[Federal Register Volume 79, Number 68 (Wednesday, April 9, 2014)]
[Notices]
[Pages 19641-19656]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-07872]
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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
[[Page 19642]]
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-11496, Northwestern Mutual Investment Services, Inc.; D-
11773, The Delaware County Bank and Trust Company Employee 401(k)
Retirement Plan (the Plan); D-11780, The Home Savings and Loan Company
401(k) Savings Plan (the Plan), United Community Financial Corporation
(UCFC) and the Home Savings and Loan Company (Home Savings); and D-
11756, Liberty Media 401(k) Savings Plan (the Plan).
DATES: All interested persons are invited to submit written comments or
requests for a hearing on the pending exemptions, unless otherwise
stated in the Notice of Proposed Exemption, within 45 days from the
date of publication of this Federal Register Notice.
ADDRESSES: Comments and requests for a hearing should state: (1) The
name, address, and telephone number of the person making the comment or
request, and (2) the nature of the person's interest in the exemption
and the manner in which the person would be adversely affected by the
exemption. A request for a hearing must also state the issues to be
addressed and include a general description of the evidence to be
presented at the hearing. All written comments and requests for a
hearing (at least three copies) should be sent to the Employee Benefits
Security Administration (EBSA), Office of Exemption Determinations,
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue NW.,
Washington, DC 20210. Attention: Application No. -------- , stated in
each Notice of Proposed Exemption. Interested persons are also invited
to submit comments and/or hearing requests to EBSA via 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: All comments will be made available to the public. Do not
include any personally identifiable information (such as Social
Security number, name, address, or other contact information) or
confidential business information that you do not want publicly
disclosed. All comments may be posted on the Internet and can be
retrieved by most Internet search engines.
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 (76 FR 66637, 66644, October 27, 2011).\1\ 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.
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\1\ The Department has considered exemption applications
received prior to December 27, 2011 under the exemption procedures
set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August
10, 1990).
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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.
Northwestern Mutual Investment Services, Inc. Located in Milwaukee,
Wisconsin
[Exemption Application No. D-11496]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Employee Retirement Income Security
Act of 1974, as amended (ERISA or the Act), and section 4975(c)(2) of
the Internal Revenue Code of 1986, as amended (the Code), and in
accordance with the procedures set forth in 29 CFR Part 2570, Subpart B
(76 FR 66637, 66644, October 27, 2011).\2\
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\2\ For purposes of this proposed exemption, references to
section 406 of ERISA should be read to refer as well to the
corresponding provisions of section 4975 of the Code.
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Section I. Transactions Involving Plans Described In Both Title I And
Title II of ERISA
If the proposed exemption is granted, the restrictions of section
406(a)(1)(A), (B), and (D) and section 406(b)(1) and (2) of ERISA, and
the taxes imposed by section 4975(a) and (b) of the Code, by reason of
section 4975(c)(1)(A), (B), (D), and (E) of the Code, shall not apply,
effective February 1, 2008, to the following transactions, if the
conditions set forth in Section III have been met:
(a) The sale or exchange of an Auction Rate Security (as defined in
Section IV(b)) by a Plan (as defined in Section IV(h)) to the Sponsor
(as defined in Section IV(g)) of such Plan; or
(b) A lending of money or other extension of credit to a Plan in
connection with the holding of an Auction Rate Security by the Plan,
from: (1) Northwestern Mutual Investment Services, Inc. or an affiliate
(Northwestern Mutual); (2) an Introducing Broker (as defined in Section
IV(f)); or (3) a Clearing Broker (as defined in Section IV(d)); where
the loan is: (i) Repaid in accordance with its terms; and (ii)
guaranteed by the Plan Sponsor.
Section II. Transactions Involving Plans Described In Title II of ERISA
Only
If the proposed exemption is granted, the sanctions resulting from
the application of section 4975(a) and (b) of the Code, by reason of
section 4975(c)(1)(A), (B), (D), and (E) of the Code, shall not apply,
effective February 1, 2008, to the following transactions, if the
conditions set forth in Section III have been met:
(a) The sale or exchange of an Auction Rate Security by a Title II
Only Plan (as defined in Section IV(i)) to the Beneficial Owner (as
defined in Section IV(c)) of such Plan; or
(b) A lending of money or other extension of credit to a Title II
Only Plan in connection with the holding of an Auction Rate Security by
the Title II Only Plan, from: (1) Northwestern Mutual; (2) an
Introducing Broker; or (3) a Clearing Broker; where the loan is: (i)
Repaid in accordance with its terms and; (ii) guaranteed by the
Beneficial Owner.
Section III. Conditions
(a) Northwestern Mutual acted as a broker or dealer, non-bank
custodian, or fiduciary in connection with the acquisition or holding
of the Auction Rate Security that is the subject of the transaction
described in Section I or II of this proposal;
(b) For transactions involving a Plan (including a Title II Only
Plan) not
[[Page 19643]]
sponsored by Northwestern Mutual for its own employees, the decision to
enter into the transaction is made by a Plan fiduciary who is
Independent (as defined in Section IV(e)) of Northwestern Mutual.
Notwithstanding the foregoing, an employee of Northwestern Mutual who
is the Beneficial Owner of a Title II Only Plan may direct such Plan to
engage in a transaction described in Section II, if all of the other
conditions of this Section III have been met;
(c) The last auction for the Auction Rate Security was
unsuccessful;
(d) The Plan does not waive any rights or claims in connection with
the sale or loan as a condition of engaging in the above-described
transaction;
(e) The Plan does not pay any fees or commissions in connection
with the transaction;
(f) The transaction is not part of an arrangement, agreement or
understanding designed to benefit a party in interest;
(g) With respect to any sale described in Section I(a) or Section
II(a):
(1) The sale is for no consideration other than cash payment
against prompt delivery of the Auction Rate Security; and
(2) For purposes of the sale, the Auction Rate Security is valued
at par, plus any accrued but unpaid interest;
(h) With respect to an in-kind exchange described in Section (I)(a)
or Section II(a), the exchange involves the transfer by a Plan of an
Auction Rate Security in return for a Delivered Security, as such term
is defined in Section IV(j), where:
(1) The exchange is unconditional;
(2) For purposes of the exchange, the Auction Rate Security is
valued at par, plus any accrued but unpaid interest;
(3) The Delivered Security is valued at fair market value, as
determined at the time of the in-kind exchange by a third party pricing
service or other objective source;
(4) The Delivered Security is appropriate for the Plan and is a
security that the Plan is otherwise permitted to hold under applicable
law; \3\ and
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\3\ The Department notes that the Act's general standards of
fiduciary conduct also would apply to the transactions described
herein. In this regard, section 404 requires, among other things,
that a fiduciary discharge his duties respecting a plan solely in
the interest of the plan's participants and beneficiaries and in a
prudent manner. Accordingly, a plan fiduciary must act prudently
with respect to, among other things: (1) The decision to exchange an
Auction Rate Security for a Delivery Security; and (2) the
negotiation of the terms of such exchange (or a cash sale or loan
described above), including the pricing of such securities. The
Department further emphasizes that it expects plan fiduciaries,
prior to entering into any of the proposed transactions, to fully
understand the risks associated with these types of transactions
following disclosure by Northwestern Mutual of all relevant
information.
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(5) The total value of the Auction Rate Security (i.e., par plus
any accrued but unpaid interest) is equal to the fair market value of
the Delivered Security;
(i) With respect to a loan described in Section I(b) or II(b):
(1) The loan is documented in a written agreement containing all of
the material terms of the loan, including the consequences of default;
(2) The Plan does not pay an interest rate that exceeds one of the
following three rates as of the commencement of the loan:
(A) The coupon rate for the Auction Rate Security;
(B) The Federal Funds Rate; or
(C) The Prime Rate;
(3) The loan is unsecured; and
(4) The amount of the loan is not more than the total par value of
the Auction Rate Securities held by the Plan.
Section IV. Definitions
(a) The term ``affiliate'' means: Any person directly or
indirectly, through one or more intermediaries, controlling, controlled
by, or under common control with such other person;
(b) The term ``Auction Rate Security'' or ``ARS'' means a security:
(1) That is either a debt instrument (generally with a long-term
nominal maturity) or preferred stock; and
(2) With an interest rate or dividend that is reset at specific
intervals through a Dutch auction process;
(c) The term ''Beneficial Owner'' means: The individual for whose
benefit the Title II Only Plan is established and includes a relative
or family trust with respect to such individual;
(d) The term ``Clearing Broker'' means: A member of a securities
exchange that acts as a liaison between an investor and a clearing
corporation and that helps to ensure that a trade is settled
appropriately, that the transaction is successfully completed and that
is responsible for maintaining the paper work associated with the
clearing and executing of a transaction;
(e) The term ``Independent'' means a person who is: (1) Not
Northwestern Mutual or an affiliate; and (2) not a relative (as defined
in ERISA section 3(15)) of the party engaging in the transaction;
(f) The term ``Introducing Broker'' means: A registered broker that
is able to perform all the functions of a broker except for the ability
to accept money, securities, or property from a customer;
(g) The term ``Sponsor'' means: A plan sponsor as described in
section 3(16)(B) of the Act and any Affiliates;
(h) The term ``Plan'' means: Any plan described in section 3(3) of
the Act and/or section 4975(e)(1) of the Code;
(i) The term ``Title II Only Plan'' means: Any plan described in
section 4975(e)(1) of the Code which is not an employee benefit plan
covered by Title I of ERISA;
(j) The term ``Delivered Security'' means a security that is: (1)
Listed on a national securities exchange (excluding OTC Bulletin Board-
eligible securities and Pink Sheets-quoted securities); or (2) a U.S.
Treasury obligation; or (3) A fixed income security that has a rating
at the time of the exchange that is in one of the two highest generic
rating categories from an independent nationally recognized statistical
rating organization (e.g., a highly rated municipal bond or a highly
rated corporate bond); or (4) A certificate of deposit insured by the
Federal Deposit Insurance Corporation. Notwithstanding the above, the
term ``Delivered Security'' shall not include any Auction Rate
Security, or any related Auction Rate Security, including derivatives
or securities materially comprised of Auction Rate Securities or any
illiquid securities.
