Proposed Exemptions; Pennsylvania Institute of Neurological Disorders, Inc. Profit Sharing Plan (the Plan), 76870-76886 [05-24493]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 70, Number 248 (Wednesday, December 28, 2005)]
[Notices]
[Pages 76870-76886]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-24493]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. D-11306, et al.]


Proposed Exemptions; Pennsylvania Institute of Neurological 
Disorders, Inc. Profit Sharing Plan (the Plan)

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    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. 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.

ADDRESSES: 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-5649, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. ----, stated in each Notice of 
Proposed Exemption. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
``moffitt.betty@dol.gov'', or by FAX to (202) 219-0204 by the end of 
the scheduled comment period. The applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.

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).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the 
Secretary of the Treasury to issue exemptions of the type requested to 
the Secretary of Labor. Therefore, these notices of proposed exemption 
are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Pennsylvania Institute of Neurological Disorders, Inc. Profit Sharing 
Plan (the Plan) Located in Sunbury, PA

[Application No. D-11306]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2) 
of the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, shall not apply to the proposed sale (the Sale) by the Plan of a 
parcel of unimproved real property known as Lot 20, Section ``F'', 
Monroe Manor, Inc., (Lot 20 Kingswood Drive, Selinsgrove, PA 
17870) (the Property) to Mahmood Nasir, M.D. (Dr. Nasir), a party in 
interest with respect to the Plan, provided that the following 
conditions are satisfied:

[[Page 76871]]

    (a) All terms and conditions of the Sale are at least as favorable 
to the Plan as those that the Plan could obtain in an arm's-length 
transaction with an unrelated party;
    (b) The Sales price is the greater of $81,000 or the fair market 
value of the Property as of the date of the Sale;
    (c) The fair market value of the Property has been determined by a 
qualified independent appraiser;
    (d) The Sale is a one-time transaction for cash;
    (e) The Plan does not pay any commissions, costs, or other expenses 
in connection with the Sale; and
    (f) The Plan fiduciaries will determine, among other things, 
whether it is in the interest of the Plan to go forward with the Sale 
of the Property, will review and approve the methodology used in the 
appraisal that is being relied upon, and will ensure that such 
methodology is applied by a qualified independent appraiser in 
determining the fair market value of the Property as of the date of the 
Sale.

Summary of Facts and Representations

    1. The Pennsylvania Institute of Neurological Disorders, Inc. (the 
Employer) is the sponsor of the Plan. Dr. Nasir is the sole owner and 
shareholder of the Employer. Dr. Nasir is also the President of the 
Employer. The Employer is located in Sunbury, Pennsylvania.
    The Plan is a defined contribution profit sharing plan which was 
effective as of September 1, 1993. As of December 31, 2004, the Plan 
had seven participants, who are as follows: Dr. Nasir, Denise Bebenek, 
Teresa Gelnett, Julie Rebuck, Judy S. Smink, Hollie Vankirk, and Cassie 
J. Wolfe. The Trustees of the Plan are Dr. Nasir and Rubina Nasir. As 
of December 31, 2004, the Plan had total assets of $403,241.99.
    2. In July 1995, the Plan purchased the Property from John A. Bolig 
and Christabelle M. Bolig, unrelated third parties, for $49,000.\1\ The 
Property is a 22,500 square foot parcel of unimproved real property 
located at Lot 20 Kingswood Drive, Selinsgrove, Pennsylvania 
17870. The Property is adjacent to property owned and resided on by Dr. 
Nasir. The applicant represents that the Property has not been leased 
to, or used by, any party in interest with respect to the Plan since 
the date of acquisition by the Plan. The value of the Property 
represents approximately 16.57% of the Plan's total assets as of 
December 31, 2004. The applicant represents that the only Plan 
expenditure with respect to the Property is $511.72 in annual real 
estate taxes from 1995 (i.e., the year of original acquisition) until 
the present. Therefore, the total cost to the Plan for the Property was 
$54,628.92 as of the present date ($5,628.92 + $49,000 = $54,628.92). 
Since the date of the purchase, the Property has remained vacant and no 
income has been generated.
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    \1\ The Department expresses no opinion herein as to whether the 
acquisition and holding of the Property by the Plan violated any of 
the provisions of part 4 of Title I of the Act.
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    3. The Property was appraised (the Appraisal) on June 21, 2005, by 
Mary Beth Rodriguez (the Appraiser), of the Bowen Agency in 
Selinsgrove, Pennsylvania. The Appraiser is certified by the 
Commonwealth of Pennsylvania as a General Appraiser. The Appraiser has 
certified that she is independent of the Employer, the Trustees, and 
any other parties in interest.
    The Property was valued using the sales approach. The Appraiser 
compared the Property to three other similar properties sold within a 
one-half mile of the Property since March 2004. She adjusted the sale 
price of the comparable properties based upon date of the sale, 
location, and site/view. The Appraiser determined that the fair market 
value of the Property was $81,000 as of June 21, 2005.
    The Appraiser did not attribute any special benefit to the value of 
the Property from the ownership of Dr. Nasir of the adjacent property 
due to a number of factors. First, there is a driveway dividing the two 
parcels. Second, the ownership of the Property by Dr. Nasir does not 
affect Dr. Nasir's interest in the adjacent lot. Finally, the value of 
the sum of the separate values for the Property and the adjacent parcel 
already owned by Dr. Nasir is greater than the value if the Property 
and the adjacent lot were sold as one combined lot. Therefore, the 
Appraisal does not include any premium for assemblage value.\2\
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    \2\ ``Assemblage'' value reflects the willingness of a purchaser 
to pay above market value for a parcel of property in order to 
preserve such purchaser's interest in their present holdings of 
other parcels which are adjacent to such property.
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    4. The applicant represents that the proposed transaction is in the 
interest of the Plan because a gain will be realized when the parcel of 
land is sold to Dr. Nasir and the proceeds can be reinvested in other 
investments with a higher rate of return without incurring carrying 
costs such as real estate taxes. The Property is the only real property 
owned by the Plan. The transaction will be a one-time cash sale and 
will enable the Plan to diversify its investment portfolio.
    Furthermore, the applicant represents that the proposed transaction 
is in the best interest and protective of the Plan because the Sale 
will be for an amount equal to the greater of: (i) $81,000 which 
represents the fair market value of the Property as of June 21, 2005, 
or (ii) the current fair market value of the Property, as established 
by a qualified independent appraiser on the date of the Sale. This 
amount exceeds the original acquisition cost of the Property, plus 
expenses and real estate taxes incurred by the Plan from the date of 
the acquisition until the date of the proposed Sale. The Plan will not 
pay any commissions, costs, or other expenses in connection with the 
Sale. The applicant states that the Appraisal will be updated as of the 
date of the transaction.\3\
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    \3\ For this purpose, the updated appraisal must take into 
account any new data on recent sales of similar property in the 
local real estate market, which may affect the valuation conclusion.
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    5. The Plan fiduciaries will determine, among other things, whether 
it is in the interest of the Plan to go forward with the Sale of the 
Property, will review and approve the methodology used in the appraisal 
that is being relied upon, and will ensure that such methodology is 
applied by a qualified independent appraiser in determining the fair 
market value of the Property as of the date of the Sale.
    6. The proposed transaction will occur within 30 days of the 
publication of the grant of the prohibited transaction exemption.
    7. In summary, the applicant represents that the subject 
transaction satisfies the statutory criteria contained in section 
408(a) of the Act and section 4975(c)(2) of the Code for the following 
reasons:
    (a) All terms and conditions of the Sale will be at least as 
favorable to the Plan as those that the Plan could obtain in an arms-
length transaction with an unrelated party;
    (b) The fair market value for Property has been determined by a 
qualified independent appraiser;
    (c) The Sale will be a one-time transaction for cash;
    (d) The Plan will not pay any commissions, costs, or other expenses 
in connection with the Sale; and
    (e) The Plan will receive an amount equal to the greater of: (i) 
$81,000; or (ii) the current fair market value of the Property as of 
the date of the Sale.

