[Federal Register Volume 79, Number 142 (Thursday, July 24, 2014)]
[Notices]
[Pages 43082-43092]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-17425]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application No. D-11777]
Notice of Proposed Exemption Involving Family Dynamics, Inc.,
Pension Plan (the Plan), Located in Leesburg, Florida
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Notice of proposed individual exemption.
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SUMMARY: This document contains a notice of pendency (the Notice)
before the Department of Labor (the Department) of a proposed
individual exemption from certain prohibited transaction restrictions
of the Employee Retirement Income Security Act of 1974, as amended,
(the Act) and the Internal Revenue Code of 1986, as amended, (the
Code). The proposed exemption, if granted, will affect the participants
and beneficiaries of Plan participating in the proposed transactions
and the fiduciaries with respect to such Plan.
DATES: Effective Date: This proposed exemption, if granted, shall be
effective with regard to the transactions described in Section I below
for the period beginning on September 15, 2011, and ending on December
28, 2012. This proposed exemption, if granted, shall be effective with
regard to transactions described in Section III below beginning on the
date of the publication in the Federal Register of the grant of this
proposed exemption and ending on the last day any of the Subsequent
Notes is held in the Plan.
DATES: Written comments and requests for a public hearing on the
proposed exemption should be submitted September 8, 2014.
ADDRESSES: All written comments and/or requests for a public hearing
concerning the proposed exemption should be sent to the Office of
Exemptions Determinations, Employee Benefits Security Administration,
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue NW.,
Washington, DC 20210, Attention: Application No. D-11777.
Alternatively, interested persons are invited to submit comments and/or
requests for a hearing to the Department by email to [email protected] or
by facsimile at (202) 219-0204.
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: Angelena C. Le Blanc, Office of
Exemption Determinations, Employee Benefits Security Administration,
U.S. Department of Labor, telephone (202) 693-8540. (This is not a
toll-free number.)
SUPPLEMENTARY INFORMATION: This document contains a notice of proposed
individual exemption from certain prohibitions described in section 406
of the Act and section 4975 of the Code.\1\ The proposed exemption has
been requested in an application filed with the Department by Family
Dynamics, Inc. (FDI), pursuant to section 408(a) of the Act and section
4975(c)(2) of the Code and in accordance with the procedure set forth
in 29 CFR 2570, Subpart B (76 FR 66637, 66644, October 27, 2011).
Effective December 31, 1978, section 102 of Reorganization Plan No. 4
of 1978, (43 FR 47713, October 17, 1978) transferred the authority of
the Secretary of the Treasury to issue exemptions of the type requested
to the Secretary of Labor. Accordingly, this proposed exemption is
being issued solely by the Department.
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\1\ All references to specific provisions of Title I of the Act
herein shall refer also to the corresponding provisions of the Code.
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The application pertaining to the proposed exemption contains facts
and representations with regard to the proposed exemption which are
summarized below. Interested persons are referred to the application on
file with the Department for a complete statement of the facts and
representations. The application pertaining to the proposed exemption
and the comments received will be available for public inspection in
the Public Disclosure Room of the Employee Benefits Security
Administration, U.S. Department of Labor, Room N-1513, 200 Constitution
Avenue NW., Washington, DC 20210.
Summary of Facts and Representations
The Parties
1. FDI, a Florida corporation (formerly known as Gregg Enterprises,
Inc.), is a subchapter S corporation formed in 2000 to retain certain
assets and liabilities that were excluded from the sale of Florida
Crushed Stone Holdings, Inc. and its subsidiaries (FCSH). FCSH, founded
and owned by Mr. F. Browne Gregg, Sr. (Mr. Gregg, Sr.), produced
construction aggregates, cement, silica sand, lime rock based
materials, and other construction materials.
2. In June 2000, FCSH had approximately 700 employees when FCSH was
sold to Rinker Materials Corporation (Rinker), an unrelated third
party. Prior to the sale of FCSH to Rinker, all of the stock of FCSH
was distributed to certain shareholders.
In connection with the closing of the sale transaction with Rinker,
certain of the assets of FCSH, certain liabilities of FCSH, including
all of the obligations of FCSH with respect to the Plan, as well as
fewer than twenty (20) employees, were transferred to FDI, which at
that time was established as a newly-formed subsidiary of FCSH.
3. As an employer any of whose employees are covered by the Plan,
FDI is a party in interest with respect to the Plan, pursuant to
3(14)(C) of the Act. FDI is also a party in interest with respect to
the Plan, pursuant to 3(14)(A) of the Act, as the named fiduciary and
Plan administrator. The stockholders of FDI are members of the Gregg
family or are trusts for the benefit of certain members of the Gregg
family. There are 828.70 shares outstanding of FDI. The largest
individual shareholders of FDI are Mrs. Gail Gregg-Strimenos (Mrs.
Strimenos) and Mrs. Jeannie Gregg-Emack (Mrs. Emack), each of whom owns
a 26.96 percent (26.96%) interest in FDI. Mrs. Strimenos and her
sister, Mrs. Emack are the daughters of Mr. Gregg, Sr. Mrs. Strimenos
serves as the Chairman of FDI. The remaining eight (8) shareholders of
FDI are Gregg family trusts which own, in the aggregate, 46.08 percent
(46.08) of FDI.
4. Among the assets transferred to FDI, and therefore not sold to
Rinker in 2000, is Family Dynamics Land Company, LLC (FDLC). FDLC
currently owns property (the Property) located in the City of Mineola,
Florida. The Property is FDLC's only asset. FDLC has no revenues,
operations, or liabilities.
5. In 2007, FDI sold all of its equity interests in FDLC to
Minneola AG, LLC (Minneola), a real estate holding company, in exchange
for a single promissory note with a principal amount of $29,330,000.
Minneola's only
[[Page 43083]]
significant asset is its 100 percent (100%) equity ownership in FDLC.
Mrs. Strimenos and Mrs. Emack through separate limited liability
corporations own, respectively, 40.70 percent (40.70%) and 36.12
percent (36.12%) of the interests in Minneola. Five (5) other Gregg
family trusts own 23.18 percent (23.18%) of Minneola.\2\
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\2\ While there is overlapping ownership of FDI and Minneola, it
is represented that the ownership of the shareholders of FDI and the
members of Minneola is sufficiently diverse such that the two
companies, FDI and Minneola, are not members of a ``control group,''
as defined in section 407(d)(7) of the Act. Minneola is a party in
interest with respect to the Plan, pursuant to 3(14)(G) of the Act,
as 50 percent (50%) or more of the interests in Minneola are owned
in the aggregate, directly or indirectly, by Mrs. Strimenos and Mrs.
Emack who are each 10 percent (10%) or more shareholders of FDI, the
employer.
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6. Other entities owned by members of the Gregg family include
Yeehaw Ranch Land, LLC (Yeehaw); PMCC, LLC (PMCC); Bi-Coastal Holdings,
LLC (Bi-Coastal); and Arcadia Holdings, LLC (Arcadia).
The Plan
7. The Plan is a defined benefit pension plan established in 1953
by FCSH to provide benefits to its employees. As a result of the sale
of FCSH to Rinker in 2000, FDI became the sponsor of the Plan. The Plan
covers approximately 740 former employees of FCSH and current employees
of FDI and their beneficiaries, including beneficiaries of deceased
participants (based on Form 5500 for plan year 2011). In 2003, the Plan
was ``frozen'' by FDI with the result that there have been no
additional accruals and no new participants to the Plan since that
time. The trustee of the Plan is Mrs. Strimenos.
The assets of the Plan are currently held through annuity contracts
issued by Massachusetts Mutual Life Insurance Company. It is
represented that the Plan is currently underfunded. In this regard, the
value of the Plan's assets, as of September 30, 2013, was approximately
$28.92 million. This represents approximately 77 percent (77%) of the
Plan's 2013 funding target.
It is represented that liquidity is not an issue for the Plan.