Summary of Facts and Representations
1. The Applicant is Northwestern Mutual Investment Services, Inc.
and its affiliates (hereinafter, either Northwestern Mutual or the
Applicant). Northwestern Mutual is a broker-dealer wholly owned by
Northwestern Mutual Life Insurance Company, whose businesses include
the provision of investment advisory and other services to IRAs and
pension, profit sharing, and 401(k) plans qualified under section
401(a) of the Code. Among other things, Northwestern Mutual acts as a
broker and dealer with respect to the purchase and sale of securities,
including Auction Rate Securities (or ARS). The Applicant describes ARS
and the arrangement by which ARS are bought and sold as follows. ARS
constitute securities (issued as debt or preferred stock) with an
interest rate or dividend that is reset at periodic intervals pursuant
to a process called a Dutch Auction. Investors submit orders to buy,
hold, or sell a specific ARS to a broker-dealer selected by the entity
that issued the ARS. The broker-dealers, in turn, submit all of these
orders to an auction agent. The auction agent's functions include
collecting orders from all participating broker-dealers by the auction
deadline, determining the amount of securities available for sale, and
organizing the
[[Page 19644]]
bids to determine the winning bid. If there are any buy orders placed
into the auction at a specific rate, the auction agent accepts bids
with the lowest rate above any applicable minimum rate and then
successively higher rates up to the maximum applicable rate, until all
sell orders and orders that are treated as sell orders are filled. Bids
below any applicable minimum rate or above the applicable maximum rate
are rejected. After determining the clearing rate for all of the
securities at auction, the auction agent allocates the ARS available
for sale to the participating broker-dealers based on the orders they
submitted. If there are multiple bids at the clearing rate, the auction
agent will allocate securities among the bidders at such rate on a pro-
rata basis.
2. The Applicant states that Northwestern Mutual is permitted, but
not obligated, to submit orders in auctions for its own account either
as a bidder or a seller and routinely does so in the ARS market in its
sole discretion. Northwestern Mutual may routinely place one or more
bids in an auction for its own account to acquire ARS for its
inventory, to prevent: (1) A failed auction (i.e., an event where there
are insufficient clearing bids which would result in the auction rate
being set at a specified rate); or (2) an auction from clearing at a
rate that Northwestern Mutual believes does not reflect the market for
the particular ARS being auctioned.
3. The Applicant states that for many ARS, Northwestern Mutual has
been appointed by the issuer of the securities to serve as a dealer in
the auction and is paid by the issuer for its services. Northwestern
Mutual is typically appointed to serve as a dealer in the auctions
pursuant to an agreement between the issuer and Northwestern Mutual.
That agreement provides that Northwestern Mutual will receive from the
issuer auction dealer fees based on the principal amount of the
securities placed through Northwestern Mutual.
4. The Applicant states further that Northwestern Mutual may share
a portion of the auction rate dealer fees it receives from the issuer
with other broker-dealers that submit orders through Northwestern
Mutual, for those orders that Northwestern Mutual successfully places
in the auctions. Similarly, with respect to ARS for which broker-
dealers other than Northwestern Mutual act as dealer, such other
broker-dealers may share auction dealer fees with Northwestern Mutual
for orders submitted by Northwestern Mutual.
5. According to the Applicant, since February 2008, a minority of
auctions have cleared, particularly involving municipalities. As a
result, Plans holding ARS may not have sufficient liquidity to make
benefit payments, mandatory payments and withdrawals and expense
payments when due.\4\
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\4\ The Department notes that Class Exemption 80-26 (45 FR 28545
(Apr. 29, 1980), as amended at 71 FR 17917 (Apr. 7, 2006)) permits
interest-free loans or other extensions of credit from a party in
interest to a Plan if, among other things, the proceeds of the loan
or extension of credit are used only--(1) for the payment of
ordinary operating expenses of the Plan, including the payment of
benefits in accordance with the terms of the Plan and periodic
premiums under an insurance or annuity contract, or (2) for a
purpose incidental to the ordinary operation of the Plan.
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6. The Applicant represents that, in certain instances,
Northwestern Mutual may have previously advised or otherwise caused a
Plan to acquire and hold an ARS and thus may be considered a fiduciary
to the Plan, so that a sale between a Plan and its sponsor or an IRA
and its Beneficial Owner violates section 406(a)(1)(A) and (D), and
406(b)(1) and (2) of ERISA and/or corresponding provisions of the Code;
in addition, a loan to the Plan by Northwestern Mutual may violate
section 406(a)(1)(B) and (D), and 406(b)(1) and (2) of ERISA.\5\ The
Applicant is therefore requesting relief for the following
transactions, involving all employee benefit plans covered under both
Title I and Title II of ERISA: (1) The sale or exchange of an ARS from
a Plan to the Plan's Sponsor; or (2) a lending of money or other
extension of credit to a Plan in connection with the holding of an ARS
from: Northwestern Mutual, an Introducing Broker, or a Clearing Broker,
where the subsequent repayment of the loan is made in accordance with
its terms and is guaranteed by the Plan Sponsor.
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\5\ The relief contained in this proposed exemption does not
extend to the fiduciary provisions of section 404 of the Act.
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7. The Applicant is requesting similar relief for plans covered
only by Title II of ERISA. In this regard, the Applicant is requesting
relief for: (1) The sale or exchange of an ARS from a Title II Only
Plan to the Beneficial Owner of such Plan; or (2) a lending of money or
other extension of credit to a Title II Only Plan in connection with
the holding of an ARS from: Northwestern Mutual, an Introducing Broker,
or a Clearing Broker, where the subsequent repayment of the loan is
made in accordance with its terms and is guaranteed by the Beneficial
Owner.
8. The Applicant represents that the proposed transactions are in
the interests of the Plans. In this regard, the Applicant states that
the exemption, if granted, will provide Plan fiduciaries with liquidity
notwithstanding changes that occurred in the ARS markets. The Applicant
also notes that, other than for Plans sponsored by the Applicant, the
decision to enter into a transaction described herein will be made by a
Plan fiduciary who is independent of Northwestern Mutual.
9. The proposed exemption contains a number of safeguards designed
to protect the interests of each Plan. With respect to the sale of an
ARS by a Plan, the Plan must receive cash equal to the par value of the
security, plus any accrued interest. The sale must also be
unconditional, other than being for payment against prompt delivery.
For in-kind exchanges covered by the proposed exemption, the security
delivered to the Plan (i.e., the Delivered Security) must be: (1)
Listed on a national securities exchange (excluding OTC Bulletin Board-
eligible securities and Pink Sheets-quoted securities); or (2) a U.S.
Treasury obligation; or (3) a fixed income security that has a rating
at the time of the exchange that is in one of the two highest generic
rating categories from an independent nationally recognized statistical
rating organization (e.g., a highly rated municipal bond or a highly
rated corporate bond); or (4) a certificate of deposit insured by the
Federal Deposit Insurance Corporation. The Delivered Security must also
be appropriate for the Plan, and a security that the Plan is permitted
to hold under applicable law. The proposed exemption further requires
that the Delivered Security be valued at its fair market value, as
determined at the time of the exchange from a third party pricing
service or other objective source, and must equal the total value of
the ARS being exchanged (i.e., par value, plus any accrued interest).
10. With respect to a loan to a Plan holding an ARS, such loan must
be documented in a written agreement containing all of the material
terms of the loan, including the consequences of default. Further, the
Plan may not pay an interest rate that exceeds one of the following
three rates as of the commencement of the loan: The coupon rate for the
ARS; the Federal Funds Rate; or the Prime Rate. Additionally, such loan
must be unsecured and for an amount that is no more than the total par
value of ARS held by the affected Plan.
11. Additional conditions apply to each transaction covered by the
exemption, if granted. Among other things, the Plan may not pay any
fees or commissions in connection with the transaction and the
transaction may not be part of an arrangement, agreement, or
[[Page 19645]]
understanding designed to benefit a party in interest. The exemption
expressly prohibits any waiver of rights or claims by a Plan in
connection with the sale or exchange of an ARS by a Plan, or a lending
of money or other extension of credit to a Plan holding an ARS.
12. In summary, the Applicant represents that the transactions
described herein satisfy the statutory criteria set forth in section
408(a) of the Act and section 4975(c)(2) of the Code because:
(1) Any sale will be:
(A) For no consideration other than cash payment against prompt
delivery of the ARS; and
(B) At par, plus any accrued but unpaid interest;
(2) Any in-kind exchange will be unconditional, other than being
for payment against prompt delivery, and will involve Delivered
Securities that are:
(A) Appropriate for the Plan;
(B) Listed on a national securities exchange (but not OTC Bulletin
Board-eligible securities and Pink Sheets-quoted securities); U.S.
Treasury obligations; fixed income securities; or certificates of
deposit; and
(C) Securities that the Plan is permitted to hold under applicable
law; and,
(3) Any loan will be:
(A) Documented in a written agreement containing all of the
material terms of the loan, including the consequences of default;
(B) At an interest rate not in excess of: the coupon rate for the
ARS, the Federal Funds Rate, or the Prime Rate;
(C) Unsecured; and
(D) For an amount that is not more than the total par value of ARS
held by the affected Plan.
Notice to Interested Persons
The Applicant represents that the potentially interested
participants and beneficiaries cannot all be identified and therefore
the only practical means of notifying such participants and
beneficiaries of this proposed exemption is by the publication of this
notice in the Federal Register. Comments and requests for a hearing
must be received by the Department not later than 45 days from the date
of publication of this notice of proposed exemption in the Federal
Register.
All comments will be made available to the public. Warning: Do not
include any personally identifiable information (such as name, address,
or other contact information) or confidential business information that
you do not want publicly disclosed. All comments may be posted on the
Internet and can be retrieved by most Internet search engines.
FOR FURTHER INFORMATION CONTACT: Scott Ness of the Department,
telephone (202) 693-8561. (This is not a toll-free number.)
The Delaware County Bank and Trust Company Employee 401(k) Retirement
Plan (the Plan) Located in Lewis Center, OH
[Application No. D-11773]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Employee Retirement Income Security
Act of 1974, as amended (ERISA or the Act), and section 4975(c)(2) of
the Internal Revenue Code of 1986, as amended (the Code), and in
accordance with the procedures set forth in 29 CFR Part 2570, Subpart B
(76 FR 66637, 66644, October 27, 2011).\6\
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\6\ For purposes of this proposed exemption, references to the
provisions of Title I of the Act, unless otherwise specified, refer
also to the corresponding provisions of the Code.
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Section I: Transactions
If the proposed exemption is granted, the restrictions of sections
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)(E) of the Code, shall not
apply:
(a) To the acquisition of certain subscription rights (the Stock
Rights) by the Plan in connection with an offering (the Offering) of
shares of common stock (the Stock) of DCB Financial Corp (DCBF), a
party in interest with respect to the Plan; and
(b) To the holding of the Stock Rights received by the Plan during
the subscription period of the Offering; provided that the conditions
set forth in Section II of this proposed exemption were satisfied.
Section II: Conditions
(a) The acquisition of the Stock Rights by the Plan was made
pursuant to terms that were the same for all shareholders of DCBF
Stock;
(b) The acquisition of the Stock Rights by the Plan resulted from
an independent, corporate act of DCBF;
(c) Each shareholder of the Stock, including the Plan, received the
same proportionate number of Stock Rights, and this proportionate
number of Stock Rights was based on the number of shares of Stock held
by each such shareholder;
(d) The Stock Rights were acquired pursuant to, and in accordance
with, provisions under the Plan for individually directed investments
of the accounts of the individual participants, a portion of whose
accounts in the Plan held the stock (the Invested Participants);
(e) The decisions with regard to the holding and disposition of the
Stock Rights by the Plan were made by the Invested Participants who
received the Stock Rights in their Plan accounts; and
(f) No brokerage fees, no subscription fees and no other charges
were paid by the Plan with respect to the acquisition and holding of
the Stock Rights, 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 Stock Rights to acquire DCBF shares.
