Proposed Exemptions From Certain Prohibited Transaction Restrictions, 70495-70509 [2011-29235]
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Federal Register / Vol. 76, No. 219 / Monday, November 14, 2011 / Notices
4. In its written comment, the
Applicant also noted that Section
II(b)(6) of the Notice provides that FRC
must refund to the Funds any amounts
that FRC may recover from the issuer of
the Notes or any third party that is in
excess of the sum of the Sale price paid
by FRC for the Notes plus any interest
on such Sale price paid from September
10, 2010 to September 14, 2010,
inclusive, made by FRC to the Funds.
The Applicant pointed out, however,
that the corresponding conditions for
relief found in a number of recent
individual exemptions covering
substantially similar sale transactions
required the refund of any amounts
recovered in excess of the applicable
purchase price plus interest through the
date of recovery.5 The Applicant also
noted that, in these corresponding
conditions, the applicable interest rate
credited to the purchase price correlated
to an interest rate that was tied to the
purchased securities. Therefore, the
Applicant opined that the content of
Section II(b)(6) of the Grant should not
differ in substance from the
corresponding conditions for exemptive
relief found in recent, similar
exemptions. For the foregoing reasons,
the Applicant requested in its comment
that Section II(b)(6) be amended in the
Grant to require the refund to the Funds
of any amounts that FRC may receive in
excess of (i) the Sale proceeds paid for
the Notes by FRC, plus (ii) interest on
such Sale price paid for the Notes from
and after September 10, 2010,
determined at the face interest rate for
the applicable Note.6 Accordingly, after
due consideration, the Department
concurs with the Applicant’s comment,
and has determined to amend the text
of Section II(b)(6) in the Grant to read
as follows:
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‘‘(6) If the exercise of any of FRC’s rights,
claims, or causes of action in connection
with its ownership of the Notes results in
recovering from the issuer of the Notes, or
any third party, an aggregate amount that is
in excess of the sum of (i) The Sale price paid
for the Notes by FRC; and (ii) interest on such
Sale price paid for the Notes from and after
September 10, 2010, determined at the face
interest rate for the applicable Note, then
FRC will refund such excess amount
promptly to the Funds (after deducting all
5 Among the numerous individual exemptions
cited by the Applicant’s comment in support of its
suggested revision to Section II(b)(6) of the Notice
governing the refund of excess proceeds received
from the Sale of the Notes were PTE 2011–07 (see
Section I(i)); PTE 2009–27 (see Condition (g)); and
PTE 2008–12 (see Condition (f)).
6 The face interest rates for the various Notes that
were the subject of the Sale transaction covered by
this exemption are displayed in a chart contained
in the Notice, which is located at the conclusion of
Representation 15 near the top of page 34266 of the
June 13, 2011 issue of the Federal Register.
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reasonable expenses incurred in connection
with the recovery);’’
5. In its comment, the Applicant also
requested that the Department amend
and correct certain language contained
in the first sentence of the second
paragraph of Representation 12 of the
‘‘Summary of Facts and
Representations’’ section of the Notice
(which is located in the first column of
page 34265 of the aforementioned issue
of the Federal Register) and in the third
sentence of Representation 15 of the
Notice (located in the third column of
page 34265) concerning the formula to
be used to compute the price of the
Notes in the event of their sale to RTC.
Specifically, the Applicant noted in its
comment that the Revised CSAs did not
contain a new provision stipulating the
formula for determining such a sale
price; rather, the Independent Fiduciary
negotiated this formulaic price for the
Notes within a separate term sheet prior
to the consummation of the Sale.
Accordingly, the Department has
corrected the text of the Notice by
deleting the words ‘‘to include a new
provision in each of the Revised CSAs
stipulating’’ that appears after the word
‘‘Funds’’ in the first sentence of the
second paragraph of Representation 12;
similarly, the text of the Notice is
further corrected by deleting the words
‘‘Revised CSAs with each of the Funds’’
that appears in the parenthetical clause
of the third sentence of Representation
15 and substituting in lieu thereof the
words ‘‘term sheet negotiated by the
Independent Fiduciary’’.
For a more complete statement of the
facts and representations supporting the
Department’s decision to grant this
exemption, refer to the text of the Notice
that begins at 76 FR 34261 (June 13,
2011).
FOR FURTHER INFORMATION CONTACT: Mr.
Mark Judge of the Department at (202)
693–8550 (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
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70495
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.
Signed at Washington, DC, this 7th day of
November 2011.
Ivan Strasfeld,
Director of Exemption Determinations,
Employee Benefits Security Administration,
U.S. Department of Labor.
[FR Doc. 2011–29234 Filed 11–10–11; 8:45 am]
BILLING CODE 4510–29–P
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
Proposed Exemptions From Certain
Prohibited Transaction Restrictions
Employee Benefits Security
Administration, Labor.
ACTION: Notice of proposed exemptions.
AGENCY:
This document contains
notices of pendency before the
Department of Labor (the Department) of
proposed exemptions from certain of the
prohibited transaction restrictions of the
Employee Retirement Income Security
Act of 1974 (ERISA or the Act) and/or
the Internal Revenue Code of 1986 (the
Code). This notice includes the
following proposed exemptions:
D–11637 HSBC–North America (U.S.)
Tax Reduction Investment Plan; D–
11679 Sammons Enterprises, Inc.
Employee Stock Ownership ESOP; and
D–11683 First Federal Bancshares of
Arkansas, Inc. Employees’ Savings and
Profit Sharing Plan.
DATES: All interested persons are invited
to submit written comments or requests
for a hearing on the pending
exemptions, unless otherwise stated in
the Notice of Proposed Exemption,
within 45 days from the date of
SUMMARY:
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Federal Register / Vol. 76, No. 219 / Monday, November 14, 2011 / Notices
publication of this Federal Register
Notice.
Comments and requests for
a hearing should state: (1) The name,
address, and telephone number of the
person making the comment or request,
and (2) the nature of the person’s
interest in the exemption and the
manner in which the person would be
adversely affected by the exemption. A
request for a hearing must also state the
issues to be addressed and include a
general description of the evidence to be
presented at the hearing. All written
comments and requests for a hearing (at
least three copies) should be sent to the
Employee Benefits Security
Administration (EBSA), Office of
Exemption Determinations, Room N–
5700, U.S. Department of Labor, 200
Constitution Avenue NW., Washington,
DC 20210. Attention: Application
No.___, stated in each Notice of
Proposed Exemption. Interested persons
are also invited to submit comments
and/or hearing requests to EBSA via
email or FAX. Any such comments or
requests should be sent either by email
to: moffitt.betty@dol.gov, or by FAX to
(202) 219–0204 by the end of the
scheduled comment period. The
applications for exemption and the
comments received will be available for
public inspection in the Public
Documents Room of the Employee
Benefits Security Administration, U.S.
Department of Labor, Room N–1513,
200 Constitution Avenue NW.,
Washington, DC 20210.
Warning: If you submit written
comments or hearing requests, do not
include any personally-identifiable or
confidential business information that
you do not want to be publiclydisclosed. All comments and hearing
requests are posted on the Internet
exactly as they are received, and they
can be retrieved by most Internet search
engines. The Department will make no
deletions, modifications or redactions to
the comments or hearing requests
received, as they are public records.
ADDRESSES:
SUPPLEMENTARY INFORMATION:
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Notice to Interested Persons
Notice of the proposed exemptions
will be provided to all interested
persons in the manner agreed upon by
the applicant and the Department
within 15 days of the date of publication
in the Federal Register. Such notice
shall include a copy of the notice of
proposed exemption as published in the
Federal Register and shall inform
interested persons of their right to
comment and to request a hearing
(where appropriate).
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The proposed exemptions were
requested in applications filed pursuant
to section 408(a) of the Act and/or
section 4975(c)(2) of the Code, and in
accordance with procedures set forth in
29 CFR Part 2570, Subpart B (55 FR
32836, 32847, August 10, 1990).
Effective December 31, 1978, section
102 of Reorganization Plan No. 4 of
1978, 5 U.S.C. App. 1 (1996), transferred
the authority of the Secretary of the
Treasury to issue exemptions of the type
requested to the Secretary of Labor.
Therefore, these notices of proposed
exemption are issued solely by the
Department.
The applications contain
representations with regard to the
proposed exemptions which are
summarized below. Interested persons
are referred to the applications on file
with the Department for a complete
statement of the facts and
representations.
HSBC–North America (U.S.) Tax
Reduction Investment Plan (the Plan),
Located in Mettawa, Illinois,
[Application No. D–11637].
Proposed Exemption
The Department is considering
granting an exemption under the
authority of section 408(a) of the Act
and section 4975(c)(2) of the Code and
in accordance with the procedures set
forth in 29 CFR part 2570, subpart B
(55 FR 32836, 32847, August 10, 1990).
Section I: Transactions
If the proposed exemption is granted,
effective March 2, 2009, the restrictions
of sections 406(a)(1)(A) and 406(a)(1)(E),
406(a)(2), 406(b)(1), 406(b)(2), and
407(a)(1)(A) of the Act and the sanctions
resulting from the application of section
4975 of the Code, by reason of section
4975(c)(1)(A) and 4975(c)(1)(E) of the
Code,1 shall not apply:
(1) To the acquisition of certain rights
(the ADS Rights) by the Plan in
connection with an offering (the
Offering) of shares of stock (the Stock)
in HSBC Holding, plc (Holdings) by
Holdings, a party in interest with
respect to the Plan,
(2) To the holding of the ADS Rights
received by the Plan during the
subscription period of the Offering;
provided that the conditions as set forth
in section II of this proposed exemption
were satisfied;
Section II: Conditions
The relief provided in this exemption
is conditioned upon adherence to the
1 For
purposes of this proposed exemption,
references to specific provisions of Title I of the
Act, unless otherwise specified, refer also to the
corresponding provisions of the Code.
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material facts and representations
described, herein, and as set forth in the
application file and upon compliance
with the conditions, as set forth in this
proposed exemption.
(1) The receipt by the Plan of the ADS
Rights occurred in connection with the
Offering made available by Holdings on
the same terms to all shareholders, such
as the Plan, of American Depository
Shares 2 (the HSBC ADS) which
represent the Stock of Holdings;
(2) The acquisition of the ADS Rights
by the Plan resulted from an
independent act of Holdings, as a
corporate entity, and all holders of the
ADS Rights, including the Plan, were
treated in the same manner with respect
to the acquisition of such rights;
(3) All holders of the ADS Rights,
such as the Plan, received the same
proportionate number of such rights
based on the number of HSBC ADS
held; and
(4) All decisions regarding the ADS
Rights made by the Plan were made by
an independent, qualified fiduciary (the
I/F) which:
(a) Conducted a due diligence review
of the Offering;
(b) Determined whether or not to
direct the Plan to vote in favor of the
Offering; and
(c) Evaluated a prudent strategy for
disposition of the ADS Rights under the
Offering that were allocated to the Plan.
Effective Date: This proposed
exemption, if granted, will be effective,
on March 2, 2009, the date of the
announcement of the Offering.
Summary of Facts and Representations
1. The Plan is a defined contribution
profit sharing plan, for eligible
employees of HSBC North America
Holdings, Inc. (the Employer) and its
subsidiaries.
The Plan is qualified under section
401(a) of the Code. In addition, the Plan
contains a cash or deferred arrangement
intended to qualify under section 401(k)
of the Code.
The Plan received a favorable
determination letter, dated November
14, 2008, from the Internal Revenue
Service. Although the Plan has been
amended since applying for the
determination letter, the Plan
administrator and counsel for the Plan
believe that the Plan is designed and is
currently being operated in compliance
with the applicable requirements of the
Code.
2 American Depository Shares permit investment
in foreign securities to trade on markets in the
United States without many of the complications
that would otherwise arise from such cross-border
and cross-currency transactions.
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As of September 30, 2009, the Plan
had approximately 44,000 participants.
The fair market value of the total assets
of the Plan, as of September 30, 2009,
was $2.4 billion.
2. The Plan provides for participant
directed investment of contributions
made to the Plan. Participants in the
Plan may choose among investment
options, including mutual funds
managed by subsidiaries of the
Employer and managed by Vanguard
Fiduciary Trust Co. (Vanguard).
