price of 
the Stock on the ending date of the Offering on June 21, 2011, was 
$7.77.
    10. Under the terms of the Offering, all shareholders of the Stock, 
including the Invested Participants in the Plan, automatically received 
at no charge the Rights to purchase, through the exercise of such 
Rights, the Stock being issued by Bancshares in connection with the 
Offering. All shareholders of the Stock, including the Invested 
Participants, held the Rights until such Rights were either exercised, 
or such Rights expired. With respect to the Rights, under the terms of 
the Offering, one (1) Right was issued for every share of the Stock 
held by each shareholder, including the Invested Participants, on March 
23, 2011, 5 p.m. Eastern time (the Record Date), as adjusted to take 
account of the Reverse Stock Split that occurred on May 3, 2011. All 
Rights were rounded down to the nearest whole number for each 
shareholder, including the Invested Participants.
    11. 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.
    12. The Rights could only be exercised in whole numbers. Upon 
exercise, each of the Rights permitted a shareholder of the Stock, 
including the Invested Participants, to purchase three (3) additional 
shares of Stock at a subscription price of $3.00 per share. A 
shareholder, including each Invested Participant, had the right to 
choose to exercise some, all, or none of his Rights. The exercise of 
any of the Rights was irrevocable.
    13. It is represented that to the extent shareholders did not 
exercise in full all of their Rights, each shareholder who did timely 
and fully exercise his basic Rights would have an oversubscription 
privilege to subscribe for a portion of the Stock in the Offering, 
subject to availability and allocation. However, a shareholder's 
ability to purchase Stock in the Offering (through the exercise of his 
basic Rights and any oversubscription privilege) was subject to an 
overall beneficial ownership limitation of 4.9 percent (4.9%) of 
Bancshares outstanding Stock. If oversubscription requests exceed the 
number of shares available, Bancshares allocated the available shares 
pro rata among the holders of Rights who exercised the oversubscription 
privilege.
    14. The Rights could be exercised beginning May 10, 2011, the date 
of the issuance of the prospectus describing the Offering. The Offering 
was to have closed with respect to the exercise of the Rights on June 
7, 2011, but due to delays in the delivery of subscription materials, 
the closing of the Offering was extended to June 21, 2011. Pursuant to 
the terms of the Offering all unexercised Rights expired and became 
worthless after the closing of the Offering.
    15. It is represented that on May 10, 2011, the commencement date 
of the Offering, the Plan was the record owner of 106,964 shares of 
Stock which were allocated to the individual accounts of 180 Invested 
Participants. The aggregate fair market value of the assets of the Plan 
invested in shares of the Stock, on May 10, 2011, based on a closing 
price of such Stock of $9.07 on NASDAQ on that date was $970,167. As of 
May 10, 2011, the approximate percentage of the fair market value of 
the total assets of the Plan invested in the Stock was 27 percent 
(27%). As of the same date, 106,964 shares of Stock constituted 
approximately .65 percent (.65%) of the 16,394,619 shares of Stock 
outstanding.
    16. Based on the ratio of one (1) Right for each share of Stock 
held, the Plan acquired 106,964 Rights, as a result of the Offering. It 
is represented that the Plan subscribed for 276,579 shares of Stock in 
the exercise of the basic Rights and the oversubscription privilege. Of 
the Rights received by the Plan on behalf of accounts of the Invested 
Participants all Rights were either exercised or expired.
    17. The Plan and RTC were notified of the issuance of the Rights in 
a press release from Bancshares, dated May 10, 2011. Enclosed with a 
form letter mailed, on May 10, 2011, to each Invested Participant in 
the Plan Bancshares also provided a copy of the prospectus which 
described the Offering, a document providing frequently asked questions 
and answers regarding the Offering, an election form for Invested 
Participants in the Plan, a return envelope addressed to Bancshares, 
and a statement indicating the number of shares of Stock each Invested 
Participant held, as of the Record Date.
    18. In order to exercise some or all of the Rights, an Invested 
Participant had to complete an election form and to submit such 
election form to Bancshares by the close of business on the fifth (5th) 
business day (June 14, 2011 at 5 p.m. EST), prior to the expiration of 
the Offering on June 21, 2011.\22\ Each Invested Participant who 
submitted an election form was required to indicate on such election 
form a sufficient amount of current investments in such Invested 
Participant's account in the Plan to be liquidated in order to generate 
the full subscription price in cash based on the number of basic Rights 
and any oversubscription privileges to be exercised.\23\ It is 
represented that the selected investments were liquidated consistent 
with such Invested Participant's direction on the election form and 
transferred to the Rights Fund at RTC which was established in 
anticipation of the Offering. RTC placed the order to purchase the 
shares with the Subscription Agent. It is represented that the Rights 
Fund was liquidated on June 21, 2011, and cash equal to the necessary 
subscription payment was transferred to the Subscription Agent. 
Following the closing of the Offering, the acquired shares of Stock 
were then credited to the applicable Invested Participant's account in 
the Plan. In the event the Invested Participants over-subscribed for 
more shares of Stock than were available under the Offering, the money 
resulting from the liquidation of investments to buy those 
oversubscribed shares was re-deposited into the Plan based on the 
Investment Participant's investment allocation election.
---------------------------------------------------------------------------