Effective Date: If granted, this proposed exemption will be
effective from October 16, 2012, to November 26, 2012.
Summary of Facts and Representations \7\
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\7\ The Summary of Facts and Representations is based on the
Applicant's representations and does not represent the views of the
Department, unless indicated otherwise.
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Parties to the Covered Transaction
1. DCB Financial Corp (DCBF or the Applicant) is a financial
holding company organized under Ohio law. DCBF is currently engaged in
the financial services business through its wholly-owned subsidiary,
Delaware County Bank & Trust Company (the Bank), and two non-bank
subsidiaries, DCB Insurance Services, LLC and DCB Title Services, LLC.
The Bank provides customary retail and commercial banking services
through its main office and 14 branch offices located in Delaware, Ohio
and surrounding counties.
2. The Delaware County Bank and Trust Company 401(k) Retirement
Plan (the Plan), originally effective on January 1, 1991, is a
qualified profit sharing plan under Section 401(a) of the Code. The
Plan has adopted a prototype plan which received a favorable opinion
letter from the Internal Revenue Service on March 31, 2008. The Plan
sponsor believes that the Plan, as amended and restated, operates in
compliance with the applicable requirements of the Code. In addition,
the Applicant states that the Bank is the Plan's trustee (the Trustee)
and custodian.\8\
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\8\ The Applicant represents that the Bank serves as the Trustee
and custodian of the Plan in compliance with section 408(b)(2) of
the Act and the regulations thereunder. Furthermore, according to
the Applicant, neither the Bank nor any of its affiliates receives
any direct or indirect compensation in connection with its provision
of such services to the Plan. The Department notes that DOL
regulation 29 CFR 2550.408b-2(e)(2) provides that a fiduciary does
not engage in an act described in Section 406(b)(1) of the Act if
the fiduciary does not use any of the authority, control or
responsibility that makes him a fiduciary to cause a plan to pay
additional fees for a service furnished by a person in which the
fiduciary has an interest that may affect the exercise of his
judgment as a fiduciary. It is also the Department's view that
generally a fiduciary's decision to retain itself or an affiliate as
a service provider who does not charge fees of any kind for the
provision of such services will not involve an adversity of
interests as contemplated by section 406(b)(2) of the Act.
Accordingly, the decision by the Bank to act as the Trustee and
custodian of the Plan, would not appear, in itself, to raise issues
under section 406(b)(1) or (b)(2) of the Act.
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[[Page 19646]]
3. All employees of the Bank and the Bank's affiliates, DCB
Insurance Services, LLC and DCB Title Services, LLC, are eligible to
participate in the Plan. As of October 16, 2012, the Plan had 124
participants and total assets of approximately $4,096,517.
4. The Plan allows participants to direct the investment of their
Plan account balances amongst a variety of 19 pre-selected investment
options, including any combination of mutual funds and DCBF common
stock (DCBF Stock). The Applicant represents that DCBF Stock
constitutes ``qualifying employer securities'' under section 407(d)(5)
of the Act. The fair market value of the assets of the Plan invested in
DCBF Stock, as reflected in the Plan's most recent financial
statements, dated August 29, 2012 (the Record Date), was approximately
$383,049, held among the accounts of 18 Plan participants, as of the
Record Date. The approximate percentage of the fair market value of the
Plan's total assets, represented by investments in DCBF Stock was
9.35%.
5. According to the Applicant, the DCBF Stock is quoted on the
Over-the-Counter-Bulletin Board (the OTCBB) and is not listed on the
NASDAQ or a national stock exchange. The Applicant represents that
investors who wish to buy or sell DCBF shares will contact a ``market
maker'' who will link potential buyers and sellers.\9\ These privately
facilitated transactions are then reported to the NASDAQ OTCBB.
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\9\ The Applicant represents that the following firms presently
make a market in DCBF Stock: Sweney Cartwright & Company, Columbus,
OH; Howe, Barnes, Hoefer & Arnett, Inc., Chicago, IL; and Stifel,
Nicolaus & Company, Incorporated, St. Louis, MO.
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Background to the Offering
6. The Applicant represents that, like many banks, particularly
banks with significant lending operations, the Bank was impacted by
challenges faced by the real estate market, and federal banking
regulators were engaged in discussions with all regulated financial
institutions. On June 29, 2010, DCBF entered into a memorandum of
understanding (the MOU) with the Federal Reserve Bank of Cleveland (the
Federal Reserve), providing that DCBF may not declare or pay cash
dividends to its shareholders, repurchase any of its shares, or incur
or guarantee any debt without the prior approval of the Federal
Reserve.
7. On October 28, 2010, the Bank entered into a written agreement
(the Written Agreement) with the Ohio Division of Financial
Institutions (the Ohio Division) and a consent order (the Consent
Order) with the Federal Deposit Insurance Corporation (the FDIC)
addressing matters pertaining to, among other things, strengthening the
Bank's capital position and submitting a funding contingency plan for
the Bank that identified available sources of liquidity. The Applicant
represents that the Written Agreement and Consent Order also provide
that the Bank may not declare or pay dividends to DCBF without the
prior approval of the Ohio Division and the FDIC. The Written Agreement
and Consent Order also specifically require that the Bank, among other
things, enhance bank liquidity.
8. In response to the MOU and the Written Agreement, DCBF
management and the Board of Directors of DCBF (the Board) chose to
raise equity capital through a rights offering for DCBF Stock (the
Rights Offering) to improve the Bank's capital position, to retain
additional capital at DCBF, and to give shareholders the opportunity to
limit ownership dilution by buying additional common shares.\10\ As
noted above, the Plan holds DCBF Stock which is subject to the
investment direction of Plan participants. Therefore, according to the
Applicant, DCBF determined it was in the interests of the Plan and its
participants to allow the Plan to participate in the Rights Offering to
the same extent as other shareholders, in part so that Plan
participants holding DCBF Stock in their Plan accounts could avoid
having such DCBF Stock become diluted as a result of the Rights
Offering.
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\10\ The Applicant states that DCBF has worked with Sandler
O'Neill, a nationally recognized investment consultant, to evaluate
various options for raising capital including strategic combinations
with other institutions, public offerings, and the Rights Offering.
Based on advice from this investment consultant, DCBF determined
that the Rights Offering was the best opportunity to raise the
necessary capital.
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The Terms of the Offering
9. The Applicant represents that all shareholders of record as of
5:00 p.m. on the Record Date were eligible to participate in the Rights
Offering. According to the Applicant, on or about October 10, 2012,
Plan participants who held shares of DCBF Stock in their Plan accounts
as of the Record Date (the Invested Participants) were mailed
information about the Rights Offering. The Applicant notes that
individuals who held DCBF Stock directly were mailed similar
information at that time. In this regard, all Invested Participants
(there were 53 at the time) were mailed: (a) a copy of the prospectus
that was filed with the Securities and Exchange Commission; and (b) a
letter from DCBF detailing the process Invested Participants would use
to participate in the Rights Offering. In addition, the Applicant notes
that Invested Participants could call the subscription and information
agent engaged by DCBF in connection with the Rights Offering,
Broadridge Corporate Solutions, Inc. (Broadridge), using the toll-free
number listed in the letter, if they had any questions about the Rights
Offering or the exercise process.
10. The Applicant states further that the offering period of the
Rights Offering (the Offering Period) formally opened on October 16,
2012, and was originally scheduled to expire at 5:00 p.m. on November
12, 2012. However, according to the Applicant, the Board extended the
Offering Period for two weeks (until November 26, 2012), in response to
Hurricane Sandy, which adversely impacted the ability of Broadridge to
perform its duties in connection with the Rights Offering.
11. The Applicant states that DCBF initiated the Rights Offering by
distributing to the holders of DCBF Stock at no charge, non-
transferable subscription rights (the Rights) to purchase additional
common shares of DCBF Stock. For every three common shares of DCBF
Stock owned as of the Record Date, a holder was entitled to receive one
Right, subject to availability and proration. Each Right entitled the
holder to a basic subscription right (the Basic Subscription Right) and
an over-subscription privilege (the Over Subscription Privilege). The
Rights were not listed for trading on any stock exchange or the OTCBB.
12. As represented by the Applicant, the Basic Subscription Right
of each Right gave a shareholder the opportunity to purchase one share
of DCBF common stock for $3.80 per share, subject to certain
limitations or proration. Shareholders could exercise all or a portion
of their Basic Subscription Rights or choose to exercise no Basic
Subscription Rights at all. Fractional shares resulting from the
[[Page 19647]]
exercise of Basic Subscription Rights were eliminated by rounding down
to the nearest whole share.
13. The Applicant represents that the Over-Subscription Privilege
allowed a shareholder who purchased all of the DCBF Stock available to
them pursuant to their Basic Subscription Right to purchase a portion
of any shares of DCBF Stock that were not purchased pursuant to the
exercise of other shareholders' Basic Subscription Rights. Shareholders
were required to indicate on their Rights certificate how many
additional shares they would like to purchase pursuant to the Over-
Subscription Privilege. The Applicant states that, if sufficient shares
of DCBF Stock were available, DCBF honored over-subscription requests
in full. The Applicant states further, that, if over-subscription
requests exceeded the number of common shares available to be purchased
pursuant to the Over-Subscription Privilege, DCBF allocated the
available shares of DCBF Stock among shareholders who over-subscribed
by multiplying the number of shares of DCBF Stock requested by each
shareholder through the exercise of the Over-Subscription Privilege by
a fraction that equaled (x) the number of shares available to be issued
through the Over-Subscription Privilege divided by (y) the total number
of shares of DCBF requested by all subscribers through the exercise of
the Over-Subscription Privilege. The Applicant states that DCBF did not
issue fractional shares through the exercise of Over-Subscription
Privileges.
14. The Applicant represents that another feature of the Rights
Offering was a subsequent private offering (the Private Offering) held
for certain standby investors (the Standby Investors).\11\ According to
the Applicant, DCBF entered into separate standby purchase agreements
with the Standby Investors in order to maximize the amount of capital
raised to ensure that shares of DCBF Stock available in the Rights
Offering were purchased. In this regards, each Standby Investor agreed
to acquire, in the Private Offering, a minimum number of shares of DCBF
Stock if they remained unsold following the completion of the Rights
Offering.\12\ The Applicant represents that the price per share to be
paid by the Standby Investors was the same price paid by subscribers in
the Rights Offering, $3.80. Furthermore, the Applicant states that if
all of the shares of DCBF Stock offered were subscribed for in the
Rights Offering, DCBF would nevertheless sell a minimum number of
shares to the Standby Investors as required by the standby purchase
agreements.\13\ The Applicant states that pursuant to the terms of the
Rights Offering, all unexercised Rights would expire and become
worthless after the close of the Rights Offering.