Vanguard is the trustee of HSBC-North
American (U.S.) Tax Reduction
Investment Trust (the Trust) which
holds the assets of the Plan. In addition,
the Vanguard Group of Investment
Companies is the record-keeper of the
Plan.
3. The application was filed on behalf
of the Employer, a financial services
company, which sponsors the Plan. The
Employer, as an employer any of whose
employees are covered by the Plan, is a
party in interest with respect to the
Plan, pursuant to section 3(14)(C) of the
Act.
It is represented that the Employer
neither had nor exercised discretionary
authority with respect to the ADS Rights
acquired by the Plan pursuant to the
Offering, and therefore, was not acting
as fiduciary, as defined in section 3(21)
of the Act. An administrative committee
(the Committee) is the named fiduciary
of the Plan with respect to daily
administration of the Plan. The
Committee, as a fiduciary of the Plan, is
a party in interest with respect to the
Plan, pursuant to section (3)(14)(A) of
the Act.
4. The Employer is a subsidiary of
Holdings, a public limited liability
company incorporated in England and
Wales with operations worldwide. The
Employer comprises all of the business
interests of Holdings in the United
States. As the parent of the Employer
which sponsors the Plan, Holdings is a
party in interest with respect to the
Plan, pursuant to section 3(14)(E)of the
Act.
5. Holdings is the ultimate parent of
the HSBC Group. The HSBC Group is
not a separate legal entity, but rather the
term, HSBC Group, is an informal
collective reference to the legal entities
wholly or partially owned by Holdings
in Europe, Hong Kong, Asia Pacific, the
Middle East, North America, and Latin
America. The HSBC Group is not
publicly traded on the London Stock
Exchange (LSE) or any other stock
exchange.
6. The Stock of Holdings is traded on
the LSE under the symbol HSBA. The
Stock of Holdings is also traded on stock
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exchanges in Hong Kong, Paris, and
Bermuda.
In the United States, shares of HSBC
ADS (each representing five (5) shares of
the Stock of Holdings) are traded on the
New York Stock Exchange (NYSE)
under the symbol HBS. BNY Mellon,
Inc. (BNY Mellon) is the depository
bank that holds the Stock of Holdings in
a custodial account and issues shares of
HSBC ADS to investors in the United
States.
7. The shares of HSBC ADS are a
permitted investment option under the
terms of the Plan. In this regard,
although employee contributions, as of
March 28, 2003, may no longer be
directed into the acquisition of shares of
HSBC ADS, any shares of HSBC ADS
acquired prior to March 28, 2003, may
continue to be held in participant
accounts in the Plan.
The aggregate fair market value of the
assets of the Plan invested in shares of
HSBC ADS, as reflected in the Plan’s
most recent annual report dated,
December 31, 2008, is $98,679,000. The
approximate percentage of the fair
market value of the Plan’s total assets,
as of December 31, 2008, that is
represented by investments in shares of
HSBC ADS is 4.9 percent (4.9%).
8. On March 2, 2009, Holdings
announced its decision, as a corporate
entity and issuer of securities, to issue,
in connection with the Offering, up to
5,060,239,065 shares of Stock in the
form of new ordinary shares,
representing approximately 41.7 percent
(41.7%) of the existing issued ordinary
shares of Stock of Holdings, as of
February 27, 2009, the last business day
prior to the announcement of the
Offering. It is represented that Holdings
made this decision for the sole purpose
of raising additional capital. An
aggregate of 4,887,538,091 new ordinary
shares of the Stock of Holdings were
subscribed for in connection with the
Offering. The gross proceeds from such
subscriptions in connection with the
Offering totaled £12,072,952,215.50.
Completion of the Offering was
conditional upon approval from the
shareholders of the Stock of Holdings
and upon approval from the
shareholders of the HSBC ADS, such as
the Plan. The Offering was approved in
a meeting (the General Meeting) held in
London on March 19, 2009.
9. Under the terms of the Offering, all
shareholders of the Stock of Holdings
received certain rights (the Share Rights)
to purchase, through the exercise of
such Share Rights, the new ordinary
shares of the Stock of Holdings being
issued by Holdings in connection with
the Offering. With respect to the Share
Rights, under the terms of the Offering,
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five (5) Share Rights were issued for
every twelve (12) shares of the Stock of
Holdings, rounded down to the nearest
whole number, held by each
shareholder on March 13, 2009, (the
Record Date). Each of the Share Rights
permitted a shareholder of the Stock of
Holdings to purchase one (1) additional
share of such stock at 254 pence per
share.
In addition, under the terms of the
Offering, all shareholders of the HSBC
ADS, such as the Plan, received ADS
Rights to purchase HSBC ADS. With
respect to the ADS Rights, under the
terms of the Offering, five (5) ADS
Rights were issued for every twelve (12)
shares of the HSBC ADS, rounded down
to nearest whole number, held by each
holder of such shares, including the
Plan, on the Record Date. Each of the
ADS Rights permitted a holder, such as
the Plan, to purchase one (1) additional
share of the HSBC ADS for an estimated
price of $17.75 per each share.
As of March 13, 2009, the Record
Date, the Plan held 2,067,667 shares of
the HSBC ADS 3 on behalf of 10,562
participants and beneficiaries.
Accordingly, based on a ratio of five (5)
ADS Rights issued for every twelve (12)
shares of the HSBC ADS held, rounded
down to nearest whole number, on
March 20, 2009, the Plan acquired
861,527 ADS Rights.
10. It is represented that there was no
market for the ADS Rights acquired by
the Plan, because the terms of the
Offering stipulated that the ADS Rights
were not transferrable and would not be
admitted to trading on the NYSE or any
other stock exchange. In order to sell the
ADS Rights, holders of the ADS Rights,
such as the Plan, had to convert their
ADS Rights into Share Rights. The
conversion ratio between the ADS
Rights and the Share Rights was one to
five (1:5). Therefore, it is represented
that underlying the 861,527 ADS Rights
acquired by the Plan in the Offering that
there were 4,307,639 Share Rights.
11. A market for the Share Rights did
develop, and the Share Rights were
listed on the LSE. In this regard, the
Shares Rights began trading on the LSE
on March 20, 2009, at 8 a.m. GMT.
12. The Offering closed on March 31,
2009, at 5 p.m. EST with respect to the
ADS Rights. The Offering closed on
April 3, 2009, at 11 a.m. BST with
respect to the Share Rights. Pursuant to
the terms of the Offering all unexercised
rights expired and became worthless
after the closing of the Offering.
3 Based on the conversion of one HSBC ADS to
five (5) shares of Stock of Holdings, the Plan held
the equivalent of 10.3 million shares of the Stock
of Holdings or less than 0.1% of the outstanding
shares of Stock of Holdings.
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13. To avoid engaging in a prohibited
transaction, it is represented that the
Plan considered whether or not to
accept the ADS Rights. In this regard,
the ADS Rights were accepted, because
refusing to accept such rights might
constitute a breach of the Employer’s
fiduciary duties to the Plan and to its
participants and beneficiaries.
14. Although the Plan provides for
participant directed investment, the
applicant represents that it was not
practicable to initiate and implement a
participant level ‘‘pass through’’ voting
during the proxy vote for the General
Meeting, relating to the approval of the
Offering, nor was it practicable to
initiate and implement a participant
level ‘‘pass through’’ of the exercise or
sale of the ADS Rights, due to the short
duration of time between when such
rights were acquired by the Plan and
when such rights expired under the
terms of the Offering.
On March 12, 2009, the Employer first
contacted U.S. Trust, Bank of America
Private Wealth Management, acting on
behalf of Bank of America, National
Association (BANA),4 to discuss BANA
serving as the I/F for the Plan with
respect to the Offering. On March 13,
2009, BANA issued an engagement
agreement to the Employer to be
retained as the I/F for the Plan with
respect to the Offering. The Employer,
as sponsor of the Plan and settlor of the
Trust, amended section 6.5(i) of the
Trust agreement, effective March 16,
2009, to retain BANA, to act as
investment manager and I/F on behalf of
the Plan.
15. BANA had sole authority to vote
the shares of the HSBC ADS held under
the Plan and to direct Vanguard to
exercise or otherwise dispose of the
ADS Rights acquired and held by the
Trust, pursuant to the Offering.
Specifically, BANA was responsible for:
(i) Conducting a due diligence review of
the Offering; (ii) determining whether or
not to direct the Committee to vote in
favor of the Offering at the General
Meeting; and (iii) if the Offering were
approved at the General Meeting to
prudently evaluate a disposition
strategy under the Offering for the ADS
Rights that were allocated to the Plan.
With regard to the responsibility of
BANA to instruct Vanguard, the Trustee
of the Trust, on how to vote at the
4 It is represented that Evercore Trust
subsequently acquired the business within BANA
that performed the services as I/F with respect to
the subject transactions. Norman Goldberg, the
individual who supervised BANA’s work in
connection with this matter and who signed the
April 9, 2009, letter from BANA, is currently
employed with Evercore Trust, as Managing
Director.
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General Meeting held on March 19,
2009, it is represented that BANA
performed an independent financial
analysis of Holdings to determine the
need for additional capital and the
potential benefits of additional capital.
BANA determined that Holdings
appeared to be adequately capitalized,
and that Holdings had taken steps to
restructure its operations to better
position itself for the future, in light of
recent turmoil across a wide range of
markets and industries, and in
particular the financial services
industry. Accordingly, it is represented
that on March 16, 2009, BANA
instructed Vanguard to vote the Plan’s
shares of the HSBC ADS in favor of the
Offering at the General Meeting.
It is represented that on March 20,
2009, the participants and beneficiaries
in the Plan whose accounts held shares
of the HSBC ADS received their pro rata
share of the ADS Rights. In this regard,
BANA was responsible for analyzing
and recommending a course of action
for such rights received by such
accounts.
As stated in the HSBC Rights Issue
Prospectus (the Prospectus), issued by
Holdings on March 17, 2009,
shareholders of the HSBC ADS,
including the Plan, were permitted to
elect among the following three (3)
options: (a) Exercise all or part of the
ADS Rights for the purchase of shares of
the HSBC ADS; (b) direct BNY Mellon
to sell the Share Rights underlying the
ADS Rights; (c) surrender the ADS
Rights and receive Share Rights.
Option (A) Exercise All or Part of the
ADS Rights
Under this option, a holder of the
ADS Rights, including the Plan, could
exercise all or only a part of the ADS
Rights acquired in conjunction with the
Offering and could purchase shares of
HSBC ADS. In order to exercise the ADS
Rights, a holder, such as the Plan,
would have to deposit 110% of the
subscription price for the HSBC ADS
upon the exercise of each of the ADS
Rights. The additional amount over and
above the subscription price for the
HSBC ADS was to increase the
likelihood that the agent would have
sufficient funds to pay the final
subscription price for the HSBC ADS in
light of a possible appreciation of
Pounds Sterling against the U.S. dollar
between the instruction date and the
end of the subscription period, and to
pay applicable United Kingdom stamp
duty reserve taxes, and to pay any
currency conversion expenses. It is
represented that BANA understood that
the Plan lacked available unallocated
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funds needed to exercise all of the ADS
Rights.
The Plan could surrender a portion of
the ADS Rights to BNY Mellon and
direct BNY Mellon to sell the Share
Rights underlying such ADS Rights, in
order for the Plan to raise sufficient
funds to exercise its remaining ADS
Rights. According to BANA, this
transaction would have resulted in the
Plan receiving Pounds Sterling from the
sale of the Share Rights, which would
then have had to be converted back into
U.S. dollars in order for the Plan to
purchase shares of the HSBC ADS
through the exercise of the remaining
ADS Rights. The conversion from
Pounds Sterling to U.S. dollars would
have had to have been executed at the
then-prevailing exchange rate. In the
opinion of BANA, given the volatility in
the foreign exchange markets and the
uncertainty in future exchange rates,
there was no guarantee that the Plan
would have been able to convert the
proceeds from the sale of the Share
Rights into sufficient funds to exercise
the remaining ADS Rights. If the Plan
had received insufficient funds to
exercise the remaining ADS Rights, such
rights would have been deemed to have
been declined and would have lapsed.