Notice to Interested Persons

    Notice of the proposed exemption shall be given to all interested 
persons in the manner agreed upon by the

[[Page 76872]]

applicant and Department within 15 days of the date of publication in 
the Federal Register. Comments and requests for a hearing are due 
forty-five (45) days after publication of the notice in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Ms. Blessed Chuksorji of the 
Department, telephone (202) 693-8567 (this is not a toll-free number).

The Zieger Health Care Corporation Retirement Fund (the Plan) Located 
in Farmington, Michigan

[Exemption Application No. D-11313]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Employee Retirement Income Security 
Act (the Act) and section 4975(c)(2) of the Internal Revenue Code of 
1986 (the Code), and in accordance with the procedures set forth in 29 
CFR part 2570, subpart B, 55 FR 32836, 32847 (August 10, 1990).\4\
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    \4\ For purposes of this 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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I. Transactions

    If the exemption is granted, the restrictions of sections 406(a), 
406(b)(1), 406(b)(2), and 407(a) of the Act and the sanctions resulting 
from the application of section 4975, by reason of sections 
4975(c)(1)(A) through (E) of the Code, shall not apply to:
    (a) The in-kind contribution and transfer to the Plan (the In-Kind 
Contribution) by Zieger Health Care Corporation (ZHCC), acting through 
its wholly-owned subsidiary, Botsford General Hospital (the Hospital), 
both of which are parties in interest with respect to the Plan, of the 
Hospital's right, title, and interest in five (5) limited liability 
corporations, (collectively, the LLCs or individually, an LLC) where 
the sole asset of each such LLC is one of five (5) parcels of improved 
real property situated in southeastern Michigan (individually, an 
Underlying Property, collectively, the Properties).
    (b) The holding by the Plan of ownership interests in the LLCs that 
own the Properties.
    (c) The leaseback by the Plan to the Hospital of the Underlying 
Property held by each of the LLCs, (individually, a Lease or 
collectively, the Leases).
    (d) The sale of an Underlying Property (or ownership interest in an 
LLC, as the case may be) by the Plan to ZHCC or its affiliates, 
pursuant to a right of first offer (the RFO), as described in each 
Lease, at any time during the term of such Lease.
    (e) Any payment or payments to the Plan by the Hospital, pursuant 
to contingent rent payments(s) (the Contingent Rent Payment(s)), as 
described in each Lease, during the term of such Lease.\5\
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    \5\ The transactions described in section I (a)-(e), above, 
collectively, are referred to herein as the Transactions.
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II. Conditions

    The exemption is conditioned upon adherence to the material facts 
and representations described herein and upon satisfaction of the 
following requirements:
    (a) ZHCC contributes to the Plan no less than:
    (1) Cash in the amount of $3.3 million in the year 2005;
    (2) Cash in the amount of $2 million in each of the years 2006, 
2007, and 2008; and
    (3) Cash in the amount of $3 million in the year 2009.
    (b) A qualified, independent fiduciary, as defined in section 
III(c), below, (the Independent Fiduciary), acting on behalf of the 
Plan, determines in accordance with the fiduciary provisions of the 
Act, whether and on what terms to enter into each of the Transactions.
    (c) The Independent Fiduciary represents the Plan's interests for 
all purposes with respect to each of the Transactions and determines, 
prior to entering into any of the Transactions, that each such 
transaction is feasible, in the interest of the Plan, and protective of 
the Plan and its participants and beneficiaries.
    (d) The Independent Fiduciary reviews, negotiates, and approves the 
specific terms of each of the Transactions.
    (e) The Independent Fiduciary monitors compliance by ZHCC and its 
affiliates, as defined in section III(a), below, with the terms of each 
of the Transactions and with the conditions of this proposed exemption 
to ensure that such terms and conditions are at all times satisfied.
    (f) The Independent Fiduciary manages the acquisition, holding, 
leasing, and disposition of the Plan's ownership interests in the LLCs 
that own the Properties and takes whatever actions are necessary to 
protect the rights of the Plan with respect the Plan's ownership 
interests in such LLCs.
    (g) The terms and conditions of each of the Transactions are no 
less favorable to the Plan than terms negotiated at arm's length under 
similar circumstances between unrelated third parties.
    (h) The Independent Fiduciary determines the fair market value of 
the In-Kind Contribution, as of the date such contribution is made. In 
determining the fair market value of the In-Kind Contribution, the 
Independent Fiduciary obtains an updated appraisal from an independent, 
qualified appraiser selected by the Independent Fiduciary and ensures 
that the appraisal is consistent with sound principles of valuation.
    (i) Each Lease has a term of years, commencing on the closing date 
of the In-Kind Contribution and ending ten (10) years thereafter. Each 
Lease is a triple net ``bondable'' lease in which the Hospital's 
obligation to pay rent to the Plan is absolute and unconditional. The 
rental payment under each Lease is no less than the fair market rental 
value of the leased premises, as determined by the Independent 
Fiduciary, and is net of all costs related to the leased premises, 
including costs of capital improvements and all other costs to operate, 
maintain, repair and replace in good condition, and repair the systems 
and structural and non-structural components of the buildings on the 
leased premises, including without limitation, the roof, foundation, 
landscaping, storm water management, utilities, and all other capital 
and non-capital repairs and replacements, all in a manner befitting 
office buildings comparable to the buildings on the leased premises and 
in accordance with all applicable laws. Each Lease contains a 
commercially reasonable standard for determining whether repair or 
replacement is necessitated. All such maintenance, repair, and 
replacement work is the responsibility of the Hospital. As discussed in 
representation number 6 in the Summary of Facts and Representations, 
below, and except as otherwise provided in each Lease, the Hospital is 
required to restore the leased premises in the event of casualty or 
condemnation, regardless of any lack or insufficiency of insurance 
proceeds or condemnation awards therefore (but subject to all 
applicable laws);
    (j) ZHCC and the Hospital agree to make one or more Contingent Rent 
Payment(s) to the Plan, if the Plan does not earn an annual return on 
each of the Properties equal to a fixed interest rate of 8 percent (8%) 
in any year (the Minimum Funding Rate). Each Contingent Rent Payment is 
due on the earliest of: (1) The end of the ten (10) year term of the 
Leases, (2) the termination of any of the Leases (including a 
termination due to default,