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\11\ The Applicant states that the Standby Investors included
certain directors and executive officers who might not participate
in the original Rights Offering.
\12\ The Applicant states that five Standby Investors would have
been permitted to terminate their standby purchase agreements if a
certain amount was not raised in both the Rights Offering and the
Private Offering. However, because the Rights Offering raised more
than those thresholds, the standby purchase agreements were not
terminated.
\13\ The Applicant notes that several of these Standby Investors
were Plan participants who could have elected to purchase shares in
the Private Offering through their Plan accounts using the Plan's
self-directed investment feature.
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Exercise of the Rights
15. The Applicant states that the Plan received the Rights on the
same terms as all holders of DCBF Stock. Thus, the Trustee received a
total of 27,458 Rights that were allocated among Invested Participants
based on the relative number of shares of DCBF Stock held in their
accounts on the Record Date.
16. According to the Applicant, in order to exercise their Rights,
a shareholder was required to submit a completed exercise form and
tender the appropriate exercise price before the Offering Period
expired on November 26, 2012. However, the Applicant notes that
Invested Participants were required to submit elections to exercise
Rights to the Trustee five business days before the above expiration
date, so that the Trustee could aggregate all of the elections and
submit a single consolidated election on behalf of all electing
Invested Participants to Broadridge. Accordingly, Invested Participants
were required to submit election forms to the Trustee no later than
5:00 p.m. on November 19, 2012. The Applicant represents that this
early direction deadline was similar to the deadlines imposed by
brokers and other stockholders who hold shares for the benefit of third
parties.
17. The Applicant states that for each Invested Participant who
directed the Plan Trustee to exercise Rights attributable to his or her
Account within the Plan, the funds needed to pay the $3.80 per share
exercise price were obtained by either selling specific investments at
the Invested Participant's direction or by using cash equivalents in
their account, at the Invested Participant's direction. The Applicant
represents that, to the extent that an Invested Participant's account
did not hold adequate funds to exercise all Rights pursuant to the
Invested Participant's direction, the Plan exercised such Rights to the
fullest extent possible based on funds available in such accounts.
According to the Applicant, any common shares of the DCBF Stock
purchased upon exercise of the Rights held by an Invested Participant's
Plan account was allocated to such account, and remained there subject
to further investment direction from the Invested Participant.
18. According to the Applicant, notwithstanding the foregoing, the
Trustee was instructed to note the public trading price of a share of
DCBF stock on the business day immediately preceding the expiration of
the Rights Offering. According to the Applicant, if, on that date, DCBF
Stock last traded at or above $3.80, the Trustee was to exercise the
Rights on behalf of Invested Participants pursuant to the Invested
Participants' instructions. However, if the last trade price was below
$3.80 per share, the Trustee was instructed not to exercise any Rights
and to redeposit all money into the appropriate Invested Participants'
Plan accounts. The Applicant represents that, because the DCBF Stock
price was above $3.80 per share on the business day immediately
preceding the expiration of the Offering Period, the Trustee exercised
the Rights as directed by the Invested Participants. In this regard,
the Applicant represents that during the 52 week period ending July 1,
2013, the DCBF Stock traded on the OTCBB in the range from $3.99 to
$5.60 per share, well above the $3.80 price set for shares purchased
through the Rights Offering. Furthermore, according to the Applicant,
from April 1, 2012 through the expiration of the Rights Offering, no
executive officer or director of DCBF, or their immediate family
members bought or sold DCBF Stock, with the exception that each
calendar quarter DCBF purchased DCBF Stock for its non-employee
directors pursuant to a prior written plan as payment of directors'
fees.
19. On December 5, 2012, DCBF announced that the Rights Offering
had been oversubscribed and that the shares of the DCBF Stock purchased
in the Rights Offering would be issued as soon as possible after that
date. The shares of DCBF Stock were allocated to the Plan accounts of
Invested Participants who exercised Rights on December 19, 2012.
20. The Applicant represents that DCBF did not make any
recommendation to Invested Participants or any DCBF shareholders
regarding whether they should exercise their Rights but urged them to
make independent decisions based on their
[[Page 19648]]
assessment of DCBF's business and the risk factors associated with the
Rights Offering. As a result, the Applicant states that the Plan
exercised Rights and purchased 7,426 shares for 15 Invested
Participants through the exercise of Basic Subscription Rights. The
Applicant further represents that the Plan also exercised the Over-
Subscription Privilege for 10 Invested Participants who wanted to
acquire an additional 8,740 shares. However, because the over-
subscription requests exceeded the number of shares of DCBF Stock
available to purchase under the Rights Offering, the Plan was only able
to purchase an additional 6,056 shares for the 10 Invested
Participants.\14\
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\14\ According to the Applicant, DCBF also held the Private
Offering as discussed above, wherein the Plan purchased 30,600
shares of DCBF Stock for 3 Plan participants who were Standby
Investors through the self-directed investment feature of the Plan.
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Request for Exemptive Relief
21. DCBF requests exemptive relief for acquisition and holding of
the Rights by the Plan in connection with the Rights Offering. The
Applicant states that the Rights constitute employer securities, as
defined under section 407(d)(1) of the Act. The Applicant states that
the Rights do not satisfy the definition of ``qualifying employer
securities,'' as defined under section 407(d)(5) of the Act.
22. The Applicant notes that section 406(a)(1)(E) of the Act
prohibits the fiduciary of a plan from causing the plan to engage in a
transaction that constitutes the acquisition, on behalf of a plan, of
any ``employer security in violation of Section 407(a) of the Act.''
Moreover, section 406(a)(2) of the Act prohibits a fiduciary who has
the authority or discretion to control or manage the assets of a plan
from allowing the plan to hold any ``employer security'' that violates
section 407(a) of the Act. Section 407(a) of the Act prohibits plans
from acquiring or holding employer securities that are not qualifying
employer securities or employer real property that is not qualified
employer real property. Additionally, Section 406(b)(1) of the Act
prohibits a plan fiduciary from ``deal[ing] with the assets of the plan
in his own interest or for his own account.'' Under Section 406(b)(2),
a fiduciary may not ``act in any transaction involving the plan on
behalf of a party (or represent a party) whose interests are adverse to
the interests of the plan or the interests of its participants or
beneficiaries.''
The Applicant states that the acquisition and holding of the Rights
by the Plan may violate sections 406(a)(1)(E), 406(a)(2), and
407(a)(1)(A) of the Act and the fiduciary self-dealing and conflict of
interest provisions of sections 406(b)(1) and (b)(2) of the Act.
Accordingly, the Applicant requests relief from the restrictions of
sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2) and 407(a)(1)(A)
of the Act. Finally, the Applicant requests that an exemption for the
above transactions be granted with retroactive effect as of the date
the Rights Offering was made to DCBF shareholders, and through the
closing date of the offering.
Statutory Findings
23. DCBF represents that the proposed exemption is administratively
feasible. In this regard, the acquisition and holding of the Rights by
the Plan allocated to Invested Participants' accounts was a one-time
transaction that involved an automatic distribution of the Rights to
all shareholders. In addition, the Applicant states that it is
customary for corporations to make a rights offering available to all
shareholders.
24. DCBF represents that the transactions which are the subject of
this proposed exemption are in the interest of the Plan and its
participants and beneficiaries, because such transactions represented a
valuable opportunity to Plan participants to buy DCBF Stock at a
discount. This discount was realized by Plan participants who directed
the Trustee to sell all or part of the DCBF Stock held in their
accounts immediately after the exercise of the Rights and investing the
proceeds from such sales into other investment options under the Plan.
Furthermore, all fees related to the Plan's exercise of Rights were
paid by DCBF and no fees related to the Rights Offering or exercise of
Rights were paid with Plan assets.
25. DCBF represents that the proposed exemption is protective of
the rights of the participants and beneficiaries of the Plan. In this
regard, the Applicant states that participation in the Rights Offering
protected the Invested Participants from having their interests in DCBF
diluted as a result of the Rights Offering. DCBF represents further
that the Invested Participants were adequately protected in that such
individuals acquired and held the Rights automatically as a result of
the Rights Offering, which itself was an independent corporate act of
DCBF, all shareholders of DCBF Stock, including the Plan, were treated
in a like manner. In this regard, each shareholder of the DCBF stock,
including each Plan Participant who held DCBF shares in their Plan
account, received the same proportionate number of Rights, and this
proportionate number of Rights was based on the number of DCBF shares
held by such shareholder. The Applicant represents that all decisions
regarding Rights held by the Plan were made by the Invested
Participants whose accounts in the Plan received the Rights. Moreover,
the Applicant represents that these Invested Participants provided
directions to the Trustee, in accordance with the provisions under the
Plan for individually-directed investment of such accounts. Finally,
the Applicant represents that the closing price per share for DCBF
Stock on November 23, 2012 (the last business day before the Offering
election period closed), was $4.27, which was in excess of the strike
price of $3.80 per share.
Summary
26. In summary, DCBF represents that the Rights Offering satisfied
the statutory requirements for a proposed exemption under section
408(a) because:
(a) The acquisition of the Stock Rights by the Plan was made
pursuant to the terms that were the same for all shareholders of DCBF
Stock;
(b) The acquisition of the Rights by the Plan resulted from an
independent, corporate act of DCBF;
(c) Each shareholder of the Stock, including the Plan, received the
same proportionate number of Stock Rights, and this proportionate
number of Stock Rights was based on the number of shares of Stock held
by each such shareholder;
(d) The Rights were acquired pursuant to provisions under the Plan
for individually-directed investments of the accounts of the individual
participants in the Plan, a portion of whose accounts in the Plan hold
DCBF Stock;
(e) 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
(f) No brokerage fees, no subscription fees and no other charges
were paid by the Plan with respect to the acquisition and holding of
the Rights, 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
Notice of the proposed exemption will be given to all interested
persons within 15 days of the publication of the notice of proposed
exemption in the Federal Register. Notice will be provided by email
with proof of
[[Page 19649]]
delivery to all Plan participants who are actively employed with DCBF
and will be mailed via first-class mail to all other interested
persons. 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(a)(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.
All comments will be made available to the public.
Warning: Do not include any personally identifiable information
(such as name, address, or other contact information) or confidential
business information that you do not want publicly disclosed. All
comments may be posted on the Internet and can be retrieved by most
Internet search engines.
FOR FURTHER INFORMATION CONTACT: Ms. Jennifer Erin Brown of the
Department at (202) 693-8352. (This is not a toll-free number.)
The Home Savings and Loan Company 401(k) Savings Plan (The Plan),
United Community Financial Corporation (UCFC), and the Home Savings and
Loan Company (Home Savings) Located in Youngstown, OH
[Application No. D-11780]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Employee Retirement Income Security
Act of 1974, as amended, (the Act or ERISA) and section 4975(c)(2) of
the Internal Revenue Code of 1986, as amended (the Code), and in
accordance with the procedures set forth in 29 CFR Part 2570, Subpart B
(76 FR 66637, 66644, October 27, 2011).