Accordingly, for the reasons
summarized above, BANA determined
that the Plan would not select Option
(A).
Option (B) Direct BNY Mellon To Sell
the Share Rights Underlying the ADS
Rights
Under this option, HSBC established
a process by which a holder of ADS
Rights, including the Plan, could elect
to liquidate such ADS Rights by
directing BNY Mellon to attempt to sell
the underlying Share Rights on the LSE.
Unlike Option (A) above, under Option
(B), the Plan was not required to deposit
any funds in order for BNY Mellon to
liquidate the Plan’s ADS Rights.
Further, it is represented that BNY
Mellon, as depository and as a premier
trading firm that was familiar with the
transaction, had appropriate trading
accounts already in place to facilitate
the trading, had the expertise and the
processes in place to sell the Share
Rights underlying the ADS Rights
within the permitted time period.
Notwithstanding the fact that there was
some currency risk from the conversion
of Pounds Sterling into U.S. dollars,
according to the I/F, Option (B), offered
the Plan an expedited, low cost,
frictionless way to liquidate the Plan’s
interests in the ADS Rights. In this
regard, it is represented that under
Option (B), the Plan did not have to pay
any brokerage commissions in
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connection with the liquidation of its
holding in ADS Rights.
Option (C) Surrender ADS Rights and
Receive Share Rights
Under this option, a holder of ADS
Rights, including the Plan, could elect
to exchange such rights for the
underlying Share Rights and to sell such
Share Rights or exercise such Share
Rights to purchase the Stock of Holdings
on the LSE. To do so, the Plan would
have had to direct BNY Mellon to cancel
the ADS Rights and to deliver the
underlying Share Rights to a brokerage
account set up by the Plan at a firm in
the United Kingdom that trades on the
LSE. To surrender the ADS Rights and
receive the underlying Share Rights, the
Plan would have had to pay a 1.5%
stamp tax. Finally, the Plan would have
had to direct the broker to sell all of the
Share Rights, or to exercise all of the
Share Rights, or to sell sufficient Share
Rights to generate the funds needed to
exercise the Plan’s remaining Share
Rights. To sell and/or exercise the Share
Rights through a broker selected by
BANA on behalf of the Plan, BANA
would have had to negotiate the
brokerage fees and other expenses that
the Plan would have had to pay such
broker for the sale and/or exercise of the
Share Rights. Additionally, the Plan
would have had to assume the risks and
responsibilities attendant to the Share
Rights, including effecting the exercise
or sale of such rights.
According to BANA, Option (C)
presented a number of issues to the Plan
that could have resulted in higher
trading costs. As there was no market
for the ADS Rights, the sale of such
rights required conversion into the
underlying Share Rights. The
conversion of the ADS Rights and
receipt of Share Rights would have
required the Plan, rather than BNY
Mellon, to sell the Share Rights and to
receive the proceeds denominated in
Pounds Sterling. In addition, the Plan
would have had to effect a foreign
exchange conversion at the thenprevailing exchange rate, repatriate the
funds back into the U.S. (possibly
paying any applicable taxes), and then
either deposit the proceeds in
70499
participant accounts or use the proceeds
to purchase shares of HSBC ADS on the
NYSE. Furthermore, the Plan would
have had to pay wire fees to move the
proceeds back to the U.S. BANA points
out that during this process, the share
price of both the Stock of Holdings on
the LSE and the share price of the HSBC
ADS on the NYSE would be fluctuating
and could possibly have moved against
the Plan. Accordingly, BANA
determined that the uncertainty of the
stock markets and the foreign exchange
markets, along with the costs associated
with executing the different trades and
repatriating the funds back to the U.S.
and the uncertainty related to trade
settlement and execution, might have
resulted in higher trading costs to the
Plan, and therefore, lower proceeds to
Plan participants. For the foregoing
reasons, BANA determined that Option
(C) was not in the interest of the Plan.
The applicant provided the following
chart which compares the three (3)
options, discussed above, and assesses
the risks associated with each of the
three (3) options:
Option (A)
Exercise All or Part of the ADS
Rights
Option (B)
Direct BNY Mellon to Sell the
Share Rights Underlying the ADS
Rights
Option (C)
Surrender ADS Rights and Receive Share Rights
Plan Funding
In order to exercise the ADS
Rights, the Plan needed to deposit 110% of the 254 pence per
share subscription price with
BNY Mellon.
Risk: High
The
Plan
lacked
available
unallocated funds needed to
exercise the ADS Rights. To
generate the necessary funds,
the Plan would have had to direct BNY Mellon to sell a portion of the Plan’s ADS Rights
(technically to sell the Share
Rights underlying the ADS
Rights) to raise sufficient cash
to exercise its remaining ADS
Rights.
Risk: Low
No funds were required for BNY
Mellon to sell the ADS Rights
(technically to sell the Share
Rights underlying the ADS
Rights) on the public market.
Operational Risks
Risk: High
Risk: Low
Risk: High
The
Plan
lacked
available
unallocated funds needed to
exercise the Share Rights it
would receive after surrendering the ADS Rights, meaning the Plan’s most viable alternative would have been to sell
the Share Rights it received. In
order to exercise the Share
Rights, the Plan would have
had to first sell a portion of the
Share Rights to raise sufficient
cash to exercise the remaining
rights. This would raise other
risks as outlined herein.
Risk: High
mstockstill on DSK4VPTVN1PROD with NOTICES
Risks
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Option (A)
Exercise All or Part of the ADS
Rights
Risks
Timing Risks
The Plan received the ADS Rights
on March 20, 2009. Under the
terms of the Offering, the ADS
Rights expired on March 31,
2009 and the Share Rights expired on April 3, 2009. BANA
had only 10 business days from
the date on which the Prospectus describing the terms of
the Offering was issued to
evaluate the options available to
the Plan, decide which of the
options was in the best interest
of the Plan’s participant and
beneficiaries, and carry out its
decision.
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Trading Costs
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Option (B)
Direct BNY Mellon to Sell the
Share Rights Underlying the ADS
Rights
Option (C)
Surrender ADS Rights and Receive Share Rights
In order to exercise the ADS
Rights, the Plan would have
had to first sell a portion of the
ADS Rights (technically to sell
the Share Rights underlying the
ADS Rights) to raise sufficient
funds to exercise its remaining
ADS Rights. The uncertainty of
the proceeds from this sale
(due to constantly changing foreign exchange rates, a fluctuating price for the Share
Rights, and uncertainty as to
the timing of any such sale)
made it impossible to accurately calculate the number of
Share Rights to sell in order to
raise sufficient proceeds to exercise the remaining ADS
Rights. The Plan could have either raised insufficient funds,
leaving it holding unexercised
(and possibly unsellable) ADS
Rights which would have
lapsed; or would have ended
up with excess cash.
Risk: Moderate-High
It was understood that the Plan
did not have cash available to
exercise the ADS Rights and
the Plan was not intending to
sell other investments to raise
sufficient cash. Because of the
timing of the Offering, the Plan
would have had to instruct BNY
Mellon at the same time with
respect to both the sale and the
exercise of the ADS Rights;
cash also had to be deposited
at this time for the exercise of
the ADS Rights. Even assuming the Plan could have immediately monetized (for deposit
with BNY Mellon) its expected
proceeds from the sale of the
ADS Rights, Option (A) nonetheless presented moderate
timing risk, because if insufficient funds were generated
from the sale, there was not
enough time to supplement the
cash to ensure the remaining
ADS Rights could be exercised.
If the necessary funds were not
generated in time the ADS
Rights would have expired and
likely become worthless.
Risk: Low
HSBC had established a process
to liquidate ADS Rights through
BNY Mellon. BNY Mellon is a
premier trading firm that was familiar with the transaction, was
well-suited to execute all options available to shareholders,
and offered competitive fees.
BNY Mellon also had appropriate trading accounts already
in place to facilitate the trading.
The Plan would have been responsible for selecting a broker
to sell the Share Rights on the
open market. To do so, the
Plan would have had to set up
a brokerage account at a firm in
London that trades on the LSE.
This would have entailed a
number of risks, including the
time to set up and verify an account and the lesser familiarity
by the broker (compared with
BNY Mellon) with the transaction. In addition, no other
broker selected on behalf of the
Plan was likely to have had the
market access and the trading
volume enjoyed by BNY Mellon.
Risk: Low
The Plan needed to direct BNY
Mellon to sell the ADS Rights
(technically, the Share Rights
underlying the ADS Rights) before such rights expired. As the
depository and a premier trading firm, BNY Mellon already
had the expertise and processes in place to sell the ADS
Rights within the permitted period.
Risk: High
The Plan needed to convert the
ADS Rights into Share Rights,
set up brokerage accounts at a
firm in London that trades on
the LSE, and either sell all of
the Share Rights or sell sufficient Share Rights to generate
the funds needed to exercise
the remaining rights. This option presented the greatest timing risks because any delay in
setting up the brokerage accounts or executing the sales
could have resulted in the ADS
Rights expiring and becoming
worthless.
Risk: Low
Risk: High
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Federal Register / Vol. 76, No. 219 / Monday, November 14, 2011 / Notices
Risks
Foreign Exchange Rates
Option (A)
Exercise All or Part of the ADS
Rights
Option (B)
Direct BNY Mellon to Sell the
Share Rights Underlying the ADS
Rights
Option (C)
Surrender ADS Rights and Receive Share Rights
This option presented low risk
since the Plan would have incurred the same costs described in Option (B) in order to
sell a portion of the ADS Rights
(technically, the Share Rights
underlying the ADS Rights)
through BNY Mellon to raise
sufficient cash to exercise its
remaining ADS Rights.
In order to exercise the remaining
ADS Rights, the Plan needed to
deposit 110% of the 254 pence
per share subscription price
with BNY Mellon. 110% of the
subscription price needed to be
deposited in order to cover possible exchange rate fluctuations, applicable United Kingdom stamp duty reserve taxes,
and any currency conversion
expenses.
Risk: High
Although certain foreign exchange
rate risks were involved in all
three options, this option presented the highest risk to the
Plan since foreign exchange
rate fluctuations could have
prevented the Plan’s ability to
exercise all of the ADS Rights.
The Plan would have needed to
sell a portion of the ADS Rights
(technically, the Shares Rights
underlying the ADS Rights) in
order to generate the funds
needed to exercise the remaining ADS Rights. If the funds
generated were insufficient due
to a change in foreign exchange rates, the Plan likely
would not have had time to sell
additional ADS Rights in order
to generate the additional funds
needed to exercise the remaining ADS Rights.
This option presented low risk
since the Plan would not have
had to pay brokerage commissions for the sale of the ADS
Rights (technically, the Share
Rights underlying the ADS
Rights) through BNY Mellon.
The Plan would have had to
have paid an ADS depository
fee of $0.02 per ADS Right, any
applicable taxes, and any other
applicable fees and expenses
of BNY Mellon, as provided
under the deposit agreement,
pro rata to the holders of the
ADS Rights who directed BNY
Mellon to sell the ADS Rights.
The Plan would have incurred an
estimated 1.5% stamp tax to
surrender the ADS Rights and
receive the underlying Share
Rights. In addition, BANA would
have had to negotiate and the
Plan would have had to pay
brokerage fees for the sale or
exercise of the Share Rights.
Furthermore, the Plan would
have had to pay wire fees to
move the proceeds back to the
U.S. This option presented the
highest risk since it could have
resulted in higher trading costs
to the Plan with uncertainty related to trade settlement and
execution, as well as requiring
additional trades to convert any
shares of Stock of Holdings acquired into HSBC ADS.
Risk: Low
BNY Mellon would need to convert the proceeds from the sale
of the ADS Rights (technically,
the Shares Rights underlying
the ADS Rights) into U.S. dollars at the prevailing rate. The
risk is low since the same conversion is needed to convert
the proceeds under any of the
three options into U.S. dollars.