[[Page 76873]]

destruction, or condemnation), or (3) the sale by the Plan of any 
parcel included in the Properties (or the sale by the Plan of the 
entity that owns any parcel) (each a Minimum Return Date). If the 
actual return to the Plan (the Actual Return), as defined in section 
III (d), below, is less than the sum of the contribution value of the 
Properties, plus a return on such contribution value equal to the 
Minimum Funding Rate (the Minimum Return), then ZHCC and the Hospital 
shall pay to the Plan a Contingent Rental Payment equal to the amount 
of any such difference. ZHCC and the Hospital shall pay each Contingent 
Rent Payment to the Plan in cash within 180 days after each Minimum 
Return Date.
    (k) If the Plan desires to sell or convey any of the Properties (or 
any of the LLCs, as the case may be), during the term of a Lease, the 
Plan shall first offer the Hospital the right to purchase or otherwise 
acquire such property or LLC, pursuant to a right of first offer (the 
RFO): (1) On such terms and conditions as the Plan proposes to market 
such property or such LLC for sale (Soliciting Offer), which terms and 
conditions shall reflect the Plan's good faith determination of market 
conditions and the fair market value for such property or LLC, or (2) 
on such terms and conditions as are contained within an unsolicited 
bona fide offer from an unaffiliated third party that the Plan desires 
to accept (Unsolicited Offer). The parties shall negotiate in good 
faith the terms and conditions of any purchase based on a Soliciting 
Offer for a period of thirty (30) days following the Plan's notice to 
the Hospital. In all events, the Hospital shall exercise such right to 
purchase, if at all, upon notice to the Plan within the thirty (30) day 
period described above with respect to a Soliciting Offer or within 
thirty (30) days after notice to the Hospital of an Unsolicited Offer. 
If the Hospital fails to exercise such right to purchase, the Plan is 
free to sell such property or LLC (i.e., close on the transfer) to a 
third party on such terms for the next 360 days. However, the Plan 
shall not have the right to sell to a third party at a lower effective 
purchase price or on any other materially more favorable term than the 
effective purchase price and terms proposed by the Plan to the Hospital 
without first re-offering such property or LLC to the Hospital at such 
lower effective purchase price or other more favorable term, nor to 
sell on any terms following the expiration of such 360-day period, 
without in either event first re-offering such property or LLC to the 
Hospital. The RFO shall terminate upon the commencement of the exercise 
by the Plan of its remedies under the Leases as the result of a 
monetary event of default by the Hospital that continues uncured 
following notice and the expiration of applicable cure periods (and a 
second notice and cure period provided fifteen (15) days before the 
loss of such right on account of such default).
    (l) Subject to the Hospital's RFO, the Plan retains the right to 
sell or assign, in whole or in part, any of its interests in the 
Properties (or any of its interests in the LLCs, as the case may be) to 
any third party purchaser.
    (m) ZHCC indemnifies the Plan with respect to any liability for 
hazardous materials released on the Properties, whether such release 
occurs prior to or after the execution of the Leases or the In-Kind 
Contribution;
    (n) The In-Kind Contribution is conditioned on the Independent 
Fiduciary's receipt of favorable engineering and environmental reports 
prior to closing.
    (o) The Plan incurs no fees, commissions, or other charges or 
expenses as a result of its participation in any of the Transactions.

III. Definitions

    (a) The term, ``affiliate,'' means:
    (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 of 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, ``Independent Fiduciary,'' means a fiduciary that:
    (1) Has a minimum of five (5) years of experience acting on behalf 
of employee benefit plans covered by the Act and/or the Code;
    (2) Can demonstrate, through experience and/or education, 
proficiency in matters involving the acquisition, management, leasing, 
and disposition of real property;
    (3) Is an expert with respect to the valuation of real property or 
has the ability to access (itself or through persons engaged by it) 
appropriate data regarding the purchase, sale, and leasing of real 
property located in the relevant market;
    (4) Has not engaged in any criminal activity involving fraud, 
fiduciary standards, or securities law violations;
    (5) Is appointed to act on behalf of the Plan for all purposes 
related to, but not limited to (i) the In-Kind Contribution, (ii) the 
Leases, (iii) the RFO, (iv) the Contingent Rent Payment(s), and (v) any 
other transactions between the Plan and ZHCC and its affiliates related 
to the LLCs and Properties; and
    (6) Is independent of and unrelated to ZHCC or its affiliates. For 
purposes of this exemption, a fiduciary will not be deemed to be 
independent of and unrelated to ZHCC and its affiliates if:
    (i) Such fiduciary directly or indirectly controls, is controlled 
by, or is under common control with ZHCC,
    (ii) Such fiduciary directly or indirectly receives any 
compensation or other consideration in connection with any Transactions 
described in this exemption; except that an Independent Fiduciary may 
receive compensation from ZHCC for acting as an Independent Fiduciary 
in connection with the Transactions contemplated herein if the amount 
or payment of such compensation is not contingent upon or in any way 
affected by the Independent Fiduciary's ultimate decisions, and
    (iii) The annual gross revenue received by such fiduciary, during 
any year of its engagement, from ZHCC and its affiliates exceeds five 
percent (5%) of the fiduciary's annual gross revenue from all sources 
for its prior tax year.
    (d) The definition of Actual Return to be used in calculating the 
amount of each Contingent Rent Payment is the sum of: (1) The sales 
price of any parcel sold, net of selling costs, (2) any net insurance 
proceeds or net condemnation awards received by the Plan (if any Lease 
is terminated due to destruction or condemnation), (3) the fair market 
value of any parcel(s) that the Plan continues to hold, as determined 
by a three appraiser method (if the parties are unable to otherwise 
agree), plus (4) the rental income received by the Plan under the 
Leases prior to the Minimum Return Date, less expenses incurred by the 
Plan with respect to the Properties and the Leases up to the Minimum 
Return Date. The liabilities and obligations of the Hospital and ZHCC 
survive the expiration date of a Lease, or a termination of a Lease, 
and continue until such liabilities and obligations have been fully 
paid and fulfilled.