Section I: Transactions
If the proposed exemption is granted, effective for the period
beginning April 30, 2013, and ending May 31, 2013, the restrictions of
sections 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)(E) of the Code,\15\ shall not apply:
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\15\ 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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(a) To the acquisition of certain subscription right(s) (the
Rights) by the individually-directed account(s) (the Account(s)) of
certain participant(s) in the Plan (Invested Participants) in
connection with an offering (the Offering) of shares of common stock
(the Stock) of United Community Financial Corporation (UCFC) by UCFC, a
party in interest with respect to the Plan; and
(b) To the holding of the Rights received by the Accounts during
the subscription period of the Offering, provided that the conditions,
as set forth in Section II, below, were satisfied for the duration of
the acquisition and holding.
Section II: Conditions
(a) The acquisition of the Rights by the Accounts of Invested
Participants occurred in connection with the Offering, and the Rights
were made available by UCFC to all shareholders of the Stock other than
the Employee Stock Ownership Plan sponsored by UCFC;
(b) The acquisition of the Rights by the Accounts of Invested
Participants resulted from an independent corporate act of UCFC;
(c) Each shareholder of Stock, including each of the Accounts of
Invested Participants, received the same proportionate number of
Rights, and this proportionate number of Rights was based on the number
of shares of Stock held by each such shareholder;
(d) The Rights were acquired pursuant to, and in accordance with,
provisions under the Plan for individually-directed investments of the
Accounts by the individual participants in the Plan, a portion of whose
Accounts in the Plan held the Stock;
(e) The decision with regard to the holding and disposition of the
Rights by an Account was made by the Invested Participant whose Account
received the Rights; and
(f) No brokerage fees, commissions, or other fees or expenses were
paid by the Plan to any related broker in connection with the exercise
of any of the Rights, and no brokerage fees, commissions, subscription
fees, or other charges were paid by the Plan with respect to the
acquisition and holding of the Stock.
Effective Date: This proposed exemption, if granted, will be
effective for the period beginning on April 30, 2013, the commencement
date of the Offering, and ending on May 31, 2013, the close of the
Offering.
Summary of Facts and Representations
Background
1. The prohibited transaction exemption proposed herein was
requested by the Home Savings and Loan Company (Home Savings), United
Community Financial Corporation (UCFC), and the Home Savings and Loan
Company 401(k) Savings Plan (the Plan), (together, the Applicant).\16\
Home Savings is an Ohio state-chartered savings bank and a wholly-owned
subsidiary of UCFC, with 33 full-service branches and nine loan
production offices located throughout Ohio and western Pennsylvania.
The principal business of Home Savings is the origination of mortgage
loans, including construction loans on residential and nonresidential
real estate located in Home Savings' primary market area. In addition
to real estate lending, Home Savings originates commercial loans and
various types of consumer loans. UCFC is a unitary thrift holding
company incorporated in the State of Ohio for the purpose of owning all
of the outstanding capital stock of Home Savings issued upon the
conversion of Home Savings from a mutual savings association to a
permanent capital stock savings association on July 8, 1998.\17\
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\16\ The Summary of Facts and Representations is based on the
Applicant's representations and does not reflect the views of the
Department, unless indicated otherwise.
\17\ Home Savings was originally organized as a mutual savings
association under Ohio Law in 1889.
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2. Home Savings sponsors the Plan, a qualified defined contribution
plan under section 401(a) of the Code, originally effective on January
1, 1993. The Applicant represents that the Plan, as amended and
restated, operates in compliance with applicable requirements of the
Code and is intended to operate in compliance with the safe harbor in
section 404(c) of the Act. As of March 21, 2013, there were 567
participants with account balances in the Plan and the Plan had total
assets of approximately $20,392,500.
3. The Plan is funded by elective employee deferrals, as well as
discretionary employer matching contributions. The Applicant represents
that the match has consistently been funded in cash and invested
according to the elections of individual participants. Participants in
the Plan may choose among a variety of investment options, including
any combination of mutual funds and UCFC common stock (the Stock).
Shares of Stock held by the Plan are held in the UCFC stock fund (the
Stock Fund). Wilmington Trust, National Association
[[Page 19650]]
(the Trustee) serves as the Plan's trustee and custodian of the Plan's
assets. The Stock is listed on the NASDAQ Global Select Market. The
Applicant represents that the Stock is a ``qualifying employer
security,'' as defined under section 407(d)(5) of the Act and 4975(e)
of the Code.
4. The Plan is administered by the Compensation and Benefits
Committee (the Committee), which is composed of certain appointed
employees of Home Savings. The Committee oversees the selection and
oversight of the Plan's investment alternatives. An entity that is
unrelated to the Applicant, UBS Financial Services, provides advice and
counsel to the Committee regarding the menu of investment alternatives.
The Applicant states that on an annual basis, or more frequently if
necessary, the Committee reviews the Plan's investment fund
alternatives, including the Stock Fund alternative. Furthermore,
according to the Applicant, although UBS Financial Services has
recommended several investment fund changes, it has never recommended
freezing or eliminating the Stock Fund as an investment option.
5. The Applicant states that investment in the Stock Fund by
participants in the Plan is entirely voluntary. The Applicant
represents further that neither UCFC nor Home Savings contributes any
of the Stock to the Plan as part of the employer matching contribution.
Instead, the Stock is acquired by a participant's Plan account only as
a result of participant-directed investment decisions. According to the
Applicant, the Stock shares held by the Plan have voting and dividend
rights that are passed through to Plan participants whose accounts are
invested in the Stock Fund. The Trustee has the responsibility of
carrying out the voting directions of Plan participants. However, no
participant instructions are permitted with respect to dividends
because they are reinvested according to a standard process.
Capital Raise Activities
6. The Applicant states that since August 28, 2008, UCFC has been
subject to various orders and agreements with federal and state bank
regulators to reduce UCFC's debt and raise its capital levels in order
to comply with certain regulatory capital requirements. In this regard,
the Applicant states that UCFC has engaged in multiple activities to
increase its capitalization, including: sales of its broker/dealer and
trust company subsidiaries; sales of various bank branches and
securities; sales of Stock to certain investors; and various expense
reduction efforts. Additionally, the Applicant states that UCFC
explored other potential sales of assets, joint ventures, and
transactions with strategic partners, which UCFC ultimately determined
were not in the best interest of shareholders or were not likely to
receive required regulatory approvals.
7. According to the Applicant, UCFC's capital raise plan included a
private offering (the Private Offering) of a combination of preferred
and common shares of UCFC, commencing on January 11, 2013. The Private
Offering involved UCFC entering into securities purchase agreements
with various accredited investors and subscription agreements with
certain corporate insiders. Pursuant to the securities purchase
agreements, on March 22, 2013, the investors purchased 6,574,272 newly
issued shares of Stock at a purchase price of $2.75 per share and 7,942
newly created and issued perpetual mandatorily convertible non-
cumulative preferred shares of UCFC at a purchase price of $2,750 per
share, for an aggregate price of approximately $39.9 million.\18\
Pursuant to the subscription agreements in the Private Offering,
certain insiders of UCFC were also to invest, and did invest, an
aggregate of approximately $2.1 million in exchange for the issuance of
755,820 newly issued shares of Stock, at the same purchase price of
$2.75 per share. The issuance and sale of Stock to these insiders was
subject to the approval of UCFC shareholders.
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\18\ According to the Applicant, the securities purchase
agreements also required UCFC to follow through on its plan to
conduct a stock rights offering to existing shareholders.
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The Rights Offering
8. In connection with its capital raise and in conjunction with the
Private Offering, the Applicant states that UCFC's Board of Directors
determined to conduct a stock rights offering (the Rights Offering) for
existing shareholders of UCFC. According to the Applicant, in addition
to maintaining and improving Home Savings' capital position and
satisfying UCFC's regulatory and contractual obligations, the Rights
Offering improved and strengthened UCFC's financial condition, allowing
UCFC to pursue growth strategies and give shareholders the opportunity
to limit further ownership dilution after the Private Offering by
buying additional shares of the Stock.
9. The Rights Offering commenced on April 30, 2013, and closed on
May 31, 2013, at 5:00 p.m. Eastern Time. UCFC reserved the right to
extend the Rights Offering one or more times, but in no event later
than June 30, 2013; however, no extensions occurred. The terms of the
Rights Offering provided that up to 1,818,181 shares of the Stock would
be available for purchase at a subscription price of $2.75 per share
(the Subscription Price). According to the Applicant, UCFC determined
that the Subscription Price should be the same as the price at which
the accredited investors agreed to purchase the newly issued shares of
Stock in the Private Offering since that price was negotiated in an
arms-length transaction.\19\ Finally, the Applicant states that UCFC
considered the trading price of the Stock over the last year compared
to the past three years and the Stock's low average trading volume. The
Applicant represents that the Rights Offering was fully subscribed and
resulted in gross proceeds for UCFC of $5,000,000 and net proceeds of
$4,467,500.\20\ UCFC informed shareholders that the proceeds from the
Rights Offering were intended to be used for general corporate
purposes, to pursue its business objectives, or as an investment in
Home Savings to improve its capital position.
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\19\ In determining the price agreed to in the Private Offering,
the Applicant represents that any sizeable offering would be made at
a discount to market and book value, and UCFC considered the advice
of its financial advisors that obtaining a higher price was not
feasible.
\20\ The Applicant represents that expenses related to the
Rights Offering included: subscription and information agent fees
and expenses, legal fees and expenses, accounting fees and expenses,
printing and mailing costs, and other miscellaneous expenses.
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10. Under the terms of the Rights Offering, all shareholders of the
Stock, including Plan participants (the Invested Participants) whose
Plan accounts (the Account(s)) held shares of the Stock, automatically
received, at no charge, non-transferable subscription rights (the
Rights) to purchase, through the exercise of such Rights, their share
of $5 million worth of the Stock issued in connection with the Rights
Offering.\21\ Under the terms of the Rights Offering, a ``basic
subscription privilege'' provided each shareholder, including an
Invested Participant whose Account held shares of the Stock, the
opportunity to purchase 0.06 shares of Stock for every one share of
Stock owned as of March 21, 2013 (the Record Date), at a subscription
price of $2.75 per share, rounded down to the nearest
[[Page 19651]]
whole share. The Applicant states that, for example, if a shareholder
owned 1,000 shares of Stock as of the record date, that shareholder
would receive the right to purchase 60 shares of the Stock for $2.75
per share, subject to certain limitations and subject to allotment.
Shareholders could exercise all or a portion of their basic
subscription privilege or could choose to exercise no basic
subscription privilege at all.
