Grant of Individual Exemptions; Harris Nesbitt Corporation (Harris Nesbitt), 32134-32142 [E6-8529]
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Federal Register / Vol. 71, No. 106 / Friday, June 2, 2006 / Notices
Class A Common Stock at the time for
exercise (in which case an attempt will
be made to sell the Stock Rights instead,
although the Stock Rights likely will
have no value in such a case and thus
would expire without value).
Approximately three (3) calendar days
before the expiration of the Stock Rights
offering, the Trustee will liquidate an
amount sufficient to pay a Plan
participant’s exercise price by selling a
pro-rata portion of the amounts held in
such participant’s various investment
funds (other than the Common Stock
Fund) and transfer such funds to the
subscription agent in order to
participate in the Stock Rights offering
on behalf of Plan participants who elect
to exercise some or all of their Stock
Rights. No Stock Rights under the Plan
will be exercised before this date. The
shares of Class A Common Stock
purchased upon the consummation of
the Stock Rights offering will be
allocated to the accounts of Plan
participants as soon as practicable
thereafter.
8. In summary, it is represented that
the proposed transaction meets the
statutory criteria of section 408(a) of the
Act because: (a) The Stock Rights were
acquired pursuant to Plan provisions for
individually-directed investment of
such accounts; (b) The Plan’s receipt of
the Stock Rights occurred in connection
with a Stock Rights offering made
available on the same terms available to
all shareholders of common stock of
Revlon; (c) All decisions regarding the
holding and disposition of the Stock
Rights by the Plan were made, in
accordance with the Plan provisions for
individually-directed investment of
participant accounts, by the individual
Plan participants whose accounts in the
Plan received Stock Rights in
connection with the Stock Rights
offering; (d) The Plan’s acquisition of
the Stock Rights resulted from an
independent act of Revlon as a
corporate entity; and (e) The price
received by the Plan for the Stock Rights
was no less than the fair market value
of the Stock Rights on the date of the
Stock Rights offering.
Notice to Interested Persons: Notice of
the proposed exemption shall be given
to all interested persons in the manner
agreed upon by the Employer 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:
Khalif Ford of the Department,
telephone (202) 693–8540 (this is not a
toll-free number).
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General Information
DEPARTMENT OF LABOR
The attention of interested persons is
directed to the following:
(1) The fact that a transaction is the
subject of an exemption under section
408(a) of the Act and/or section
4975(c)(2) of the Code does not relieve
a fiduciary or other party in interest or
disqualified person from certain other
provisions of the Act and/or the Code,
including any prohibited transaction
provisions to which the exemption does
not apply and the general fiduciary
responsibility provisions of section 404
of the Act, which, among other things,
require a fiduciary to discharge his
duties respecting the plan solely in the
interest of the participants and
beneficiaries of the plan and in a
prudent fashion in accordance with
section 404(a)(1)(b) of the Act; nor does
it affect the requirement of section
401(a) of the Code that the plan must
operate for the exclusive benefit of the
employees of the employer maintaining
the plan and their beneficiaries;
(2) Before an exemption may be
granted under section 408(a) of the Act
and/or section 4975(c)(2) of the Code,
the Department must find that the
exemption is administratively feasible,
in the interests of the plan and of its
participants and beneficiaries, and
protective of the rights of participants
and beneficiaries of the plan;
(3) The proposed exemptions, if
granted, will be supplemental to, and
not in derogation of, any other
provisions of the Act and/or the Code,
including statutory or administrative
exemptions and transitional rules.
Furthermore, the fact that a transaction
is subject to an administrative or
statutory exemption is not dispositive of
whether the transaction is in fact a
prohibited transaction; and
(4) The proposed exemptions, if
granted, will be subject to the express
condition that the material facts and
representations contained in each
application are true and complete, and
that each application accurately
describes all material terms of the
transaction which is the subject of the
exemption.
Employee Benefits Security
Administration
Ivan Strasfeld,
Director of Exemption Determinations,
Employee Benefits Security Administration,
U.S. Department of Labor.
[FR Doc. E6–8528 Filed 6–1–06; 8:45 am]
BILLING CODE 4510–29–P
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[Prohibited Transaction Exemption 2006–
07; [Exemption Application No. D–11281] et
al.]
Grant of Individual Exemptions; Harris
Nesbitt Corporation (Harris Nesbitt)
AGENCY: Employee Benefits Security
Administration, Labor.
ACTION: Grant of individual exemptions.
SUMMARY: This document contains
exemptions issued by the Department of
Labor (the Department) 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).
A notice was published in the Federal
Register of the pendency before the
Department of a proposal to grant such
exemption. The notice set forth a
summary of facts and representations
contained in the application for
exemption and referred interested
persons to the application for a
complete statement of the facts and
representations. The application has
been available for public inspection at
the Department in Washington, DC. The
notice also invited interested persons to
submit comments on the requested
exemption to the Department. In
addition the notice stated that any
interested person might submit a
written request that a public hearing be
held (where appropriate). The applicant
has represented that it has complied
with the requirements of the notification
to interested persons. No requests for a
hearing were received by the
Department. Public comments were
received by the Department as described
in the granted exemption.
The notice of proposed exemption
was issued and the exemption is being
granted solely by the Department
because, 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 proposed to the Secretary of
Labor.
Statutory Findings
In accordance with section 408(a) of
the Act and/or section 4975(c)(2) of the
Code and the procedures set forth in 29
CFR part 2570, subpart B (55 FR 32836,
32847, August 10, 1990) and based upon
the entire record, the Department makes
the following findings:
(a) The exemption is administratively
feasible;
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(b) The exemption is in the interests
of the plan and its participants and
beneficiaries; and
(c) The exemption is protective of the
rights of the participants and
beneficiaries of the plan.
Harris Nesbitt Corporation (Harris
Nesbitt) and Its Affiliates (the Affiliates)
Located in New York, NY
[Prohibited Transaction Exemption 2006–07;
Exemption Application No. D–11281]
Exemption
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Section I. Covered Transactions
A. Effective for transactions occurring
on or after October 15, 2004, the
restrictions of sections 406(a) and 407(a)
of the Act and the taxes imposed by
sections 4975(a) and (b) of the Code, by
reason of section 4975(c)(1)(A) through
(D) of the Code, shall not apply to the
following transactions involving Issuers
and Securities evidencing interests
therein:
(1) The direct or indirect sale,
exchange or transfer of Securities in the
initial issuance of Securities between
the Sponsor or Underwriter and an
employee benefit plan when the
Sponsor, Servicer, Trustee or Insurer of
an Issuer, the Underwriter of the
Securities representing an interest in the
Issuer, or an Obligor is a party in
interest with respect to such plan.
(2) The direct or indirect acquisition
or disposition of Securities by a plan in
the secondary market for such
Securities; and
(3) The continued holding of
Securities acquired by a plan pursuant
to subsection I.A.(1) or (2).
Notwithstanding the foregoing,
section I.A. does not provide an
exemption from the restrictions of
sections 406(a)(1)(E), 406(a)(2) and 407
of the Act for the acquisition or holding
of a Security on behalf of an Excluded
Plan, by any person who has
discretionary authority or renders
investment advice with respect to the
assets of that Excluded Plan.1
B. Effective for transactions occurring
on or after, October 15, 2004, the
restrictions of section 406(b)(1) and
406(b)(2) of the Act and the taxes
imposed by sections 4975(a) and (b) of
the Code, by reason of section
4975(c)(1)(E) of the Code shall not apply
to:
(1) The direct or indirect sale,
exchange or transfer of Securities in the
initial issuance of Securities between
1 Section I.A. provides no relief from sections
406(a)(1)(E), 406(a)(2) and 407 of the Act for any
person rendering investment advice to an Excluded
Plan within the meaning of section 3(21)(A)(ii) of
the Act and regulation 29 CFR 2510.3–21(c).
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the Sponsor or Underwriter and a plan
when the person who has discretionary
authority or renders investment advice
with respect to the investment of plan
assets in the Securities is (a) an Obligor
with respect to 5 percent or less of the
fair market value of obligations or
receivables contained in the Issuer, or
(b) an Affiliate of a person described in
(a); if
(i) The plan is not an Excluded Plan;
(ii) Solely in the case of an acquisition
of Securities in connection with the
initial issuance of the Securities, at least
50 percent of each class of Securities in
which plans have invested is acquired
by persons independent of the members
of the Restricted Group, and at least 50
percent of the aggregate interest in the
Issuer is acquired by persons
independent of the Restricted Group;
(iii) A plan’s investment in each class
of Security does not exceed 25 percent
of all of the Securities of that class
outstanding at the time of the
acquisition; and
(iv) Immediately after the acquisition
of the Securities, no more than 25
percent of the assets of a plan with
respect to which the person has
discretionary authority or renders
investment advice are invested in
Securities representing an interest in an
Issuer containing assets sold or serviced
by the same entity.2 For purposes of this
paragraph B.(1)(iv) only, an entity will
not be considered to service assets
contained in an Issuer if it is merely a
Subservicer of that Issuer;
(2) The direct or indirect acquisition
or disposition of Securities by a plan in
the secondary market for such
Securities, provided that conditions set
forth in paragraphs (i), (iii) and (iv) of
subsection I.B.(1) are met; and
(3) The continued holding of
Securities acquired by a plan pursuant
to subsection I.B.(1) or (2).
C. Effective for transactions occurring
on or after October 15, 2004, the
restrictions of sections 406(a), 406(b),
and 407(a) of the Act and the taxes
imposed by sections 4975(a) and (b) of
the Code by reason of Code section
4975(c), shall not apply to the
transactions in connection with the
servicing, management and operation of
an Issuer, including the use of the any
eligible swap transaction; or the
defeasance of a mortgage obligation held
2 For purposes of this exemption, each plan
participating in a commingled fund (such as a bank
collective trust fund or insurance company pooled
separate account) shall be considered to own the
same proportionate undivided interest in each asset
of the commingled fund as its proportionate interest
in the total assets of the commingled fund as
calculated on the most recent preceding valuation
date of the fund.
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as an asset of the Issuer through the
substitution of a new mortgage
obligation in a commercial mortgagebacked designated transaction (the
Designated Transaction), provided:
(1) Such transactions are carried out
in accordance with the terms of a
binding Pooling and Servicing
Agreement;
(2) The Pooling and Servicing
Agreement is provided to, or described
in all material respects in the prospectus
or private placement memorandum
provided to, investing plans before they
purchase Securities issued by the
Issuer; 3 and
(3) The defeasance of a mortgage
obligation and the substitution of a new
mortgage obligation in a commercial
mortgage-backed Designated
Transaction meet the terms and
conditions for such defeasance and
substitution as are described in the
prospectus or private placement
memorandum for such Securities,
which terms and conditions have been
approved by a Rating Agency and does
not result in the Securities receiving a
lower credit rating from the Rating
Agency than the current rating of the
Securities.
Notwithstanding the foregoing,
Section I.C. does not provide an
exemption from the restrictions of
section 406(b) of the Act or from the
taxes imposed by reason of section
4975(c) of the Code for the receipt of a
fee by a Servicer of the Issuer from a
person other than the Trustee or
Sponsor, unless such fee constitutes a
Qualified Administrative Fee.
D. Effective for transactions occurring
after October 15, 2004, the restrictions
of sections 406(a) and 407(a) of the Act
and the taxes imposed by sections
4975(a) and (b) of the Code, by reason
of Code section 4975(c)(1)(A) through
(D) of the Code shall not apply to any
transactions to which those restrictions
or taxes would otherwise apply merely
because a person is deemed to be a party
in interest or disqualified person
(including a fiduciary), with respect to
the plan (or by virtue of having a
relationship to such service provider
described in section 3(14)(F), (G), (H) or
(I) of the Act or section 4975(e)(2)(F),
3 In the case of a private placement memorandum,
such memorandum must contain substantially the
same information that would be disclosed in a
prospectus if the offering of the securities were
made in a registered public offering under the
Securities Act of 1933. In the Department’s view,
the private placement memorandum must contain
sufficient information to permit plan fiduciaries to
make informed investment decisions. For purposes
of this exemption, references to ‘‘prospectus’’
include any related prospectus supplement thereto,
pursuant to which Securities are offered to
investors.
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(G), (H) or (I) of the Code), solely
because of the plan’s ownership of
Securities.
Section II. General Conditions
A. The relief provided under Section
I. is available only if the following
conditions are met:
(1) The acquisition of Securities by a
plan is on terms (including the Security
price) that are at least as favorable to the
plan as such terms would be in an arm’s
length transaction with an unrelated
party;
(2) The rights and interests evidenced
by the Securities are not subordinated to
the rights and interests evidenced by
other Securities of the same Issuer
unless the Securities are issued in a
Designated Transaction;
(3) The Securities acquired by the
plan have received a rating from Rating
Agency at the time of such acquisition
that is in one of the three (or in the case
of Designated Transactions, four)
highest generic rating categories.