    \22\ It is represented that the extra five (5) business days 
were required to provide RTC, the Registrar and Transfer Company 
(the Subscription Agent), the Plan's record keeper, the custodian 
for the First Federal Bancshares of Arkansas, Inc. Rights Fund (the 
Rights Fund), and the clearing agent for the Offering sufficient 
time to process all such elections by the Invested Participants to 
exercise their Rights, tabulate and confirm the results, liquidate 
each such Invested Participant's funds, confirm the orders and the 
availability of such funds, and remit payment to purchase the 
shares.
    \23\ It is represented that if the value of investments 
liquidated did not equal or exceed the purchase price of the Stock 
that an Invested Participant had elected to purchase in the 
Offering, none of the Rights held in such Invested Participant's 
account were exercised. In that situation, such Invested Participant 
was deemed not to have exercised his Rights and all subscription 
payments received on that Invested Participant's behalf were 
returned to the Plan and deposited based upon such Participant's 
investment allocation election.
---------------------------------------------------------------------------

    It is represented that although 5,576,216 total shares were 
subscribed for by all shareholders, including the

[[Page 70508]]

Invested Participants, under the basic Rights and under the 
oversubscription privilege, only a total of 2,908,071 shares of Stock 
were issued.
    It is represented that 102 Invested Participants out of 180 decided 
to exercise the Rights. In this regard, the Rights of such Invested 
Participants were executed on or about May 10, 2011, until the Offering 
closed at 5 p.m. EST on June 14, 2011.\24\ The Invested Participants 
exercised 64,677 basic Rights. As a result of this exercise, the 
Invested Participants received 194,031 shares of Stock from the 
exercise of their basic Rights and 55,014 shares of Stock from the 
exercise of their oversubscription privilege.
---------------------------------------------------------------------------

    \24\ 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.
---------------------------------------------------------------------------

    19. 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 Bancshares did 
not charge any fees or sales commissions to issue the Rights and did 
not charge any fees to issue the Stock upon the exercise of the Rights.
    20. It is represented that on June 30, 2011, the Invested 
Participants received 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 on June 30, 2011.
    21. Bancshares 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 Bancshares, 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.
    22. It is represented that the subject transactions have already 
been consummated. In this regard, the Plan acquired the Rights pursuant 
to the Offering on May 10, 2011, and held such Rights pending the 
closing of the Offering on June 21, 2011. 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, Bancshares is 
seeking a retroactive exemption to be granted, effective as of May 10, 
2011, the date that the Plan acquired the Rights.
    23. Bancshares 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 an 
automatic 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.
    24. Bancshares 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.
    25. Bancshares represents that the proposed exemption provides 
sufficient safeguards for the protection of the Plan and its 
participants and beneficiaries. In this regard, participation in the 
Offering protected the accounts of the Invested Participants in the 
Plan from having their interests in the Stock 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 protected in that the 
Plan acquired and held the Rights automatically as a result of the 
Offering.
    The accounts of Invested Participants in the Plan were protected 
against economic loss from the exercise of the Rights. In this regard, 
it is represented that RTC was instructed to note the public trading 
price of the Stock on June 20, 2011 (one business day before the close 
of the Offering), and was instructed not to exercise any Rights held by 
the Plan, if the per share public trading price of the Stock at the 
close of trading was less than or equal to the subscription price of 
$3.00 per share on that date. It is represented that the closing price 
of the Stock on June 20, 2011, was $8.01 per share. If on June 20, 2011 
the public trading price per share of the Stock had not been greater 
than the exercise price under the Rights, the election to exercise 
would not have been honored and the payments received on behalf of 
Invested Participants would have been returned to the Plan and 
deposited based on such Invested Participants investment allocation 
election.
    26. In summary, Bancshares 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 Bancshares on the same terms to all 
shareholders of the Stock of Bancshares;
    (b) The acquisition of the Rights by the Plan resulted from an 
independent act of Bancshares, 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 Bancshares held by such shareholder;
    (d) The Rights were acquired pursuant to provisions under the Plan 
for individually directed investments of the accounts of the Invested 
Participants, all or a portion of whose accounts in the Plan hold the 
Stock;
    (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, no commissions, no subscription fees, and no 
other charges were paid by the Plan with respect to the Offering, and 
no brokerage fees, no commissions, and no 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

[[Page 70509]]

(the Notice) include all individuals who are participants in the Plan 
who received the Rights.
    It is represented that all such interested persons will be notified 
of the publication of the Notice by first class mail, to each such 
interested person's last known address 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 7th day of November 2011.
Ivan Strasfeld,
 Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 2011-29235 Filed 11-10-11; 8:45 am]
BILLING CODE 4510-29-P