Temporary Nature of Exemption

    The exemption, if granted, is temporary and will become effective 
on the date of publication of the grant of the final exemption in the 
Federal Register. The exemption will expire on the date which is ten 
(10) years from the date of the grant of the exemption. If the

[[Page 76874]]

Hospital wishes to renew the Leases on the Properties between the 
Hospital and the LLCs (or between the Hospital and the Plan, as the 
case may be), the Department would encourage the applicant to submit 
another application prior to the expiration of this exemption, provided 
that the Independent Fiduciary determines that the conditions of the 
renewal are feasible, in the interest and protective of the Plan and 
the Hospital can demonstrate that it can satisfy the terms of such 
renewal.

Summary of Facts and Representations

    1. ZHCC is a not-for-profit Michigan corporation established in 
1968 to provide a centralized governance and management structure for 
its subsidiaries. ZHCC's business operations include the following 
wholly-owned subsidiaries: (a) The Hospital, (b) Community Emergency 
Medical Services (CEMS), and (c) Botsford Continuing Care Corporation 
(BCCC).
    The Hospital is a community osteopathic hospital that operates a 
full service hospital, providing an array of ambulatory and inpatient 
services for the benefit of the residents living in southeastern 
Michigan. CEMS provides emergency and non-emergency medical 
transportation to the general public and health care providers in 
approximately twenty (20) communities in southeastern Michigan. BCCC 
owns and operates a 179-bed skilled nursing facility in Farmington, 
Michigan, a 64 unit assisted living facility, and a 51 unit independent 
living apartment building. BCCC also provides services to an 
independent living condominium development that consists of 86 
separately owned units located within its campus.
    2. The Plan was established January 1, 1968, and restated effective 
January 1, 2000. The Plan is a non-contributory, single employer, 
defined benefit pension plan. The Plan covers all employees of the 
Hospital, CEMS, and BCCC. It is represented that the Hospital, CEMS, 
and BCCC are the only entities in the controlled group that have 
employees. As of December 31, 2003, the Plan had approximately 3,344 
participants and beneficiaries. As of February 11, 2005, the date the 
application for exemption was filed, the Plan had approximately 3,300 
participants and beneficiaries.
    On November 26, 2002, the Board of Directors of ZHCC approved a 
resolution to freeze benefit accruals under the Plan, effective 
December 31, 2002. All participants, as of December 31, 2002, are 
deemed 100 percent (100%) vested. After December 31, 2002, employees 
could not become participants in the Plan.
    As of September 30, 2004, the Plan was approximately 71 percent 
(71%) funded with assets of $71.2 million and liabilities of $101 
million measured on an accumulated benefit obligation basis using a 6 
percent (6%) discount rate, under Financial Accounting Standard (FAS) 
No. 87, Employers' Accounting for Pensions. Of the total assets of the 
Plan after the execution of the In-Kind Contribution, approximately ten 
percent (10%) will be involved in the Transactions that are the subject 
of this exemption.
    ZHCC is the sponsor of the Plan, the administrator of the Plan, and 
the named fiduciary for the Plan. As such, ZHCC is a party in interest 
with respect to the Plan, pursuant to section 3(14)(A) and 3(14)(C) of 
the Act. The Hospital, CEMS, and BCCC, as corporations 50% or more 
owned by ZHCC, are also parties in interest with respect to the Plan, 
pursuant to 3(14)(G) of the Act.
    The general administration of the Plan and the responsibility for 
carrying out the provisions of the Plan are vested in a Retirement 
Committee (the Committee) consisting of designated members of the Board 
of Directors of ZHCC and two (2) members of management. The Board of 
Directors of ZHCC appoints the members of the Committee. The function 
of the Committee is to administer the Plan exclusive of those functions 
assigned to the trustee of the Plan (the Trustee). The Committee is a 
party in interest with respect to the Plan, pursuant to section 
3(14)(A) of the Act.
    Under the terms of the Zieger Health Care Corporation Retirement 
Plan Trust (the Trust), the Trustee of the Plan is Standard Federal 
Corporate and Institutional Trust (formerly, Standard Federal Bank). 
The Trustee is a division of LaSalle Bank, a national banking 
association. The Trustee has discretion with respect to the investment 
of the assets of the Plan. Pursuant to its authority under the Trust, 
ZHCC has appointed investment managers to manage the Plan's assets. 
ZHCC has the power to appoint and remove the Trustee. The Trustee is a 
party in interest with respect to the Plan, pursuant to section 
3(14)(A) of the Act.
    The Plan has invested $3,272,836 and $2,691,285, as of December 31, 
2003, and December 31, 2002, respectively, in shares of funds managed 
by the Trustee or its subsidiaries. The applicant represents that these 
transactions are exempt under Prohibited Transaction Class Exemption 
77-4 (PTCE 77-4).\6\
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    \6\ The Department is offering no view, herein, as to the 
applicant's reliance on PTCE 77-4 with respect to the purchases by 
the Plan of interests in funds managed by the Trustee or its 
subsidiaries, nor has the Department made a determination that the 
applicant has satisfied all of the requirements of PTCE 77-4. 
Further, the Department is not providing any relief, herein, with 
respect to such purchases.
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    3. The Properties that are the subject of this proposed exemption 
are described below:
    (a) Botsford Center for Rehabilitation and Health Improvement (the 
Rehab Center) is located at 26905 Grand River Avenue in Redford, 
Michigan, on a rectangular, level site containing 27,443 square feet or 
0.63 gross acres with frontage along Grand River Avenue and Denby 
Street. All of the typical utilities are available to the site.
    The Rehab Center is a one-story building totaling 5,288 square feet 
of gross building area. The construction of the improvements is 
represented to be Class C, with average quality of construction. The 
condition of the building is average.
    The Rehab Center was built in 1963, originally as offices of Junior 
Achievement, with renovations in 1985 and 2001. The Rehab Center is 
currently 100 percent (100%) owner occupied by the Hospital.
    (b) Botsford Kidney Center (the Kidney Center) is located at 28425 
West Eight Mile Road in Livonia, Michigan, on a slightly irregular 
level site containing 209,959 square feet or 4.82 gross acres frontage 
along West Eight Mile Road. All of the typical utilities are available 
to the site.
    The Kidney Center is a one-story building totaling 16,217 square 
feet of gross building area. The building has 13,947 square feet of net 
rentable area, which does not include the common areas of the building. 
The construction of the improvements is represented to be Class C, with 
average quality of construction. The condition of the Kidney Center is 
average.
    The Kidney Center was built in 1976 as offices for an architect and 
was renovated in 1991 and 1995. A tenant owned by the Hospital occupies 
28 percent (28%) of the building. The remaining 72 percent (72%) of the 
building is occupied on a month to month basis with only an expired 
lease in place by Botsford Kidney Center, Inc. (BKCI). BKCI is a 
Michigan business corporation owned 80 percent (80%) by individual 
physicians and 20 percent (20%) by the Hospital.
    (c) Brentwood Medical Center (the Medical Center) is located at 
28711