(4) The Trustee is not an Affiliate of
any member of the Restricted Group,
other than an Underwriter. For purposes
of this requirement:
(a) The Trustee shall not be
considered to be an Affiliate of a
Servicer solely because the Trustee has
succeeded to the rights and
responsibilities of the Servicer pursuant
to the terms of a Pooling and Servicing
Agreement providing for such
succession upon the occurrence of one
or more events of default by the
Servicer; and
(b) Subsection II.A.(4) will be deemed
satisfied notwithstanding a Servicer
becoming an Affiliate of the Trustee as
a result of a merger or acquisition
involving the Trustee, such Servicer
and/or their Affiliates which occurs
after the initial issuance of the
Securities provided that:
(i) Such Servicer ceases to be an
Affiliate of the Trustee no later than six
months after the date such Servicer
became an Affiliate of the Trustee; and
(ii) Such Servicer did not breach any
of its obligations under the Pooling and
Servicing Agreement, unless such
breach was immaterial and timely cured
in accordance with the terms of such
agreement, during the period from the
Closing Date of such merger or
acquisition transaction through the date
the Servicer ceased to be an Affiliate of
the Trustee;
(5) The sum of all payments made to
and retained by the Underwriters in
connection with the distribution or
placement of Securities represents not
more than Reasonable Compensation for
underwriting or placing the Securities;
the sum of all payments made to and
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retained by the Sponsor pursuant to the
assignment of obligations (or interests
therein) to the Issuer represents not
more than the fair market value of such
obligations (or interests); and the sum of
all payments made to and retained by
the Servicer represents not more than
Reasonable Compensation for the
Servicer’s services under the Pooling
and Servicing Agreement and
reimbursement of the Servicer’s
reasonable expenses in connection
therewith;
(6) The plan investing in such
Securities is an ‘‘accredited investor’’ as
defined in Rule 501(a)(1) of Regulation
D of the Securities and Exchange
Commission under the Securities Act of
1933; and
(7) In the event that the obligations
used to fund an Issuer have not all been
transferred to the Issuer on the Closing
Date, additional obligations as specified
in subsection III.B.(1) may be transferred
to the Issuer during the Pre-Funding
Period in exchange for amounts credited
to the Pre-Funding Account, provided
that:
(a) The Pre-Funding Limit is not
exceeded;
(b) All such additional obligations
meet the same terms and conditions for
eligibility as the original obligations
used to create the Issuer (as described in
the prospectus or private placement
memorandum and/or Pooling and
Servicing Agreement for such
Securities), which terms and conditions
have been approved by a Rating Agency.
Notwithstanding the foregoing, the
terms and conditions for determining
the eligibility of an obligation may be
changed if such changes receive prior
approval either by a majority vote of the
outstanding securityholders (the
Securityholders) or by a Rating Agency;
(c) The transfer of such additional
obligations to the Issuer during the PreFunding Period does not result in the
Securities receiving a lower credit rating
from a Rating Agency, upon termination
of the Pre-Funding Period than the
rating that was obtained at the time of
the initial issuance of the Securities by
the Issuer;
(d) The weighted average annual
percentage interest rate (the average
interest rate) for all of the obligations in
the Issuer at the end of the Pre-Funding
Period will not be more than 100 basis
points lower than the average interest
rate for the obligations which were
transferred to the Issuer on the Closing
Date;
(e) In order to ensure that the
characteristics of the receivables
actually acquired during the PreFunding Period are substantially similar
to those which were acquired as of the
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Closing Date, the characteristics of the
additional obligations will either be
monitored by a credit support provider
or other insurance provider which is
independent of the Sponsor or an
independent accountant retained by the
Sponsor will provide the Sponsor with
a letter (with copies provided to the
Rating Agency, the Underwriter and the
Trustee) stating whether or not the
characteristics of the additional
obligations conform to the
characteristics of such obligations
described in the prospectus, private
placement memorandum and/or Pooling
and Servicing Agreement. In preparing
such letter, the independent accountant
will use the same type of procedures as
were applicable to the obligations which
were transferred on the Closing Date;
(f) The Pre-Funding Period shall be
described in the prospectus or private
placement memorandum provided to
investing plans; and
(g) The Trustee of the Trust (or any
agent with which the Trustee contracts
to provide Trust services) will be a
substantial financial institution or trust
company experienced in trust activities
and familiar with its duties,
responsibilities, and liabilities as a
fiduciary under the Act. The Trustee, as
the legal owner of the obligations in the
Trust, will enforce all the rights created
in favor of Securityholders of the Issuer,
including employee benefit plans
subject to the Act.
(8) In order to ensure that the assets
of the Issuer may not be reached by
creditors of the Sponsor in the event of
bankruptcy or other insolvency of the
Sponsor:
(a) The legal documents establishing
the Issuer will contain:
(i) Restrictions on the Issuer’s ability
to borrow money or issue debt other
than in connection with the
securitization;
(ii) Restrictions on the Issuer merging
with another entity, reorganizing,
liquidating or selling assets (other than
in connection with the securitization);
(iii) Restrictions limiting the
authorized activities of the Issuer to
activities relating to the securitization;
(iv) If the Issuer is not a Trust,
provisions for the election of at least one
independent director/partner/member
whose affirmative consent is required
before a voluntary bankruptcy petition
can be filed by the Issuer; and
(v) If the Issuer is not a Trust,
requirements that each independent
director/partner/member must be an
individual that does not have a
significant interest in, or other
relationships with, the Sponsor or any
of its Affiliates; and
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(b) The Pooling and Servicing
Agreement and/or other agreements
establishing the contractual
relationships between the parties to the
securitization transaction will contain
covenants prohibiting all parties thereto
from filing an involuntary bankruptcy
petition against the Issuer or initiating
any other form of insolvency proceeding
until after the Securities have been paid;
and
(c) Prior to the issuance by the Issuer
of any Securities, a legal opinion is
received which states that either:
(i) A ‘‘true sale’’ of the assets being
transferred to the Issuer by the Sponsor
has occurred and that such transfer is
not being made pursuant to a financing
of the assets by the Sponsor; or
(ii) In the event of insolvency or
receivership of the Sponsor, the assets
transferred to the Issuer will not be part
of the estate of the Sponsor;
(9) If a particular class of Securities
held by any plan involves a Ratings
Dependent Swap or a Non-Ratings
Dependent Swap entered into by the
Issuer, then each particular swap
transaction relating to such Security:
(a) Shall be an Eligible Swap;
(b) Shall be with an Eligible Swap
Counterparty;
(c) In the case of a Ratings Dependent
Swap, shall provide that if the credit
rating of the counterparty is withdrawn
or reduced by any Rating Agency below
a level specified by the Rating Agency,
the Servicer (as agent for the Trustee)
shall, within the period specified under
the Pooling and Servicing Agreement:
(i) Obtain a replacement swap
agreement with an Eligible Swap
Counterparty which is acceptable to the
Rating Agency and the terms of which
are substantially the same as the current
swap agreement (at which time the
earlier swap agreement shall terminate);
or
(ii) Cause the swap counterparty to
establish any collateralization or other
arrangement satisfactory to the Rating
Agency such that the then current rating
by the Rating Agency of the particular
class of Securities will not be
withdrawn or reduced.
In the event that the Servicer fails to
meet its obligations under this
subsection II.A.(9)(c), plan
Securityholders will be notified in the
immediately following Trustee’s
periodic report which is provided to
Securityholders, and sixty days after the
receipt of such report, the exemptive
relief provided under section I.C. will
prospectively cease to be applicable to
any class of Securities held by a plan
which involves such Ratings Dependent
Swap; provided that in no event will
such plan Securityholders be notified
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any later than the end of the second
month that begins after the date on
which such failure occurs.
(d) In the case of a Non-Ratings
Dependent Swap, shall provide that, if
the credit rating of the counterparty is
withdrawn or reduced below the lowest
level specified in Section III.GG., the
Servicer (as agent for the Trustee) shall
within a specified period after such
rating withdrawal or reduction:
(i) Obtain a replacement swap
agreement with an Eligible Swap
Counterparty, the terms of which are
substantially the same as the current
swap agreement (at which time the
earlier swap agreement shall terminate);
or
(ii) Cause the swap counterparty to
post collateral with the Trustee in an
amount equal to all payments owed by
the counterparty if the swap transaction
were terminated; or
(iii) Terminate the swap agreement in
accordance with its terms; and
(e) Shall not require the Issuer to
make any termination payments to the
counterparty (other than a currently
scheduled payment under the swap
agreement) except from Excess Spread
or other amounts that would otherwise
be payable to the Servicer or the
Sponsor;
(10) Any class of Securities, to which
one or more swap agreements entered
into by the Issuer applies, may be
acquired or held in reliance upon the
underwriter exemptions (the
Underwriter Exemptions) only by
Qualified Plan Investors; and
(11) Prior to the issuance of any debt
securities, a legal opinion is received
which states that the debt holders have
a perfected security interest in the
Issuer’s assets.
B. Neither any Underwriter, Sponsor,
Trustee, Servicer, Insurer, nor any
Obligor, unless it or any of its Affiliates
has discretionary authority or renders
investment advice with respect to the
plan assets used by a plan to acquire
Securities, shall be denied the relief
provided under Section I., if the
provision in subsection II.A.(6) is not
satisfied with respect to acquisition or
holding by a plan of such Securities,
provided that (1) such condition is
disclosed in the prospectus or private
placement memorandum; and (2) in the
case of a private placement of
Securities, the Trustee obtains a
representation of each initial purchaser
which is a plan that it is in compliance
with such condition, and obtains a
covenant from each initial purchaser to
the effect that, so long as such initial
purchaser (or any transferee of such
initial purchaser’s Securities) is
required to obtain from its transferee a
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32137
representation regarding compliance
with the Securities Act of 1933, any
such transferees will be required to
make a written representation regarding
compliance with the condition set forth
in Section II.A.(6).
Section III. Definitions
For purposes of this exemption:
A. ‘‘Security’’ means:
(1) A pass-through certificate or trust
certificate that represents a beneficial
ownership interest in the assets of an
Issuer which is a Trust and which
entitles the holder to payments of
principal, interest and/or other
payments made with respect to the
assets of such Trust; or
A security which is denominated as a
debt instrument that is issued by, and is
an obligation of, an Issuer; with respect
to which the Underwriter is either (i)
the sole underwriter or the manager or
co-manager of the underwriting
syndicate, or (ii) a selling or placement
agent; or
(2) A Certificate denominated as a
debt instrument that represents an
interest in either a Real Estate Mortgage
Investment Conduit (REMIC) or a
Financial Asset Securitization
Investment Trust (FASIT) within the
meaning of the section 860D(a) or
section 860L of the Code; and that is
issued by and is an obligation of a Trust,
with respect to Certificates defined in
Section III.A. (1) and (2) above, for
which the Underwriter is either (i) the
sole Underwriter or the manager or comanager of the underwriting syndicate,
or (ii) a selling or placement agent.
For purposes of this exemption,
references to ‘‘Certificates representing
an interest in a Trust’’ include
Certificates denominated as debt, which
are issued by a Trust.
B. ‘‘Issuer’’ means an investment pool,
the corpus or assets of which are held
in trust (including a grantor or owner
Trust) or whose assets are held by a
partnership, special purpose
corporation or limited liability company
(which Issuer may be a REMIC or a
FASIT within the meaning of section
860D(a) or section 860L, respectively, of
the Code); and the corpus or assets of
which consists solely of:
(1)(a) Secured consumer receivables
that bear interest or are purchased at a
discount (including, but not limited to,
home equity loans and obligations
secured by shares issued by a
cooperative housing association); and/or
(b) Secured credit instruments that
bear interest or are purchased at a
discount in transactions by or between
business entities (including, but not
limited to Qualified Equipment Notes
Secured by Leases); and/or
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(c) Obligations that bear interest or are
purchased at a discount and which are
secured by single-family residential and
commercial real property (including
obligations secured by leasehold interest
on residential or commercial real
property); and/or
(d) Obligations that bear interest or
are purchased at a discount and which
are secured by motor vehicles or
equipment, or Qualified Motor Vehicle
Leases; and/or
(e) Guaranteed governmental
mortgage pool certificates, as defined in
29 CFR 2510.3–101(1)(2) 4; and/or
(f) Fractional undivided interests in
any of the obligations described in
clauses (a)–(e) of this subsection B.(1); 5
Notwithstanding the foregoing,
residential and home equity loan
receivables issued in Designated
Transactions may be less than fully
secured, provided that (i) the rights and
interests evidenced by Securities issued
in such Designated Transactions (as
defined in Section III.DD.) are not
subordinated to the rights and interests
evidenced by Securities of the same
Issuer; (ii) such Securities acquired by
the plan have received a rating from a
Rating Agency at the time of such
acquisition that is in one of the two
highest generic rating categories; and
(iii) any obligation included in the
corpus or assets of the Issuer must be
secured by collateral whose fair market
value on the Closing Date of the
Designated Transaction is at least equal
to 80% of the sum of: (I) The
outstanding principal balance due
under the obligation which is held by
the Trust and (II) the outstanding
principal balance(s) of any other
obligation(s) of higher priority (whether
or not held by the Issuer) which are
secured by the same collateral.
(2) Property which had secured any of
the obligations described in subsection
III.B.(1);
4 In ERISA Advisory Opinion 99–05A (February
22, 1999), the Department expressed its view that
mortgage pool certificates guaranteed and issued by
the Federal Agricultural Mortgage Corporation meet
the definition of a guaranteed governmental
mortgage pool certificate as defined in 29 CFR
2510.3–101(i)(2).
5 It is the Department’s view that the definition
of ‘‘Issuer’’ contained in Section III.B. includes a
two-tier structure under which Securities issued by
the first Issuer, which contains a pool of receivables
described above, are transferred to a second Issuer
which issues Securities that are sold to plans.
However, the Department is of the further view that,
since the Underwriter Exemptions generally
provide relief for the direct or indirect acquisition
or disposition of Securities that are not
subordinated, no relief would be available if the
Securities held by the second Issuer were
subordinated to the rights and interests evidenced
by other Securities issued by the first Issuer, unless
such Securities were issued in a Designated
Transaction.
