[Federal Register Volume 76, Number 219 (Monday, November 14, 2011)]
[Notices]
[Pages 70495-70509]
From the Federal Register Online via the Government Publishing 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:
[email protected], 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.
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(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;
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\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.
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\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.
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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.
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(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.
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\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.
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\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.
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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.
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\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.
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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.
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\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.
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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.
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\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.
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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