Risk: Moderate
The extent of this risk varied depending on whether BANA decided to sell all of the Share
Rights or sell a portion of the
Share Rights to raise sufficient
proceeds to execute the remaining Share Rights. The risk
would have been similar to Option (A) had BANA decided to
sell some of the Share Rights
to exercise the remaining Share
Rights. The risk would have
been similar too or less than
that in Option (B) had BANA
decided to sell all of the Share
Rights, as BANA would have
controlled the timing of the sale.
mstockstill on DSK4VPTVN1PROD with NOTICES
Accordingly, it is represented that for
the reasons cited above, on March 23,
2009, BANA chose Option (B), above,
and instructed Vanguard, as Trustee, in
turn to instruct BNY Mellon, as
depository agent, to liquidate the entire
position of ADS Rights 5 from the Plan
and to convert the proceeds 6 received
from such sale in Pounds Sterling into
U.S. dollars.7 It is represented that the
5 The applicant has not requested, nor is the
Department, herein, providing any relief from
section 406 of the Act with respect to decision to
liquidate the Plan’s entire position of ADS Rights.
6 The applicant has not requested, nor is the
Department, herein, providing any relief from
section 406 of the Act with respect to the foreign
exchange transaction in connection with the
conversion from Pounds Sterling into U.S. dollars.
7 The responsible plan fiduciary must determine,
consistent with its responsibilities under section
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70501
Jkt 226001
Share Rights underlying the Plan’s ADS
Rights that BNY Mellon was directed to
sell were aggregated by BNY Mellon
with the Share Rights underlying other
ADS Rights that BNY Mellon was
directed to sell by other holders of ADS
Rights. Based on information provided
by BNY Mellon, the aggregated Share
Rights underlying the ADS Rights were
sold throughout the period beginning on
March 27, 2009 and ending on April 3,
2009, at an average price of 147 pence,
404 of the Act, whether the Plan suffered any losses
with respect to the liquidation of the ADS Rights
and the conversion of the proceeds into US Dollars
by BNY Mellon and takes appropriate action in
light of the potential magnitude of the recovery and
the risks and costs of pursuing legal action on
behalf of the Plan.
PO 00000
Frm 00095
Fmt 4703
Sfmt 4703
after expenses.8 Accordingly, it is
represented that the Plan received total
net proceeds of $7,291,066.81, on April
7, 2009, from the liquidation of the
Plan’s ADS Rights. It is represented that
the proceeds represented less than .5%
of the fair market value of the total
assets of the Plan determined, as of
September 30, 2009.
It is represented that the proceeds
from the transactions were distributed,
after accounting for the ADS
depository’s fees paid to BNY Mellon of
8 It is represented that on March 27, 2009, the
Share Rights traded in a range of 132 pence to 162
pence. On the same date, the HSBC ADS traded in
a range of $28.26 to $29.02. At the close of trading
on March 27, 2009, the Share Rights closed on the
LSE at 147 pence, and the HSBC ADS closed on the
NYSE at $28.47.
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mstockstill on DSK4VPTVN1PROD with NOTICES
up to $0.02 per each share of HSBC ADS
and expenses, pro rata to the
shareholders of the ADS Rights,
including the Plan.9
With regard to expenses, in addition
to the ADS depository fees, the Plan
paid foreign exchange charges incurred
by BNY Mellon with respect to the
conversion of Pounds Sterling to U.S.
dollars. It is represented that on March
27, 2009, 1.4554 was the foreign
exchange rate for converting Pounds
Sterling to U. S. dollars. It is represented
that this rate was obtained from
OANDA 10 Corporation and reflects the
average rate for converting Pounds
Sterling into U.S. dollars on March 27,
2009. The foreign exchange charges
were allocated pro rata to all holders of
ADS Rights who directed BNY Mellon
to sell the Share Rights underlying the
ADS Rights, and the Plan’s pro rata
share of such foreign exchange charges
were deducted from the final amount
that the Plan received from the sale of
such rights. It is represented that BANA
does not have information as to the
amount of such charges.11 Further, the
Prospectus also indicated that holders of
ADS Rights who directed BNY Mellon
to sell the Share Rights underlying their
ADS Rights would have to pay any
applicable taxes, and any other
applicable fees and expenses of BNY
Mellon, as provided under the deposit
agreement,12 with such fees and
expenses allocated pro rata to all
holders of ADS Rights who directed
BNY Mellon to sell the Share Rights
underlying their ADS Rights. It is
represented that BANA does not have
information on whether any such fees or
expenses were applicable to the Share
Rights underlying the ADS Rights sold
by BNY Mellon on behalf of the Plan.
16. The Employer has requested an
exemption with respect to the
transactions which are the subject of
9 The applicant has not requested, nor is the
Department, herein, providing any relief from
section 406 of the Act for the receipt of depository’s
fees by BNY Mellon in connection with the sale of
the Share Rights underlying the ADS Rights.
10 OANDA uses innovative computer and
financial technology to provide Internet-based forex
trading and currency information services to
everyone, from individuals to large corporations,
from portfolio managers to financial institutions.
OANDA is a market maker and a source for
currency data. It has access to one of the world’s
largest historical, high frequency, filtered currency
databases.
11 The applicant has not requested, nor is the
Department providing any relief for the receipt of
fees by BNY Mellon with respect to the foreign
exchange transaction in connection with the
conversion from Pounds Sterling into U.S. dollars.
12 The applicant has not requested, nor is the
Department, herein, providing any relief from
section 406 of the Act with respect to receipt of any
other applicable fees and expenses by BNY Mellon,
as provided under the deposit agreement.
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19:40 Nov 10, 2011
Jkt 226001
this proposed exemption. In this regard,
relief has been requested: (a) for the
acquisition of the ADS Rights by the
Plan in connection with the Offering by
Holdings, and (b) for the holding of the
ADS Rights by the Plan during the
subscription period of the Offering. It is
represented that the ADS Rights
acquired by the Plan satisfy the
definition of ‘‘employer securities,’’
pursuant to section 407(d)(1) of the Act,
but do not meet the definition of
‘‘qualifying employer securities,’’ as set
forth in section 407(d)(5) of the Act.
Accordingly, the subject transactions
constitute an acquisition and holding on
behalf of a plan, of an employer security
in violation of section 407(a) of the Act,
for which the applicant has requested
relief from sections 406(a)(1)(A) and
406(a)(1)(E), 406(a)(2), and 407(a)(1)(A).
The subject transactions also raise
conflict of interest issues by fiduciaries
of the Plan for which relief from the
prohibitions of 406(b)(1) and 406(b)(2)
of the Act is needed.
17. It is represented that the subject
transactions have already been
consummated. In this regard, the Plan
acquired the ADS Rights pursuant to the
Offering on March 20, 2009, and held
such rights pending the liquidation of
such rights. It is represented that there
was insufficient time between the date
the Plan acquired the ADS Rights and
the date such rights expired, to apply for
and be granted an exemption.
Accordingly, the Employer is seeking a
retroactive exemption to be granted,
effective as of March 2, 2009, the date
that Holdings announced the Offering.
18. The applicant represents that the
proposed exemption is feasible. In this
regard, it is represented that the subject
transactions are customary for the
industry involved, as evidenced by the
fact that the Department has granted
individual administrative exemptions
under similar circumstances. Further,
the Employer bore the costs of the
application for exemption, and the cost
of the fee payable to BANA, and will
bear the cost of notifying interested
persons of the publication of the
proposed exemption.
19. The applicant represents that the
transactions which are the subject of
this proposed exemption are in the
interest of the Plan, because if the Plan
had not participated in the Offering,
those participants and beneficiaries
whose accounts were invested in shares
of HSBC ADS on the Record Date would
not have received the benefit received
by all other shareholders of the Stock of
Holdings and shareholders of HSBC
ADS.
20. The applicant represents that the
proposed exemption provides sufficient
PO 00000
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Fmt 4703
Sfmt 4703
safeguards for the protection of the Plan
and its participants and beneficiaries. In
this regard, the interests of the
participants and beneficiaries of the
Plan were independently represented at
all times during the subject transactions
by BANA. Further, BANA concluded
that the most prudent course of action
that the Plan could take with respect to
the disposition of the ADS Rights and
the course of action that was in the best
interest of the affected participants and
beneficiaries was to liquidate the ADS
Rights under Option (B). Further, it is
represented that the report prepared by
BANA confirms that the subject
transactions were administrative
feasible, in the interest of, and
protective of the rights of the Plan and
its participants and beneficiaries.
21. In summary, the applicant
represents that the subject transactions
satisfy the statutory criteria of section
408(a) of the Act and section 4975(c)(2)
of the Code because:
(a) The receipt by the Plan of the ADS
Rights occurred in connection with the
Offering made available by Holdings on
the same terms to all shareholders of the
HSBC ADS, including the Plan;
(b) The acquisition of the ADS Rights
by the Plan resulted from an
independent act of Holdings as a
corporate entity, and all holders of the
ADS Rights, including the Plan, were
treated in the same manner with respect
to the acquisition of such rights;
(c) All shareholders of HSBC ADS,
such as the Plan, received the same
proportionate number of ADS Rights
based on the number of shares of HSBC
ADS held; and
(d) All decisions regarding the
disposition of the ADS Rights made on
behalf of the Plan were made by BANA,
acting as the I/F.
Notice to Interested Persons
The persons who may be interested in
the publication in the Federal Register
of the Notice of Proposed Exemption
(the Notice) include participants and
beneficiaries of the Plan whose accounts
in the Plan held Stock.
It is represented that each of these
classes of interested persons will be
notified of the publication of the Notice
by first class mail, within fifteen (15)
days of publication of the Notice in the
Federal Register. Such mailing will
contain a copy of the Notice, as it
appears in the Federal Register on the
date of publication, plus a copy of the
Supplemental Statement, as required,
pursuant to 29 CFR 2570.43(b)(2), which
will advise all interested persons of
their right to comment and to request a
hearing.
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All written comments and/or requests
for a hearing must be received by the
Department from interested persons
within 45 days of the publication of this
proposed exemption in the Federal
Register.
Ms.
Angelena C. Le Blanc of the Department,
telephone (202) 693–8540. (This is not
a toll-free number.)
Sammons Enterprises, Inc. Employee
Stock Ownership ESOP, (the ESOP),
Located in Dallas, Texas, Application
No. D–11679].
FOR FURTHER INFORMATION CONTACT:
mstockstill on DSK4VPTVN1PROD with NOTICES
Proposed Exemption
The Department of Labor (the
Department) is considering granting an
exemption under the authority of
section 408(a) of the Act in accordance
with procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847,
August 10, 1990). If the proposed
exemption is granted, the restrictions of
sections 406(a)(1)(A) and (D), 406(b)(1),
and 406(b)(2) of the Act, and the
sanctions resulting from the application
of section 4975 of the Code, by reason
of section 4975(c)(1)(A), (D) and (E) of
the Code, shall not apply to the personal
holding company consent dividend
election (the Consent) with respect to
Sammons Enterprises, Inc. (Sammons),
by the trustee of the ESOP, provided
that the following conditions are
satisfied:
(a) The trustee of the ESOP is an
independent, qualified fiduciary (the
I/F), acting on behalf of the ESOP,
which determines prior to entering into
the transaction that the transaction is
feasible, in the interest of, and
protective of the ESOP and the
participants and beneficiaries of the
ESOP;
(b) Before the ESOP enters into the
proposed transaction, the I/F reviews
the transaction, and determines whether
or not to approve the transaction, in
accordance with the fiduciary
provisions of the Act;
(c) The I/F monitors compliance with
the terms and conditions of this
proposed exemption, as described
herein, and ensures that such terms and
conditions are at all times satisfied;
(d) Sammons provides to the I/F, in a
timely fashion, all information
reasonably requested by the I/F to assist
it in making its decision whether or not
to approve the transaction;
(e) The consent dividend will
represent no more than two percent
(2%) of the ESOP’s assets in any taxable
year within the timeframe of the
exemption proposed herein;
(f) Shares of Sammons stock are held
in an ESOP suspense account, and are
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19:40 Nov 10, 2011
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allocated each year to each eligible
ESOP participant at the maximum level
permitted under the Code;
(g) All of the requirements of section
565 of the Code are met with respect to
the Consent; and
(h) All shareholders of Sammons are
requested to consent to the dividend in
the manner prescribed under section
565 of the Code.