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\21\ The Applicant states that Rights were distributed to all
UCFC shareholders other than the Employee Stock Ownership Plan
sponsored by UCFC (the ESOP). According to the Applicant, as of the
date that Rights were distributed, the ESOP was invested primarily
in shares of the Stock and would not have been able to exercise
Rights without selling some of those shares. Accordingly, the
Applicant notes that UCFC determined that the ESOP should be
excluded from the Rights Offering.
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11. The Applicant states that each shareholder, including an
Invested Participant whose Account held shares of the Stock, was also
entitled to purchase shares of Stock in the Rights Offering by using an
``over-subscription privilege.'' The ``over-subscription privilege''
allowed each shareholder to subscribe for additional shares of Stock,
in the event such shareholder first exercised his or her basic
subscription privileges in full, subject to certain limitations and
allocation procedures, up to the number of shares of Stock available in
the Rights Offering that were not subscribed for by the other holders
of the Rights pursuant to their basic subscription privileges. UCFC
allocated the available Stock among shareholders who over-subscribed on
a pro-rata basis if there were not enough shares available to honor the
over-subscription requests in full.
12. The Applicant states that the ability to purchase Stock in the
Rights Offering was subject to an overall beneficial ownership interest
limitation of 4.9% of the outstanding Stock after giving effect to a
shareholder's participation in the Rights Offering and taking into
account the holdings of the shareholder and his or her affiliates. All
shareholders of Stock, including the Accounts of Invested Participants,
held the Rights until the Rights were exercised or until the Rights
expired and became worthless at the close of the Rights Offering.
13. As of the Record Date, out of 567 total Plan participants, 203
were eligible to participate in the Rights Offering.\22\ The Applicant
states that on May 1, 2013, each of the Invested Participants was sent
detailed information regarding the Rights Offering, including a copy of
the prospectus which described the Rights Offering, an election form, a
return envelope addressed to UCFC, and a statement indicating the
number of shares of Stock each such participant held in his or her
Account, as of the Record Date. In addition to the form letters and
accompanying documents, UCFC distributed two special Q&A sheets for all
employees and all shareholders. These Q&A sheets were filed with the
U.S. Securities and Exchange Commission (SEC) on May 6, 2013, and
distributed to shareholders on the same date. The Applicant represents
that no other communications were sent to Plan participants because
federal and state securities laws prohibit separate communications
about offers unless they are filed with the SEC.
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\22\ As of the Record Date, the Plan owned 562,928 shares out of
32,941,285 outstanding shares of Stock, or 1.71% of the outstanding
Stock.
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14. The Applicant represents that Invested Participants were
instructed that the election to exercise, some, all, or none of his or
her Rights had to be received by the close of business on the fifth
business day prior to the expiration of the Rights Offering (May 24,
2013, at 4:00 p.m. EST) so that there was reasonable time for the
Trustee to reconcile the Invested Participants' instructions with their
Accounts. Additionally, Invested Participants were instructed that
their election to exercise the Rights was irrevocable. This process,
considered an ``early exercise,'' is commonly required by brokers and
other stockholders who hold shares for the benefit of third parties. To
ensure the Invested Participants were protected against prejudice due
to such early exercise, UCFC instructed the Trustee not to exercise the
Invested Participants' Rights if the official closing price of a share
of Stock was below $2.75 as of the last business day prior to the close
of the Rights Offering. The Applicant represents that at the close of
business on May 30, 2013, one day prior to the close of the Rights
Offering, the Stock was trading on the NASDAQ at $4.02 per share.
Furthermore, the closing price of the Stock on the closing date of the
Rights Offering on May 31, 2013, was $4.09. Therefore, the exercise of
the Rights was effectuated by the Trustee in accordance with the
instructions from UCFC and at a purchase price that was less than its
then-current fair market value.
15. An Invested Participant was only allowed to pay for the
exercise of Rights using funds in his or her Account. According to the
Applicant, the exercise of the Rights on behalf of an Invested
Participant required such individual to transfer assets into the UCFC
Rights Offering Liquidity Fund (the Rights Fund), a cash fund, prior to
such exercise. The Applicant explains that the Rights Offering election
form provided a basic worksheet for the Invested Participant to
determine the amount of assets that needed to be transferred into the
Rights Fund. According to the Applicant, the Invested Participant was
responsible for liquidating other investments in his or her Account and
transferring those assets to the Rights Fund, pending the exercise of
the Rights. To the extent that an Invested Participant's Account did
not hold adequate assets to exercise all the Rights pursuant to the
Invested Participant's direction, the Trustee exercised such Invested
Participant's Rights to the fullest extent possible based on the assets
in such Invested Participant's Rights Fund. The Applicant states
further that Invested Participants received a trade confirmation or
other notice when the exercise of the Rights was completed on their
behalf.
16. The Applicant represents that to exercise the Rights on behalf
of Invested Participants, the Trustee placed the Invested Participants'
orders to purchase the Stock with the subscription agent, Registrar and
Transfer Company (Registrar), a registered broker-dealer that is
unrelated to UCFC and the Plan. UCFC represents that the subscription
price (which was based on the number of Rights to be exercised for each
Invested Participant) was liquidated from that Participant's Rights
Fund account, and cash equal to the necessary subscription payment was
transferred to Registrar. The Applicant states further that Registrar
received the subscription elections and related subscription payments
from all electing shareholders, including the Trustee. Registrar
calculated the number of shares of Stock to be issued to each
subscriber and returned any excess subscription price paid by that
subscriber (since the Rights Offering was oversubscribed). Finally, the
Applicant states that Registrar issued the purchased shares of Stock to
each subscriber, including the Trustee, and forwarded the subscription
payments to UCFC. Following its receipt of the purchased shares of
Stock after the close of the Rights Offering, according to UCFC, the
Trustee allocated such shares to the Accounts of Invested Participants.
In the event that the Invested Participant transferred more assets into
the Rights Fund than was necessary to exercise all of his or her
Rights, the Trustee transferred such assets into the Invested
Participant's other investments, consistent with his or her elections
for future contributions, on file at the time the Rights Offering was
completed. According to the Applicant, the Stock was issued to
shareholders, including the Accounts of Invested Participants, on June
10, 2013.
17. UCFC states that it paid any expenses associated with the
Rights Offering. In this regard, the Applicant represents that no
brokerage fees, commissions, subscription fees, or other charges were
paid by the Plan with
[[Page 19652]]
respect to the acquisition and holding of the Stock, and no brokerage
fees, commissions, fees, or expenses were paid by the Plan to any
related broker in connection with the exercise of the Rights.
18. The Applicant states that out of 203 Invested Participants,
only 40 participated in the Rights Offering (7.05% of total Plan
participants and 19.70% of Invested Participants). The Plan purchased
97,180 shares of the Stock through the Rights Offering for a total cost
to the Plan of $267,245. According to the Applicant, there were no
resale restrictions on the Stock held in the Accounts of Invested
Participants, other than the general limitations under securities laws
applicable to all shareholders that prohibit buying or selling shares
while in possession of material non-public information. The Applicant
states that as of June 11, 2013, the first valuation date after the
Stock was issued to the Plan, the Plan held 652,391 shares of Stock
which represented 1.3% of the 50,129,531 shares outstanding on that
date. The Plan's total investment in the Stock was valued at
$2,589,999.27 ($3.97 per share) as of that date. Furthermore, the
Plan's investment in the Stock Fund on that date represented 12.7%
($2,589,992.27) of the total value of Plan assets ($20,399,202.42).
Requested Relief
19. The Applicant has requested exemptive relief for the
acquisition of the Rights by the Accounts of Invested Participants in
connection with the Rights Offering and the holding of the Rights by
the Accounts of Invested Participants during the subscription period of
the Rights Offering. The Applicant represents that the Rights acquired
by the Invested Participants satisfy the definition of ``employer
securities,'' pursuant to section 407(d)(1) of the Act. However, as the
Rights were not stock or marketable obligations, they do not meet the
definition of ``qualifying employer securities,'' as set forth in
section 407(d)(5) of the Act. Accordingly, the Applicant states that
the subject transactions constitute the acquisition and holding, on
behalf of the Accounts of Invested Participants, of employer securities
which are not qualifying employer securities, in violation of sections
406(a)(1)(E), 406(a)(2), 406(b)(1), and 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)(E) of the Code.
20. As noted above, the subject transactions have already been
consummated. In this regard, the Accounts of Invested Participants
acquired the Rights pursuant to the Rights Offering on April 30, 2013,
and held such Rights until the closing of the Rights Offering on May
31, 2013, when such Rights were either exercised or expired. The
Applicant has requested retroactive relief because UCFC determined that
it was in the best interest of its shareholders generally to issue the
Rights as soon as possible after the offering documents were approved
by the SEC so that UCFC could maintain and improve its capital position
and its capital ratio in accordance with its regulatory obligations and
other agreements, as described above. Therefore, the Applicant seeks
retroactive relief effective from April 30, 2013, the date that the
Accounts of Invested Participants acquired the Rights, to May 31, 2013,
the closing date of the Rights Offering.
21. UCFC represents that the proposed exemption is administratively
feasible. In this regard, the acquisition and holding of the Rights by
the Accounts of Invested Participants was a one-time transaction that
involved an automatic distribution of the Rights to all shareholders.
The Applicant represents further that it is customary for corporations
to make a rights offering available to all shareholders and that the
Department has granted exemptions for similar types of transactions in
the past.
22. UCFC represents that the proposed exemption is in the interests
of the Invested Participants, because if the Plan had not participated
in the Rights Offering, the Invested Participants would not have
received the same benefit as other UCFC shareholders and would not have
been able to reduce the dilution of their investment in UCFC that
occurred as a result of the Private Offering and the shares of Stock
purchased by other shareholders of UCFC in connection with the Rights
Offering.
23. UCFC represents that the proposed exemption is protective of
the rights of the participants and beneficiaries of the Plan because
decisions with regard to the holding and disposition of the Rights were
made by each of the Invested Participants in accordance with the
provisions under the Plan for individually-directed accounts.
Additionally, the Applicant states that the Plan participants and
beneficiaries were protected against prejudice in connection with the
early exercise of the Rights by instructions given to the Trustee by
UCFC not to exercise any Rights if the official closing price of a
share of Stock was below $2.75 as of the last business day prior to the
close of the Rights Offering. The Applicant represents that the closing
price of the Stock on that date was $4.02, and the closing price on the
day the Rights Offering closed was $4.09; therefore, the exercise of
the Rights was effectuated by the Trustee in accordance with UCFC's
instructions and at a purchase price that was below its then-current
fair market value.
24. The Applicant states further that the Accounts of Invested
Participants were protected against economic loss because the Rights
were given to Invested Participants for free. Furthermore, the
Applicant suggests that in the event that an Invested Participant chose
not to exercise the Rights, his or her Account was not affected, as the
Rights automatically expired and became worthless at the end of the
Rights Offering.