[[Page 76875]]

West Eight Mile Road in Livonia, Michigan, on a slightly irregular, 
level site containing 84,158 square feet or 1.93 gross acres with 
frontage along Brentwood Avenue and West Eight Mile Road. All of the 
typical utilities are available to the site.
    The Medical Center is a one-story building with 9,895 square feet 
of gross building area. The building has 8,542 square feet of net 
rentable area, which does not include the common areas of the building. 
The construction of the improvements is represented to be Class C, with 
average quality of construction. The condition of the building is 
average.
    The Medical Center was built in 1977, and has had several minor 
renovations since 1997. The Medical Center is currently 63 percent 
(63%) occupied by the Hospital, the owner, and 37 percent (37%) 
occupied by Tri-County Urologists, an unrelated third party.
    (d) The Planning and Development Building (the P&D Building) is 
located at 29134 Grand River Avenue in Farmington Hills, Michigan, on a 
slightly irregular, level site containing 22,744 square feet or 0.52 
gross acres. The site is comprised of two parcels, one that has 
frontage on Grand River Avenue, and one that has frontage on Jefferson 
Avenue. The only access to the property is via Jefferson Avenue. All 
typical utilities are available to the site.
    The P&D Building is a one-story building totaling 4,063 square feet 
of gross building area and net rentable area. The construction of the 
improvements is represented to be Class C, with average quality of 
construction. The condition of the building is good.
    The P&D Building was built in 1987. A department of the Hospital 
currently occupies 100 percent (100%) of the building.
    (e) The South Professional Office Building (the SPO Building) 
located at 28100 Grand River Avenue in Farmington Hills, Michigan, on 
an irregular, level site containing 80,150 square feet or 1.84 gross 
acres. The site does not have any frontage on Grand River Avenue but is 
located on the campus of the Hospital. The only access to the property 
is via the access drive to the Hospital. All typical utilities are 
available to the site.
    The SPO Building is a three-story building totaling 43,200 square 
feet of gross building area. The building has 35,470 square feet of net 
rentable area, which is comprised of fourteen tenant suites that are 
located on all three floors. The construction of the improvements is 
represented to be Class C, with average quality of construction. The 
condition of the building is average.
    The SPO Building was built in 1987. The SPO Building is currently 
87.3 percent (87.3%) occupied by multiple tenants, including Hospital 
departments and unrelated third party tenants.
    The SPO Building is currently held in the Botsford Professional 
Office Building Limited Partnership, LLP (BPOB). BPOB is 90 percent 
(90%) owned by the Hospital and 10 percent (10%) owned by Botsford Real 
Estate Services Corporation (BRESC), a wholly owned subsidiary of ZHCC. 
It is represented that prior to the In-Kind Contribution, BRESC will be 
merged into the Hospital, thereby dissolving BPOB and resulting in the 
SPO Building being 100 percent (100%) owned by the Hospital.
    The SPO Building is subject to a $1.9 million mortgage. It is 
represented that the Hospital will pay-off the SPO Building mortgage 
debt before executing the In-Kind Contribution.
    4. ZHCC, the applicant, seeks an individual administrative 
exemption: (a) For the immediate, voluntary In-Kind Contribution to the 
Plan of interests in five (5) LLCs each of which will hold one of the 
Properties, described in paragraph 3, above, and (b) for the continued 
holding by the Plan of ownership interests in such LLCs and Properties.
    It is anticipated that the Hospital will transfer its fee simple 
interest in each Underlying Property to a separate Michigan LLC of 
which the Hospital will own a 100 percent (100%) interest. The Hospital 
then intends to transfer its entire interest in each LLC to the Plan. 
Because the LLCs will be formed immediately before the In-Kind 
Contribution, it is represented that the LLCs will have no outstanding 
obligations or liabilities other than those generated by the 
transaction.
    5. ZHCC believes that the In-Kind Contribution of the Properties 
does not satisfy the requirements of section 408(e) of the Act relating 
to the acquisition, lease, or sale of ``qualifying employer real 
property,'' as defined in section 407(d)(4) of the Act. In this regard, 
among the provisions in the definition of ``qualifying employer real 
property,'' set forth in section 407(d)(4) of the Act, is the 
requirement that parcels of property must be dispersed geographically. 
ZHCC believes that the In-Kind Contribution of the Properties would 
violate sections 406 and 407(a) because the Properties are all located 
within five (5) miles of each other; and therefore, arguably would not 
be geographically dispersed.
    Likewise, as it is anticipated that each of the Properties is to be 
transferred into an LLC and the interests in the LLCs transferred to 
the Plan, ZHCC believes that the interests in the LLCs would fail to 
meet the requirements of 408(e) of the Act applicable to the 
acquisition or sale of ``qualifying employer securities,'' set forth in 
section 407(d)(5) of the Act, as interests in the LLCs would fail to 
meet the requirements of section 407(f)(1) of the Act. Accordingly, 
ZHCC has requested relief from sections 406(a), 406(b)(1), 406(b)(2) 
and 407(a) of the Act for the In-Kind Contribution and for the 
continued holding of ownership interests in the LLCs and the 
Properties.
    6. In addition to the In-Kind Contribution, ZHCC requests an 
administrative exemption from section 406(a) and 406(b)(1) and 
406(b)(2) of the Act for the Leases of the Properties between the 
Hospital and the LLCs. It is represented that execution of the Leases 
between the Hospital and the LLCs is a condition to acceptance by the 
Plan of the In-Kind Contribution. Under the terms of the Leases, the 
Plan, acting by and through the Independent Fiduciary who manages the 
LLCs, will lease each Underlying Property to the Hospital under a 
separate lease agreement. Each of the Leases will be identical as to 
material terms. For the purpose of each Lease, the Plan will maintain 
each of the Properties in its respective LLC in which: (1) the Plan 
will be the sole member and the Independent Fiduciary will be the LLC 
manager, and (2) the LLC will own such Underlying Property and be the 
lessor under the Lease.
    Each of the Leases has a term of ten (10) years. Each Lease is an 
absolute net lease (i.e., all costs are paid by the lessee, the 
Hospital) throughout the term of such Lease. The Leases are 
``bondable'' leases in which the Hospital's obligation to pay rent to 
the LLC is absolute and unconditional. The rental payments are 
exclusive of all costs related to the leased premises, including real 
estate taxes, utilities, and insurance, which the Hospital must pay.
    The Hospital also bears the costs of capital improvements to the 
Properties. Under the provisions of the Leases, the Independent 
Fiduciary must approve any capital alterations made to the Properties.
    The Hospital will also bear all costs to operate, maintain, repair 
and replace in good condition the systems and structural and 
nonstructural components of the buildings on the Properties, in a 
manner befitting comparable office buildings in the area and in 
accordance with all applicable laws. In this regard, it is represented 
that the Independent Fiduciary has retained and will retain annually an 
engineering firm to conduct a property condition assessment and make