According to the Plan's actuary, the projected benefit payments are
approximately $2.3 million for the 2013 plan year, gradually increasing
to approximately $2.7 million in plan year 2021. As of September 30,
2013, the Plan had liquid assets of approximately $28.92 million, while
the present value of the Plan's projected benefit payments through
2021, (discounted at 6 percent (6%) the Plan's assumed rate of
investment return) was approximately $17.56 million, as of December 31,
2012.
FDI estimates that its annual minimum funding obligation will be
$2.1 million or more for a number of years.
The Notes
8. As discussed briefly in Representation 5, in 2007, Minneola
issued to FDI a single promissory note (the Single Note) with a face
amount of $29,330,000 in exchange for a 100 percent (100%) equity
interest in FDLC. The Single Note carried interest at 4.53 percent
(4.53%) per year, compounded semi-annually, with principal and interest
payable at maturity on January 1, 2016. On September 12, 2011, the
Single Note was re-issued as 29 separate promissory notes
(collectively, the ``Notes'' and individually, ``Note 1
through Note 29''), 28 of which have a face amount of $1
million, and one (1) of which (Note 29) has a face amount of
$1,330,000. It is represented that the Notes were issued with
substantially the same terms as the Single Note. The Notes are closely-
held and are not traded on a public market. The Notes are numbered
consecutively with each successive higher numbered note being
subordinate to any note with a lower number. Although the Notes
initially had a maturity date of 2016, effective November 5, 2012, FDI
and Minneola agreed to amend Note 3 through Note 29
to extend the maturity date to September 1, 2019, and to correct the
amount of accrued interest stated in each such note, and to cap the
default interest rate at 12 percent (12%) per annum.
All of the Notes are subject to: (a) The partial guarantees of
certain Gregg family trusts, based on the respective ownership of such
trusts of interests in Minneola; and (b) the unconditional guarantees
of Mrs. Emack and Mrs. Strimenos, who have jointly and severally
guaranteed payment of the aggregate amount of such Notes in full. It is
represented that Mrs. Emack and Ms. Strimenos had a combined net worth
in excess of $112 million, as of December 31, 2012.
The Property
9. As discussed briefly above, FDLC is the present owner of the
Property, which is located in the City of Minneola, Florida. The
Property, which is irregular in shape, currently consists of
approximately 1,770 acres of real estate, nine (9) parcels of which are
contiguous mostly wooded lots or cleared pasture land.\3\ The Property
is fully entitled by the City of Minneola for a Planned Unit
Development-Residential development and is subject to a Development of
Regional Impact order for the Hills of Minneola development that has
been approved by the City of Minneola and the Florida Department of
Community Affairs.
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\3\ For the purpose of constructing an interchange (the
Interchange), FDLC, as owner of the Property, is working on donating
a portion of the Property, consisting of approximately 50 acres,
free and clear to the City of Minneola, which acreage will be
subtracted from the acreage of the Property.
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FDI's Financial Situation
10. It is represented that FDI's cash flow is quite limited. FDI's
ability to liquidate assets to satisfy the minimum funding requirement
for the Plan has also been impacted by the implosion in 2008 of the
Florida real estate market. For example, FDI's assets consist primarily
of illiquid investment in entities controlled by the Gregg family. Such
investments held by FDI include notes receivable from entities
controlled by members of the Gregg family, in the aggregate amount of
$9.172 million, future royalties from an unrelated phosphate mining
company, in the amount of $5.216 million, a non-recourse loan in the
amount of $5.661 million to a Gregg family member, the Notes, and
miscellaneous assets worth $0.403 million dollars. It is represented
that none of these investments pays current income to FDI, and none of
these investments is liquid.
FDI's Efforts To Fund the Plan
11. When FDI realized it would be unable to make the required
contribution in cash to the Plan in 2011 for the plan year ended
December 31, 2010, FDI sought legal advice from the firm of Constangy
Brooks & Smith, LLC which advised FDI to seek a funding waiver for plan
year 2010. Accordingly, FDI applied for a funding waiver from the IRS
on March 15, 2011, with respect to the 2010 plan year. However, FDI was
not advised that the funding waiver would not be issued in time to
prevent a funding deficiency for plan year 2010 and that funding
waivers are generally not issued in successive years.
12. On or about May 24, 2011, FDI engaged another law firm, Alston
& Bird LLP (A&B), an Atlanta law firm. FDI believes it was prudent in
reaching out to A&B for assistance regarding the matters described
above, and it was reasonable for FDI to believe that A&B would provide
it with the guidance that it needed in connection with the in-kind
contribution to the Plan and for FDI to rely on that belief.
[[Page 43084]]
Although A&B continued to pursue the funding waiver, there was
uncertainty on whether the waiver request would be granted. Therefore,
A&B advised FDI to seek a prospective prohibited transaction exemption
from the Department, which, if granted, would enable FDI to contribute
any of the Notes in-kind to the Plan, as needed. In this connection, it
is represented that A&B prepared a draft exemption application, drafted
the trust agreement that was required in order to make the contribution
in-kind to the Plan, advised FDI to obtain an independent appraisal of
the fair market value of the Notes, while continuing discussions with
the Internal Revenue Service (IRS) and the Pension Benefit Guaranty
Corporation (PBGC) regarding the funding waiver.
13. FDI did not make quarterly contributions to the Plan for the
2010 plan year. The failure to make quarterly contributions to the Plan
is a reportable event which was reported to the PBGC, as required. FDI
states that, on September 10, 2011, A&B apprised FDI of the following
three ``paths,'' summarized as: (a) FDI could assume that it would
obtain a funding waiver, refrain from making contributions to the Plan,
file for a prohibited transaction exemption, and make the in-kind
contribution after the prohibited transaction exemption is granted. If
the funding waiver were not forthcoming, FDI would be subject to tax on
the unpaid contribution and to excise tax; (b) FDI could make the in-
kind contribution on September 15, 2011, and file for a prohibited
transaction exemption asking for retroactive relief. If the requested
exemption were not granted, FDI would be subject to excise tax; or (c)
FDI could start the process for a distress termination of the Plan in
which the PBGC would have the right to attach assets of FDI in order to
satisfy the unfunded liabilities. FDI states that it had to choose one
of these options by September 15, 2011. On September 14, 2011, the PBGC
filed a lien on the assets of FDI in the amount of $2.7 million. On or
about September 15, 2011, FDI determined to go ahead with option (b)
described above: The in-kind contribution to the Plan of two (2) of the
Notes (Note 1 and Note 2), followed by the filing of
an application for retroactive exemption with the Department. FDI
states that, because discussions with the IRS and the PBGC were
unsuccessful and the funding waiver was not forthcoming, FDI withdrew
the waiver request on September 15, 2011. FDI states that, on October
14, 2011, A&B alerted FDI that hiring an independent fiduciary may be a
component of obtaining the exemptive relief described above.
Appraisal of All the Notes
14. On September 12, 2011, Robert H. Buchannan, J.D., ASA and
Victor E. Jarosiewicz, ASA, CFA (collectively, the PCE Appraisers) of
PCE Valuations, LLC (PCE), in Winter Park and Tampa, Florida, together
determined that the aggregate fair market value of all 29 of the Notes
was $35,405,600 (rounded), as of September 8, 2011 (the PCE Appraisal).
The PCE Appraisers are qualified as Accredited Senior Appraisers of
the American Society of Appraisers. Both of the PCE Appraisers are
independent in that they have no personal interest or bias with respect
to the parties involved, and their compensation was not contingent on
the conclusions reached in their report.
Based on the PCE Appraisal and a discount rate of 4.09% and 4.10%,
respectively for Note 1 and Note 2, the PCE
Appraisers determined that the present value of the aggregate face
amount on Note 1 and Note 2, plus accrued interest
was $2,511,500, as of September 15, 2011. It is represented that FDI
allocated $2,315,017 of the aggregate value of Note 1 and Note
2 to satisfy the minimum funding contribution to the Plan for
plan year 2010. The remainder of $196,483 FDI applied to satisfy a
portion of its minimum funding obligation to the Plan for plan year
2011.