25. In summary, the Applicant represents that the subject
transactions satisfy the statutory criteria for an exemption under
section 408(a) of the Act because:
(a) The acquisition of the Rights by the Accounts of Invested
Participants occurred in connection with the Rights Offering, and the
Rights were made available by UCFC to all shareholders of the Stock
other than the Employee Stock Ownership Plan sponsored by UCFC;
(b) The acquisition of the Rights by the Accounts of Invested
Participants resulted from an independent corporate act of UCFC;
(c) Each shareholder of Stock, including each of the Accounts of
Invested Participants, received the same proportionate number of
Rights, and this proportionate number of Rights was based on the number
of shares of Stock held by each such shareholder;
(d) The Rights were acquired pursuant to, and in accordance with,
provisions under the Plan for individually-directed investments of the
Accounts by the individual participants in the Plan, a portion of whose
Accounts held the Stock;
(e) The decision with regard to the holding and disposition of the
Rights by an Account was made by the Invested Participant whose Account
received the Rights; and
(f) No brokerage fees, commissions, or other fees or expenses were
paid by the Plan to any related broker in connection with the exercise
of any of the Rights, and no brokerage fees, commissions, subscription
fees, or other charges were paid by the Plan with respect to the
acquisition and holding of the Stock.
[[Page 19653]]
Notice to Interested Persons
Notice of the proposed exemption (the Notice) will be provided to
all Invested Participants within fifteen (15) days of publication of
the Notice in the Federal Register. Notice will be provided by email to
all Invested Participants who are actively employed by UCFC or Home
Savings in accordance with the Department's procedures for electronic
disclosure to active employees under 29 CFR 2520.104b-1(c). Notice will
be provided via first-class mail to all other Invested Participants.
Such notification will contain a copy of the Notice, as published in
the Federal Register, and a supplemental statement, as required,
pursuant to 29 CFR 2570.43(a)(2). The supplemental statement will
inform all interested persons of their right to comment on and to
request a hearing with respect to the pending exemption. All written
comments and/or requests for a hearing must be received by the
Department within 45 days of the publication of this proposed exemption
in the Federal Register. All comments will be made available to the
public.
Warning: Do not include any personally identifiable information
(such as name, address, or other contact information) or confidential
business information that you do not want publicly disclosed. All
comments may be posted on the Internet and can be retrieved by most
Internet search engines.
FOR FURTHER INFORMATION CONTACT: Mr. Erin S. Hesse of the Department,
telephone (202) 693-8546. (This is not a toll-free number.)
Liberty Media 401(k) Savings Plan (the Plan) Located in Englewood,
Colorado
[Application No. D-11756]
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 (76 FR 66637, 66644, October 27, 2011).
Section I. Transactions
If the exemption is granted, the restrictions of sections
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)(E) of the Code,\23\ shall not
apply, effective August 9, 2012, until October 9, 2012, to:
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\23\ 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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(a) The acquisition by the individually-directed accounts (the
Accounts) in the Plan of certain participants (the Invested
Participants) of stock subscription rights (the Rights) pursuant to a
stock rights offering (the Rights Offering) by Liberty Interactive
Corporation (LIC), a party in interest with respect to the Plan; and
(b) The holding of the Rights by the Invested Participants'
Accounts during the subscription period.
Section II. Conditions
(a) The receipt of the Rights by the Invested Participants'
Accounts occurred in connection with the Rights Offering, and the
Rights were made available by LIC to all shareholders of Series A
Liberty Interactive common stock (the LIC Stock);
(b) The acquisition of the Rights by the Invested Participants'
Accounts resulted from an independent corporate act of LIC;
(c) Each shareholder of LIC Stock, including each Invested
Participant's Account, received the same proportionate number of
Rights, and this proportionate number of Rights was based on the number
of shares of the LIC Stock held by each such shareholder;
(d) The Rights were acquired pursuant to, and in accordance with,
provisions under the Plan for individually-directed investment of the
Invested Participants' Accounts, all or a portion of whose Accounts in
the Plan held the LIC Stock;
(e) The decision with regard to the disposition of the Rights by an
Account was made by the Invested Participant whose Account received the
Rights. Notwithstanding the above, if any of the Invested Participants
failed to give instructions as to the disposition of the Rights
received in the Rights Offering, such Rights were sold on the Nasdaq
Global Market System (the Nasdaq) and the proceeds from the sale were
distributed to such Invested Participant's Account; and
(f) No brokerage fees, commissions, or other fees or expenses were
paid by the Plan or by the Invested Participants' Accounts to any
broker related to Fidelity Management Trust Company (Fidelity), the
Plan trustee, or to Liberty Media Corporation (LMC) or LIC in
connection with the acquisition, holding or sale of the Rights.
Effective Date: This proposed exemption, if granted, will be
effective for the period beginning August 9, 2012, through and
including October 9, 2012.
Summary of Facts and Representations
1. Liberty Media Corporation (LMC or the Applicant), a Delaware
corporation with its principal place of business in Englewood,
Colorado, is primarily engaged in media, communications and
entertainment operating businesses. LMC is a publicly traded
corporation and a participating employer in the Plan.
2. LIC, which was affiliated with LMC until 2011, is a
participating employer in the Plan. LIC owns interests in subsidiaries
and other companies which are primarily engaged in the video and on-
line commerce industries. Through subsidiaries and affiliates, LIC
operates in North America, Europe and Asia.
3. The Plan, which is sponsored by LMC and LIC, is a defined
contribution plan that is intended to qualify under sections 401(a) and
401(k) of the Code. According to the Applicant, the Plan meets the
requirements of section 404(c) of the Act and allows participants to
direct the investment of their entire Plan accounts (including their
401(k) contributions, any employer contributions, and any rollover
contributions) into one of 18 investment categories, including shares
of Series A common stock issued by LMC (LMC Stock) and shares of LIC
Stock issued by LIC.
As of August 8, 2012, the Plan had approximately 1,904 participants
(including beneficiaries) and total assets of $233,663,352. As of
August 8, 2012, the Plan held 1,450,477 shares of LIC Stock, valued at
$27,340,926 and representing 11.7% of the Plan's assets.\24\ Such stock
was allocated to the Plan Accounts of 970 Invested Participants. Also
as of August 8, 2012, the Plan held 4,760 shares of LMC Stock,
representing 20.85% of the Plan's assets and valued at $48,699,017. The
LIC Stock (ticker: LINTA) and the LMC Stock (ticker: LMCA) are traded
on the Nasdaq.
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\24\ As of August 8, 2012, there were 542,297,982 shares
outstanding of LIC Stock.
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4. As the trustee of the Plan, Fidelity also acts as the custodian
of Plan assets, holds legal title to the assets, and executes
investment directions in accordance with the participants' written
instructions. The Liberty Media 401(k) Savings Plan Administrative
Committee (the Committee) is the fiduciary responsible for Plan
matters.
5. LIC decided to conduct the Rights Offering in order to raise
capital for general corporate purposes. To this end, LIC provided
written communications to all shareholders of LIC Stock regarding the
Rights Offering. The disclosures to each Invested Participant
[[Page 19654]]
included a copy of the LIC Offering Questions & Answers, as well as a
copy of the LIC Rights Offering Instructions, both of which were mailed
on July 17, 2012.\25\
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\25\ Subsequent to this mailing, the Invested Participants were
notified of the dates instructions would be provided to Fidelity by
a mailing of a Rights Offering Update on September 7, 2012. In
addition, LIC issued a press release dated September 7, 2012, which
set forth the exercise price for the purchase of the shares pursuant
to the Rights offering.
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6. On August 8, 2012, shareholders of LIC approved a tracking stock
proposal, which resulted in the amendment and restatement of LIC's
certificate of incorporation to create Liberty Ventures common stock
(Liberty Ventures Stock), a new tracking stock, and to make certain
conforming changes to the existing LIC Stock, referred to hereafter as
the ``recapitalization.''
7. Under the recapitalization, the Liberty Ventures Stock is
intended to track and reflect the separate economic performance of the
LIC Ventures Group, which is primarily focused on the maximization of
the value of its investments in such companies as, Expedia, Inc.,
TripAdvisor, Inc., and other entities, such as Time Warner Cable Inc.
The existing LIC Stock is intended to track and reflect the separate
economic performance of the LIC Interactive Group, which is focused on
video and online commerce operating businesses, such as QVC, Inc.,
Provide Commerce, Inc., and Backcountry.com, Inc.
8. On the date of the recapitalization (August 9, 2012), each
holder of LIC Stock received:
(a) 0.05 of a share of Liberty Ventures Stock \26\ for each share
of LIC Stock held as of the record date (August 9, 2012); and
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\26\ The Applicant represents that the Liberty Ventures Stock
that is issued by LIC, a participating employer in the Plan, is a
``qualifying employer security.'' In relevant part, section
407(d)(5)(A) of the Act defines the term ``qualifying employer
security'' as an employer security that is stock. Section 407(d)(1)
of the Act defines the term ``employer security'' as a security that
is issued by an employer of employees covered by a plan or by an
affiliate of such employer. In this proposed exemption, the
Department expresses no opinion on whether the Liberty Ventures
Stock satisfies the definition of a ``qualifying employer
security.''
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(b) \1/3\ of a subscription right (each, a Right) to purchase one
share of Liberty Ventures Stock for each share of Liberty Ventures
Stock to be received by such holder in the distribution (rounded up to
the nearest whole Right), as described in (a) above.
Each Right entitled the holder to purchase one share of Liberty
Ventures Stock at a subscription price equal to a 20% discount to the
10-trading day volume weighted average trading price of such Stock
beginning on the first day those shares began trading ``regular way''
on the Nasdaq following the completion of the distribution of the
Rights (the first trading day for the shares was August 10, 2012). The
Rights Offering commenced on September 12, 2012, once the subscription
price for the Rights was determined and remained open for 20 trading
days. There were 64,174 Rights offered to shareholders of LMC. Of the
Rights, the Invested Participants' Accounts received 24,174 Rights.
9. Except as described in Representation 11 below, with respect to
Rights allocated to their Accounts, Invested Participants could either
elect to (a) exercise the Rights, or (b) sell the Rights at an exercise
price of $35.99 per share of Liberty Ventures Stock. The elections
applied to all of the Rights held in the Invested Participants'
Accounts, including 401(k) contributions and employer matching
contributions.
10. In addition to the Rights, all shareholders of LIC Stock were
permitted to subscribe to purchase shares in excess of the shares
reflected by the basic Rights issued to such shareholder, if the other
shareholders did not exercise all of their basic Rights. Although the
Plan was able to exercise oversubscription Rights, the Committee did
not pass through this option to the Invested Participants because the
Invested Participants would have been required to liquidate the assets
in their Plan Accounts so that the purchase price for any Rights
available under this option could be transmitted to Computershare Trust
Company, N.A. (the Transfer Agent). This would have required Plan
assets to be paid out of the Plan for which there was no assurance that
any additional shares could be purchased, and these Plan assets would
have been held by the Transfer Agent in an uninvested account.