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(3)(a) Undistributed cash or temporary
investments made therewith maturing
no later than the next date on which
distributions are to be made to
Securityholders; and/or
(b) Cash or investments made
therewith which are credited to an
account to provide payments to
Securityholders pursuant to any Eligible
Swap Agreement meeting the conditions
of subsection II.A.(9) or pursuant to any
Eligible Yield Supplement Agreement,
and/or
(c) Cash transferred to the Issuer on
the Closing Date and permitted
investments made therewith which:
(i) Are credited to a Pre-Funding
Account established to purchase
additional obligations with respect to
which the conditions set forth in
paragraph (a)–(g) of subsection II.A.(7)
are met; and/or
(ii) Are credited to a Capitalized
Interest Account; and
(iii) Are held by the Issuer for a period
ending no later than the first
distribution date to Securityholders
occurring after the end of the PreFunding Period.
For purposes of this clause (c) of
subsection III.B.(3), the term ‘‘permitted
investments’’ means investments which:
(i) Are either (x) direct obligations of, or
obligations fully guaranteed as to timely
payment of principal and interest by,
the United States or any agency or
instrumentality thereof, provided that
such obligations are backed by the full
faith and credit of the United States, or
(y) have been rated (or the Obligor has
been rated) in one of the three highest
generic rating categories by a Rating
Agency; (ii) are described in the Pooling
and Servicing Agreement; and are
permitted by the Rating Agency.
(4) Rights of the Trustee under the
Pooling and Servicing Agreement, and
rights under any insurance policies,
third-party guarantees, contracts of
suretyship, Eligible Yield Supplement
Agreements, Eligible Swap Agreements
meeting the conditions of subsection
II.A.(9) or other credit support
arrangements with respect to any
obligations described in section III.B.(1).
Notwithstanding the foregoing, the
term ‘‘Issuer’’ does not include any
investment pool unless: (i) The
investment pool consists only of assets
of the type described in paragraph (a)–
(f) of subsection III.B.(1) which have
been included in other investment
pools, (ii) Securities evidencing
interests in such other investment pools
have been rated in one of the three (or
in the case of Designated Transactions,
four) highest generic rating categories by
a Rating Agency for at least one year
prior to the plan’s acquisition of
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Securities pursuant to this exemption,
and (iii) Securities evidencing interests
in such other investment pools have
been purchased by investors other than
plans for at least one year prior to the
plan’s acquisition of Securities pursuant
to the Underwriter Exemptions.
C. ‘‘Underwriter’’ means:
(1) Harris Nesbitt;
(2) Any U.S.-domiciled person
directly or indirectly, through one or
more intermediaries, controlling,
controlled by or under common control
with such investment banking firm; and
(3) Any member of an underwriting
syndicate or selling group of which such
firm or person described in subsections
III.C.(1) or (2) above is a manager or comanager with respect to the Securities.
D. ‘‘Sponsor’’ means the entity that
organizes as an Issuer by depositing
obligations therein in exchange for
Securities.
E. ‘‘Master Servicer’’ means the entity
that is a party to the Pooling and
Servicing Agreement relating to assets of
the Issuer and is fully responsible for
servicing, directly or through
Subservicers, the assets of the Issuer.
F. ‘‘Subservicer’’ means an entity
which, under the supervision of and on
behalf of the Master Servicer, services
loans contained in the Issuer, but is not
a party to the Pooling and Servicing
Agreement.
G. ‘‘Servicer’’ means any entity which
services loans contained in the Issuer,
including the Master Servicer and any
Subservicer.
H. ‘‘Trust’’ means an Issuer, which is
a trust (including an owner trust,
grantor trust or a REMIC or FASIT
which is organized as a Trust).
I. ‘‘Trustee’’ means the Trustee of any
Trust, which issues Securities, and in
the case of Securities which are
denominated as debt instruments, also
means the Trustee of an Indenture
Trust. ‘‘Indenture Trustee’’ means the
Trustee appointed under the indenture
pursuant to which the subject Securities
are issued, the rights of holders of the
Securities are set forth and a security
interest in the Trust assets in favor of
the holders of the Securities is created.
The Trustee or the Indenture Trustee is
also a party to or beneficiary of all the
documents and instruments transferred
to the Trust, and as such, has both the
authority to, and the responsibility for,
enforcing all the rights created thereby
in favor of holders of the Securities,
including those rights arising in the
event of default by the Servicer.
J. ‘‘Insurer’’ means the insurer or
guarantor of, or provider of other credit
support for, an Issuer. Notwithstanding
the foregoing, a person is not an Insurer
solely because it holds Securities
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representing an interest in an Issuer,
which are of a class subordinated to
Securities representing an interest in the
same Issuer.
K. ‘‘Obligor’’ means any person, other
than the Insurer, that is obligated to
make payments with respect to any
obligation or receivable included in the
Trust. Where an Issuer contains
Qualified Motor Vehicle Leases or
Qualified Equipment Notes Secured by
Leases, ‘‘Obligor’’ shall also include any
owner of property subject to any lease
included in the Issuer, or subject to any
lease securing an obligation included in
the Issuer.
L. ‘‘Excluded Plan’’ means any plan
with respect to which any member of
the Restricted Group is a ‘‘plan sponsor’’
within the meaning of section 3(16)(B)
of the Act.
M. ‘‘Restricted Group’’ with respect to
a class of Securities means:
(1) Each Underwriter;
(2) Each Insurer;
(3) The Sponsor;
(4) The Trustee;
(5) Each Servicer;
(6) Any Obligor with respect to
obligations or receivables included in
the Issuer constituting more than 5
percent of the aggregate unamortized
principal balance of the assets in the
Issuer, determined on the date of the
initial issuance of Securities by the
Issuer; or
(7) Each counterparty in an Eligible
Swap Agreement;
(8) Any Affiliate of a person described
in III.M.(1)–(7) above.
N. ‘‘Affiliate’’ of another person
includes:
(1) Any person, directly or indirectly,
through one or more intermediaries,
controlling, controlled by or under
common control with such other
person;
(2) Any officer, director, partner,
employee, relative (as defined in section
3(15) of the Act), a brother, a sister, or
a spouse of a brother or sister of such
other person; and
(3) Any corporation or partnership of
which such other person is an officer,
director or partner.
O. ‘‘Control’’ means the power to
exercise a controlling influence over the
management or policies of a person
other than an individual.
P. A person will be ‘‘independent’’ of
another person only if:
(1) Such person is not an Affiliate of
that other person; and
(2) The other person, or an Affiliate
thereof, is not a fiduciary who has
investment management authority or
renders investment advice with respect
to assets of such person.
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Q. ‘‘Sale’’ includes the entrance into
a Forward Delivery Commitment,
provided:
(1) The terms of the Forward Delivery
Commitment (including any fee paid to
the investing plan) are no less favorable
to the plan than they would be in an
arm’s length transaction with an
unrelated party;
(2) The prospectus or private
placement memorandum is provided to
an investing plan prior to the time the
plan enters into the Forward Delivery
Commitment; and
(3) At the time of the delivery, all
conditions of this exemption applicable
to sales are met.
R. ‘‘Forward Delivery Commitment’’
means a contact for the purchase or sale
of one or more Securities to be delivered
at an agreed future settlement date. The
term includes both mandatory contracts
(which contemplate obligatory delivery
and acceptance of the Securities) and
optional contracts (which give one party
the right but not the obligation to
deliver Securities to, or demand
delivery of Securities from, the other
party).
S. ‘‘Reasonable Compensation’’ has
the same meaning as that term is
defined in 29 CFR 2550.408c–2.
T. ‘‘Qualified Administrative Fee’’
means a fee which meets the following
criteria:
(1) The fee is triggered by an act or
failure to act by the Obligor other than
the normal timely payment of amounts
owing in respect of the obligations;
(2) The Servicer may not charge the
fee absent the act or failure to act
referred to in subsection III.T.(1);
(3) The ability to charge the fee, the
circumstances in which the fee may be
charged, and an explanation of how the
fee is calculated are set forth in the
Pooling and Servicing Agreement; and
(4) The amount paid to investors in
the Issuer will not be reduced by the
amount of any such fee waived by the
Servicer.
U. ‘‘Qualified Equipment Note
Secured By a Lease’’ means an
equipment note:
(1) Which is secured by equipment
which is leased;
(2) Which is secured by the obligation
of the lessee to pay rent under the
equipment lease; and
(3) With respect to which the Issuer’s
security interest in the equipment is at
least as protective of the rights of the
Issuer as would be the case if the
equipment note were secured only by
the equipment and not the lease.
V. ‘‘Qualified Motor Vehicle Lease’’
means a lease of a motor vehicle where:
(1) The Issuer owns or holds a
security interest in the lease;
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32139
(2) The Issuer owns or holds a
security interest in the leased motor
vehicle; and
(3) The Issuer’s interest in the leased
motor vehicle is at least as protective of
the Issuer’s rights as the Issuer would
receive under a motor vehicle
installment loan contract.
W. ‘‘Pooling and Servicing
Agreement’’ means the agreement or
agreements among a Sponsor, a Servicer
and the Trustee establishing a Trust. In
the case of Securities which are
denominated as debt instruments,
‘‘Pooling and Servicing Agreement’’ also
includes the indenture entered into by
the Issuer and the Indenture Trustee.
X. ‘‘Rating Agency’’ means Standard &
Poor’s Ratings Services, a division of
The McGraw-Hill Companies, Inc.,
Moody’s Investors Service, Inc., Fitch,
Inc. or any successors thereto.
Y. ‘‘Capitalized Interest Account’’
means an Issuer account: (i) Which is
established to compensate
Securityholders for shortfalls, if any,
between investment earnings on the PreFunding Account and the pass-through
rate payable under the Securities; and
(ii) which meets the requirements of
clause (c) of subsection III.B.(3).
Z. ‘‘Closing Date’’ means the date the
Issuer is formed, the Securities are first
issued and the Issue’s assets (other than
those additional obligations which are
to be funded from the Pre-Funding
Account pursuant to subsection II.A.(7))
are transferred to the Issuer.
AA. ‘‘Pre-Funding Account’’ means
an Issuer account:
(i) Which is established to purchase
additional obligations, which
obligations meet the conditions set forth
in clauses (a)–(g) of subsection II.A.(7);
and
(ii) Which meets the requirements of
clause (c) of subsection III.B.(3).
BB. ‘‘Pre-Funding Limit’’ means a
percentage or ratio of the amount
allocated to the Pre-Funding Account,
as compared to the total principal
amount of the Securities being offered
which is less than or equal to 25
percent.
CC. ‘‘Pre-Funding Period’’ means the
period commencing on the Closing Date
and ending no later than the earliest to
occur of: (i) The date the amount on
deposit in the Pre-Funding Account is
less than the minimum dollar amount
specified in the Pooling and Servicing
Agreement; (ii) the date on which an
event of default occurs under the
Pooling and Servicing Agreement; or
(iii) the date which is the later of three
months or 90 days after the Closing
Date.
DD. ‘‘Designated Transaction’’ means
a securitization transaction in which the
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assets of the Issuer consist of secured
consumer receivables, secured credit
instruments or secured obligations that
bear interest or are purchased at a
discount and are: (i) Motor vehicle,
home equity and/or manufactured
housing consumer receivables; and/or
(ii) motor vehicle credit instruments in
transactions by or between business
entities; and/or (iii) single-family
residential, multi-family residential,
home equity, manufactured housing
and/or commercial mortgage obligations
that are secured by single-family
residential, multi-family residential,
commercial real property or leasehold
interests therein. For purposes of this
Section III.DD., the collateral securing
motor vehicle consumer receivables or
motor vehicle credit instruments may
include motor vehicles and/or Qualified
Motor Vehicle Leases.
EE. ‘‘Ratings Dependent Swap’’ means
an interest rate swap, or (if purchased
by or on behalf of the Issuer) an interest
rate cap contract, that is part of the
structure of a class of Securities where
the rating assigned by the Rating Agency
to any class of Securities held by any
plan is dependent on the terms and
conditions of the swap and the rating of
the counterparty, and if such Securities
rating is not dependent on the existence
of the swap and rating of the
counterparty, such swap or cap shall be
referred to as a ‘‘Non-Ratings Dependent
Swap.’’ With respect to a Non-Ratings
Dependent Swap, each Rating Agency
rating the Securities must confirm, as of
the date of issuance of the Securities by
the Issuer that entering into an Eligible
Swap with such counterparty will not
affect the rating of the Securities.
FF. ‘‘Eligible Swap’’ means a Ratings
Dependent or Non-Ratings Dependent
Swap:
(1) Which is denominated in U.S.
dollars;
(2) Pursuant to which the Issuer pays
or receives, on or immediately prior to
the respective payment or distribution
date for the class of Securities to which
the swap relates, a fixed rate of interest,
or a floating rate of interest based on a
publicly available index (e.g., LIBOR or
the U.S. Federal Reserve’s Cost of Funds
Index (COFI)), with the Issuer receiving
such payments on at least a quarterly
basis and obligated to make separate
payments no more frequently than the
counterparty, with all simultaneous
payments being netted;
(3) Which has a notional amount that
does not exceed either: (i) The principal
balance of the class of Securities to
which the swap relates, or (ii) the
portion of the principal balance of such
class represented solely by those types
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Jkt 208001
of corpus or assets of the Issuer referred
to in subsections III.B.(1), (2) and (3);
(4) Which is not leveraged (i.e.,
payments are based on the applicable
notional amount, the day count
fractions, the fixed or floating rates
designated in subsection III.FF.(2), and
the difference between the products
thereof, calculated on a one to one ratio
and not on a multiplier of such
difference);
(5) Which has a final termination date
that is either the earlier of the date on
which the Issuer terminates or the
related class of Securities is fully repaid;
and
(6) Which does not incorporate any
provision which could cause a
unilateral alteration in any provision
described in subsections III.FF.(1)
through (4) without the consent of the
Trustee.