Legal Analysis
15. Retroactive and prospective relief is proposed, herein, from
sections 406(a)(1)(A), 406(a)(1)(D), 406(a)(1)(E), 406(a)(2),
406(b)(1), 406(b)(2) and 407(a) of the Act, and the corresponding
provisions of the Code for the in-kind contribution, holding, and
redemption of Note 1 and Note 2 in the past, and for
the prospective in-kind contribution, holding, and redemption of
certain of the Notes (the Subsequent Notes) in the future. Retroactive
and prospective relief is also proposed, herein, from section
406(a)(1)(B) for the extensions of credit by the Plan to Minneola and
to FDI in connection with the Plan's past acquisition and holding of
Note 1 and Note 2 and the Plan's acquisition and
holding in the future of any Subsequent Notes.
Section 406(a)(1)(A) of the Act prohibits a sale or exchange
between a party in interest and a plan. As the past in-kind
contribution of Note 1 and Note 2 was made by FDI to
the Plan, and as future in-kind contributions of the Subsequent Notes
will be made by FDI to the Plan for the purpose of satisfying FDI's
minimum funding obligations to the Plan, retroactive and prospective
relief from section 406(a)(1)(A) of the Act is needed, because the Plan
will receive the contribution in-kind of the Subsequent Notes in
exchange for receiving a cash contribution.\4\
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\4\ In Commissioner v. Keystone Consolidated Industries, 508 US
152 (1993), the Supreme Court held that an employer's contribution
of property in satisfaction of the plan's funding obligation was a
``sale or exchange'' for purposes of section 4975 of the Code.
Moreover, the Department has held that an in-kind contribution to a
plan constitutes a prohibited transaction, if the contribution
reduces an obligation of a plan sponsor or employer to make a cash
contribution to the plan. See Interpretive Bulletin 94-3.
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Section 406(a)(1)(B) of the Act prohibits a loan or an extension of
credit between a plan and a party in interest. As Minneola, the issuer
of the Notes, is a party in interest with respect to the Plan, the
acquisition and holding of any of the Notes would constitute a
prohibited loan or extension of credit by the Plan to Minneola for
which relief from 406(a)(1)(B) is needed.
In addition, the partial guarantees of the Notes by certain Gregg
family trusts that would be considered parties in interest with respect
to the Plan under section 3(14)(E) of the Act as owners of the capital
or profits interest of Minneola. Similarly, the unconditional
guarantees of the Notes by Mrs. Emack and Mrs. Strimenos would violate
section 406(a)(1)(B) of the Act because these individuals would each be
considered a party in interest with respect to the Plan under section
3(14)(H) of the Act as an officer and/or a 10 percent (10%) or more
shareholder of FDI, an employer any of whose employees are covered by
the Plan.
Section 406(a)(1)(E) of the Act prohibits a fiduciary from causing
a plan to engage in a transaction, if he knows or should know that such
transaction constitutes the direct or indirect acquisition, on behalf
of a plan, of any employer security in violation of section 407(a) of
the Act. Section 406(a)(2) of the Act prohibits a fiduciary who has
authority or discretion to control or manage the assets of a plan to
permit a plan to hold any ``employer security'' in violation of section
407(a) of the Act. Section 407(a)(1) of the Act states that a plan may
not acquire or hold any ``employer security'' that is not a
``qualifying employer security.''
The Notes may be considered ``employer securities,'' as defined in
section 407(d)(1) of the Act, because Mrs. Strimenos and Mrs. Emack
own, in the aggregate, directly or indirectly, more than 50 percent
(50%) of both FDI
[[Page 43085]]
and Minneola. Section 407(d)(5) of the Act defines a ``qualifying
employer security'' as an employer security that is either stock, a
marketable obligation (as defined by section 407(e) of the Act), or an
interest in certain publicly traded partnerships. The Notes are not
stock or interests in a publicly traded partnership. Neither are the
Notes marketable obligations. A ``marketable obligation'' is defined,
in part, under section 407(e) of the Act as a ``bond, debenture, note,
or certificate, or other evidence of indebtedness'' if such obligation
is acquired on the market, from an underwriter, or directly from the
issuer, and immediate following the acquisition of such obligation, not
more than 25% of the aggregate amount of obligations issued in such
issue and outstanding at the time of acquisition is held by the plan;
at least 50% of the aggregate amount of the obligations in such issue
is held by persons independent of the issuer; and immediately following
such acquisition not more than 25 percent (25%) of the assets of the
plan is invested in obligations of the employer or an affiliate. As the
Notes are closely-held and not traded on the market, were not acquired
by the Plan from the issuer, and at least 50% of the aggregate amount
of such Notes are held by FDI, who is not independent of Minneola, the
issuer, the Notes do not satisfy the definition of a ``marketable
obligation,'' as defined under section 407(e) of the Act. Accordingly,
relief from section 407(a)(1)(E) and 406(a)(2) is needed for the
acquisition and holding of the Notes by the Plan.
Furthermore, relief from section 406(a)(1)(A) and 406(a)(1)(D) of
the Act is needed in the past, because Note 1 and Note
2 held in the Plan were transferred to and redeemed by
Minneola, a party in interest with respect to the Plan, and relief from
the same sections of the Act will be needed in the future in the event
that the Subsequent Notes are transferred to and redeemed by FDI, FDLC,
Minneola, or any other a party in interest with respect to the Plan.
In addition, both retroactive and prospective relief is needed from
the provisions of section 406(b)(1) of the Act in connection with the
past decision by FDI, a fiduciary with respect to the Plan, to
contribute Note 1 and Note 2 in-kind to the Plan and
with respect to any future decisions by FDI to contribute in-kind any
of the Subsequent Notes to the Plan. Both retroactive and prospective
relief is needed from the prohibitions of section 406(b)(2) of the Act
due to FDI's presence on both sides of the transactions, as the sponsor
and fiduciary of the Plan.
Property Appraisal
16. Subsequent to the in-kind contribution of Note 1 and
Note 2, on January 1, 2012, FDI engaged Independent Fiduciary
Services, Inc. (IFS), a Division of GBS Investment Consulting, LLC, and
a predecessor of Gallagher Fiduciary Advisers, LLC (GFA), to serve as
the independent, qualified, fiduciary (the I/F) and the investment
manager on behalf of the Plan. GFA, the successor to IFS, hired Integra
Realty Resources (Integra) of Orlando, Florida, to determine the ``as
is'' fair market value of the fee simple interest in the Property (the
Integra Appraisal). The Integra Appraisal was prepared by Stephen J.
Matonis, MAI, MRICS, Director/Partner of Integra, and Marti M. Hornell,
Senior Analyst of Integra (together, the Integra Appraisers). The
Integra Appraisers conducted an on-site inspection of the Property,
respectively, on April 22, 2012, and April 25, 2012.
The Integra Appraisers are qualified as State-Certified General
Real Estate Appraisers. The Integra Appraisers are independent in that
they have no bias with respect to the Property or the parties involved
and their engagement and compensation was not contingent upon
developing or reporting a predetermined value. It is represented that
the percentage of revenue derived from this appraisal engagement was a
de minimis percentage of Integra's 2011 revenues.
According to the Integra Appraisers, the holding of the Property by
FDLC for future development is the only use that meets the four tests
of highest and best use. Therefore, the Integra Appraisers concluded
that the highest and best use of the Property is as vacant. In this
regard, the Integra Appraisers represented that the most probable buyer
of the Property would be an investor/developer that would continue the
existing agricultural uses of the Property until such time that demand
for the Property warrants moving forward with the development of the
Property. In the opinion of the Integra Appraisers, a reasonable
marketing period for the Property is estimated at 18 to 24 months.
Accordingly, based solely on the Sales Comparison Approach to
valuation, the Integra Appraisers, in a report dated May 3, 2012,
determined that the ``as is'' fair market value of the fee simple
interest in the Property, as of April 22, 2012, was $48,000,000
($27,405 per usable acre), including approximately fifty (50) acres of
land that would be transferred to the City of Minneola for construction
of the Interchange.