Temporary Nature of Exemption: This
exemption, if granted, will expire at the
earlier of (i) the first day of the first
fiscal year of Sammons next following
the fiscal year in which falls the fifth
anniversary of the date of grant of the
exemption; and (ii) the first day upon
which the ESOP fails to own at least
99% of the issued and outstanding
shares of Sammons.
Summary of Facts and Representations
1. Sammons Enterprises, Inc.
(Sammons) is a multi-faceted, global
holding corporation headquartered in
Dallas, Texas that owns and operates
businesses and manages an investment
portfolio across a diverse range of
industries. Sammons was founded by
Charles A. Sammons in 1962. Its roots
originate in Dallas, Texas, where Mr.
Sammons began Reserve Life Insurance
Company in 1938, providing the
foundation for what has grown into
Sammons. Beginning in the early
1950’s, Mr. Sammons began to diversify
Sammons’ operations, purchasing
interests in the communications,
industrial products distribution,
insurance, travel and hospitality
industries. Sammons has now
concentrated its investments into three
sectors—life insurance/annuities,
equipment distribution, and hospitality
and real estate.
2. The Sammons Enterprises, Inc.
Employee Stock Ownership ESOP (the
ESOP) was originally established in
1978 and, prior to 2010, had acquired
approximately 4% of Sammons’
outstanding shares. Prior to his death in
1988, almost all of Sammons’
outstanding shares, other than those
owned by the ESOP, were owned by
Charles A. Sammons. At the time of his
death, Mr. Sammons’ shares passed to a
charitable remainder trust with his
widow Elaine D. Simmons as lifetime
beneficiary. In 1997, Congress amended
the Internal Revenue Code of 1986, as
amended (the Code) to permit an ESOP
and its related trust to be a beneficiary
of a charitable remainder trust. This
change in law allowed the ESOP to be
named remainder beneficiary of the
charitable trust established by Mr.
Sammons. In January 2010, following
the death of Mrs. Sammons, all of the
Sammons shares held in the charitable
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70503
remainder trust were transferred to the
ESOP. The ESOP made no payment for
the shares received from the charitable
remainder trust.
3. As a result of the transfer to the
ESOP, it presently owns 99.997% of
Sammons’ outstanding shares. The
remaining 258 shares (representing
.003% of Sammons’ outstanding shares)
are owned by 12 individuals who are
former Sammons employees and ESOP
participants who received their shares
as part of their ESOP distributions.
4. As of December 31, 2010, the
Sammons stock was valued by the
ESOP’s independent appraiser at $512
per share. The aggregate fair market
value of the ESOP’s Sammons share
holdings is $4,099,394,048.13 The ESOP
had approximately 1,064 participants as
of the end of the 2010 plan year.
5. Although the ESOP is not
leveraged, under a special structure
established pursuant to section 664(g) of
the Code, the shares acquired from the
charitable remainder trust are held in an
ESOP suspense account, and are
currently allocated each year to each
eligible ESOP participant at the
maximum level permitted under Code
section 664(g)(7), i.e., 25% of
compensation (up to a maximum
allocation of $45,000).14
6. The trustee of the ESOP trust is the
applicant, GreatBanc Trust Company
(GreatBanc). GreatBanc is nationally
recognized as a highly skilled
independent ERISA trustee specializing
in ESOPs and ESOP transactions.
GreatBanc’s management team and staff
have an average of over 20 years’
experience in the financial services
industry, and include legal and
13 The applicant represents that, consistent with
the requirements of the Act, including definitions
of ‘‘adequate consideration’’ and ‘‘current value’’
found in Act sections 3(18) and 3(26), the value of
the Sammons stock held by the ESOP is determined
in good faith by the Plan’s trustee, GreatBanc Trust
Company, based upon valuations by the Plan’s
independent appraiser as required under Code
section 401(a)(28)(C), and taking into account those
factors determined to be relevant under Revenue
Procedure 59–60 and the Department’s Proposed
Regulation section 2510.3–18. The applicant
represents that, consistent with its fiduciary
responsibilities under ERISA, it will, as the ESOP’s
independent trustee, continue to value the
Sammons stock held by the ESOP in good faith
based upon valuations performed by a qualified
independent appraiser engaged by the Plan to
ensure that all transactions are conducted at fair
market value. The applicant further represents that
Sammons regularly evaluates the performance of
the qualified independent fiduciary under the terms
of the ESOP Trust, and, as part of that evaluation,
Sammons also regularly evaluates the performance
of the ESOP’s independent appraiser which is
engaged on behalf of the ESOP by the qualified
independent fiduciary.
14 The Code provides for a maximum allocation
of $30,000, adjusted annually for cost-of-living. For
2011, the maximum allocation is $45,000.
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regulatory experts and investment
management professionals who hold the
Chartered Financial Analyst
designation. GreatBanc serves as trustee
or independent fiduciary for over 200
ESOPs and other qualified plans
sponsored by both public and private
companies, and has fiduciary
responsibility for over $18 billion in
plan assets. Fees received by GreatBanc
for fiduciary services to the Sammons
ESOP currently represent approximately
3% of GreatBanc’s annual revenue.
7. As a result of its closely held nature
and the types of revenue generated by
certain of its lines of business, Sammons
is potentially subject each year to a set
of federal tax rules referred to as
‘‘personal holding company taxes’’
(PHCT). Although Sammons is a
subchapter ‘‘C’’ corporation and pays its
full share of corporate income taxes, the
applicant represents that these PHCT
rules can subject Sammons to a
significant federal tax burden over and
above that applied to most other
companies. Given the ESOP’s almost
complete ownership of Sammons, these
additional taxes would operate to the
direct detriment of the ESOP and its
participants.
8. The applicant represents that the
pertinent sections of the Code were first
adopted in 1934 at a time when federal
corporate tax rules were substantially
lower than individual tax rates. This
rate differential prompted wealthy
individuals to place their passive
investments in controlled corporations,
with the idea that ongoing investment
earnings could grow and be reinvested
in substantially greater amounts than if
held directly by the individual investor.
The PHCT rules seek to thwart this
strategy by imposing an additional tax,
at the highest individual tax rate, on the
corporation’s ‘‘undistributed personal
holding company income.’’ By thus
equalizing corporate and individual tax
rates, the incentive to place the
individual’s investment portfolio in a
corporate structure is removed.
Currently, the PHCT rate is 15%, which
equates to the top individual rate on
capital gains and qualifying
dividends.15 Because this special tax
regime is designed to preclude tax
arbitrage by the controlled corporations
of individual investors, it only applies
if 50% or more of a company’s stock is
owned by five or fewer individuals. For
this purpose, the ESOP is considered to
be a single individual, notwithstanding
its 1,604 participants, and thus the 50%
ownership threshold is exceeded.
15 Over the years since its enactment, the PHCT
rate has ranged as high as 85%.
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9. According to the applicant, the
PHCT only applies if the corporation
earns over 60% of what is referred to as
its ‘‘adjusted ordinary gross income’’
from sources such as interest,
dividends, rents and royalties. Although
these particular forms of income may be
suggestive of purely passive
investments, they are defined under the
Code in such a way that income from
actively conducted trades or businesses
can fall within their purview. For
example, one Sammons subsidiary
actively rents and sells industrial
equipment to businesses in various
states. The subsidiary employs
approximately 450 workers who service
and maintain this equipment. Although
this business is an active, operating
venture, it generates rental income
which is subject to being characterized
as personal holding company income.
According to the applicant, these tax
rules not only potentially subject
Sammons, and, indirectly, the ESOP, to
a tax burden which has nothing to do
with the original purpose for which the
tax rules were enacted, they also distort
the ways in which Sammons must
operate its businesses, to the detriment
of the ESOP and its participants.
10. Sammons’ business planning is
thus significantly influenced by the
potential application of the PHCT, and
otherwise desirable business activities
are avoided or structured in a less
efficient manner so that Sammons may
maintain its tax obligations at the same
level as that applicable to its
competitors.
11. Because the PHCT is applied to
the company’s undistributed personal
holding company income, it is possible
to avoid the tax by paying to the
company’s shareholders dividends
equivalent to the amount of the
company’s personal holding company
taxable income. The applicant
represents that while the payment of
such a dividend would resolve the
PHCT problem, it is not an attractive
alternative for (a) investors who would
prefer to have the dividend amount
remain invested in the company in
order to fund future growth, or (b)
companies that lack the liquidity to pay
the required dividend.
12. In response to these concerns,
section 565 of the Code allows
companies to pay what is called a
‘‘consent dividend.’’ In the case of a
consent dividend, the shareholder
agrees to recognize current income on a
‘‘deemed dividend’’ that is not actually
distributed to the shareholder in cash.
Rather, the shareholder is treated, for
tax purposes, as if it had received the
dividend (on which it will be taxed),
and then made a capital contribution to
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the company in equivalent amount. The
amount of the consent dividend remains
within the company to be utilized in
furtherance of the company’s objectives
and shareholders’ interests.
13. The applicant has requested an
exemption to permit the Plan, based
upon the discretionary determination of
GreatBanc as trustee and independent
fiduciary, to utilize the consent
dividend process available to
shareholders under Code section 565. If,
in a year in which Sammons would
otherwise be subject to the PHCT, the
ESOP were able to elect to ‘‘receive’’ a
consent dividend in an amount
sufficient to represent a complete
distribution of Sammons’ personal
holding company income, Sammons
would be able to achieve significant tax
savings at virtually no cost to the ESOP.
This is because the ESOP, being a taxexempt entity, would have no tax
liability as a result of ‘‘receiving’’ the
consent dividend. The applicant states
that this represents a legitimate and
appropriate use of the consent dividend
process under Code section 565, and is
entirely consistent with the language
and purpose of that Code section, as
well as the provisions of sections 401(a)
and 501(a) of the Code.
14. For example, if a $5 million
distribution were required in order to
avoid imposition of the PHCT upon
Sammons, a $5 million consent
dividend would save Sammons, at the
current surtax rates, $750,000.
Virtually 16 the entire amount of this
savings would inure to the benefit of the
ESOP and its participants (because the
ESOP presently owns 99.997% of the
outstanding shares of Sammons).
Importantly, this approach would also
allow the consent dividend amount (and
not just the tax savings) to continue to
build share values within a successful
and growing business.
15. The applicant represents that the
ESOP’s participation in the consent
dividend process will permit Sammons
to manage its businesses and conduct
long-range business planning without
the need to structure its operations, or
to forego potentially profitable
opportunities and initiatives, so as to
avoid the generation of personal holding
company income. This will create
greater opportunities for corporate
growth and the enhancement of
shareholder value, which will inure
16 The use of the term ‘‘virtually’’ both here and
in representation 13, above, acknowledges the fact
that the non-ESOP shareholders of Sammons might
elect not to participate in the consent dividend
process. These individuals currently hold .003% of
Sammons’ outstanding shares, and would receive a
de minimis dividend payment if they elect not to
participate in the consent dividend process.
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directly to the benefit of the ESOP and
its participants and beneficiaries. The
ESOP will incur no economic detriment
by participating in the consent dividend
process, because Sammons does not
otherwise pay dividends.17 Thus, the
ESOP would not be foregoing the option
of receiving current cash dividends by
consenting to receive the undistributed
personal holding company income as a
deemed dividend. Rather, the proposed
transaction would permit Sammons to
deploy its capital on a tax efficient basis
in accordance with the provisions of the
Code. Nevertheless, if GreatBanc
determines in any year that it is not
prudent and in the best interests of the
ESOP and its participants and
beneficiaries to participate in the
consent dividend process, the Plan will
be under no obligation to provide its
consent. In such case, it will be up to
Sammons’ board and management to
determine how best to address
Sammons’ tax position and obligations.