In addition, the Committee was concerned about the fiduciary
implications of permitting Plan assets to be held in an uninvested
account where there was no guarantee that any shares of Liberty
Ventures Stock would be available for purchase under the
oversubscription option. Therefore, the Committee did not direct
Fidelity to participate in the oversubscription option on behalf of the
Plan.
11. Due to securities law restrictions, certain Invested
Participants, who were considered ``reporting persons'' under Rule
16(b) \27\ of the Securities Exchange Act of 1934 (Rule 16(b)) with
respect to LIC, did not have the right to instruct Fidelity to either
sell or exercise the Rights credited to their Plan Accounts. LMC
provided Fidelity with a list of those Invested Participants and
Fidelity established the appropriate restrictions to prevent these
Invested Participants from exercising or selling the Rights credited to
their Accounts. As provided by the Plan and as directed by the
Committee, Fidelity sold the Rights credited to these Rule 16(b)
Invested Participants' Accounts as soon as it was administratively
feasible following the receipt and allocation of the Rights to such
Accounts.
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\27\ Rule 16(b) requires an officer, director, or any
shareholder holding more than 10% of the outstanding shares of a
publicly-traded company who makes a profit on a transaction with
respect to the company's stock during a given six month period, pay
the difference back to the company.
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12. To hold the Rights, the Plan established a temporary separate
trust (the Rights Trust), with the Committee serving as the trustee.
Within the Rights Trust, two investment funds were established. The
first fund, the ``Rights Holding Fund,'' was a separate fund set up to
hold the Rights when they were issued. The Rights were credited to
Invested Participants' Accounts based on their respective holdings of
the Liberty Ventures Stock as of August 9, 2012. The second fund, the
``Rights Receivable Fund,'' reflected the approximate value of the
Liberty Ventures Stock due from the Subscription Agent, following the
exercise of Rights on October 8, 2012, as directed by the Investing
Participants.
13. With the exception of the Rule 16(b) ``reporting persons,'' as
described above, each Investing Participant could elect to exercise any
percentage of the Rights allocated to such Participant's Account in the
Plan. Under the Offering, an Invested Participant could elect to
exercise the Rights by speaking to a Fidelity representative at any
time prior to 4 p.m. Eastern Time, on or about September 26, 2016 (the
Election Close-Out Date). Investing Participants had the opportunity
prior to the Election Close-Out Date to revoke or change instructions
to exercise their Rights by (a) electing a new percentage of Rights to
exercise, (b) by placing an order to sell the Rights, or (c) selecting
a combination of both alternatives.
14. The dollar amount required to exercise the Rights was exchanged
from other investments in an Investing Participant's Account into the
Rights Receivable Fund that had been established under the Plan. The
required dollar amount to exercise the Rights equaled the percentage of
Rights to be exercised (as elected by the Investing Participant)
multiplied by the
[[Page 19655]]
number of Rights credited to the Investing Participant's Account and
multiplied by the exercise price for the Rights Offering. The dollar
amount was exchanged from the other investments in which the Investing
Participant's Account was invested on a proportional basis by source,
excluding shares of LIC Stock, Liberty Ventures Stock and LMC Stock.
For those Invested Participants with insufficient funds to permit the
exercise of the entire elected amount of Rights, Fidelity exercised as
many Rights as their Account balances in the Plan permitted.
15. On October 8, 2012, the Rights to be exercised and the funds
needed to consummate the transaction were submitted by Fidelity to
Computershare Trust Company, N.A. (the Subscription Agent) for the
purchase of shares. Invested Participants' balances in the Rights
Holding Fund were reduced by the number of Rights exercised on the
Invested Participant's behalf. Upon receipt of the new shares, the
Rights Receivable Fund was closed and the newly received shares were
allocated to the Invested Participants' Accounts.
Those Invested Participants who elected to exercise only a portion
of their Rights could later elect to exercise additional Rights to the
extent that sufficient time existed prior to the Election Close-Out
Date. The Election Close-Out Date was established to permit sufficient
time for Fidelity to liquidate the Invested Participants' other assets
in an orderly manner so that the necessary cash would be available to
exercise the Rights before the Rights Offering expiration date (October
9, 2012). According to the Applicant, 74 Invested Participants
exercised 3,171 Rights during this period.\28\ If an Investing
Participant failed to make an election during this period, or filed an
invalid election, such Investing Participant would not be deemed to
have elected to exercise his or her Rights.
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\28\ It is represented that the Invested Participants' Accounts
relied on the relief provided by the statutory exemption pursuant to
section 408(e) of the Act and the regulations that are promulgated
thereunder with respect to the exercise of the Rights. However, in
this proposed exemption, the Department is expressing no opinion on
whether the requirements of the statutory exemption have been met.
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In connection with the exercise of the Rights, National Financial
Services LLC (NFS), an affiliate of Fidelity and a broker for the Plan,
received a commission equal to 2.9 cents per Rights share. The
commission was charged to the Invested Participants' Accounts.
According to the Applicant, NFS was retained by the Committee to
provide brokerage services to the Plan that were required for the sale
of the Rights on the open market. In addition, the Applicant represents
that the Committee approved the compensation paid to NFC, and it deemed
such compensation to be ``reasonable.'' \29\
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\29\ The Applicant represents that the brokerage services and
commissions received by NFS from the Plan in connection with the
exercise of the Rights are statutorily exempt under section
408(b)(2) of the Act and the applicable regulations. However, the
Department is expressing no opinion in this proposed exemption on
whether the requirements of the statutory exemption have been met.
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Fidelity also attempted to sell unexercised Rights on the open
market between October 1 and October 9, 2012. Rights that remained
unsold at the close of the market on October 9, 2012, expired.
16. An Invested Participant could elect to sell rather than
exercise the Rights allocated to his or her Plan Account. In order to
sell a Right, an Invested Participant was required to (a) contact a
Fidelity representative, and (b) specify the percentage (in whole
amounts) of the Rights the Invested Participant desired to sell. The
selling period for Invested Participants ran from September 13, 2012,
through October 1, 2012.\30\ During this time period, 20 Invested
Participants affirmatively elected to sell their Rights and 734 Rights
were sold. The Rights were traded on the Nasdaq under the ticker symbol
``LVNAR.'' Fidelity sold a total of 20,269 of the remaining Rights for
877 Invested Participants between October 2 and October 5, 2012, for a
total selling price of $257,130.70. (One Invested Participant had both
an exercise and a sale.)
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17. The Applicant has requested an administrative exemption from
the Department for: (a) The acquisition of the Rights by the Plan in
connection with the Rights Offering; and (b) the holding of the Rights
by the Invested Participants' Accounts during the subscription period
of the Rights Offering.
The Applicant represents that the Rights acquired by the Plan
satisfy the definition of ``employer securities,'' pursuant to section
407(d)(1) of the Act. However, as the Rights are 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 by the Plan, of employer securities that are
not qualifying employer securities, in violation of section 407(a) of
the Act, for which the Applicant has requested relief from sections
406(a)(1)(E), 406(a)(2), and 407(a)(1)(A) of the Act. In addition,
because the subject transactions raise conflict of interest issues by
Plan fiduciaries, the Applicant has requested exemptive relief from the
prohibitions of section 406(b)(1) and 406(b)(2) of the Act. If granted,
the proposed exemption will be effective for the period beginning
August 9, 2012, through and including October 9, 2012.
18. The Applicant represents that the proposed exemption is
administratively feasible because it involves the acquisition and
short-term holding of Rights by the Invested Participants' Accounts and
the one-time exercise of the Rights, as directed by the Invested
Participants. In this regard, the Applicant explains that the Plan had
already passed through certain rights to the Invested Participants with
respect to the employer securities held in such Invested Participants'
Accounts. According to the Applicant, voting rights with respect to the
employer securities had been passed through to the Invested
Participants. Therefore, the Committee determined that it would be
consistent with these other rights to pass through the decision on
whether to exercise or sell the Rights to the Invested Participants.
In addition, the Applicant represents that the proposed exemption
is in the interests of the Plan and the participants and beneficiaries
because it allowed Invested Participants, who exercised their Rights,
to purchase shares of Liberty Ventures Stock at a significant discount.
Had the Plan not engaged in the subject transactions, the Plan and the
Invested Participants would have been at a disadvantage compared with
outside shareholders. Therefore, the Committee determined that Invested
Participants should be permitted to exercise or sell the Rights.
Finally, the Applicant explains that the proposed exemption is
protective of the Plan and the participants and beneficiaries because
all Invested Participants were notified, in advance of the
recapitalization and the subsequent transactions, of the procedure for
instructing Fidelity of such Invested Participants' desires with
respect to the Rights. In addition, all instructions given by the
Invested Participants to Fidelity were properly executed.
19. In summary, the Applicant represents that the subject
transactions satisfy the statutory criteria of section 408(a) of the
Act because:
(a) The receipt of the Rights by the Invested Participants'
Accounts occurred in connection with the Rights Offering, and the
Rights were made available by LIC to all shareholders of
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LIC Stock, including the Invested Participants' Accounts;
(b) The acquisition of the Rights by the Invested Participants'
Accounts resulted from an independent corporate act of LIC;
(c) Each shareholder of LIC Stock, including each Invested
Participant's Account, received the same proportionate number of
Rights, and this proportionate number of Rights was based on the number
of shares of the LIC Stock held by each such shareholder;
(d) The Rights were acquired pursuant to, and in accordance with,
provisions under the Plan for individually-directed investment of the
Invested Participants' Accounts, all or a portion of whose Accounts in
the Plan held the LIC Stock;
(e) The decision with regard to the disposition of the Rights by an
Account was made by the Invested Participant whose Account received the
Rights. Notwithstanding the above, if any of the Invested Participants
failed to give instructions as to the disposition of the Rights
received in the Rights Offering, such Rights were sold on the Nasdaq
and the proceeds from the sale were distributed to such Invested
Participant's Account; and
(f) No brokerage fees, commissions, or other fees or expenses were
paid by the Plan or by the Invested Participants' Accounts to any
broker related to Fidelity, the Plan trustee, or to LMC or LIC in
connection with the acquisition, holding or sale of the Rights.
Notice to Interested Persons
The persons who may be interested in the publication in the Federal
Register of the Notice of Proposed Exemption (the Notice) include
Invested Participants whose Accounts in the Plan were invested in LIC
Stock at the time of the Offering.
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(a)(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.
All comments will be made available to the public. Warning: Do not
include any personally identifiable information (such as name, address,
or other contact information) or confidential business information that
you do not want publicly disclosed. All comments may be posted on the
Internet and can be retrieved by most Internet search engines.
FOR FURTHER INFORMATION CONTACT: Ms. Blessed Chuksorji-Keefe of the
Department, telephone (202) 693-8567. (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 27th day of March 2014.
Lyssa E. Hall,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2014-07872 Filed 4-8-14; 8:45 am]
BILLING CODE 4510-29-P