Re-Appraisal of Note 1 and Note 2
17. On July 21, 2012, GFA also hired Kevin P. Steeley (Mr. Steeley)
and Hugh H. Woodside (Mr. Woodside), ASA, CFA, Managing Director, of
Empire Valuation Consultants, LLC (Empire), in Rochester, NY,
(collectively, the Empire Appraisers) as a second IQA to establish the
value of Note 1 and Note 2, exclusively. Both the
Empire Appraisers are qualified, in that Mr. Steeley has been
associated with Empire since 2006, and Mr. Woodside is an Accredited
Senior Appraiser affiliated with the American Society of Appraisers and
is a Chartered Financial Analyst. Both the Empire Appraisers are
independent in that neither Mr. Steeley nor Mr. Woodside has an
interest in Note 1 and Note 2. Further, it is
represented that the Empire Appraiser's fees were not contingent upon
the determination of value of Note 1 and Note 2.
Discounting the payments for Note 1 and Note 2
using the discount rates, respectively, of 5.9 percent (5.9%) and 6.2
percent (6.2%), the Empire Appraisers determined that looking back to
September 15, 2011, the aggregate fair market value of for Note
1 and Note 2 was $2,316,047 (the First Empire
Appraisal).
It is represented that the First Empire Appraisal valuation though
somewhat lower than the $2,511,500 aggregate value for Note 1
and Note 2, as set forth in the PCE Appraisal, was still in
excess of FDI's funding obligation for the plan year 2010. Accordingly,
once the First Empire Appraisal was obtained, the I/F determined to use
the lower valuation for the purpose of satisfying FDI's funding
obligation to the Plan.
Redemption of Note 1 and Note 2
18. FDI had Minneola redeem Note 1 and Note 2
from the Plan. Such redemptions required Minneola to pay an amount in
cash to the Plan equal to the $1 million principal amount of each note,
plus all accrued interest due through the date of such redemptions.
It is also represented that because Note 1 and Note
2 had been contributed at a discounted value (i.e., the First
Empire Appraisal established the fair market value of such notes in the
aggregate at $2,316,047, looking back to September 15, 2011) (See,
Representation 17), as compared to the outstanding balance of such
notes, which was approximately $2,468,930, as of September 15, 2011,
the pre-mature redemption of Note 1 and Note 2 for
$2,616,702.01, well in advance of the
[[Page 43086]]
January 1, 2016 maturity date of such notes, resulted in the Plan
achieving a very favorable return of approximately 10.39 percent
(10.39%) per annum over the relatively short period of time (from
September 15, 2011, to December 28, 2012) that the Plan held such
notes.
Current Exemption Request
19. FDI filed the subject application (D-11777) for an individual
exemption (the Current Application) on May 6, 2013, seeking both
retroactive and prospective relief. Specifically, in the Current
Application, FDI is relying on the Department's retroactive policy, as
set forth at 29 CFR section 2570.35(a)(8), and has requested
retroactive relief for the in-kind contribution of Note 1 and
Note 2 to the Plan, for the holding of such notes by the Plan,
and for the redemption of such notes from the Plan by Minneola. In this
regard, FDI explains that it followed and relied on the written
guidance provided by A&B, to file an exemption application with the
Department, as discussed more fully in Representations 12 and 13,
above, prior to the contribution in-kind of Note 1 and Note
2 to the Plan.
Further, FDI is seeking prospective relief for the in-kind
contribution, the holding, and the redemption of the Subsequent Notes.
Both prospective and retroactive relief is also needed for the
guarantees and extensions of credit between the Plan and certain
parties in interest.
With regard to the prospective relief, FDI estimates that its
mandatory minimum funding contribution for each of the next several
plan years will be approximately $2.1 million or more per year. In this
regard, the proposed prospective relief, if granted prior to September
15, 2014, would enable FDI, subject to obtaining the approval of the I/
F, to contribute in-kind of certain Subsequent Notes to the Plan on
September 15, 2014, depending on the final valuations of such notes, in
order to satisfy FDI's minimum funding obligation for the 2013 plan
year, and further to contribute certain Subsequent Notes to satisfy its
minimum funding obligations for future plan years.
This proposed exemption, if granted, shall be effective with regard
to transactions, involving Note 1 and Note 2 for the
period beginning on September 15, 2011, and ending on December 28,
2012. This proposed exemption, if granted, shall be effective with
regard to transactions, involving the Subsequent Notes, beginning on
the date of the publication in the Federal Register of the grant of
this proposed exemption and ending on the last day any of the
Subsequent Notes is held in the Plan.
Appointment of GFA
20. FDI, acting in its corporate capacity and as named fiduciary
for the Plan, engaged GFA pursuant to an agreement, dated March 21,
2013, (the Agreement) to serve as the I/F on behalf of the Plan. Under
the terms of the Agreement, GFA will be retained for as long as the
Plan holds any of the Subsequent Notes. GFA will be authorized to make
all decisions on whether the Plan should accept the in-kind
contribution of the Subsequent Notes in satisfaction of FDI's minimum
funding obligations and otherwise to manage such notes on behalf of the
Plan. It is represented that GFA's fees and expenses will be paid by
the Plan.
GFA, a Delaware limited liability company, is a registered
investment adviser. On June 1, 2011, GFA acquired substantially all of
the assets of IFS. GFA represents that it is qualified to serve as the
I/F through its experience and through the experience of its
predecessor, IFS, in acting as the I/F for plans in connection with
contributions of non-cash assets to satisfy funding obligations, and
the management of such assets, including both private securities and
real estate. GFA represents that it has acted as independent fiduciary
in connection with numerous transactions that have been the subject of
individual prohibited transaction exemptions. In addition, GFA serves
as an on-going investment consultant to plans with assets totaling
approximately $37.1 billion. GFA is independent in that neither it nor
any of its affiliates has any relationship with FDI, Minneola, FDLC,
and the guarantors of the Notes, except that: (a) FDI has undertaken to
provide a limited indemnification to GFA as set forth in the Agreement;
and (b) FDI is secondarily liable (after the Plan) for GFA's fees and
expenses, as set forth in the Agreement. It is represented that GFA's
projected fee revenues during its 2013 Federal income tax year that may
be derived from FDI will be less than two percent (2%) of GFA's total
revenues for the 2013 income tax year.
To supplement in-house legal resources and advice from local
counsel in Florida, GFA retained the law firm of Steptoe & Johnson LLP
to provide legal advice on the fiduciary and related business issues
raised by the proposed transactions, including the fiduciary
responsibilities under the Act. In this regard, GFA has acknowledged
that is understands the duties and responsibilities under the Act of
serving as a fiduciary on behalf of the Plan.
GFA requested, received, and reviewed a number of documents
concerning the Plan, FDI, Minneola, FDLC, the guarantors, the Notes,
and the Property. Further, GFA met in-person and by telephone with FDI
executives, their legal and financial advisors, and several of the
guarantors to learn about the history, ownership, business model, and
financial performance of FDI, Minneola, and FDLC. GFA's professional
team also toured the Property.
GFA has evaluated for methodological soundness, and mathematical
and textual accuracy both the Integra Appraisal of the Property and a
preliminary, unsigned, updated appraisal of Note3,
Note4, and Note5, dated September 7, 2012, prepared
in draft by the Empire Appraisers (the Second Empire Appraisal). It is
represented that the fair market value appraisal of the Property will
be updated by an independent, qualified, appraiser (IQA) engaged by
GFA, prior to GFA's determination on whether to accept on behalf of the
Plan any of the Subsequent Notes, and prior to the contribution in-kind
of such notes to the Plan. Similarly, the fair market value of any of
the Subsequent Notes that are contributed in-kind to the Plan will be
determined by the IQA engaged by GFA, prior to such in-kind
contribution. Each such appraisal of the Subsequent Notes will reflect
the then-current terms of such notes, and will take into account all
factors deemed relevant, including the then-current value of the
Property and the additional pledges and covenants GFA has negotiated on
behalf of the Plan (as discussed below in Representation 21). The same
procedure will be followed by GFA for additional contributions in-kind
of Subsequent Notes to the Plan.