GG. ‘‘Eligible Swap Counterparty’’
means a bank or other financial
institution which has a rating, at the
date of issuance of the Securities by the
Issuer, which is in one of the three
highest long-term credit rating
categories, or one of the two highest
short-term credit rating categories,
utilized by at least one of the Rating
Agencies rating the Securities; provided
that, if a swap counterparty is relying on
its short-term rating to establish
eligibility under the Underwriter
Exemptions, such swap counterparty
must either have a long-term rating in
one of the three highest long-term rating
categories or not have a long-term rating
from the applicable Rating Agency, and
provided further that if the class of
Securities with which the swap is
associated has a final maturity date of
more than one year from the date of
issuance of the Securities, and such
swap is a Ratings Dependent Swap, the
swap counterparty is required by the
terms of the swap agreement to establish
any collateralization or other
arrangement satisfactory to the Rating
Agencies in the event of a ratings
downgrade of the swap counterparty.
HH. ‘‘Qualified Plan Investor’’ means
a plan investor or group of plan
investors on whose behalf the decision
to purchase Securities is made by an
appropriate independent fiduciary that
is qualified to analyze and understand
the terms and conditions of any swap
transaction used by the Issuer and the
effect such swap would have upon the
credit ratings of the Securities. For
purposes of the Underwriter
Exemptions, such a fiduciary is either:
(1) A ‘‘qualified professional asset
manager’’ (QPAM),6 as defined under
6 PTE 84–14 provides a class exemption for
transactions between a party in interest with respect
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Part V(a) of Prohibited Transaction
Exemption (PTE) 84–14 (49 FR 9494,
9506, March 13, 1984, as amended by 70
FR 49305, August 23, 2005);
(2) An ‘‘in-house asset manager’’
(INHAM),7 as defined under Part IV(a)
of PTE 96–23, 61 FR 15975, 15982
(April 10, 1996); or
(3) A plan fiduciary with total assets
under management of at least $100
million at the time of the acquisition of
such Securities.
II. ‘‘Excess Spread’’ means, as of any
day funds are distributed from the
Issuer, the amount by which the interest
allocated to Securities exceeds the
amount necessary to pay interest to
Securityholders, servicing fees and
expenses.
JJ. ‘‘Eligible Yield Supplement
Agreement’’ means any yield
supplement agreement, similar yield
maintenance arrangement or, if
purchased by or on behalf of the Issuer,
an interest rate cap contract to
supplement the interest rates otherwise
payable on obligations described in
subsection III.B.(1). Such an agreement
or arrangement may involve a notional
principal contract provided that:
(1) It is denominated in U.S. dollars;
(2) The Issuer receives on, or
immediately prior to the respective
payment date for the Securities covered
by such agreement or arrangement, a
fixed rate of interest or a floating rate of
interest based on a publicly available
index (e.g., LIBOR or COFI), with the
Issuer receiving such payments on at
least a quarterly basis;
(3) It is not ‘‘leveraged’’ as described
in subsection III.FF.(4);
(4) It does not incorporate any
provision which would cause a
unilateral alteration in any provision
described in subsections III.JJ.(1)–(3)
without the consent of the Trustee;
(5) It is entered into by the Issuer with
an Eligible Swap Counterparty; and
(6) It has a notional amount that does
not exceed either: (i) The principal
balance of the class of Securities to
to an employee benefit plan and an investment fund
(including either a single customer or pooled
separate account) in which the plan has an interest,
and which is managed by a QPAM, provided
certain conditions are met. QPAMs (e.g., banks,
insurance companies, registered investment
advisers with total client assets under management
in excess of $85 million) are considered to be
experienced investment managers for plan investors
that are aware of their fiduciary duties under
ERISA.
7 PTE 96–23 permits various transactions
involving employee benefit plans whose assets are
managed by an INHAM, an entity which is
generally a subsidiary of an employer sponsoring
the plan which is a registered investment adviser
with management and control of total assets
attributable to plans maintained by the employer
and its affiliates which are in excess of $50 million.
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which such agreement or arrangement
relates, or (ii) the portion of the
principal balance of such class
represented solely by those types of
corpus or assets of the Issuer referred to
in subsections III.B.(1), (2) and (3).
Effective Date: This exemption is
effective October 15, 2004.
For a more complete statement of the
facts and representations supporting the
Department’s decision to grant this
exemption, refer to the notice of
proposed exemption (the Notice)
published on February 13, 2006 in the
Federal Register at 71 FR 7628.
Written Comments/Technical Correction
to the Notice
jlentini on PROD1PC65 with NOTICES
The Department invited all interested
persons to submit written comments
and requests for a hearing with respect
to the Notice within 45 days of the date
of its publication in the Federal Register
on February 13, 2006. Therefore, all
comments and requests for a hearing
were due by March 14, 2006.
During the comment period, the
Department received no comments and
no requests for a public hearing.
However, upon careful review of the
Notice, the Department observed that
Footnote 11, which addresses the terms
of leasehold interests on residential real
property that is pledged to secure
certain obligations in residential
mortgage investment trusts, does not
fully clarify the Department’s position
with respect to residential leasehold
mortgages. In this regard, Footnote 11
states the following:
Trust assets may also include obligations
that are secured by leasehold interests on
residential real property. But see PTE 90–32
involving Prudential-Bache Securities, Inc.,
55 FR 23147, 23150 (June 6, 1990). The
Department received one comment from an
affiliate of the applicant with respect to the
notice of proposed exemption for PTE 90–32.
The comment requested clarification that the
definition of trust in section III.B. would
include trusts containing certain obligations
secured by leasehold interests on residential
real property (Residential Leasehold
Mortgages or RLMs). The comment noted that
RLMs are originated in jurisdictions such as
Hawaii in which they are a ‘‘necessary
alternative to mortgages secured by fee
simple interests’’ and that these RLMs are ‘‘in
essence, the same as, and provide
substantially the same degree of security to
investors as, mortgages secured by fee simple
interests.
The comment represented that both the
Federal Home Loan Mortgage Corporation
(Freddie Mac) and the Federal National
Mortgage Association (Fannie Mae) have
purchase programs for these RLMs and that
such RLMs included in pools underlying
mortgage pass-through certificates would
‘‘generally conform’’ with either Freddie Mac
or Fannie Mae leasehold guidelines. In this
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regard, the term of the leasehold underlying
such RLMs would extend for at least five
years beyond the term of the RLM. The
comment noted that the affiliate of the
applicant would ‘‘comply with the
requirement under the Freddie Mac and
Fannie Mae leasehold guidelines that such
mortgages constitute obligations secured by
real property or an interest in real estate.
The Department notes that the
proposed exemption underlying PTE
2000–58 (65 FR 67765, Nov. 13, 2000),
which amended the Underwriter
Exemptions (62 FR 39021, July 21,
1997), contained a limitation concerning
leasehold mortgages. Specifically, the
Department stated that ‘‘[t]he terms of
the ground leases pledged to secure
leasehold mortgages [would] in all cases
be at least ten years longer than the
terms of such mortgages.’’ (65 FR 51454,
51455, August 23, 2000). The final
exemption did not discuss this
limitation. Moreover, in later
exemptions to amend the Underwriter
Exemptions or to provide similar
individual relief, the original PTE 2000–
58 preamble language referring to
residential and commercial mortgage
investment trusts is repeated without
change, except for the omission of the
provision concerning RLMs.
The Department wishes to allay any
public uncertainty regarding whether
the RLM requirement continues to apply
to the Underwriter Exemptions and to
subsequent individual exemptions.
Thus, the Harris Nesbitt exemption
presents the first opportunity for the
Department to affirm its position that
with respect to RLMs, the terms of
ground leases pledged to secure
leasehold mortgages should be at least
five years longer than the terms of such
mortgages. The Department also wishes
to clarify that the leasehold limitation
mentioned in Footnote 11 applies to
RLMs that are subject to Fannie Mae
and Freddie Mac guidelines.
After giving full consideration to the
entire record, the Department has
decided to grant the exemption subject
to the clarifications described above. For
further information, interested persons
are encouraged to obtain copies of the
exemption application file (Exemption
Application No. D–11281) the
Department is maintaining in this case.
The complete application file, as well as
all supplemental submissions received
by the Department, are made available
for public inspection in the Public
Disclosure Room of the Employee
Benefits Security Administration, Room
N–1513, U.S. Department Labor, 200
Constitution Avenue, NW., Washington,
DC 20210.
FOR FURTHER INFORMATION CONTACT: Ms.
Silvia M. Quezada of the Department,
PO 00000
Frm 00114
Fmt 4703
Sfmt 4703
32141
telephone (202) 693–8553. (This is not
a toll-free number.)
Fortunoff Fine Jewelry and Silverware,
Inc. Cash Balance Pension Plan (the
FFJS Cash Balance Plan), M. Fortunoff
of Westbury Corp. Cash Balance
Pension Plan (the MFW Cash Balance
Plan), and Fortunoff Fine Jewelry and
Silverware, Inc. Profit Sharing Plan
(the FFJS Profit Sharing Plan;
Collectively, the Plans) Located in
Westbury, NY
[Prohibited Transaction Exemption 2006–08;
Exemption Application Nos. D–11307, D–
11308 and D–11309, respectively]
Exemption
The restrictions of sections 406(a) and
406(b) of the Act and the sanctions
resulting from the application of section
4975(a) and (b) of the Code,8 by reason
of section 4975(c)(1)(A) through (E) of
the Code, shall not apply (1) effective
November 26, 2003 until February 28,
2005, to the leasing of certain improved
real property (the Property) by the
Plans, directly and then through One
MH Plaza Realty LLC (the Plans’ LLC),
a special purpose entity designed to
hold the Plans’ interests in the Property,
to Fortunoff Fine Jewelry and
Silverware, Inc. (FFJS), under the
provisions of a written lease (the Interim
Lease); and (2) effective March 1, 2005
through August 31, 2006, to the 18
month extension of the Interim Lease
(the Interim Lease Extension) between
the Plans,9 through the Plans’ LLC, and
FFJS and its successors in interest,
Fortunoff Fine Jewelry and Silverware,
LLC (FFJS LLC) and M. Fortunoff of
Westbury, LLC (MFW LLC).
This exemption is subject to the
following conditions:
(a) Since November 26, 2003, the
Plans have been and continue to be
represented for all purposes under the
Interim Lease, by Independent
Fiduciary Services (IFS), a qualified,
independent fiduciary, which also
represents the interests of the Plans
under the Interim Lease Extension.
(b) IFS has (1) reviewed and approved
the continued adherence by the Plans
and the Plans’ LLC with the terms and
conditions of the Interim Lease under
the facts and circumstances in existence
on and after November 26, 2003; (2)
negotiated, reviewed, and expressly
8 For purposes of this exemption, references to
provisions of Title I of the Act, unless otherwise
specified, refer also to corresponding provisions of
the Code.
9 As of January 1, 2006, all references to the Plans
shall mean the Fortunoff, the Source, Cash Balance
Plan (the Merged Cash Balance Plan), which
resulted from the merger of the FFJS Cash Balance
Plan and the MFW Cash Balance Plan, and the FFJS
Profit Sharing Plan.
E:\FR\FM\02JNN1.SGM
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jlentini on PROD1PC65 with NOTICES
32142
Federal Register / Vol. 71, No. 106 / Friday, June 2, 2006 / Notices
approved the terms and conditions of
the Interim Lease Extension on behalf of
the Plans; and (3) determined that the
leasing of the Property since November
26, 2003 pursuant to the Interim Lease
and, since March 1, 2005, pursuant to
the Interim Lease Extension, (i)
complies with the relevant provisions of
Prohibited Transaction Exemption (PTE)
93–8 (58 FR 7258, February 5, 1993), as
amended by PTE 98–22 (63 FR 27329,
May 18, 1998), (except as modified by
this exemption); (ii) continues to be an
appropriate investment for the Plans on
and after November 26, 2003, consistent
with each Plan’s investment policies
and liquidity needs; and (iii) is in the
best interests of each Plan and its
respective participants and beneficiaries
on and after November 26, 2003.
(c) The rent paid to the Plans under
the Interim Lease and the Interim Lease
Extension is no less than the fair market
rental value of the Property, as
established by a qualified, independent
appraiser. Effective March 1, 2006, the
rent is adjusted to the greater of the
current annualized rental of $656,400 or
the then-current, fair market rental
value, as determined by IFS on the basis
of an appraisal conducted by the
independent appraiser selected by IFS.
(d) The base rent has been adjusted or
is adjusted annually by IFS based upon
an independent appraisal of the
Property.
(e) Under both the Interim Lease and
the Interim Lease Extension, FFJS pays
for property and liability insurance on
the Property, property taxes, utility
costs, other costs for maintaining the
Property including environmental
assessments, engineering inspection
reports, as well as all other expenses
that are incident to such agreements.
(f) IFS has monitored, and continues
to monitor, compliance with the terms
of the Interim Lease since November 26,
2003 and the terms of the Interim Lease
Extension throughout the duration of
these agreements.