16. In summary, the applicant
represents that the subject transaction
satisfies the criteria contained in section
408(a) of the Act because: (a) The trustee
of the ESOP, GreatBanc, is an
independent, qualified fiduciary, acting
on behalf of the ESOP, which
determines prior to entering into the
transaction that the transaction is
feasible, in the interest of, and
protective of the ESOP and the
participants and beneficiaries of the
ESOP; (b) Before the ESOP enters into
the proposed transaction, GreatBanc
will review the transaction, and
determine whether or not to approve the
transaction, in accordance with the
fiduciary provisions of the Act; (c)
GreatBanc will monitor compliance
with the terms and conditions of this
proposed exemption, as described
herein, and ensure that such terms and
conditions are at all times satisfied; (d)
Sammons will provide to GreatBanc, in
a timely fashion, all information
reasonably requested by the GreatBanc
to assist it in making its decision to
consent (the Consent) to treat as a
dividend from Sammons the amount
specified in the Consent; (e) The
consent dividend will represent no
more than two percent (2%) of the
ESOP’s assets in any taxable year within
the timeframe of the exemption
proposed herein; (f) Shares of Sammons
stock are held in an ESOP suspense
account, and are allocated each year to
each eligible ESOP participant at the
maximum level permitted under the
Code; (g) The dividend meets all of the
requirements of section 565 of the Code
to be treated as a consent dividend; (h)
All shareholders of Sammons are
requested to Consent to the dividend in
the manner prescribed under section
565 of the Code; and (i) Because the
ESOP owns 99.997% of Sammons’
outstanding stock, the tax savings
realized by Sammons from the subject
transaction would inure directly to the
benefit of the ESOP and its participants
and beneficiaries.
FOR FURTHER INFORMATION CONTACT: Gary
H. Lefkowitz of the Department,
telephone (202) 693–8546. (This is not
a toll-free number.)
First Federal Bancshares of Arkansas,
Inc. Employees’ Savings and Profit
Sharing Plan (the Plan), Located in
Harrison, Arkansas, [Application No. D–
11683].
17 Sammons paid a relatively small dividend
while Mrs. Sammons was alive. No dividends have
been paid since her death, and Sammons does not
anticipate paying dividends in the future.
18 For purposes of this proposed exemption,
references to specific provisions of Title I of the
Act, unless otherwise specified, refer also to the
corresponding provisions of the Code.
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Proposed Exemption
The Department is considering
granting an exemption under the
authority of section 408(a) of the Act
and section 4975(c)(2) of the Code and
in accordance with the procedures set
forth in 29 CFR part 2570, subpart B (55
FR 32836, 32847, August 10, 1990).
Section I: Transactions
If the proposed exemption is granted,
effective May 10, 2011, the restrictions
of sections 406(a)(1)(A), 406(a)(1)(E),
406(a)(2), 406(b)(1), 406(b)(2), and
407(a)(1)(A) of the Act and the sanctions
resulting from the application of section
4975 of the Code, by reason of section
4975(c)(1)(A) and 4975(c)(1)(E) of the
Code,18 shall not apply:
(1) To the acquisition of certain rights
(the Rights) by the Plan in connection
with an offering (the Offering) of shares
of the common stock (the Stock) of First
Federal Bancshares of Arkansas, Inc.
(Bancshares) by Bancshares, a party in
interest with respect to the Plan, and
(2) to the holding of the Rights
received by the Plan during the
subscription period of the Offering;
provided that the conditions as set forth
in section II of this proposed exemption
were satisfied for the duration of the
acquisition and holding.
Section II: Conditions
The relief provided in this exemption
is conditioned upon adherence to the
material facts and representations
described, herein, and as set forth in the
application file and upon compliance
with the conditions, as set forth in this
proposed exemption.
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70505
(1) The receipt of the Rights by the
Plan occurred in connection with the
Offering and was made available by
Bancshares on the same terms to all
shareholders of the Stock of Bancshares;
(2) The acquisition of the Rights by
the Plan resulted from an independent
act of Bancshares, as a corporate entity,
and all holders of the Rights, including
the Plan, were treated in the same
manner with respect to the acquisition
of such Rights;
(3) Each shareholder of the Stock,
including the Plan, received the same
proportionate number of Rights based
on the number of shares of Stock of
Bancshares held by such shareholder;
(4) The Rights were acquired pursuant
to provisions under the Plan for
individually directed investments of the
accounts of the individual participants
(the Invested Participants), all or a
portion of whose accounts in the Plan
hold the Stock;
(5) The decisions with regard to the
holding and disposition of the Rights by
the Plan were made by each of the
Invested Participants in accordance
with the provisions under the Plan for
individually-directed accounts; and
(6) No brokerage fees, no
commissions, no subscription fees, and
no other charges were paid by the Plan
with respect to the Offering, and no
brokerage fees, no commissions, and no
other monies were paid by the Plan to
any broker in connection with the
exercise of the Rights.
Effective Date: This proposed
exemption, if granted, will be effective,
May 10, 2011, the commencement date
of the Offering.
Summary of Facts and Representations
1. The Plan is defined contribution
profit sharing plan adopted effective
June 1, 2006.19 The Plan provides for a
cash and deferred arrangement, i.e. a
401(k) plan. The Plan is a participant
directed account plan designed and
operated to comply with the
requirements of section 404(c) of the
Act. The fair market value of the total
assets of the Plan, as of May 10, 2011,
was $3.579 million.
2. Bancshares is the sponsor of the
Plan for its subsidiaries. Bancshares is
also the administrator for the Plan and
the fiduciary responsible for Plan
matters. As a fiduciary with respect to
the Plan, Bancshares is a party in
interest to the Plan, pursuant to section
3(14)(A) of the Act.
3. Since June 5, 2009, Reliance Trust
Company (RTC) has served as the
19 Bancshares also maintained a qualified
Employee Stock Ownership Plan which was merged
into the Plan, effective June 1, 2006.
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directed trustee and custodian for the
Plan. As directed trustee and custodian,
RTC is a party in interest to the Plan,
pursuant to section 3(14)(A) of the Act.
As service providers to the Plan, both
Bancshares and RTC are parties in
interest to the Plan, pursuant to section
3(14)(B) of the Act.
4. The Plan offers to participants a
wide variety of institutionally managed
collective trust index funds from which
the Plan participants may choose to
invest. One of the investment options
under the Plan is the First Federal
Employer Stock Fund (the Stock Fund).
As of May 10, 2011, the Plan had
approximately 231 participants of
which 180 participant held shares in the
Stock Fund.
5. The Stock Fund allows participants
in the Plan to invest in the Stock of
Bancshares. The Stock is a ‘‘qualifying
employer security,’’ as defined under
section 407(d)(5) of the Act and 4975(e)
of the Code. The Stock ($0.01 par value)
is listed for quotation on the NASDAQ
Global Select Market (NASDAQ) under
the symbol, FFBH. It is represented that
the Stock is the same class of shares
available to other investors.
Investment in the Stock Fund is
entirely voluntary. Plan participants
may invest in the Stock Fund up to 25
percent (25%) of any contributions
remitted to the Plan. Features of the
Stock Fund include:
(a) Neither Bancshares nor its
subsidiaries contribute any capital Stock
to the Plan. Instead all employer
contributions are made in cash, and the
Stock is acquired for the Plan only as a
result of participant-directed investment
decisions;
(b) Upon direction from a Plan
participant to invest in the Stock Fund,
RTC, acting as directed trustee,
purchases the Stock on the open market
at the prevailing market price;
(c) Bancshares, as the administrator of
the Plan, has the responsibility of
coordinating with RTC, regarding the
administrative procedures to implement
participant investment decisions
regarding the Stock, but otherwise has
no authority with respect to the Stock
Fund;
(d) Upon the settlement of a trade
implementing a participant’s direction
to invest in the Stock Fund, RTC
becomes the shareholder of record and
the Plan participant becomes the
beneficial owner; and
(e) The Plan provides that participants
are entitled to direct Bancshares, as the
administrator of the Plan, regarding the
voting of shares of the Stock held in
their accounts, and that RTC shall
follow such directions.
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6. The application was filed on behalf
of Bancshares, a unitary savings and
loan holding company established in
January 1996. Bancshares is a Texas
corporation.20 However, the
shareholders approved the
reincorporation of Bancshares from
Texas to Arkansas during the annual
meeting of shareholders held on June
22, 2011. Bancshares is in the process of
making the requisite filings to complete
the reincorporation. Bancshares has its
principal place of business in Harrison,
Arkansas. Bancshares does not employ
any persons other than officers of First
Federal Bank (the Bank), and
Bancshares uses the support staff of the
Bank from time to time. Substantially all
of the activities of Bancshares are
conducted through the Bank. As of
March 31, 2011, Bancshares had $577.7
million in total assets, $542.9 million in
total liabilities and $34.8 million in
stockholders’ equity.
7. The Bank is a wholly-owned
subsidiary of Bancshares. Bancshares, as
the parent of the Bank, is a party in
interest with respect to the Plan,
pursuant to section 3(14)(E) of the Act.
The Bank is a community bank and a
federally chartered saving and loan
association formed in 1934 with a main
office and full service branches in North
central and Northwest Arkansas. As of
March 31, 2011, the Bank had $577.7
million in assets. The Bank, as an
employer any of whose employees are
covered by the plan, is a party in
interest with respect to the Plan,
pursuant to section 3(14)(C) of the Act.
8. As part of its recapitalization plan,
Bancshares and the Bank, on January 26,
2011, entered into an investment
agreement with Bear State Financial
Holdings, LLC (Bear State), a private
equity investment group. The
investment agreement set forth the
terms and conditions of the
recapitalization plan which consisted of
the following:
(a) As a condition of the investment
agreement with Bear State, Bancshares
agreed to commence the Offering which
is the subject of this proposed
exemption, whereby shareholders of
record would receive the Rights. In a
press release, dated January 28, 2011,
Bancshares, as a corporate entity,
announced the Offering, and on the
same date, in connection with the
Offering, announced the issuance of up
to 2,908,071 shares of Stock;
20 The shareholders have approved the
reincorporation of Bancshares from Texas to
Arkansas during the annual meeting of shareholders
held on June 22, 2011. Bancshares is in the process
of making the requisite filings to complete the
reincorporation.
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(b) On May 3, 2011, Bear State
purchased from the United States
Department of the Treasury (the
Treasury) for $6 million aggregate
consideration: (i) 16,500 shares of
Bancshares’ Fixed Rate Cumulative
Perpetual Preferred Stock, Series A (the
Preferred Stock), including accrued but
unpaid dividends thereon; and (ii) a
related warrant (the TARP Warrant),
dated March 6, 2009, which provided
for the purchase of 321,847 shares of the
Stock at an exercise price of $7.69 per
share. Both the TARP Warrant and the
Preferred Stock were previously issued
to the Treasury through the Troubled
Asset Relief Program—Capital Purchase
Program;
(c) Bancshares amended its Articles of
Incorporation to cause a one-for-five
stock split (the Reverse Stock Split) that
occurred on May 3, 2011, in which the
outstanding shares of the Stock
decreased from 4,846,785 to
approximately 969,357;
(d) On May 3, 2011, Bancshares sold
to Bear State: (i) 15,425,262 postReverse Stock Split shares (the First
Closing Shares) of the Stock at $3.00 per
share in a private placement, and (ii) a
warrant (the Investor Warrant) which
provided for the purchase of 2 million
post-Reverse Stock Split shares of the
Stock at an exercise price of $3.00 per
share;
(e) On May 3, 2011, Bear State paid
Bancshares aggregate consideration of
approximately $46.3 million for the
First Closing Shares and the Investor
Warrant, consisting of: (i) $40.3 million
in cash, and (ii) Bear State’s surrender
of the Preferred Stock and the TARP
Warrant to Bancshares for a $6 million
credit against the purchase price of the
First Closing Shares; and
(f) Pursuant to the investment
agreement, Bear State agreed to backstop
the Offering by purchasing in a second
private placement for a purchase price
of $3.00 per share, any Stock not
subscribed for in the Offering, subject to
an overall limitation on Bear State’s
ownership of 94.9 percent (94.9%) of
the Stock.21 In this regard, the backstop
commitment would ensure that
Bancshares would raise net proceeds
after expenses of approximately $8.5
million through the Offering. It is
represented that Bancshares used the
net proceeds from the Offering for
general corporate purposes, including
capital contributions to the Bank.