Pledges and Covenants Negotiated by GFA
21. GFA has negotiated several additional protections for the Plan,
as set forth in the term sheet that was attached to the Current
Application. As a result of these negotiations, FDI has, among other
things, agreed to the following:
(a) Upon the contribution in-kind of any of the Subsequent Notes to
the Plan, the Plan will receive a security interest in the Property (or
in a relevant portion of such Property) (the Security Interest) and
will retain such Security Interest, until the Plan no longer holds any
of the Subsequent Notes. The Property (or the relevant portion,
thereof) in which the Plan holds a Security Interest will have at least
an appraised value equal to a minimum of five (5) times the aggregate
[[Page 43087]]
outstanding balance, including all principal and accrued interest
thereon, of all the Subsequent Notes held by the Plan, where such
appraised value is determined by an IQA immediately after the most
recent contribution in-kind of such Subsequent Notes and immediately
after the sale or disposition of any portion of the Property;
(b) FDLC will covenant to refrain from mortgaging the Property and
will covenant to distribute to Minneola the net proceeds (after the
payment of expenses) from the sale of all or a portion of the Property
by FDLC. If any mortgage is placed on the Property, such mortgage will
create a default under the Subsequent Notes held in the Plan that will
allow the Plan to enforce its rights under such a default;
(c) FDI will cause Minneola, at the option of FDI, either to pay
the funds Minneola receives from FDLC to the Plan as payment on the
Subsequent Notes held in the Plan or will loan such funds to FDI for
the purpose of FDI making a contribution to the Plan within thirty (30)
days of such loan (either as a current contribution or a pre-
contribution of a future funding obligation);
(d) FDI will apply any funds it receives from Yeehaw, PMCC, Bi-
Coastal, and Arcadia for the benefit of the Plan, pursuant to written
covenants and agreements that such entities will use the available
proceeds from the sale of any real property owned by such entities, and
all net royalties received by Arcadia from third parties, to first pay
off any debts owed to FDI by such entities. In this regard, at the
option of FDI, such available proceeds and such royalties either will
be contributed to the Plan (as a current contribution or a pre-
contribution of a future funding obligation) or will be loaned to
Minneola with a written direction that Minneola pay the proceeds of
such loan to the Plan as payment on any of the Subsequent Notes held by
the Plan;
(e) The covenants and agreements are entered into prior to any in-
kind contribution of any Subsequent Notes to the Plan; and such notes
will be amended to treat a breach of any such covenants and agreements
as an event of default under such notes;
(f) The Subsequent Notes contributed in-kind to the Plan will be
contributed in the next order of seniority of such notes. The aggregate
fair market value of the Subsequent Notes that may be contributed in-
kind to the Plan shall not exceed 20 percent (20%) of the fair market
value of the total assets of the Plan, in each case determined by GFA
immediately after the in-kind contribution of such notes;
(g) If, at any time, the fair market value of the Property, all or
a portion of which serves as collateral for the Subsequent Notes
contributed in-kind to the Plan is less than 150 percent (150%) of the
aggregate outstanding principal and accrued interest balance of such
notes held by the Plan, the Plan will have the right, exercisable on
120 days' prior written notice by GFA, to accelerate the payment of
such notes to the extent necessary to cause the fair market value of
the Property to be at least 150 percent (150%) of the outstanding
principal and accrued interest amount of such notes; and
(h) If at any time, GFA determines that the Plan does not have
sufficient liquidity to meet its projected 12-month forward expense
obligations (including benefit payment obligations), the Plan will have
a right, exercisable on ninety (90) days' prior written notice to FDI,
to accelerate the repayment of any of the Subsequent Notes held in the
Plan; provided that such acceleration right shall only be to the extent
necessary to pay down the aggregate outstanding principal and accrued
interest balance of such notes, in an amount as determined by GFA to be
necessary to provide the Plan with sufficient liquid assets to meet its
twelve (12) month forward expense obligation.
GFA represents that it will consider at the time of each proposed
in-kind contribution of any of the Subsequent Notes whether FDI has
sufficient cash or other assets to render such an in-kind contribution
unnecessary to satisfy the Plan's minimum funding requirements, or
whether such an in-kind contribution can be made in addition to rather
than in lieu of a payment of a cash contribution then due.
22. GFA notes that its ability to extend the maturity date on the
Subsequent Notes will give Minneola the necessary time it needs to
market and sell the Property, which time may be more than the 18-24
months estimated by Integra Appraisal to sell the Property in order to
generate sufficient cash to pay off the Subsequent Notes contributed
in-kind to the Plan.
GFA represents that it will be responsible for monitoring and
managing all of the Subsequent Notes contributed in-kind to the Plan
and is authorized to enforce all of the Plan's rights under the
instruments governing such notes, including the additional covenants,
pledges, and agreements designed by GFA to serve as security for the
Plan, which are outlined, above. In this regard, GFA is responsible for
taking prudent action on behalf of the Plan in the event of default on
any of the Subsequent Notes held in the Plan and in the event of
default on any of the terms of the covenants, pledges, and agreements
designed to provide security for the Plan.
GFA has made a preliminary determination in a report (the Report)
attached to the Current Application, that the contribution of the
Subsequent Notes in satisfaction of FDI's funding obligation will be in
the interest of the Plan and its participants and protective of the
rights and interests of such participants and beneficiaries. As
described more fully in the Report, the Plan will receive in-kind
contributions of fairly valued fixed income securities that will
satisfy the minimum funding requirements of the Plan and improve the
Plan's funding status, as compared to the Plan's funding status in the
absence of such in-kind contributions.
Merits of the Proposed Exemption
23. The Applicant submits that proposed exemption will satisfy the
requirement that an individual exemption must be administratively
feasible. In this regard, GFA will determine, in each instance, whether
the Plan should accept the Subsequent Notes as in-kind contributions to
the Plan. Moreover, GFA will be authorized to manage and make all
decisions with respect to any of the Subsequent Notes contributed in-
kind to the Plan for as long as any such notes remain in the Plan.
Hence, FDI maintains that the proposed exemption requires no on-going
oversight by the Department and is administratively feasible.
24. FDI maintains that the in-kind contribution of Note 1
and Note 2 was, and the in-kind contribution of Subsequent
Notes will be, in the interest of the Plan because such past and
prospective in-kind contributions have substantially improved and will
improve the security of benefits for the Plan participants without
endangering the value of the Plan or creating any liquidity concerns.
Further, FDI maintains that the redemptions of Note 1 and Note
2 were in the interest of the Plan in that the Plan achieved a
favorable return of approximately 10.39 percent (10.39%) per annum over
the relatively short period the Plan held such notes.
FDI represents that it is in the interest of the Plan to accept the
in-kind contribution of the Subsequent Notes, as the Plan will receive
fairly valued fixed income securities. In this regard, FDI submitted
with the Current Application the Second Empire Appraisal, dated
September 7, 2012, prepared in draft by the Empire Appraisers. Prior to
the in-kind contribution of any of the Subsequent Notes to the Plan,
the then-
[[Page 43088]]
current fair market value of such notes will be determined by an IQA,
before GFA makes a determination on whether to accept such notes on
behalf of the Plan.
It is represented that many factors were incorporated into the
Empire Appraisers' analysis. Accordingly, in the Second Empire
Appraisal, using a discount rate of 5.9 percent (5.9%) for Note
3, 6.1 percent (6.1%) for Note 4, and 6.3 percent
(6.3%) for Note 5, the Empire Appraisers estimated that the
aggregate present value of Note 3, Note 4, and Note
5 was $3,468,935, as of September 7, 2012.
It is represented that GFA will review and approve an updated
appraisal prepared by an IQA engaged by GFA, of any Subsequent Notes to
be contributed in-kind to the Plan prior to such contribution.