(g) IFS is responsible for legally
enforcing the payment of the rent and
the proper performance of all other
obligations of FFJS and its successors in
interest, FFJS LLC and MFW LLC, under
the terms of such agreements.
(h) IFS makes determinations, on
behalf of the Plans, with respect to any
sale or future leasing of the Property.
(i) IFS has determined that (1) the
leasing of the Property pursuant to the
Interim Lease on and after November 26,
2003 was no less favorable to the Plans
than similar leasing arrangements
between unrelated parties; (2) the thenprevailing rent received by the Plans
under the interim lease was no less
favorable to the Plans than the rent the
VerDate Aug<31>2005
18:05 Jun 01, 2006
Jkt 208001
Plans would have received under
similar circumstances if the rent had
been negotiated at arm’s length with
unrelated third parties; and (3) the terms
and conditions of the Interim Lease
Extension have been or are no less
favorable to the Plans than those
obtainable by the Plans under similar
circumstances when negotiated at arm’s
length with unrelated third parties.
(j) With respect to the Interim Lease
Extension, FFJS (1) has made a twomonth security deposit pursuant to the
agreement; and (2) is required to pay an
additional four-month security deposit
(Additional Deposit) after the expiration
of the first 12 months of the Interim
Lease Extension, calculated at the rental
amount to be effective March 1, 2006.
(k) Over the last six months of the
Interim Lease Extension, one-sixth of
the Additional Deposit is applied to the
rent each month, so long as there is no
uncured default.
Effective Date: This exemption is
effective from November 26, 2003 until
February 28, 2005 with respect to the
Interim Lease and from March 1, 2005
until August 31, 2006 with respect to
the Interim Lease Extension.
For a more complete statement of the
facts and representations supporting the
Department’s decision to grant this
exemption, refer to the notice of
proposed exemption published on
February 13, 2006 at 71 FR 7647.
FOR FURTHER INFORMATION CONTACT: Ms.
Anna Mpras Vaughan of the
Department, telephone (202) 693–8565.
(This is not a toll-free number.)
General Information
The attention of interested persons is
directed to the following:
(1) The fact that a transaction is the
subject of an exemption under section
408(a) of the Act and/or section
4975(c)(2) of the Code does not relieve
a fiduciary or other party in interest or
disqualified person from certain other
provisions to which the exemption does
not apply and the general fiduciary
responsibility provisions of section 404
of the Act, which among other things
require a fiduciary to discharge his
duties respecting the plan solely in the
interest of the participants and
beneficiaries of the plan and in a
prudent fashion in accordance with
section 404(a)(1)(B) of the Act; nor does
it affect the requirement of section
401(a) of the Code that the plan must
operate for the exclusive benefit of the
employees of the employer maintaining
the plan and their beneficiaries;
(2) This exemption is supplemental to
and not in derogation of, any other
provisions of the Act and/or the Code,
including statutory or administrative
PO 00000
Frm 00115
Fmt 4703
Sfmt 4703
exemptions and transactional rules.
Furthermore, the fact that a transaction
is subject to an administrative or
statutory exemption is not dispositive of
whether the transaction is in fact a
prohibited transaction; and
(3) The availability of this exemption
is subject to the express condition that
the material facts and representations
contained in the application accurately
describes all material terms of the
transaction which is the subject of the
exemption.
Ivan Strasfeld,
Director of Exemption Determinations,
Employee Benefits Security Administration,
U.S. Department of Labor.
[FR Doc. E6–8529 Filed 6–1–06; 8:45 am]
BILLING CODE 4510–29–P
FEDERAL MINE SAFETY AND HEALTH
REVEW COMMISSION
Notice of Meeting; Sunshine Act
May 26, 2006.
TIME AND DATE:
10 a.m., Thursday, June
8, 2006.
PLACE: The Richard V. Backley Hearing
Room, 9th Floor, 601 New Jersey
Avenue, NW., Washington, DC.
STATUS:
Open.
MATTERS TO BE CONSIDERED: The
Commission will consider and act upon
the following in open session: Secretary
of Labor v. Jim Walter Resources, Inc.,
Docket No. SE 2003–160. (Issues
include whether the judge correctly
determined that the operator violated 30
CFR 75.360(b)(3), and that the violation
was significant and substantial and
attributable to the operator’s
unwarrantable failure; whether the
judge correctly determined that the
operator did not violate 30 CFR
75.1101–23(a); whether the judge
correctly determined that the operator
violated 30 CFR 75.1101–23(c), and that
the violation was not significant and
substantial; and whether the judge
properly followed section 110(i) of the
Mine Act in setting the penalty amounts
for the violations found.)
Any person attending this meeting
who requires special accessibility
features and/or auxiliary aids, such as
sign language interpreters, must inform
the Commission in advance of those
needs, subject to 29 CFR 2706.150(a)(3)
and 2706.160(d).
FOR FURTHER INFORMATION CONTACT: Jean
Ellen, (202) 434–9950 / (202) 708–9300
E:\FR\FM\02JNN1.SGM
02JNN1
]]>Agencies
[Federal Register Volume 71, Number 106 (Friday, June 2, 2006)]
[Notices]
[Pages 32134-32142]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-8529]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2006-07; [Exemption Application No.
D-11281] et al.]
Grant of Individual Exemptions; Harris Nesbitt Corporation
(Harris Nesbitt)
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Grant of individual exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) 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).
A notice was published in the Federal Register of the pendency
before the Department of a proposal to grant such exemption. The notice
set forth a summary of facts and representations contained in the
application for exemption and referred interested persons to the
application for a complete statement of the facts and representations.
The application has been available for public inspection at the
Department in Washington, DC. The notice also invited interested
persons to submit comments on the requested exemption to the
Department. In addition the notice stated that any interested person
might submit a written request that a public hearing be held (where
appropriate). The applicant has represented that it has complied with
the requirements of the notification to interested persons. No requests
for a hearing were received by the Department. Public comments were
received by the Department as described in the granted exemption.
The notice of proposed exemption was issued and the exemption is
being granted solely by the Department because, 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 proposed to the Secretary of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemption is administratively feasible;
[[Page 32135]]
(b) The exemption is in the interests of the plan and its
participants and beneficiaries; and
(c) The exemption is protective of the rights of the participants
and beneficiaries of the plan.
Harris Nesbitt Corporation (Harris Nesbitt) and Its Affiliates (the
Affiliates) Located in New York, NY
[Prohibited Transaction Exemption 2006-07; Exemption Application No. D-
11281]
Exemption
Section I. Covered Transactions
A. Effective for transactions occurring on or after October 15,
2004, the restrictions of sections 406(a) and 407(a) of the Act and the
taxes imposed by sections 4975(a) and (b) of the Code, by reason of
section 4975(c)(1)(A) through (D) of the Code, shall not apply to the
following transactions involving Issuers and Securities evidencing
interests therein:
(1) The direct or indirect sale, exchange or transfer of Securities
in the initial issuance of Securities between the Sponsor or
Underwriter and an employee benefit plan when the Sponsor, Servicer,
Trustee or Insurer of an Issuer, the Underwriter of the Securities
representing an interest in the Issuer, or an Obligor is a party in
interest with respect to such plan.
(2) The direct or indirect acquisition or disposition of Securities
by a plan in the secondary market for such Securities; and
(3) The continued holding of Securities acquired by a plan pursuant
to subsection I.A.(1) or (2).
Notwithstanding the foregoing, section I.A. does not provide an
exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and
407 of the Act for the acquisition or holding of a Security on behalf
of an Excluded Plan, by any person who has discretionary authority or
renders investment advice with respect to the assets of that Excluded
Plan.\1\
---------------------------------------------------------------------------
\1\ Section I.A. provides no relief from sections 406(a)(1)(E),
406(a)(2) and 407 of the Act for any person rendering investment
advice to an Excluded Plan within the meaning of section
3(21)(A)(ii) of the Act and regulation 29 CFR 2510.3-21(c).
---------------------------------------------------------------------------
B. Effective for transactions occurring on or after, October 15,
2004, the restrictions of section 406(b)(1) and 406(b)(2) of the Act
and the taxes imposed by sections 4975(a) and (b) of the Code, by
reason of section 4975(c)(1)(E) of the Code shall not apply to:
(1) The direct or indirect sale, exchange or transfer of Securities
in the initial issuance of Securities between the Sponsor or
Underwriter and a plan when the person who has discretionary authority
or renders investment advice with respect to the investment of plan
assets in the Securities is (a) an Obligor with respect to 5 percent or
less of the fair market value of obligations or receivables contained
in the Issuer, or (b) an Affiliate of a person described in (a); if
(i) The plan is not an Excluded Plan;
(ii) Solely in the case of an acquisition of Securities in
connection with the initial issuance of the Securities, at least 50
percent of each class of Securities in which plans have invested is
acquired by persons independent of the members of the Restricted Group,
and at least 50 percent of the aggregate interest in the Issuer is
acquired by persons independent of the Restricted Group;
(iii) A plan's investment in each class of Security does not exceed
25 percent of all of the Securities of that class outstanding at the
time of the acquisition; and
(iv) Immediately after the acquisition of the Securities, no more
than 25 percent of the assets of a plan with respect to which the
person has discretionary authority or renders investment advice are
invested in Securities representing an interest in an Issuer containing
assets sold or serviced by the same entity.\2\ For purposes of this
paragraph B.(1)(iv) only, an entity will not be considered to service
assets contained in an Issuer if it is merely a Subservicer of that
Issuer;
---------------------------------------------------------------------------
\2\ For purposes of this exemption, each plan participating in a
commingled fund (such as a bank collective trust fund or insurance
company pooled separate account) shall be considered to own the same
proportionate undivided interest in each asset of the commingled
fund as its proportionate interest in the total assets of the
commingled fund as calculated on the most recent preceding valuation
date of the fund.
---------------------------------------------------------------------------
(2) The direct or indirect acquisition or disposition of Securities
by a plan in the secondary market for such Securities, provided that
conditions set forth in paragraphs (i), (iii) and (iv) of subsection
I.B.(1) are met; and
(3) The continued holding of Securities acquired by a plan pursuant
to subsection I.B.(1) or (2).
C. Effective for transactions occurring on or after October 15,
2004, the restrictions of sections 406(a), 406(b), and 407(a) of the
Act and the taxes imposed by sections 4975(a) and (b) of the Code by
reason of Code section 4975(c), shall not apply to the transactions in
connection with the servicing, management and operation of an Issuer,
including the use of the any eligible swap transaction; or the
defeasance of a mortgage obligation held as an asset of the Issuer
through the substitution of a new mortgage obligation in a commercial
mortgage-backed designated transaction (the Designated Transaction),
provided:
(1) Such transactions are carried out in accordance with the terms
of a binding Pooling and Servicing Agreement;
(2) The Pooling and Servicing Agreement is provided to, or
described in all material respects in the prospectus or private
placement memorandum provided to, investing plans before they purchase
Securities issued by the Issuer; \3\ and
---------------------------------------------------------------------------
\3\ In the case of a private placement memorandum, such
memorandum must contain substantially the same information that
would be disclosed in a prospectus if the offering of the securities
were made in a registered public offering under the Securities Act
of 1933. In the Department's view, the private placement memorandum
must contain sufficient information to permit plan fiduciaries to
make informed investment decisions. For purposes of this exemption,
references to ``prospectus'' include any related prospectus
supplement thereto, pursuant to which Securities are offered to
investors.
---------------------------------------------------------------------------
(3) The defeasance of a mortgage obligation and the substitution of
a new mortgage obligation in a commercial mortgage-backed Designated
Transaction meet the terms and conditions for such defeasance and
substitution as are described in the prospectus or private placement
memorandum for such Securities, which terms and conditions have been
approved by a Rating Agency and does not result in the Securities
receiving a lower credit rating from the Rating Agency than the current
rating of the Securities.
Notwithstanding the foregoing, Section I.C. does not provide an
exemption from the restrictions of section 406(b) of the Act or from
the taxes imposed by reason of section 4975(c) of the Code for the
receipt of a fee by a Servicer of the Issuer from a person other than
the Trustee or Sponsor, unless such fee constitutes a Qualified
Administrative Fee.
D. Effective for transactions occurring after October 15, 2004, the
restrictions of sections 406(a) and 407(a) of the Act and the taxes
imposed by sections 4975(a) and (b) of the Code, by reason of Code
section 4975(c)(1)(A) through (D) of the Code shall not apply to any
transactions to which those restrictions or taxes would otherwise apply
merely because a person is deemed to be a party in interest or
disqualified person (including a fiduciary), with respect to the plan
(or by virtue of having a relationship to such service provider
described in section 3(14)(F), (G), (H) or (I) of the Act or section
4975(e)(2)(F),
[[Page 32136]]
(G), (H) or (I) of the Code), solely because of the plan's ownership of
Securities.
Section II. General Conditions
A. The relief provided under Section I. is available only if the
following conditions are met:
(1) The acquisition of Securities by a plan is on terms (including
the Security price) that are at least as favorable to the plan as such
terms would be in an arm's length transaction with an unrelated party;
(2) The rights and interests evidenced by the Securities are not
subordinated to the rights and interests evidenced by other Securities
of the same Issuer unless the Securities are issued in a Designated
Transaction;
(3) The Securities acquired by the plan have received a rating from
Rating Agency at the time of such acquisition that is in one of the
three (or in the case of Designated Transactions, four) highest generic
rating categories.