8. In addition to providing Bancshares
with an opportunity to raise equity
21 It is represented that because the Offering was
fully subscribed, Bear State was not required to
purchase any shares of Stock in a second private
placement to backstop the Offering.
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capital, the Offering also provided
existing shareholders with the
opportunity to purchase the Stock at the
same price per share paid by Bear State
for the 15,425,262 post-Reverse Split
shares of Stock Bear State acquired on
May 3, 2011.
9. The total number of shares of Stock
outstanding, as of the commencement
date of the Offering on May 10, 2011,
was 16,394,619. At the close of business
on May 10, 2011, the Stock was trading
on the NASDAQ at $9.07 per share.
After giving effect to the 2,908,071
shares of Stock issued in connection
with the Offering, the issued and
outstanding shares of Stock totaled
19,302,690. The closing price of the
Stock on the ending date of the Offering
on June 21, 2011, was $7.77.
10. Under the terms of the Offering,
all shareholders of the Stock, including
the Invested Participants in the Plan,
automatically received at no charge the
Rights to purchase, through the exercise
of such Rights, the Stock being issued
by Bancshares in connection with the
Offering. All shareholders of the Stock,
including the Invested Participants,
held the Rights until such Rights were
either exercised, or such Rights expired.
With respect to the Rights, under the
terms of the Offering, one (1) Right was
issued for every share of the Stock held
by each shareholder, including the
Invested Participants, on March 23,
2011, 5 p.m. Eastern time (the Record
Date), as adjusted to take account of the
Reverse Stock Split that occurred on
May 3, 2011. All Rights were rounded
down to the nearest whole number for
each shareholder, including the
Invested Participants.
11. It is represented that the Rights
were not listed, traded or quoted on
NASDAQ or on any other stock
exchange or trading market. Further, the
terms of the Offering stipulated that the
Rights could not be sold, assigned or
transferred.
12. The Rights could only be
exercised in whole numbers. Upon
exercise, each of the Rights permitted a
shareholder of the Stock, including the
Invested Participants, to purchase three
(3) additional shares of Stock at a
subscription price of $3.00 per share. A
shareholder, including each Invested
Participant, had the right to choose to
exercise some, all, or none of his Rights.
The exercise of any of the Rights was
irrevocable.
13. It is represented that to the extent
shareholders did not exercise in full all
of their Rights, each shareholder who
did timely and fully exercise his basic
Rights would have an oversubscription
privilege to subscribe for a portion of
the Stock in the Offering, subject to
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19:40 Nov 10, 2011
Jkt 226001
availability and allocation. However, a
shareholder’s ability to purchase Stock
in the Offering (through the exercise of
his basic Rights and any
oversubscription privilege) was subject
to an overall beneficial ownership
limitation of 4.9 percent (4.9%) of
Bancshares outstanding Stock. If
oversubscription requests exceed the
number of shares available, Bancshares
allocated the available shares pro rata
among the holders of Rights who
exercised the oversubscription privilege.
14. The Rights could be exercised
beginning May 10, 2011, the date of the
issuance of the prospectus describing
the Offering. The Offering was to have
closed with respect to the exercise of the
Rights on June 7, 2011, but due to
delays in the delivery of subscription
materials, the closing of the Offering
was extended to June 21, 2011. Pursuant
to the terms of the Offering all
unexercised Rights expired and became
worthless after the closing of the
Offering.
15. It is represented that on May 10,
2011, the commencement date of the
Offering, the Plan was the record owner
of 106,964 shares of Stock which were
allocated to the individual accounts of
180 Invested Participants. The aggregate
fair market value of the assets of the
Plan invested in shares of the Stock, on
May 10, 2011, based on a closing price
of such Stock of $9.07 on NASDAQ on
that date was $970,167. As of May 10,
2011, the approximate percentage of the
fair market value of the total assets of
the Plan invested in the Stock was 27
percent (27%). As of the same date,
106,964 shares of Stock constituted
approximately .65 percent (.65%) of the
16,394,619 shares of Stock outstanding.
16. Based on the ratio of one (1) Right
for each share of Stock held, the Plan
acquired 106,964 Rights, as a result of
the Offering. It is represented that the
Plan subscribed for 276,579 shares of
Stock in the exercise of the basic Rights
and the oversubscription privilege. Of
the Rights received by the Plan on
behalf of accounts of the Invested
Participants all Rights were either
exercised or expired.
17. The Plan and RTC were notified
of the issuance of the Rights in a press
release from Bancshares, dated May 10,
2011. Enclosed with a form letter
mailed, on May 10, 2011, to each
Invested Participant in the Plan
Bancshares also provided a copy of the
prospectus which described the
Offering, a document providing
frequently asked questions and answers
regarding the Offering, an election form
for Invested Participants in the Plan, a
return envelope addressed to
Bancshares, and a statement indicating
PO 00000
Frm 00101
Fmt 4703
Sfmt 4703
70507
the number of shares of Stock each
Invested Participant held, as of the
Record Date.
18. In order to exercise some or all of
the Rights, an Invested Participant had
to complete an election form and to
submit such election form to Bancshares
by the close of business on the fifth (5th)
business day (June 14, 2011 at 5 p.m.
EST), prior to the expiration of the
Offering on June 21, 2011.22 Each
Invested Participant who submitted an
election form was required to indicate
on such election form a sufficient
amount of current investments in such
Invested Participant’s account in the
Plan to be liquidated in order to
generate the full subscription price in
cash based on the number of basic
Rights and any oversubscription
privileges to be exercised.23 It is
represented that the selected
investments were liquidated consistent
with such Invested Participant’s
direction on the election form and
transferred to the Rights Fund at RTC
which was established in anticipation of
the Offering. RTC placed the order to
purchase the shares with the
Subscription Agent. It is represented
that the Rights Fund was liquidated on
June 21, 2011, and cash equal to the
necessary subscription payment was
transferred to the Subscription Agent.
Following the closing of the Offering,
the acquired shares of Stock were then
credited to the applicable Invested
Participant’s account in the Plan. In the
event the Invested Participants oversubscribed for more shares of Stock than
were available under the Offering, the
money resulting from the liquidation of
investments to buy those oversubscribed
shares was re-deposited into the Plan
based on the Investment Participant’s
investment allocation election.
It is represented that although
5,576,216 total shares were subscribed
for by all shareholders, including the
22 It is represented that the extra five (5) business
days were required to provide RTC, the Registrar
and Transfer Company (the Subscription Agent),
the Plan’s record keeper, the custodian for the First
Federal Bancshares of Arkansas, Inc. Rights Fund
(the Rights Fund), and the clearing agent for the
Offering sufficient time to process all such elections
by the Invested Participants to exercise their Rights,
tabulate and confirm the results, liquidate each
such Invested Participant’s funds, confirm the
orders and the availability of such funds, and remit
payment to purchase the shares.
23 It is represented that if the value of investments
liquidated did not equal or exceed the purchase
price of the Stock that an Invested Participant had
elected to purchase in the Offering, none of the
Rights held in such Invested Participant’s account
were exercised. In that situation, such Invested
Participant was deemed not to have exercised his
Rights and all subscription payments received on
that Invested Participant’s behalf were returned to
the Plan and deposited based upon such
Participant’s investment allocation election.
E:\FR\FM\14NON1.SGM
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70508
Federal Register / Vol. 76, No. 219 / Monday, November 14, 2011 / Notices
mstockstill on DSK4VPTVN1PROD with NOTICES
Invested Participants, under the basic
Rights and under the oversubscription
privilege, only a total of 2,908,071
shares of Stock were issued.
It is represented that 102 Invested
Participants out of 180 decided to
exercise the Rights. In this regard, the
Rights of such Invested Participants
were executed on or about May 10,
2011, until the Offering closed at 5 p.m.
EST on June 14, 2011.24 The Invested
Participants exercised 64,677 basic
Rights. As a result of this exercise, the
Invested Participants received 194,031
shares of Stock from the exercise of their
basic Rights and 55,014 shares of Stock
from the exercise of their
oversubscription privilege.
19. It is represented that no brokerage
fees, commissions, subscription fees, or
any other charges were paid by the Plan
with respect to the Offering, and no
brokerage fees, commissions, or other
monies were paid by the Plan to any
broker in connection with the exercise
of the Rights. It is further represented
that Bancshares did not charge any fees
or sales commissions to issue the Rights
and did not charge any fees to issue the
Stock upon the exercise of the Rights.
20. It is represented that on June 30,
2011, the Invested Participants received
the Stock purchased as a result of the
exercise of the Rights. It is further
represented that the Stock purchased in
connection with the Offering was
eligible for trading on NASDAQ by the
Invested Participants on June 30, 2011.
21. Bancshares has requested an
exemption with respect to the
transactions which are the subject of
this proposed exemption. In this regard,
relief has been requested: (a) For the
acquisition of the Rights by the Plan in
connection with the Offering by
Bancshares, and (b) for the holding of
the Rights by the Plan during the
subscription period of the Offering.
It is represented that the Rights
acquired by the Plan satisfy the
definition of ‘‘employer securities,’’
pursuant to section 407(d)(1) of the Act.
As the Rights were not stock or a
marketable obligation, such Rights do
not meet the definition of ‘‘qualifying
employer securities,’’ as set forth in
section 407(d)(5) of the Act.
Accordingly, the subject transactions
constitute an acquisition and holding on
behalf of a plan, of an employer security
24 It is represented that the Invested Participants
rely on the relief provided by the statutory
exemption, pursuant to section 408(e) of the Act for
the exercise of the Rights. The Department is
offering no view, as to whether the requirements of
the statutory exemption provided in section 408(e)
of the Act have been satisfied. Further, the
Department, herein, is not providing any relief with
respect to the exercise of the Rights.
VerDate Mar<15>2010
19:40 Nov 10, 2011
Jkt 226001
which is not a qualifying employer
security, in violation of section 407(a) of
the Act, for which the applicant has
requested relief from sections
406(a)(1)(A), 406(a)(1)(E), 406(a)(2), and
407(a)(1)(A) of the Act. The subject
transactions also raise conflict of
interest issues by fiduciaries of the Plan
for which relief from the prohibitions of
section 406(b)(1) and 406(b)(2) of the
Act has been requested.
22. It is represented that the subject
transactions have already been
consummated. In this regard, the Plan
acquired the Rights pursuant to the
Offering on May 10, 2011, and held
such Rights pending the closing of the
Offering on June 21, 2011. As there was
insufficient time between the dates
when the Plan acquired the Rights and
when such Rights expired, to apply for
and be granted an exemption,
Bancshares is seeking a retroactive
exemption to be granted, effective as of
May 10, 2011, the date that the Plan
acquired the Rights.
23. Bancshares represents that the
proposed exemption is administratively
feasible. In this regard, the acquisition
and holding of the Rights by the Plan
were one-time transactions that
involved an automatic distribution of
the Rights to all shareholders at no cost.
It is represented that it is customary for
the industry involved to make a rights
offering available to all shareholders.
24. Bancshares represents that the
transactions which are the subject of
this proposed exemption are in the
interest of the Plan, because the subject
transactions represented a valuable
opportunity to the accounts of the
Invested Participants in the Plan to buy
the Stock at a discount. It is represented
that this discount could be realized by
selling the Stock immediately after the
exercise of the Rights and investing the
proceeds from such sale of the Stock in
other investment options under the
Plan.
25. Bancshares represents that the
proposed exemption provides sufficient
safeguards for the protection of the Plan
and its participants and beneficiaries. In
this regard, participation in the Offering
protected the accounts of the Invested
Participants in the Plan from having
their interests in the Stock diluted as a
result of the Offering.
It is further represented that the
interests of the accounts of Invested
Participants in the Plan were adequately
protected in that the Plan acquired and
held the Rights automatically as a result
of the Offering.