25. Additionally, FDI explains that any contribution in-kind of the
Subsequent Notes to the Plan will be protective of the Plan and its
participants and beneficiaries. In this regard, the Notes are ordered
as to seniority such that each successive higher numbered note is
subordinate to any note with a lower number. For example, no amount can
be paid on Note 8 until all principal and interest has been
paid on Note 3 through Note 7. Given the redemptions
of Note 1 and Note 2, on December 28, 2012, Note
3 is now the most senior of the Notes. FDI states that the
Subsequent Notes will be contributed to the Plan in the next order of
their seniority, starting with Note 3, as necessary to satisfy
FDI's future funding obligations to the Plan, subject to the conditions
set forth in this proposed exemption.
Other than the Subsequent Notes that are the subject of this
proposed exemption, FDI will not contribute any employer real property
or employer securities to the Plan for so long as the Plan owns any
such notes.
27. If the proposed exemption is granted, FDI represents that the
Plan will continue to exist, will be adequately funded, and will
eventually be terminated in a standard termination. However, FDI
maintains that if the proposed exemption is not granted, it is not
clear how the Plan will be funded over the next several years, nor is
it clear whether FDI will continue in business due to its large minimum
funding obligations to the Plan and its current lack of liquid assets.
Moreover, if the proposed exemption is denied, FDI states that
there will be hardship and economic loss to the Plan. In particular,
given FDI's current lack of liquid assets and its anticipated lack of
liquidity over the next several years, FDI explains that it is highly
unlikely that it can make the required contributions to the Plan in
cash. Consequently, some or all of the required contributions might not
be made, resulting in economic loss to the Plan and its participants
and beneficiaries.
26. In summary, FDI represents that the subject retroactive
transactions satisfy the statutory criteria of section 408(a) of the
Act because:
(a) Prior to the in-kind contribution of Note 1 and Note
2, the fair market value of such notes was determined to be at
least $2,316,047, as determined by the IQA;
(b) Prior to the in-kind contribution of Note 1 and Note
2, FDI engaged the law firm of A&B, and FDI thereafter
contributed Note 1 and Note 2 in a manner consistent
with written guidance provided by A&B on September 10, 2011;
(c) The Notes were redeemed for $2,616,702.01, providing the Plan
with a 10.39% annual rate of return in connection with its holding of
Note 1 and Note 2;
(d) The terms and conditions of the transactions were no less
favorable to the Plan than the terms and conditions negotiated at arm's
length under similar circumstances between unrelated parties; and
(e) The Plan did not incur any commissions, fees, costs, other
charges, or expenses in connection with the acquisition, the in-kind
contribution, the holding, and/or the redemption of Note 1 and
Note 2, except for the fees of the I/F, or persons engaged by
the I/F to act on behalf of the Plan.
27. In summary, FDI represents that the subject prospective
transactions satisfy the statutory criteria of section 408(a) of the
Act because, among other things:
(a) The terms and conditions of the transactions will be no less
favorable to the Plan than the terms and conditions negotiated at arm's
length under similar circumstances between unrelated parties;
(b) The terms of the transactions will be determined in advance by
the I/F, acting on behalf of the Plan, to be administratively feasible,
in the interest of, and protective of the Plan and its participants and
beneficiaries;
(c) The I/F is engaged with full discretionary authority to act on
behalf of the Plan with respect to each of the Subsequent Notes
contributed in-kind of the Plan, including the exercise of any of the
rights of the Plan under such notes, and the responsibility to monitor
such notes, and to ensure compliance by FDI, Minneola, FDLC, and any
affiliates thereof, with the terms and conditions of such notes, and
with the terms and conditions of this proposed exemption;
(d) The Subsequent Notes will be contributed in-kind to the Plan in
the next order of seniority of such notes (i.e., Note 3, Note
4, Note 5, etc.);
(e) Prior to the in-kind contribution of any of the Subsequent
Notes, the fair market value of such notes will be determined by an
IQA, engaged by the I/F;
(f) Upon the contribution in-kind of any Subsequent Notes to the
Plan,
(1) The Plan will receive a recorded, perfected Security Interest
in the Property (or in a relevant portion of such Property) and will
retain such Security Interest until the Plan no longer holds any
Subsequent Notes; and
(2) The Property in which the Plan holds the Security Interest will
have, at all times throughout the duration of the contributed
Subsequent Notes, an appraised value equal to a minimum of five (5)
times the aggregate outstanding balance, including all principal and
accrued interest thereon, of all of the Subsequent Notes held by the
Plan;
(g) The aggregate fair market value of the Subsequent Notes
proposed to be contributed in-kind to the Plan shall not exceed 20% of
the fair market value of the total assets of such Plan, in each case
determined by the I/F immediately after the in-kind contribution of
such notes;
(h) The Plan will not incur any commissions, fees, costs, other
charges, or expenses in connection with the acquisition, the in-kind
contribution, the holding, and/or the redemption of any of the
Subsequent Notes, including the fees and expenses of the I/F, and the
fees and expenses of an IQA, counsel, or other persons engaged by the
I/F;
(i) If, at any time, the fair market value of the Property, all or
a portion of which serves as collateral for the Subsequent Notes
contributed in-kind to the Plan, is less than 150 percent (150%) of the
aggregate outstanding principal balance and accrued interest of such
notes held by the Plan, the Plan has the right, exercisable on 120
days' prior written notice by the I/F to FDI, to accelerate the payment
of such notes in order to cause the fair market value of the Property
to be at least 150 percent (150%) of the aggregate outstanding
principal and accrued interest amount of such Subsequent Notes;
(j) If, at any time, the I/F determines that the Plan does not have
sufficient liquidity to meet its projected 12-month forward expense
obligations (including benefit payment obligations), the Plan will have
a right, exercisable, by the I/F, on ninety (90) days' prior written
notice to FDI, to accelerate the
[[Page 43089]]
repayment of the Subsequent Notes held by the Plan;
(k) Any extension of the maturity date of the Subsequent Notes is
subject to the approval of the I/F; and
(l) The Notes will be partially guaranteed by certain family
trusts, based on the respective ownership of such trusts of interests
in Minneola; and unconditionally guaranteed by Mrs. Emack and Mrs.
Strimenos, who jointly and severally will guarantee payment of the
aggregate amount of such notes in full.
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 (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).
Section I: Retroactive Transactions
If the proposed exemption is granted, the restrictions of sections
406(a)(1)(A), 406(a)(1)(B), 406(a)(1)(E), 406(a)(2), 406(b)(1),
406(b)(2), and 407 of the Act and the sanctions resulting from the
application of section 4975 of the Code, by reason of section
4975(c)(1)(A), 4975(c)(1)(B), and 4975(c)(1)(E) of the Code,\5\ shall
not apply, effective September 15, 2011, through December 28, 2012, to
the following transactions, provided that the conditions, as set forth
in Section II and Section V of this proposed exemption, are satisfied;
---------------------------------------------------------------------------
\5\ 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.
---------------------------------------------------------------------------
(a) The contribution in-kind to the Plan of two (2) promissory
notes (Note 1 and Note 2), of a series of twenty-nine
(29) numbered promissory notes (collectively, the ``Notes'' and
individually, ``Note 1 through Note 29''), as defined
below in Section VI(d), by Family Dynamics, Inc. (FDI), the sponsor of
the Plan, for the purpose of satisfying the minimum funding obligation
of FDI to the Plan for the plan year ending December 31, 2010;
(b) The holding by the Plan of Note 1 and Note 2
until December 28, 2012;
(c) The extension of credit by the Plan to Minneola AG, LLC
(Minneola), the issuer of the Notes and a party in interest with
respect to the Plan, resulting from the holding of Note 1 and
Note 2 by the Plan;
(d) The extension of credit to the Plan: (1) by certain
stockholders of FDI; and (2) by the members of Minneola, by reason of
each such stockholder's and/or each such member's personal guaranty of
all or a portion of the face amounts, plus accrued interest thereon, of
Note 1 and Note 2; and
(e) The redemption of Note 1 and Note 2 on
December 28, 2012, by Minneola for a cash payment that equaled the fair
market value of such notes, including principal and all accrued
interest thereon through the date of redemption.