(4) The Trustee is not an Affiliate of any member of the Restricted
Group, other than an Underwriter. For purposes of this requirement:
(a) The Trustee shall not be considered to be an Affiliate of a
Servicer solely because the Trustee has succeeded to the rights and
responsibilities of the Servicer pursuant to the terms of a Pooling and
Servicing Agreement providing for such succession upon the occurrence
of one or more events of default by the Servicer; and
(b) Subsection II.A.(4) will be deemed satisfied notwithstanding a
Servicer becoming an Affiliate of the Trustee as a result of a merger
or acquisition involving the Trustee, such Servicer and/or their
Affiliates which occurs after the initial issuance of the Securities
provided that:
(i) Such Servicer ceases to be an Affiliate of the Trustee no later
than six months after the date such Servicer became an Affiliate of the
Trustee; and
(ii) Such Servicer did not breach any of its obligations under the
Pooling and Servicing Agreement, unless such breach was immaterial and
timely cured in accordance with the terms of such agreement, during the
period from the Closing Date of such merger or acquisition transaction
through the date the Servicer ceased to be an Affiliate of the Trustee;
(5) The sum of all payments made to and retained by the
Underwriters in connection with the distribution or placement of
Securities represents not more than Reasonable Compensation for
underwriting or placing the Securities; the sum of all payments made to
and retained by the Sponsor pursuant to the assignment of obligations
(or interests therein) to the Issuer represents not more than the fair
market value of such obligations (or interests); and the sum of all
payments made to and retained by the Servicer represents not more than
Reasonable Compensation for the Servicer's services under the Pooling
and Servicing Agreement and reimbursement of the Servicer's reasonable
expenses in connection therewith;
(6) The plan investing in such Securities is an ``accredited
investor'' as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933;
and
(7) In the event that the obligations used to fund an Issuer have
not all been transferred to the Issuer on the Closing Date, additional
obligations as specified in subsection III.B.(1) may be transferred to
the Issuer during the Pre-Funding Period in exchange for amounts
credited to the Pre-Funding Account, provided that:
(a) The Pre-Funding Limit is not exceeded;
(b) All such additional obligations meet the same terms and
conditions for eligibility as the original obligations used to create
the Issuer (as described in the prospectus or private placement
memorandum and/or Pooling and Servicing Agreement for such Securities),
which terms and conditions have been approved by a Rating Agency.
Notwithstanding the foregoing, the terms and conditions for determining
the eligibility of an obligation may be changed if such changes receive
prior approval either by a majority vote of the outstanding
securityholders (the Securityholders) or by a Rating Agency;
(c) The transfer of such additional obligations to the Issuer
during the Pre-Funding Period does not result in the Securities
receiving a lower credit rating from a Rating Agency, upon termination
of the Pre-Funding Period than the rating that was obtained at the time
of the initial issuance of the Securities by the Issuer;
(d) The weighted average annual percentage interest rate (the
average interest rate) for all of the obligations in the Issuer at the
end of the Pre-Funding Period will not be more than 100 basis points
lower than the average interest rate for the obligations which were
transferred to the Issuer on the Closing Date;
(e) In order to ensure that the characteristics of the receivables
actually acquired during the Pre-Funding Period are substantially
similar to those which were acquired as of the Closing Date, the
characteristics of the additional obligations will either be monitored
by a credit support provider or other insurance provider which is
independent of the Sponsor or an independent accountant retained by the
Sponsor will provide the Sponsor with a letter (with copies provided to
the Rating Agency, the Underwriter and the Trustee) stating whether or
not the characteristics of the additional obligations conform to the
characteristics of such obligations described in the prospectus,
private placement memorandum and/or Pooling and Servicing Agreement. In
preparing such letter, the independent accountant will use the same
type of procedures as were applicable to the obligations which were
transferred on the Closing Date;
(f) The Pre-Funding Period shall be described in the prospectus or
private placement memorandum provided to investing plans; and
(g) The Trustee of the Trust (or any agent with which the Trustee
contracts to provide Trust services) will be a substantial financial
institution or trust company experienced in trust activities and
familiar with its duties, responsibilities, and liabilities as a
fiduciary under the Act. The Trustee, as the legal owner of the
obligations in the Trust, will enforce all the rights created in favor
of Securityholders of the Issuer, including employee benefit plans
subject to the Act.
(8) In order to ensure that the assets of the Issuer may not be
reached by creditors of the Sponsor in the event of bankruptcy or other
insolvency of the Sponsor:
(a) The legal documents establishing the Issuer will contain:
(i) Restrictions on the Issuer's ability to borrow money or issue
debt other than in connection with the securitization;
(ii) Restrictions on the Issuer merging with another entity,
reorganizing, liquidating or selling assets (other than in connection
with the securitization);
(iii) Restrictions limiting the authorized activities of the Issuer
to activities relating to the securitization;
(iv) If the Issuer is not a Trust, provisions for the election of
at least one independent director/partner/member whose affirmative
consent is required before a voluntary bankruptcy petition can be filed
by the Issuer; and
(v) If the Issuer is not a Trust, requirements that each
independent director/partner/member must be an individual that does not
have a significant interest in, or other relationships with, the
Sponsor or any of its Affiliates; and
[[Page 32137]]
(b) The Pooling and Servicing Agreement and/or other agreements
establishing the contractual relationships between the parties to the
securitization transaction will contain covenants prohibiting all
parties thereto from filing an involuntary bankruptcy petition against
the Issuer or initiating any other form of insolvency proceeding until
after the Securities have been paid; and
(c) Prior to the issuance by the Issuer of any Securities, a legal
opinion is received which states that either:
(i) A ``true sale'' of the assets being transferred to the Issuer
by the Sponsor has occurred and that such transfer is not being made
pursuant to a financing of the assets by the Sponsor; or
(ii) In the event of insolvency or receivership of the Sponsor, the
assets transferred to the Issuer will not be part of the estate of the
Sponsor;
(9) If a particular class of Securities held by any plan involves a
Ratings Dependent Swap or a Non-Ratings Dependent Swap entered into by
the Issuer, then each particular swap transaction relating to such
Security:
(a) Shall be an Eligible Swap;
(b) Shall be with an Eligible Swap Counterparty;
(c) In the case of a Ratings Dependent Swap, shall provide that if
the credit rating of the counterparty is withdrawn or reduced by any
Rating Agency below a level specified by the Rating Agency, the
Servicer (as agent for the Trustee) shall, within the period specified
under the Pooling and Servicing Agreement:
(i) Obtain a replacement swap agreement with an Eligible Swap
Counterparty which is acceptable to the Rating Agency and the terms of
which are substantially the same as the current swap agreement (at
which time the earlier swap agreement shall terminate); or
(ii) Cause the swap counterparty to establish any collateralization
or other arrangement satisfactory to the Rating Agency such that the
then current rating by the Rating Agency of the particular class of
Securities will not be withdrawn or reduced.
In the event that the Servicer fails to meet its obligations under
this subsection II.A.(9)(c), plan Securityholders will be notified in
the immediately following Trustee's periodic report which is provided
to Securityholders, and sixty days after the receipt of such report,
the exemptive relief provided under section I.C. will prospectively
cease to be applicable to any class of Securities held by a plan which
involves such Ratings Dependent Swap; provided that in no event will
such plan Securityholders be notified any later than the end of the
second month that begins after the date on which such failure occurs.
(d) In the case of a Non-Ratings Dependent Swap, shall provide
that, if the credit rating of the counterparty is withdrawn or reduced
below the lowest level specified in Section III.GG., the Servicer (as
agent for the Trustee) shall within a specified period after such
rating withdrawal or reduction:
(i) Obtain a replacement swap agreement with an Eligible Swap
Counterparty, the terms of which are substantially the same as the
current swap agreement (at which time the earlier swap agreement shall
terminate); or
(ii) Cause the swap counterparty to post collateral with the
Trustee in an amount equal to all payments owed by the counterparty if
the swap transaction were terminated; or
(iii) Terminate the swap agreement in accordance with its terms;
and
(e) Shall not require the Issuer to make any termination payments
to the counterparty (other than a currently scheduled payment under the
swap agreement) except from Excess Spread or other amounts that would
otherwise be payable to the Servicer or the Sponsor;
(10) Any class of Securities, to which one or more swap agreements
entered into by the Issuer applies, may be acquired or held in reliance
upon the underwriter exemptions (the Underwriter Exemptions) only by
Qualified Plan Investors; and
(11) Prior to the issuance of any debt securities, a legal opinion
is received which states that the debt holders have a perfected
security interest in the Issuer's assets.
B. Neither any Underwriter, Sponsor, Trustee, Servicer, Insurer,
nor any Obligor, unless it or any of its Affiliates has discretionary
authority or renders investment advice with respect to the plan assets
used by a plan to acquire Securities, shall be denied the relief
provided under Section I., if the provision in subsection II.A.(6) is
not satisfied with respect to acquisition or holding by a plan of such
Securities, provided that (1) such condition is disclosed in the
prospectus or private placement memorandum; and (2) in the case of a
private placement of Securities, the Trustee obtains a representation
of each initial purchaser which is a plan that it is in compliance with
such condition, and obtains a covenant from each initial purchaser to
the effect that, so long as such initial purchaser (or any transferee
of such initial purchaser's Securities) is required to obtain from its
transferee a representation regarding compliance with the Securities
Act of 1933, any such transferees will be required to make a written
representation regarding compliance with the condition set forth in
Section II.A.(6).
Section III. Definitions
For purposes of this exemption:
A. ``Security'' means:
(1) A pass-through certificate or trust certificate that represents
a beneficial ownership interest in the assets of an Issuer which is a
Trust and which entitles the holder to payments of principal, interest
and/or other payments made with respect to the assets of such Trust; or
A security which is denominated as a debt instrument that is issued
by, and is an obligation of, an Issuer; with respect to which the
Underwriter is either (i) the sole underwriter or the manager or co-
manager of the underwriting syndicate, or (ii) a selling or placement
agent; or
(2) A Certificate denominated as a debt instrument that represents
an interest in either a Real Estate Mortgage Investment Conduit (REMIC)
or a Financial Asset Securitization Investment Trust (FASIT) within the
meaning of the section 860D(a) or section 860L of the Code; and that is
issued by and is an obligation of a Trust, with respect to Certificates
defined in Section III.A. (1) and (2) above, for which the Underwriter
is either (i) the sole Underwriter or the manager or co-manager of the
underwriting syndicate, or (ii) a selling or placement agent.
For purposes of this exemption, references to ``Certificates
representing an interest in a Trust'' include Certificates denominated
as debt, which are issued by a Trust.
B. ``Issuer'' means an investment pool, the corpus or assets of
which are held in trust (including a grantor or owner Trust) or whose
assets are held by a partnership, special purpose corporation or
limited liability company (which Issuer may be a REMIC or a FASIT
within the meaning of section 860D(a) or section 860L, respectively, of
the Code); and the corpus or assets of which consists solely of:
(1)(a) Secured consumer receivables that bear interest or are
purchased at a discount (including, but not limited to, home equity
loans and obligations secured by shares issued by a cooperative housing
association); and/or
(b) Secured credit instruments that bear interest or are purchased
at a discount in transactions by or between business entities
(including, but not limited to Qualified Equipment Notes Secured by
Leases); and/or
[[Page 32138]]
(c) Obligations that bear interest or are purchased at a discount
and which are secured by single-family residential and commercial real
property (including obligations secured by leasehold interest on
residential or commercial real property); and/or
(d) Obligations that bear interest or are purchased at a discount
and which are secured by motor vehicles or equipment, or Qualified
Motor Vehicle Leases; and/or
(e) Guaranteed governmental mortgage pool certificates, as defined
in 29 CFR 2510.3-101(1)(2) \4\; and/or
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\4\ In ERISA Advisory Opinion 99-05A (February 22, 1999), the
Department expressed its view that mortgage pool certificates
guaranteed and issued by the Federal Agricultural Mortgage
Corporation meet the definition of a guaranteed governmental
mortgage pool certificate as defined in 29 CFR 2510.3-101(i)(2).
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(f) Fractional undivided interests in any of the obligations
described in clauses (a)-(e) of this subsection B.(1); \5\
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\5\ It is the Department's view that the definition of
``Issuer'' contained in Section III.B. includes a two-tier structure
under which Securities issued by the first Issuer, which contains a
pool of receivables described above, are transferred to a second
Issuer which issues Securities that are sold to plans. However, the
Department is of the further view that, since the Underwriter
Exemptions generally provide relief for the direct or indirect
acquisition or disposition of Securities that are not subordinated,
no relief would be available if the Securities held by the second
Issuer were subordinated to the rights and interests evidenced by
other Securities issued by the first Issuer, unless such Securities
were issued in a Designated Transaction.
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Notwithstanding the foregoing, residential and home equity loan
receivables issued in Designated Transactions may be less than fully
secured, provided that (i) the rights and interests evidenced by
Securities issued in such Designated Transactions (as defined in
Section III.DD.) are not subordinated to the rights and interests
evidenced by Securities of the same Issuer; (ii) such Securities
acquired by the plan have received a rating from a Rating Agency at the
time of such acquisition that is in one of the two highest generic
rating categories; and (iii) any obligation included in the corpus or
assets of the Issuer must be secured by collateral whose fair market
value on the Closing Date of the Designated Transaction is at least
equal to 80% of the sum of: (I) The outstanding principal balance due
under the obligation which is held by the Trust and (II) the
outstanding principal balance(s) of any other obligation(s) of higher
priority (whether or not held by the Issuer) which are secured by the
same collateral.