[[Page 76876]]

recommendations for maintenance, repair, and replacements. In this 
regard, the Independent Fiduciary represents that it has received a 
Property Condition Assessment Report that has identified a number of 
repairs and replacements that should be made on the Properties. Based 
on the recommendations of the inspector, the Independent Fiduciary and 
the Hospital are working to develop a timetable to complete these 
repairs and replacements and will annually develop a budget for 
maintenance, repair, and replacement. All such maintenance, repair, and 
replacement work is the responsibility of the Hospital.
    The Leases will contain a commercially reasonable standard for 
determining whether repair or replacement is necessary. Any disputes 
between the Independent Fiduciary and the Hospital concerning the 
Properties will be resolved through mediation. If mediation is 
unsuccessful, either party may bring suit.
    The Leases contain certain casualty provisions that are described, 
in part, in this and the following paragraphs. In this regard, the 
Hospital, as lessee, is required at its sole expense to restore, 
repair, rebuild, or remove and replace all or any part of the leased 
premises damaged or destroyed in the event of any casualty, regardless 
of any lack or insufficiency of insurance proceeds. In this regard, the 
Hospital shall commence such activity after the occurrence of any such 
casualty within the time period, as set forth in the Lease, unless 
prevented by circumstances beyond the Hospital's control, and shall 
pursue such activity to completion. All casualty insurance proceeds are 
deposited with the LLC or the Plan, as the lessor, and disbursed to the 
Hospital, as needed in accordance with the capital alteration 
provisions of the Lease.
    Failure by the Hospital to commence or substantially complete the 
restoration, repair, rebuilding, or removal and reconstruction, within 
certain timeframes as set forth in the Lease, shall be deemed an event 
of default under the Lease. Any insurance proceeds paid to the Hospital 
but not applied to the restoration, repair, rebuilding, or removal and 
reconstruction of the leased premises are due and payable, as 
additional rent by the Hospital, immediately prior to the termination 
of the Lease. All insurance proceeds not yet paid to the Hospital 
become the property of the LLC or the Plan, as lessor, upon such an 
event of default.
    In the event that all or part of the leased premises are damaged or 
destroyed at any time during the last three (3) years of the term of 
the Lease, and either (a) the cost to repair or replace exceeds 50 
percent (50%) of the full replacement cost, or (b) repair or 
replacement cannot reasonably be completed within 360 days of the date 
of the damage or destruction, the Hospital may elect to terminate the 
Lease; provided all insurance proceeds are paid to the LLC or the Plan, 
as lessor. If the estimated cost to reconstruct or repair the leased 
premises exceeds the amount of the insurance proceeds payable as a 
result of the damage or destruction, the Hospital shall be obligated to 
contribute any excess amounts needed to fully restore the leased 
premises. Any such excess amounts shall be paid to the LLC or the Plan, 
as lessor together with the insurance proceeds.
    The Lease contains certain condemnation provisions that are 
described, in part, in this and the following paragraphs. If at any 
time during the term of a Lease, there shall be a taking of 
substantially all of the leased premises, the Lease shall terminate, as 
of the date of such taking, and the base rent and additional rent shall 
be apportioned and paid by the Hospital to the date of such taking. If 
the Lease terminates because of such taking, as of such date, the LLC 
or the Plan, as the lessor, shall be entitled to the entire 
condemnation award, except that the Hospital shall be entitled to any 
portion explicitly attributable to the Hospital's personal property and 
relocation costs.
    In the event of a partial taking, the Lease shall continue and 
remain unaffected, except that the Hospital shall promptly after such 
partial taking, at its expense, take commercially reasonable efforts to 
restore or demolish and reconstruct any improvements altered or damaged 
by such partial taking. In this regard, the Hospital is entitled to 
reimbursement from the condemnation award for the aggregate of the 
funds expended and all other reasonable and customary costs directly 
related to such restoration or demolition and reconstruction. The 
balance of the award shall be paid to the LLC or the Plan, as lessor. 
Following any partial taking, the base rent shall be re-determined by 
the independent fiduciary based on an independent determination of fair 
market value by a qualified, independent appraiser.
    Failure by the Hospital to commence and substantially complete 
restoration or reconstruction of the leased premises, within the time 
periods set in the Lease, unless such failure is due to circumstances 
beyond the Hospital's control, shall be deemed an event of default 
under the Lease, whereupon LLC or the Plan, as lessor, shall be 
entitled to the entire award, or so much thereof as has not been 
disbursed and used in such reconstruction or restoration.
    In the event of a taking of all or part of the leased premises for 
temporary use, the Lease shall continue without change. There shall be 
no re-determination of base rent. Any periodic payments of the 
condemnation award made for such temporary use will be made to the 
Hospital until the expiration or termination of the Lease and to the 
LLC or the Plan, as lessor thereafter. In the event of a lump sum 
payment of the condemnation award, the Hospital shall be entitled to an 
amount equal to a maximum of three (3) months rent with the balance of 
such condemnation award deposited with the LLC or the Plan, as lessor. 
In addition, the Hospital is entitled to file any claim against the 
condemnor for damages for negligent use, waste or injury to the leased 
premises throughout the balance of the term of the Lease. The amount 
recovered for such damages shall be first applied by the Hospital to 
any necessary repair or restoration of the leased premises.
    The Hospital in the event of any taking shall not be entitled to 
any payment based upon the value of the unexpired term of the Lease, 
other than the unearned portion of prepaid base rent or amounts 
attributable to the Hospital's personal property and any reasonable 
removal and relocation costs.
    The Hospital, as the sole lessee under each of the Leases, will be 
solely responsible for all payments of rent to the LLC or the Plan, as 
lessor. The rental payments under the Leases are set at fair market 
rates. Subject to final due diligence and the approval of the 
Independent Fiduciary, the annual base rent for each of the Properties 
will be the current fair market rental value identified in appraisals 
prepared by an independent, qualified appraiser. It is estimated that 
the Leases will generate in the aggregate an average of $1 million in 
annual rental income for the Plan over the ten (10) year term of the 
Leases.
    Under the terms of each Lease, the rental rate increases at 2.5 
percent per year, compounded. The Independent Fiduciary represents that 
this provision is intended to protect the Plan against inflation. In 
this regard, the Independent Fiduciary represents that over the past 
ten (10) years, the average annual increase in the Consumer Price Index 
(CPI) has been 2.45 percent (2.45%). The Independent Fiduciary 
maintains that using a fixed percentage, rather than pegging the rent 
to a variable