Section II: Conditions for Retroactive Transactions
(a) Prior to the in-kind contribution of Note 1 and Note
2, the fair market value of such notes was determined to be at
least $2,316,047, as determined by an independent, qualified appraiser
(the IQA);
(b) Prior to the in-kind contribution of Note 1 and Note
2, FDI engaged the law firm of Alston and Bird, LLP (A&B), and
FDI thereafter contributed Note 1 and Note 2 in a
manner consistent with written guidance provided by A&B on September
10, 2011;
(c) The Notes were redeemed for $2,616,702.01, providing the Plan
with a 10.39 percent (10.39%) annual rate of return in connection with
its holding of Note 1 and Note 2;
(d) The terms and conditions of the transactions, as described in
Section I, were no less favorable to the Plan than the terms and
conditions negotiated at arm's length under similar circumstances
between unrelated parties;
(e) The Plan did not incur any commissions, fees, costs, other
charges, or expenses in connection with the acquisition, the in-kind
contribution, the holding, and/or the redemption of Note 1 and
Note 2, except for the fees of a qualified, independent
fiduciary acting on behalf of the Plan (the I/F), as defined below in
Section VI(c), or persons engaged by the I/F on behalf of the Plan.
Section III: Prospective Transactions
If the proposed exemption is granted, the restrictions of sections
406(a)(1)(A), 406(a)(1)(B), 406(a)(1)(E), 406(a)(2), 406(b)(1),
406(b)(2), and 407 of the Act and the sanctions resulting from the
application of section 4975 of the Code, by reason of section
4975(c)(1)(A), 4975(c)(1)(B), and 4975(c)(1)(E) of the Code, shall not
apply as of the date the final exemption is published in the Federal
Register and ending on the last day certain of the Notes (the
Subsequent Notes), as defined below in Section VI(m), are held by the
Plan, to the following transactions, provided that the conditions as
set forth in Section IV and Section V of this proposed exemption are
satisfied:
(a) The contribution in-kind to the Plan of the Subsequent Notes
for the purpose of satisfying FDI's minimum funding obligations to the
Plan;
(b) The holding of the Subsequent Notes until the maturity date of
such notes;
(c) The extension of credit by the Plan to Minneola resulting from
the holding of the Subsequent Notes by the Plan;
(d) The extension of credit to the Plan by: (1) Certain major
stockholders of FDI; and (2) the members of Minneola that are family
trusts, by reason of each such stockholder's and/or each such member's
personal guaranty of all or a portion of the face amount, plus accrued
interest thereon, of any of the Subsequent Notes; and
(e) The redemption by FDI, Family Dynamics Land Company, LLC
(FDLC), Minneola, or any affiliate thereof, as affiliate is defined
below in Section VI(a), of any of the Subsequent Notes on or before the
maturity date of such notes for the greater of: (1) The aggregate
principal plus accrued interest thereon of such notes, as of the date
of redemption; or (2) the fair market value of such notes, as
determined by an IQA, as of the date of redemption.
Section IV: Conditions for Prospective Transactions
(a) The terms and conditions of the transactions will be no less
favorable to the Plan than the terms and conditions negotiated at arm's
length under similar circumstances between unrelated parties;
(b) The terms of the transactions, as described in Section III, are
determined in advance by the I/F, acting on behalf of the Plan, to be
administratively feasible, in the interest of, and protective of the
Plan and its participants and beneficiaries;
(c) The I/F is engaged with full discretionary authority to act on
behalf of the Plan with respect to each of the Subsequent Notes
contributed in-kind of the Plan, including the exercise of any of the
rights of the Plan under such notes, and the responsibility to monitor
such notes, and to ensure compliance by FDI, Minneola, FDLC, and any
affiliates thereof, with the terms and conditions of such notes, and
with the terms and conditions of this proposed exemption;
(d) The Subsequent Notes will be contributed in-kind to the Plan in
the next order of seniority of such notes (i.e., Note 3, Note
4, Note 5, etc.);
(e) Prior to the in-kind contribution of any of the Subsequent
Notes, the fair market value of such notes will be
[[Page 43090]]
determined by an IQA, engaged by the I/F. The fair market value must
reflect the then-current terms of such Subsequent Notes, and take into
account all factors deemed relevant, including the then-current value
of a certain parcel of real property (the Property), as defined below
in Section VI(f), all or a portion of which secures such notes, as well
as the additional pledges and covenants the I/F has negotiated on
behalf of the Plan;
(f) Upon the contribution in-kind of any Subsequent Notes to the
Plan,
(1) The Plan receives a recorded, perfected security interest in
the Property (or in a relevant portion of such Property) (the Security
Interest) and retains such Security Interest until the Plan no longer
holds any Subsequent Notes; and
(2) The Property in which the Plan holds the Security Interest has,
at all times throughout the duration of the contributed Subsequent
Notes, an appraised value equal to a minimum of five (5) times the
aggregate outstanding balance, including all principal and accrued
interest thereon, of all of the Subsequent Notes held by the Plan,
where such appraised value is determined by an IQA,
(A) Immediately after the most recent contribution in-kind of such
Subsequent Notes; and
(B) Immediately after the sale or disposition of any portion of the
Property;
(g) The aggregate fair market value, as determined pursuant to
Section IV(e) above, of the Subsequent Notes proposed to be contributed
in-kind to the Plan shall not exceed 20% of the fair market value of
the total assets of such Plan, in each case determined by the I/F
immediately after the in-kind contribution of such notes;
(h) The Plan will not incur any commissions, fees, costs, other
charges, or expenses in connection with the acquisition, the in-kind
contribution, the holding, and/or the redemption of any of the
Subsequent Notes, including the fees and expenses of the I/F, and the
fees and expenses of an IQA, counsel, or other persons engaged by the
I/F;
(i) If, at any time, the fair market value of the Property, all or
a portion of which serves as collateral for the Subsequent Notes
contributed in-kind to the Plan, is less than 150 percent (150%) of the
aggregate outstanding principal balance and accrued interest of such
notes held by the Plan, the Plan has the right, exercisable on 120
days' prior written notice by the I/F to FDI, to accelerate the payment
of such notes in order to cause the fair market value of the Property
to be at least 150 percent (150%) of the aggregate outstanding
principal and accrued interest amount of such Subsequent Notes;
(j) If, at any time, the I/F determines that the Plan does not have
sufficient liquidity to meet its projected 12-month forward expense
obligations (including benefit payment obligations), the Plan has a
right, exercisable, by the I/F, on ninety (90) days' prior written
notice to FDI, to accelerate the repayment of the Subsequent Notes held
by the Plan;
(k)(1) FDI provides to the I/F a report from the custodian of the
Plan no later than ten (10) days after the end of each calendar quarter
detailing the assets of the Plan (excluding the Subsequent Notes held
by the Plan) as of the last day of the calendar quarter just ended so
long as the Plan owns any Subsequent Notes; and
(2) FDI provides to the I/F, not later than thirty (30) days after
the written request of the I/F, a report from the actuary of the Plan
projecting the Plan's forward expense obligations for the following
twelve (12) months;
(l) The following FDI-related entities: Yeehaw Ranch Land, LLC
(Yeehaw), PMCC, LLC (PMCC), Bi-Coastal Holdings, LLC (Bi-Coastal), and
Arcadia Holdings, LLC (Arcadia): Will covenant with FDI to use the
``available proceeds,'' as defined in Section VI(1), from the sale of
any real property owned by such entities, and all net royalties
received by Arcadia from third parties, to pay off any debts owned by
such entities to FDI. At the option of FDI, such available proceeds and
such royalties either will be contributed to the Plan (as a current
contribution or a pre-contribution of a future funding obligation) or
will be loaned to Minneola with a written direction that Minneola pay
the proceeds of such loan to the Plan as payment on any of the
Subsequent Notes held by the Plan;
(m) The covenants and agreements described in Section IV(m) above
of this proposed exemption are entered into prior to any in-kind
contribution of any Subsequent Notes to the Plan; and such notes will
be amended to treat a breach of any such covenants and agreements as an
event of default under such notes;
(n) FDLC enters into a covenant agreement with the Plan, pursuant
to which FDLC covenants to: (1) Refrain from mortgaging the Property;
and (2) distribute to Minneola the net proceeds (after the payment of
expenses) from the sale of all or a portion of the Property by FDLC. If
any mortgage is placed on the Property, such mortgage will create a
default under the Subsequent Notes held in the Plan that will allow the
Plan to enforce its rights under such a default;
(o) FDI enters into an agreement with the Plan, whereby FDI shall
apply all the funds that FDI receives during the Prospective Exemption
Period, as defined below in Section VI(e), with respect to certain of
FDI's illiquid assets, as defined below in Section VI(k), either to the
repayment of the principal and accrued interest on the Subsequent Notes
then held in the Plan, or to the use of such funds to satisfy FDI's
current and future funding obligations to the Plan;
(p) FDI will cause Minneola, at the option of FDI, either to pay to
the Plan any funds Minneola receives from FDLC to the Plan, as payment
on the Subsequent Notes held in the Plan, or to loan such funds to FDI
for the purpose of FDI making a contribution to the Plan within thirty
(30) days of such loan (either as a current contribution or a pre-
contribution of a future funding obligation);
(q) Any extension of the maturity date of the Subsequent Notes is
subject to the approval of the I/F; and
(r) The Notes are partially guaranteed by certain family trusts,
based on the respective ownership of such trusts of interests in
Minneola; and unconditionally guaranteed by Mrs. Gail Gregg-Strimenos
and Mrs. Jeannie Gregg-Emack, who jointly and severally guarantee
payment of the aggregate amount of such notes in full.