(2) Property which had secured any of the obligations described in
subsection III.B.(1);
(3)(a) Undistributed cash or temporary investments made therewith
maturing no later than the next date on which distributions are to be
made to Securityholders; and/or
(b) Cash or investments made therewith which are credited to an
account to provide payments to Securityholders pursuant to any Eligible
Swap Agreement meeting the conditions of subsection II.A.(9) or
pursuant to any Eligible Yield Supplement Agreement, and/or
(c) Cash transferred to the Issuer on the Closing Date and
permitted investments made therewith which:
(i) Are credited to a Pre-Funding Account established to purchase
additional obligations with respect to which the conditions set forth
in paragraph (a)-(g) of subsection II.A.(7) are met; and/or
(ii) Are credited to a Capitalized Interest Account; and
(iii) Are held by the Issuer for a period ending no later than the
first distribution date to Securityholders occurring after the end of
the Pre-Funding Period.
For purposes of this clause (c) of subsection III.B.(3), the term
``permitted investments'' means investments which: (i) Are either (x)
direct obligations of, or obligations fully guaranteed as to timely
payment of principal and interest by, the United States or any agency
or instrumentality thereof, provided that such obligations are backed
by the full faith and credit of the United States, or (y) have been
rated (or the Obligor has been rated) in one of the three highest
generic rating categories by a Rating Agency; (ii) are described in the
Pooling and Servicing Agreement; and are permitted by the Rating
Agency.
(4) Rights of the Trustee under the Pooling and Servicing
Agreement, and rights under any insurance policies, third-party
guarantees, contracts of suretyship, Eligible Yield Supplement
Agreements, Eligible Swap Agreements meeting the conditions of
subsection II.A.(9) or other credit support arrangements with respect
to any obligations described in section III.B.(1).
Notwithstanding the foregoing, the term ``Issuer'' does not include
any investment pool unless: (i) The investment pool consists only of
assets of the type described in paragraph (a)-(f) of subsection
III.B.(1) which have been included in other investment pools, (ii)
Securities evidencing interests in such other investment pools have
been rated in one of the three (or in the case of Designated
Transactions, four) highest generic rating categories by a Rating
Agency for at least one year prior to the plan's acquisition of
Securities pursuant to this exemption, and (iii) Securities evidencing
interests in such other investment pools have been purchased by
investors other than plans for at least one year prior to the plan's
acquisition of Securities pursuant to the Underwriter Exemptions.
C. ``Underwriter'' means:
(1) Harris Nesbitt;
(2) Any U.S.-domiciled person directly or indirectly, through one
or more intermediaries, controlling, controlled by or under common
control with such investment banking firm; and
(3) Any member of an underwriting syndicate or selling group of
which such firm or person described in subsections III.C.(1) or (2)
above is a manager or co-manager with respect to the Securities.
D. ``Sponsor'' means the entity that organizes as an Issuer by
depositing obligations therein in exchange for Securities.
E. ``Master Servicer'' means the entity that is a party to the
Pooling and Servicing Agreement relating to assets of the Issuer and is
fully responsible for servicing, directly or through Subservicers, the
assets of the Issuer.
F. ``Subservicer'' means an entity which, under the supervision of
and on behalf of the Master Servicer, services loans contained in the
Issuer, but is not a party to the Pooling and Servicing Agreement.
G. ``Servicer'' means any entity which services loans contained in
the Issuer, including the Master Servicer and any Subservicer.
H. ``Trust'' means an Issuer, which is a trust (including an owner
trust, grantor trust or a REMIC or FASIT which is organized as a
Trust).
I. ``Trustee'' means the Trustee of any Trust, which issues
Securities, and in the case of Securities which are denominated as debt
instruments, also means the Trustee of an Indenture Trust. ``Indenture
Trustee'' means the Trustee appointed under the indenture pursuant to
which the subject Securities are issued, the rights of holders of the
Securities are set forth and a security interest in the Trust assets in
favor of the holders of the Securities is created. The Trustee or the
Indenture Trustee is also a party to or beneficiary of all the
documents and instruments transferred to the Trust, and as such, has
both the authority to, and the responsibility for, enforcing all the
rights created thereby in favor of holders of the Securities, including
those rights arising in the event of default by the Servicer.
J. ``Insurer'' means the insurer or guarantor of, or provider of
other credit support for, an Issuer. Notwithstanding the foregoing, a
person is not an Insurer solely because it holds Securities
[[Page 32139]]
representing an interest in an Issuer, which are of a class
subordinated to Securities representing an interest in the same Issuer.
K. ``Obligor'' means any person, other than the Insurer, that is
obligated to make payments with respect to any obligation or receivable
included in the Trust. Where an Issuer contains Qualified Motor Vehicle
Leases or Qualified Equipment Notes Secured by Leases, ``Obligor''
shall also include any owner of property subject to any lease included
in the Issuer, or subject to any lease securing an obligation included
in the Issuer.
L. ``Excluded Plan'' means any plan with respect to which any
member of the Restricted Group is a ``plan sponsor'' within the meaning
of section 3(16)(B) of the Act.
M. ``Restricted Group'' with respect to a class of Securities
means:
(1) Each Underwriter;
(2) Each Insurer;
(3) The Sponsor;
(4) The Trustee;
(5) Each Servicer;
(6) Any Obligor with respect to obligations or receivables included
in the Issuer constituting more than 5 percent of the aggregate
unamortized principal balance of the assets in the Issuer, determined
on the date of the initial issuance of Securities by the Issuer; or
(7) Each counterparty in an Eligible Swap Agreement;
(8) Any Affiliate of a person described in III.M.(1)-(7) above.
N. ``Affiliate'' of another person includes:
(1) Any person, directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
such other person;
(2) Any officer, director, partner, employee, relative (as defined
in section 3(15) of the Act), a brother, a sister, or a spouse of a
brother or sister of such other person; and
(3) Any corporation or partnership of which such other person is an
officer, director or partner.
O. ``Control'' means the power to exercise a controlling influence
over the management or policies of a person other than an individual.
P. A person will be ``independent'' of another person only if:
(1) Such person is not an Affiliate of that other person; and
(2) The other person, or an Affiliate thereof, is not a fiduciary
who has investment management authority or renders investment advice
with respect to assets of such person.
Q. ``Sale'' includes the entrance into a Forward Delivery
Commitment, provided:
(1) The terms of the Forward Delivery Commitment (including any fee
paid to the investing plan) are no less favorable to the plan than they
would be in an arm's length transaction with an unrelated party;
(2) The prospectus or private placement memorandum is provided to
an investing plan prior to the time the plan enters into the Forward
Delivery Commitment; and
(3) At the time of the delivery, all conditions of this exemption
applicable to sales are met.
R. ``Forward Delivery Commitment'' means a contact for the purchase
or sale of one or more Securities to be delivered at an agreed future
settlement date. The term includes both mandatory contracts (which
contemplate obligatory delivery and acceptance of the Securities) and
optional contracts (which give one party the right but not the
obligation to deliver Securities to, or demand delivery of Securities
from, the other party).
S. ``Reasonable Compensation'' has the same meaning as that term is
defined in 29 CFR 2550.408c-2.
T. ``Qualified Administrative Fee'' means a fee which meets the
following criteria:
(1) The fee is triggered by an act or failure to act by the Obligor
other than the normal timely payment of amounts owing in respect of the
obligations;
(2) The Servicer may not charge the fee absent the act or failure
to act referred to in subsection III.T.(1);
(3) The ability to charge the fee, the circumstances in which the
fee may be charged, and an explanation of how the fee is calculated are
set forth in the Pooling and Servicing Agreement; and
(4) The amount paid to investors in the Issuer will not be reduced
by the amount of any such fee waived by the Servicer.
U. ``Qualified Equipment Note Secured By a Lease'' means an
equipment note:
(1) Which is secured by equipment which is leased;
(2) Which is secured by the obligation of the lessee to pay rent
under the equipment lease; and
(3) With respect to which the Issuer's security interest in the
equipment is at least as protective of the rights of the Issuer as
would be the case if the equipment note were secured only by the
equipment and not the lease.
V. ``Qualified Motor Vehicle Lease'' means a lease of a motor
vehicle where:
(1) The Issuer owns or holds a security interest in the lease;
(2) The Issuer owns or holds a security interest in the leased
motor vehicle; and
(3) The Issuer's interest in the leased motor vehicle is at least
as protective of the Issuer's rights as the Issuer would receive under
a motor vehicle installment loan contract.
W. ``Pooling and Servicing Agreement'' means the agreement or
agreements among a Sponsor, a Servicer and the Trustee establishing a
Trust. In the case of Securities which are denominated as debt
instruments, ``Pooling and Servicing Agreement'' also includes the
indenture entered into by the Issuer and the Indenture Trustee.
X. ``Rating Agency'' means Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., Moody's Investors Service,
Inc., Fitch, Inc. or any successors thereto.
Y. ``Capitalized Interest Account'' means an Issuer account: (i)
Which is established to compensate Securityholders for shortfalls, if
any, between investment earnings on the Pre-Funding Account and the
pass-through rate payable under the Securities; and (ii) which meets
the requirements of clause (c) of subsection III.B.(3).
Z. ``Closing Date'' means the date the Issuer is formed, the
Securities are first issued and the Issue's assets (other than those
additional obligations which are to be funded from the Pre-Funding
Account pursuant to subsection II.A.(7)) are transferred to the Issuer.
AA. ``Pre-Funding Account'' means an Issuer account:
(i) Which is established to purchase additional obligations, which
obligations meet the conditions set forth in clauses (a)-(g) of
subsection II.A.(7); and
(ii) Which meets the requirements of clause (c) of subsection
III.B.(3).
BB. ``Pre-Funding Limit'' means a percentage or ratio of the amount
allocated to the Pre-Funding Account, as compared to the total
principal amount of the Securities being offered which is less than or
equal to 25 percent.
CC. ``Pre-Funding Period'' means the period commencing on the
Closing Date and ending no later than the earliest to occur of: (i) The
date the amount on deposit in the Pre-Funding Account is less than the
minimum dollar amount specified in the Pooling and Servicing Agreement;
(ii) the date on which an event of default occurs under the Pooling and
Servicing Agreement; or (iii) the date which is the later of three
months or 90 days after the Closing Date.
DD. ``Designated Transaction'' means a securitization transaction
in which the
[[Page 32140]]
assets of the Issuer consist of secured consumer receivables, secured
credit instruments or secured obligations that bear interest or are
purchased at a discount and are: (i) Motor vehicle, home equity and/or
manufactured housing consumer receivables; and/or (ii) motor vehicle
credit instruments in transactions by or between business entities;
and/or (iii) single-family residential, multi-family residential, home
equity, manufactured housing and/or commercial mortgage obligations
that are secured by single-family residential, multi-family
residential, commercial real property or leasehold interests therein.
For purposes of this Section III.DD., the collateral securing motor
vehicle consumer receivables or motor vehicle credit instruments may
include motor vehicles and/or Qualified Motor Vehicle Leases.
EE. ``Ratings Dependent Swap'' means an interest rate swap, or (if
purchased by or on behalf of the Issuer) an interest rate cap contract,
that is part of the structure of a class of Securities where the rating
assigned by the Rating Agency to any class of Securities held by any
plan is dependent on the terms and conditions of the swap and the
rating of the counterparty, and if such Securities rating is not
dependent on the existence of the swap and rating of the counterparty,
such swap or cap shall be referred to as a ``Non-Ratings Dependent
Swap.'' With respect to a Non-Ratings Dependent Swap, each Rating
Agency rating the Securities must confirm, as of the date of issuance
of the Securities by the Issuer that entering into an Eligible Swap
with such counterparty will not affect the rating of the Securities.
FF. ``Eligible Swap'' means a Ratings Dependent or Non-Ratings
Dependent Swap:
(1) Which is denominated in U.S. dollars;
(2) Pursuant to which the Issuer pays or receives, on or
immediately prior to the respective payment or distribution date for
the class of Securities to which the swap relates, a fixed rate of
interest, or a floating rate of interest based on a publicly available
index (e.g., LIBOR or the U.S. Federal Reserve's Cost of Funds Index
(COFI)), with the Issuer receiving such payments on at least a
quarterly basis and obligated to make separate payments no more
frequently than the counterparty, with all simultaneous payments being
netted;
(3) Which has a notional amount that does not exceed either: (i)
The principal balance of the class of Securities to which the swap
relates, or (ii) the portion of the principal balance of such class
represented solely by those types of corpus or assets of the Issuer
referred to in subsections III.B.(1), (2) and (3);
(4) Which is not leveraged (i.e., payments are based on the
applicable notional amount, the day count fractions, the fixed or
floating rates designated in subsection III.FF.(2), and the difference
between the products thereof, calculated on a one to one ratio and not
on a multiplier of such difference);
(5) Which has a final termination date that is either the earlier
of the date on which the Issuer terminates or the related class of
Securities is fully repaid; and
(6) Which does not incorporate any provision which could cause a
unilateral alteration in any provision described in subsections
III.FF.(1) through (4) without the consent of the Trustee.
GG. ``Eligible Swap Counterparty'' means a bank or other financial
institution which has a rating, at the date of issuance of the
Securities by the Issuer, which is in one of the three highest long-
term credit rating categories, or one of the two highest short-term
credit rating categories, utilized by at least one of the Rating
Agencies rating the Securities; provided that, if a swap counterparty
is relying on its short-term rating to establish eligibility under the
Underwriter Exemptions, such swap counterparty must either have a long-
term rating in one of the three highest long-term rating categories or
not have a long-term rating from the applicable Rating Agency, and
provided further that if the class of Securities with which the swap is
associated has a final maturity date of more than one year from the
date of issuance of the Securities, and such swap is a Ratings
Dependent Swap, the swap counterparty is required by the terms of the
swap agreement to establish any collateralization or other arrangement
satisfactory to the Rating Agencies in the event of a ratings downgrade
of the swap counterparty.