[[Page 76877]]

index, such as the CPI, provides certainty for the Plan as owner of the 
Properties. Further, it is represented that: (a) In recent years, 
negotiated base rental rates have increased by less than 2.5 percent 
(2.5%); and (b) the Congressional Budget Office estimates that the 
average annual increase in the CPI over the next ten (10) years will be 
2.2 percent (2.2%).
    The Leases provide that the Hospital will indemnify and hold the 
Plan harmless from all liabilities, obligations, damages, penalties, 
claims, costs, charges, and expenses, including reasonable architects' 
and attorneys' fees (excluding consequential damages and indirect 
losses) \7\ during the term of a Lease, related to (i) any work done in 
or about the leased premises or any part of the leased premises by the 
Hospital or any party claiming by or through or at the request of the 
Hospital; (ii) any use, non-use, possession, occupation, condition, 
operation, maintenance, or management of the leased premises by the 
Hospital or any party acting on behalf of the Hospital; (iii) any 
negligence on the part of the Hospital or any of its agents, 
contractors, employees, subtenants, licensees, or invitees; (iv) any 
failure on the part of the Hospital to perform or comply with any of 
the covenants, agreements, terms, provisions, conditions, or 
limitations in the Leases; (v) any violation of any environmental law, 
the ADA, and other applicable laws; and (vi) any liability for 
hazardous materials released on the leased premises, whether such 
release occurred prior to or after (a) the execution of the Leases, or 
(b) the In-Kind Contribution.
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    \7\ The applicant has represented that the exclusion for 
consequential damages and indirect losses referred to in this 
sentence, would prevent the Plan from making a claim for damages 
that do not flow directly and immediately from the Hospital's 
activities, but only from some indirect result of those activities. 
For example, if the Hospital's negligence leads to a loss of rental 
income, this loss would be part of the Plan's direct damages. But if 
the loss of rental income causes the Plan to default on an 
obligation to a third party, this default would result in 
consequential damages that do not flow directly from the Hospital's 
activities.
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    It is represented that the Independent Fiduciary has retained 
Atwell-Hicks Development Consultants (Atwell) to conduct a Phase I 
Environmental Site investigation. In this regard, it is represented 
that Atwell did not identify any environmental concerns associated with 
the Properties or surrounding adjacent properties that could impact 
business environmental risk. No further investigations or actions were 
recommended at this time.
    The Hospital will have the authority to sublease all or a portion 
of any of the Properties to a third party. Currently, portions of the 
Kidney Center, the SPO Building and the Medical Center are leased to 
unrelated third parties. Any leases currently in existence between the 
Hospital and unrelated third parties with regard to any of the 
Properties will be treated as subleases upon consummation of the Leases 
between the Hospital and the LLCs.
    The provisions of all of the subleases are similar. The term of 
each of the subleases is generally for a period of five (5) years. It 
is represented that the initial rental rates due from the Hospital 
under the Leases of the Properties are higher than the aggregate rents 
to be paid under the subleases. In this regard, for calendar year 2005, 
the annual sublease income, including a proportionate share of expenses 
related to the SPO Building, the Kidney Center, and the Medical Center 
was $783,221. Taking into account the expenses that the Hospital bears 
with respect to the subleasing of the Properties, the applicant 
maintains that there are no current or anticipated profits to share 
with the Plan. In this regard, the Independent Fiduciary represents 
that since the tenant in an absolute net lease bears all of the costs 
of a property (as does the Hospital under the provisions of the 
Leases), such leases do not normally provide for profit sharing.
    The Independent Fiduciary has negotiated an arrangement designed to 
ensure that any economic benefit derived from the subleases flows 
through to the Plan. In this regard, rents paid by subtenants will be 
sent to a postal lockbox and deposited directly into a cash account 
that can be used only to pay the rent and other obligations of the 
Hospital, as lessee under the Leases. Neither ZHCC nor the Hospital 
will have the right to withdraw funds from this cash account. The 
Independent Fiduciary will direct withdrawal of funds from this 
account. In this regard, on a monthly basis, the Independent Fiduciary 
will notify the Hospital of the amount of funds applied toward its 
rental obligations during the previous month, and the Hospital will 
have the right to deduct such amount from the next installment of rent 
due under the Leases. If any rentals are set aside, recovered, 
rescinded, or required to be returned for any reason, including the 
bankruptcy, insolvency, or reorganization of any subtenant, then the 
rental obligations of the Hospital to which the subtenant's rentals 
were applied will remain in existence, and the Leases will be 
enforceable as to such rentals. The Hospital will pay all fees and 
expenses related to the lockbox, the cash account, and any related 
postal or banking services.
    The subleases will survive the expiration of the Leases, if entered 
into on commercially reasonable terms and for fair market rent. Any new 
subleases will include a provision stating that in the event of default 
by the Hospital under the Leases, the subtenant will pay all rents to 
the Plan or as directed by the Plan.
    The applicant maintains that the Independent Fiduciary did not 
require a security deposit. In this regard, it is represented that 
security deposits are not customarily required under medical office 
leases because of the favorable risk profile of medical office tenants. 
It is further represented by the applicant that the subtenants, like 
the Hospital, are reliable tenants who have fulfilled their rental 
obligations on a timely basis.
    7. The applicant has also requested an administrative exemption 
from section 406(a) and 406(b)(1) and 406(b)(2) for the sale of any of 
the Properties (or ownership interest in any of the LLCs, as the case 
may be), pursuant to the RFO, specified in the provisions of the Leases 
of the Properties as negotiated by the Independent Fiduciary. In this 
regard, the Properties (or LLCs, as the case may be) are to be offered 
to the Hospital, in accordance with a Soliciting Offer the terms of 
which are set by the Plan, or in accordance with an Unsolicited Offer 
made to the Plan by an unrelated third party.
    The Independent Fiduciary will be responsible for any negotiations 
if the Hospital elects to purchase any of the Properties under terms of 
the RFO. The Hospital has a period of thirty (30) days to decide 
whether to accept such offer on its terms and, if the Hospital fails to 
do so, the Plan may sell to a third party on the offered terms or 
better. It is represented that the RFO does not ``run with the land'', 
so that the Hospital has no rights once the Plan sells to a third 
party. The Hospital cannot avail itself of the RFO, if there is an 
uncured monetary default under any Lease.
    8. Further, an administrative exemption from sections 406(a) and 
406(b)(1) and 406(b)(2) of the Act is needed for any Contingent Rent 
Payment(s) made to the Plan by ZHCC and/or the Hospital under the terms 
of the Leases on the Properties. In this regard, ZHCC and the Hospital 
have agreed to make one or more Contingent Rent Payment(s) that will 
provide a return to the Plan on each of the Properties equal to the 
Minimum Funding Rate. As of a Minimum Return Date, if the Actual Return 
(as defined in section III(d), of the exemption) to the