Section V: General Conditions
(a) FDI, Minneola, FDLC, and any affiliates thereof, as applicable,
maintain or causes to be maintained within the United States, starting
on September 15, 2011, and ending on the date which is six (6) years
after the last day any of the Subsequent Notes is held by the Plan, the
records necessary to enable the persons, described below in Section
V(b)(1)(A)-(C), to determine whether the conditions of this proposed
exemption have been met, except that:
(1) A separate prohibited transaction shall not be considered to
have occurred solely because, due to circumstances beyond the control
of FDI, Minneola, FDLC, or their affiliates, as applicable, such
records are lost or destroyed prior to the end of the six (6) year
period, described in Section V(a) above, and
(2) No party in interest with respect to the Plan, other than FDI,
Minneola, FDLC, and their affiliates, as applicable, shall be subject
to the civil penalty that may be assessed under section 502(i) of the
Act, or to the taxes imposed by section 4975(a) and (b) of the Code, if
the records are not maintained, or are not available for examination,
as required, below, by Section V(b)(1).
[[Page 43091]]
(b)(1) Except as provided in Section V(b)(2), and notwithstanding
any provisions of subsections (a)(2) and (b) of section 504 of the Act,
the records referred to, above, in Section V(a) are unconditionally
available for examination at their customary location during normal
business hours by:
(A) Any duly authorized employee or representative of the
Department, or the Internal Revenue Service; and
(B) Any fiduciary of the Plan, and any duly authorized
representative of such fiduciary; and
(C) Any participant or beneficiary of the Plan, and any duly
authorized representative of such participant or beneficiary;
(2) None of the persons, described above in Section V(b)(1)(B)
through (C), shall be authorized to examine trade secrets of FDI,
Minneola, FDLC, or their affiliates or commercial or financial
information which is privileged or confidential.
Section VI: Definitions
(a) An ``affiliate'' of a person includes:
(1) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with the person;
(2) Any officer, director, employee, relative, or partner in any
such person; and
(3) Any corporation or partnership of which such person is an
officer, director, partner, or employee.
(b) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(c) The term ``I/F'' means Gallagher Fiduciary Advisers, LLC or any
successor that has satisfied all of the criteria for a ``qualified
independent fiduciary'' within the meaning of 29 CFR 2570.31(j).
(d) The term ``Notes'' means a series of twenty-nine (29)
promissory notes (declining in seniority from Note1 to
Note29), issued by Minneola and acquired by FDI from Minneola
as a result of the sale of FDLC which owns the Property by FDI to
Minneola. Each of the Notes has a face value of $1,000,000, except for
Note29, which has a face value of $1,330,000. Each of the
Notes has an interest rate of 4.53 percent (4.53%) per annum compounded
semi-annually.
(e) The term ``Prospective Exemption Period'' means the period
beginning on the date of publication in the Federal Register of the
grant of this proposed exemption and ending on the last day any of the
Subsequent Notes is held by the Plan.
(f) The term ``Property'' means a certain tract of approximately
1,770 acres of real estate which is located in the City of Minneola,
Florida.
(g) The term ``Minneola'' means Minneola AG, LLC, a Florida limited
liability company.
(h) The term ``FDI'' means Family Dynamics, Inc., a Florida
corporation.
(i) The term ``FDLC'' means Family Dynamics Land Company, LLC, a
Florida limited liability company.
(j) The term ``Plan'' means the Family Dynamics, Inc. Pension Plan.
(k) The phrase ``FDI's illiquid assets'' means the following
assets:
(1) A $6.730 million dollar note from Yeehaw;
(2) A $2.872 million dollar note from PMCC;
(3) A $5.463 million dollar note from Bi-Coastal the sole owner of
Arcadia;
(4) A non-recourse loan to a Gregg family member in the amount of
$5.661 million dollars;
(5) The Notes with an aggregate value of $35.757 million dollars
issued by Minneola and held by FDI which are the subject of this
proposed exemption; and
(6) Miscellaneous assets worth $0.403 million dollars.
(l) The term ``available proceeds'' means the proceeds from the
sale of property less: (1) All reasonable expenses, including any
brokerage commissions, payable to parties unrelated to FDI or its
principals/beneficial owners; and (2) all debt required to be paid as a
condition to closing on such sale to obtain a release of any mortgage
on such property.
(m) The term ``Subsequent Notes'' means Note3 through
Note29.
Notice To Interested Persons
The persons who may be interested in the publication in the Federal
Register of the Notice of Proposed Exemption include all the
participants and the beneficiaries of deceased participants in the Plan
at the time the proposed exemption is issued.
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.
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 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 the Code, including
any prohibited transaction provisions to which the proposed exemption
does not apply and the general fiduciary responsibility provisions of
section 404 of the Act, which require, among other things, a fiduciary
to discharge his or her duties respecting a plan solely in the interest
of the participants and beneficiaries of a plan and in a prudent
fashion in accordance with section 404(a)(1)(B) of the Act; nor does it
affect the requirements of section 404(a) of the Code that a plan
operate for the exclusive benefit of the employees of the employer
maintaining a plan and their beneficiaries;
(2) Before a proposed exemption can be granted under section 408(a)
of the Act and section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interest of a
plan and of its participants and beneficiaries and protective of the
rights of participants and beneficiaries of a plan;
(3) This proposed exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and the Code,
including statutory or administrative exemptions. 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) This proposed exemption, if granted, is subject to the express
condition that the facts and representations set forth in this notice,
accurately describe, where relevant, the material terms of the
transactions to be consummated pursuant to this proposed exemption.
Written Comments and Hearing Requests
All interested person are invited to submit written comments and/or
requests for a public hearing on the proposed exemption to the address,
as set forth above, within the time frame, as set forth above. All
comments and
[[Page 43092]]
requests for a public hearing will be made a part of the record.
Comments and hearing requests should state the reasons for the writer's
interest in the proposed exemption. A request for a public hearing must
also state the issues to be addressed and include a general description
of the evidence to be presented at the hearing. Comments and hearing
requests received will also be available for public inspection with the
referenced application at the address, as set forth above.
Signed at Washington, DC, this 11th day of July, 2014.
Lyssa E. Hall,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. 2014-17425 Filed 7-23-14; 8:45 am]
BILLING CODE 4510-29-P