HH. ``Qualified Plan Investor'' means a plan investor or group of
plan investors on whose behalf the decision to purchase Securities is
made by an appropriate independent fiduciary that is qualified to
analyze and understand the terms and conditions of any swap transaction
used by the Issuer and the effect such swap would have upon the credit
ratings of the Securities. For purposes of the Underwriter Exemptions,
such a fiduciary is either:
(1) A ``qualified professional asset manager'' (QPAM),\6\ as
defined under Part V(a) of Prohibited Transaction Exemption (PTE) 84-14
(49 FR 9494, 9506, March 13, 1984, as amended by 70 FR 49305, August
23, 2005);
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\6\ PTE 84-14 provides a class exemption for transactions
between a party in interest with respect to an employee benefit plan
and an investment fund (including either a single customer or pooled
separate account) in which the plan has an interest, and which is
managed by a QPAM, provided certain conditions are met. QPAMs (e.g.,
banks, insurance companies, registered investment advisers with
total client assets under management in excess of $85 million) are
considered to be experienced investment managers for plan investors
that are aware of their fiduciary duties under ERISA.
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(2) An ``in-house asset manager'' (INHAM),\7\ as defined under Part
IV(a) of PTE 96-23, 61 FR 15975, 15982 (April 10, 1996); or
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\7\ PTE 96-23 permits various transactions involving employee
benefit plans whose assets are managed by an INHAM, an entity which
is generally a subsidiary of an employer sponsoring the plan which
is a registered investment adviser with management and control of
total assets attributable to plans maintained by the employer and
its affiliates which are in excess of $50 million.
---------------------------------------------------------------------------
(3) A plan fiduciary with total assets under management of at least
$100 million at the time of the acquisition of such Securities.
II. ``Excess Spread'' means, as of any day funds are distributed
from the Issuer, the amount by which the interest allocated to
Securities exceeds the amount necessary to pay interest to
Securityholders, servicing fees and expenses.
JJ. ``Eligible Yield Supplement Agreement'' means any yield
supplement agreement, similar yield maintenance arrangement or, if
purchased by or on behalf of the Issuer, an interest rate cap contract
to supplement the interest rates otherwise payable on obligations
described in subsection III.B.(1). Such an agreement or arrangement may
involve a notional principal contract provided that:
(1) It is denominated in U.S. dollars;
(2) The Issuer receives on, or immediately prior to the respective
payment date for the Securities covered by such agreement or
arrangement, a fixed rate of interest or a floating rate of interest
based on a publicly available index (e.g., LIBOR or COFI), with the
Issuer receiving such payments on at least a quarterly basis;
(3) It is not ``leveraged'' as described in subsection III.FF.(4);
(4) It does not incorporate any provision which would cause a
unilateral alteration in any provision described in subsections
III.JJ.(1)-(3) without the consent of the Trustee;
(5) It is entered into by the Issuer with an Eligible Swap
Counterparty; and
(6) It has a notional amount that does not exceed either: (i) The
principal balance of the class of Securities to
[[Page 32141]]
which such agreement or arrangement relates, or (ii) the portion of the
principal balance of such class represented solely by those types of
corpus or assets of the Issuer referred to in subsections III.B.(1),
(2) and (3).
Effective Date: This exemption is effective October 15, 2004.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption (the Notice) published on February 13,
2006 in the Federal Register at 71 FR 7628.
Written Comments/Technical Correction to the Notice
The Department invited all interested persons to submit written
comments and requests for a hearing with respect to the Notice within
45 days of the date of its publication in the Federal Register on
February 13, 2006. Therefore, all comments and requests for a hearing
were due by March 14, 2006.
During the comment period, the Department received no comments and
no requests for a public hearing. However, upon careful review of the
Notice, the Department observed that Footnote 11, which addresses the
terms of leasehold interests on residential real property that is
pledged to secure certain obligations in residential mortgage
investment trusts, does not fully clarify the Department's position
with respect to residential leasehold mortgages. In this regard,
Footnote 11 states the following:
Trust assets may also include obligations that are secured by
leasehold interests on residential real property. But see PTE 90-32
involving Prudential-Bache Securities, Inc., 55 FR 23147, 23150
(June 6, 1990). The Department received one comment from an
affiliate of the applicant with respect to the notice of proposed
exemption for PTE 90-32. The comment requested clarification that
the definition of trust in section III.B. would include trusts
containing certain obligations secured by leasehold interests on
residential real property (Residential Leasehold Mortgages or RLMs).
The comment noted that RLMs are originated in jurisdictions such as
Hawaii in which they are a ``necessary alternative to mortgages
secured by fee simple interests'' and that these RLMs are ``in
essence, the same as, and provide substantially the same degree of
security to investors as, mortgages secured by fee simple interests.
The comment represented that both the Federal Home Loan Mortgage
Corporation (Freddie Mac) and the Federal National Mortgage
Association (Fannie Mae) have purchase programs for these RLMs and
that such RLMs included in pools underlying mortgage pass-through
certificates would ``generally conform'' with either Freddie Mac or
Fannie Mae leasehold guidelines. In this regard, the term of the
leasehold underlying such RLMs would extend for at least five years
beyond the term of the RLM. The comment noted that the affiliate of
the applicant would ``comply with the requirement under the Freddie
Mac and Fannie Mae leasehold guidelines that such mortgages
constitute obligations secured by real property or an interest in
real estate.
The Department notes that the proposed exemption underlying PTE
2000-58 (65 FR 67765, Nov. 13, 2000), which amended the Underwriter
Exemptions (62 FR 39021, July 21, 1997), contained a limitation
concerning leasehold mortgages. Specifically, the Department stated
that ``[t]he terms of the ground leases pledged to secure leasehold
mortgages [would] in all cases be at least ten years longer than the
terms of such mortgages.'' (65 FR 51454, 51455, August 23, 2000). The
final exemption did not discuss this limitation. Moreover, in later
exemptions to amend the Underwriter Exemptions or to provide similar
individual relief, the original PTE 2000-58 preamble language referring
to residential and commercial mortgage investment trusts is repeated
without change, except for the omission of the provision concerning
RLMs.
The Department wishes to allay any public uncertainty regarding
whether the RLM requirement continues to apply to the Underwriter
Exemptions and to subsequent individual exemptions. Thus, the Harris
Nesbitt exemption presents the first opportunity for the Department to
affirm its position that with respect to RLMs, the terms of ground
leases pledged to secure leasehold mortgages should be at least five
years longer than the terms of such mortgages. The Department also
wishes to clarify that the leasehold limitation mentioned in Footnote
11 applies to RLMs that are subject to Fannie Mae and Freddie Mac
guidelines.
After giving full consideration to the entire record, the
Department has decided to grant the exemption subject to the
clarifications described above. For further information, interested
persons are encouraged to obtain copies of the exemption application
file (Exemption Application No. D-11281) the Department is maintaining
in this case. The complete application file, as well as all
supplemental submissions received by the Department, are made available
for public inspection in the Public Disclosure Room of the Employee
Benefits Security Administration, Room N-1513, U.S. Department Labor,
200 Constitution Avenue, NW., Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Ms. Silvia M. Quezada of the
Department, telephone (202) 693-8553. (This is not a toll-free number.)
Fortunoff Fine Jewelry and Silverware, Inc. Cash Balance Pension Plan
(the FFJS Cash Balance Plan), M. Fortunoff of Westbury Corp. Cash
Balance Pension Plan (the MFW Cash Balance Plan), and Fortunoff Fine
Jewelry and Silverware, Inc. Profit Sharing Plan (the FFJS Profit
Sharing Plan; Collectively, the Plans) Located in Westbury, NY
[Prohibited Transaction Exemption 2006-08; Exemption Application Nos.
D-11307, D-11308 and D-11309, respectively]
Exemption
The restrictions of sections 406(a) and 406(b) of the Act and the
sanctions resulting from the application of section 4975(a) and (b) of
the Code,\8\ by reason of section 4975(c)(1)(A) through (E) of the
Code, shall not apply (1) effective November 26, 2003 until February
28, 2005, to the leasing of certain improved real property (the
Property) by the Plans, directly and then through One MH Plaza Realty
LLC (the Plans' LLC), a special purpose entity designed to hold the
Plans' interests in the Property, to Fortunoff Fine Jewelry and
Silverware, Inc. (FFJS), under the provisions of a written lease (the
Interim Lease); and (2) effective March 1, 2005 through August 31,
2006, to the 18 month extension of the Interim Lease (the Interim Lease
Extension) between the Plans,\9\ through the Plans' LLC, and FFJS and
its successors in interest, Fortunoff Fine Jewelry and Silverware, LLC
(FFJS LLC) and M. Fortunoff of Westbury, LLC (MFW LLC).
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\8\ For purposes of this exemption, references to provisions of
Title I of the Act, unless otherwise specified, refer also to
corresponding provisions of the Code.
\9\ As of January 1, 2006, all references to the Plans shall
mean the Fortunoff, the Source, Cash Balance Plan (the Merged Cash
Balance Plan), which resulted from the merger of the FFJS Cash
Balance Plan and the MFW Cash Balance Plan, and the FFJS Profit
Sharing Plan.
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This exemption is subject to the following conditions:
(a) Since November 26, 2003, the Plans have been and continue to be
represented for all purposes under the Interim Lease, by Independent
Fiduciary Services (IFS), a qualified, independent fiduciary, which
also represents the interests of the Plans under the Interim Lease
Extension.
(b) IFS has (1) reviewed and approved the continued adherence by
the Plans and the Plans' LLC with the terms and conditions of the
Interim Lease under the facts and circumstances in existence on and
after November 26, 2003; (2) negotiated, reviewed, and expressly
[[Page 32142]]
approved the terms and conditions of the Interim Lease Extension on
behalf of the Plans; and (3) determined that the leasing of the
Property since November 26, 2003 pursuant to the Interim Lease and,
since March 1, 2005, pursuant to the Interim Lease Extension, (i)
complies with the relevant provisions of Prohibited Transaction
Exemption (PTE) 93-8 (58 FR 7258, February 5, 1993), as amended by PTE
98-22 (63 FR 27329, May 18, 1998), (except as modified by this
exemption); (ii) continues to be an appropriate investment for the
Plans on and after November 26, 2003, consistent with each Plan's
investment policies and liquidity needs; and (iii) is in the best
interests of each Plan and its respective participants and
beneficiaries on and after November 26, 2003.
(c) The rent paid to the Plans under the Interim Lease and the
Interim Lease Extension is no less than the fair market rental value of
the Property, as established by a qualified, independent appraiser.
Effective March 1, 2006, the rent is adjusted to the greater of the
current annualized rental of $656,400 or the then-current, fair market
rental value, as determined by IFS on the basis of an appraisal
conducted by the independent appraiser selected by IFS.
(d) The base rent has been adjusted or is adjusted annually by IFS
based upon an independent appraisal of the Property.
(e) Under both the Interim Lease and the Interim Lease Extension,
FFJS pays for property and liability insurance on the Property,
property taxes, utility costs, other costs for maintaining the Property
including environmental assessments, engineering inspection reports, as
well as all other expenses that are incident to such agreements.
(f) IFS has monitored, and continues to monitor, compliance with
the terms of the Interim Lease since November 26, 2003 and the terms of
the Interim Lease Extension throughout the duration of these
agreements.
(g) IFS is responsible for legally enforcing the payment of the
rent and the proper performance of all other obligations of FFJS and
its successors in interest, FFJS LLC and MFW LLC, under the terms of
such agreements.
(h) IFS makes determinations, on behalf of the Plans, with respect
to any sale or future leasing of the Property.
(i) IFS has determined that (1) the leasing of the Property
pursuant to the Interim Lease on and after November 26, 2003 was no
less favorable to the Plans than similar leasing arrangements between
unrelated parties; (2) the then-prevailing rent received by the Plans
under the interim lease was no less favorable to the Plans than the
rent the Plans would have received under similar circumstances if the
rent had been negotiated at arm's length with unrelated third parties;
and (3) the terms and conditions of the Interim Lease Extension have
been or are no less favorable to the Plans than those obtainable by the
Plans under similar circumstances when negotiated at arm's length with
unrelated third parties.
(j) With respect to the Interim Lease Extension, FFJS (1) has made
a two-month security deposit pursuant to the agreement; and (2) is
required to pay an additional four-month security deposit (Additional
Deposit) after the expiration of the first 12 months of the Interim
Lease Extension, calculated at the rental amount to be effective March
1, 2006.
(k) Over the last six months of the Interim Lease Extension, one-
sixth of the Additional Deposit is applied to the rent each month, so
long as there is no uncured default.
Effective Date: This exemption is effective from November 26, 2003
until February 28, 2005 with respect to the Interim Lease and from
March 1, 2005 until August 31, 2006 with respect to the Interim Lease
Extension.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on February 13, 2006 at 71
FR 7647.
FOR FURTHER INFORMATION CONTACT: Ms. Anna Mpras Vaughan of the
Department, telephone (202) 693-8565. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the exemption does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) This exemption is supplemental to and not in derogation of, any
other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. E6-8529 Filed 6-1-06; 8:45 am]
BILLING CODE 4510-29-P