[[Page 76878]]

Plan is less than the sum of the fair market value of such property 
when contributed plus a return equal to the Minimum Funding Rate, then 
ZHCC and/or the Hospital within 180 days, will pay to the Plan a 
Contingent Rent Payment equal to the difference. Under the terms of 
each of Leases of the Properties, the liabilities and obligations of 
ZHCC and the Hospital survive the expiration date or termination of a 
Lease and continue until such liabilities and obligation have been 
fully paid and fulfilled.
    9. The applicant maintains that the requested exemption is 
administratively feasible in that the subject Transactions are similar 
to those granted by the Department in Prohibited Transactions Exemption 
2004-19 \8\ and include similar terms which protect the interests of 
the Plan and its participants and beneficiaries.
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    \8\ ARINC Incorporated Retirement Income Plan granted 69 FR 
68391 (November 24, 2004) and proposed 69 FR 55179 (September 13, 
2004).
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    10. The applicant maintains that the exemption is in the interest 
of the Plan in that the proposed contributions, both those to be made 
in-kind and in cash are entirely in excess of the minimum funding 
obligations of ZHCC under section 302 of the Act and section 412 of the 
Code. As a result of the In-Kind Contribution, including the additional 
contributions of cash, and the income from the Leases, the Plan will be 
more than 110 percent (110%) funded for the actuarial present value of 
the accumulated Plan benefits liability under FAS 35. The Independent 
Fiduciary represents that the proposed exemption would place the Plan 
in a better actuarial and financial position over a five (5) year 
period from 2005-2009, with a higher funding percentage and a large 
funding standard account credit balance, with lower cash contributions 
from ZHCC. It is represented that the Plan will be less reliant on the 
ZHCC's ability to generate cash for payments to the Plan. Further, as 
the Properties are marketable and have a value independent of the 
Hospital, as the lessee, the Plan's reliance on the Hospital's 
creditworthiness would be reduced.
    In addition to improving the Plan's funded status, it is 
represented that the overall diversification of the Plan's portfolio 
will improve as a result of the In-Kind Contribution. In this regard, 
the Plan's investment policy statement currently permits investments in 
equities (domestic and international), fixed income, real estate, 
immediate participation guarantee contracts issued by insurers, and 
cash equivalents. Currently, the Plan holds no real estate assets and 
owns no employer securities. If the exemption is granted and the 
Properties become assets of the Plan, the contributed real estate would 
replace a portion of the Plan's fixed income allocation. It is 
represented that adding real estate assets like the Properties to a 
portfolio of publicly-traded securities should enhance the overall 
portfolio diversification, given the low correlation of returns between 
real estate and other asset classes, and can be expected to improve the 
Plan's risk adjusted returns. It is further represented that the In-
Kind Contribution and the Leases would not cause the Plan to fail to 
satisfy the diversification requirement as set forth in section 404 of 
the Act, notwithstanding the fact that approximately 10 percent (10%) 
of the Plan's assets would be invested in real estate in a single 
metropolitan area.
    11. The applicant maintains that there are sufficient safeguards in 
place with regard to the subject Transactions that are designed to 
protect the interests of the Plan and its participants and 
beneficiaries. In this regard, pursuant to a letter agreement (the 
Agreement) between Fiduciary Counselors Inc. (FCI) and the Committee, 
FCI has been appointed to act as the qualified Independent Fiduciary on 
behalf of the Plan and investment manager with authority and discretion 
to acquire, hold, lease, and dispose of the Properties and acquire, 
hold, and dispose of the LLCs, as the case may be. FCI represents that 
it understands and acknowledges its duties and responsibilities, and 
obligations to act as a fiduciary under the Agreement and in accordance 
with the applicable fiduciary responsibility provisions of the Act.
    If any party terminates the Agreement or if FCI decides to assign 
its obligations to perform services, the parties to the Agreement shall 
notify the Department within 15 days of any decision regarding the 
resignation, termination, or change in control of the Independent 
Fiduciary. Any replacement or successor Independent Fiduciary must be 
independent and qualified and must assume responsibility prior to the 
effective date of the removal of the predecessor Independent Fiduciary.
    It is represented that FCI is qualified to serve as the Independent 
Fiduciary and investment manager for the Plan. In this regard, FCI is 
an investment adviser registered under the Investment Advisers Act of 
1940 and a ``qualified professional assets manager'' as that term is 
defined in Prohibited Transaction Exemption 84-14. Since its inception 
in 1999, FCI has been involved in a variety of transactions requiring 
an independent fiduciary, such as prohibited transaction exemptions, 
conversions of common and collective mutual funds, mergers of mutual 
funds and ESOP transactions, and other transactions involving plan 
assets totaling more than $5 billion.
    With regard to its independence, neither FCI