The accounts of Invested Participants
in the Plan were protected against
economic loss from the exercise of the
Rights. In this regard, it is represented
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
that RTC was instructed to note the
public trading price of the Stock on June
20, 2011 (one business day before the
close of the Offering), and was
instructed not to exercise any Rights
held by the Plan, if the per share public
trading price of the Stock at the close of
trading was less than or equal to the
subscription price of $3.00 per share on
that date. It is represented that the
closing price of the Stock on June 20,
2011, was $8.01 per share. If on June 20,
2011 the public trading price per share
of the Stock had not been greater than
the exercise price under the Rights, the
election to exercise would not have
been honored and the payments
received on behalf of Invested
Participants would have been returned
to the Plan and deposited based on such
Invested Participants investment
allocation election.
26. In summary, Bancshares
represents that the subject transactions
satisfy the statutory criteria of section
408(a) of the Act and section 4975(c)(2)
of the Code because:
(a) The receipt by the Plan of the
Rights occurred in connection with the
Offering made available by Bancshares
on the same terms to all shareholders of
the Stock of Bancshares;
(b) The acquisition of the Rights by
the Plan resulted from an independent
act of Bancshares, as a corporate entity,
and all holders of the Rights, including
the Plan, were treated in the same
manner with respect to the acquisition
of such Rights;
(c) Each shareholder of the Stock,
including the Plan, received the same
proportionate number of Rights based
on the number of shares of Stock of
Bancshares held by such shareholder;
(d) The Rights were acquired pursuant
to provisions under the Plan for
individually directed investments of the
accounts of the Invested Participants, all
or a portion of whose accounts in the
Plan hold the Stock;
(e) The decision to exercise the Rights
or to refrain from exercising the Rights
was made by each of the Invested
Participants in accordance with the
provision under the Plan for
individually-directed accounts; and
(f) No brokerage fees, no commissions,
no subscription fees, and no other
charges were paid by the Plan with
respect to the Offering, and no brokerage
fees, no commissions, and no other
monies were paid by the Plan to any
broker in connection with the exercise
of the Rights.
Notice to Interested Persons
The persons who may be interested in
the publication in the Federal Register
of the Notice of Proposed Exemption
E:\FR\FM\14NON1.SGM
14NON1
Federal Register / Vol. 76, No. 219 / Monday, November 14, 2011 / Notices
(the Notice) include all individuals who
are participants in the Plan who
received the Rights.
It is represented that all such
interested persons will be notified of the
publication of the Notice by first class
mail, to each such interested person’s
last known address within fifteen (15)
days of publication of the Notice in the
Federal Register. Such mailing will
contain a copy of the Notice, as it
appears in the Federal Register on the
date of publication, plus a copy of the
Supplemental Statement, as required,
pursuant to 29 CFR 2570.43(b)(2), which
will advise all interested persons of
their right to comment and to request a
hearing.
All written comments and/or requests
for a hearing must be received by the
Department from interested persons
within 45 days of the publication of this
proposed exemption in the Federal
Register.
Ms.
Angelena C. Le Blanc of the Department,
telephone (202) 693–8540. (This is not
a toll-free number.)
FOR FURTHER INFORMATION CONTACT:
mstockstill on DSK4VPTVN1PROD with NOTICES
General Information
The attention of interested persons is
directed to the following:
(1) The fact that a transaction is the
subject of an exemption under section
408(a) of the Act and/or section
4975(c)(2) of the Code does not relieve
a fiduciary or other party in interest or
disqualified person from certain other
provisions of the Act and/or the Code,
including any prohibited transaction
provisions to which the exemption does
not apply and the general fiduciary
responsibility provisions of section 404
of the Act, which, among other things,
require a fiduciary to discharge his
duties respecting the plan solely in the
interest of the participants and
beneficiaries of the plan and in a
prudent fashion in accordance with
section 404(a)(1)(b) of the Act; nor does
it affect the requirement of section
401(a) of the Code that the plan must
operate for the exclusive benefit of the
employees of the employer maintaining
the plan and their beneficiaries;
(2) Before an exemption may be
granted under section 408(a) of the Act
and/or section 4975(c)(2) of the Code,
the Department must find that the
exemption is administratively feasible,
in the interests of the plan and of its
participants and beneficiaries, and
protective of the rights of participants
and beneficiaries of the plan;
(3) The proposed exemptions, if
granted, will be supplemental to, and
not in derogation of, any other
provisions of the Act and/or the Code,
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19:40 Nov 10, 2011
Jkt 226001
including statutory or administrative
exemptions and transitional rules.
Furthermore, the fact that a transaction
is subject to an administrative or
statutory exemption is not dispositive of
whether the transaction is in fact a
prohibited transaction; and
(4) The proposed exemptions, if
granted, will be subject to the express
condition that the material facts and
representations contained in each
application are true and complete, and
that each application accurately
describes all material terms of the
transaction which is the subject of the
exemption.
Signed at Washington, DC this 7th day of
November 2011.
Ivan Strasfeld,
Director of Exemption Determinations,
Employee Benefits Security Administration,
U.S. Department of Labor.
[FR Doc. 2011–29235 Filed 11–10–11; 8:45 am]
BILLING CODE 4510–29–P
70509
NATIONAL CREDIT UNION
ADMINISTRATION
Agency Sunshine Act Meeting
10 a.m., Wednesday,
November 16, 2011.
PLACE: Board Room, 7th Floor, Room
7047, 1775 Duke Street, Alexandria, VA
22314–3428.
STATUS: Closed.
MATTERS TO BE CONSIDERED:
1. Member Business Loan Waiver
Appeal. Closed pursuant to some or all
of the following: exemptions (4) and (8).
2. Consideration of Supervisory
Activities (2). Closed pursuant to some
or all of the following: exemptions (8),
(9)(A)(ii) and 9(B).
FOR FURTHER INFORMATION CONTACT:
Mary Rupp, Secretary of the Board,
Telephone: (703) 518–6304.
TIME AND DATE:
Mary Rupp,
Board Secretary.
[FR Doc. 2011–29490 Filed 11–9–11; 4:15 pm]
BILLING CODE 7535–01–P
NATIONAL CREDIT UNION
ADMINISTRATION
Agency Sunshine Act Meeting
NATIONAL FOUNDATION ON THE
ARTS AND THE HUMANITIES
9 a.m., Thursday,
November 17, 2011.
National Endowment for the Arts;
Federal Advisory Committee on
International Exhibitions
TIME AND DATE:
Board Room, 7th Floor, Room
7047, 1775 Duke Street, Alexandria, VA
22314–3428.
PLACE:
STATUS:
Open.
MATTERS TO BE CONSIDERED:
1. Final Rule—Section 701.20 of
NCUA’s Rules and Regulations,
Remittance Transfers.
2. Final Rule—Part 750 of NCUA’s
Rules and Regulations, Golden
Parachute and Indemnification
Payments, Technical Corrections.
3. Proposed Rule—Parts 701, 741, and
742 of NCUA’s Rules and Regulations,
Loan Participations.
4. Request from Finance Center
Federal Credit Union to Expand its
Community Charter.
5. Insurance Fund Report and
Premium/Assessment Ranges.
6. NCUA’s 2012 Operating Budget.
7. NCUA’s Overhead Transfer Rate.
8. NCUA’s Operating Fee Scale.
FOR FURTHER INFORMATION CONTACT:
Mary Rupp, Secretary of the Board,
Telephone: (703) 518–6304.
Mary Rupp,
Board Secretary.
[FR Doc. 2011–29488 Filed 11–9–11; 4:15 pm]
BILLING CODE 7535–01–P
PO 00000
Frm 00103
Fmt 4703
Sfmt 4703
Pursuant to Section 10(a)(2) of the
Federal Advisory Committee Act (Pub.
L. 92–463), as amended, notice is hereby
given that a meeting of the Federal
Advisory Committee on International
Exhibitions (FACIE) will be held on
December 7, 2011 in Room 815 at the
Nancy Hanks Center, 1100 Pennsylvania
Avenue NW., Washington, DC 20506
(ending time is approximate). This
meeting, from 9 a.m. to 12:30 p.m., is for
application review and will be closed.
The closed portions of meetings are
for the purpose of Panel review,
discussion, evaluation, and
recommendations on financial
assistance under the National
Foundation on the Arts and the
Humanities Act of 1965, as amended,
including information given in
confidence to the agency. In accordance
with the determination of the Chairman
of February 15, 2011, these sessions will
be closed to the public pursuant to
subsection (c)(6) of section 552b of Title
5, United States Code.
Further information with reference to
these meetings can be obtained from Ms.
Kathy Plowitz-Worden, Office of
Guidelines & Panel Operations, National
Endowment for the Arts, Washington,
DC 20506, or call (202) 682–5691.
E:\FR\FM\14NON1.SGM
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]]>Agencies
[Federal Register Volume 76, Number 219 (Monday, November 14, 2011)]
[Notices]
[Pages 70495-70509]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29235]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
Proposed Exemptions From Certain Prohibited Transaction
Restrictions
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of proposed exemptions.
-----------------------------------------------------------------------
SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the
Internal Revenue Code of 1986 (the Code). This notice includes the
following proposed exemptions: D-11637 HSBC-North America (U.S.) Tax
Reduction Investment Plan; D-11679 Sammons Enterprises, Inc. Employee
Stock Ownership ESOP; and D-11683 First Federal Bancshares of Arkansas,
Inc. Employees' Savings and Profit Sharing Plan.
DATES: All interested persons are invited to submit written comments or
requests for a hearing on the pending exemptions, unless otherwise
stated in the Notice of Proposed Exemption, within 45 days from the
date of
[[Page 70496]]
publication of this Federal Register Notice.
ADDRESSES: Comments and requests for a hearing should state: (1) The
name, address, and telephone number of the person making the comment or
request, and (2) the nature of the person's interest in the exemption
and the manner in which the person would be adversely affected by the
exemption. A request for a hearing must also state the issues to be
addressed and include a general description of the evidence to be
presented at the hearing. All written comments and requests for a
hearing (at least three copies) should be sent to the Employee Benefits
Security Administration (EBSA), Office of Exemption Determinations,
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue NW.,
Washington, DC 20210. Attention: Application No.------, stated in each
Notice of Proposed Exemption. Interested persons are also invited to
submit comments and/or hearing requests to EBSA via email or FAX. Any
such comments or requests should be sent either by email to:
moffitt.betty@dol.gov, or by FAX to (202) 219-0204 by the end of the
scheduled comment period. The applications for exemption and the
comments received will be available for public inspection in the Public
Documents Room of the Employee Benefits Security Administration, U.S.
Department of Labor, Room N-1513, 200 Constitution Avenue NW.,
Washington, DC 20210.
Warning: If you submit written comments or hearing requests, do not
include any personally-identifiable or confidential business
information that you do not want to be publicly-disclosed. All comments
and hearing requests are posted on the Internet exactly as they are
received, and they can be retrieved by most Internet search engines.
The Department will make no deletions, modifications or redactions to
the comments or hearing requests received, as they are public records.
SUPPLEMENTARY INFORMATION:
Notice to Interested Persons
Notice of the proposed exemptions will be provided to all
interested persons in the manner agreed upon by the applicant and the
Department within 15 days of the date of publication in the Federal
Register. Such notice shall include a copy of the notice of proposed
exemption as published in the Federal Register and shall inform
interested persons of their right to comment and to request a hearing
(where appropriate).
The proposed exemptions were requested in applications filed
pursuant to section 408(a) of the Act and/or section 4975(c)(2) of the
Code, and in accordance with procedures set forth in 29 CFR Part 2570,
Subpart B (55 FR 32836, 32847, August 10, 1990). Effective December 31,
1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1
(1996), transferred the authority of the Secretary of the Treasury to
issue exemptions of the type requested to the Secretary of Labor.
Therefore, these notices of proposed exemption are issued solely by the
Department.
The applications contain representations with regard to the
proposed exemptions which are summarized below. Interested persons are
referred to the applications on file with the Department for a complete
statement of the facts and representations.
HSBC-North America (U.S.) Tax Reduction Investment Plan (the Plan),
Located in Mettawa, Illinois, [Application No. D-11637].
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847, August 10, 1990).
Section I: Transactions
If the proposed exemption is granted, effective March 2, 2009, the
restrictions of sections 406(a)(1)(A) and 406(a)(1)(E), 406(a)(2),
406(b)(1), 406(b)(2), and 407(a)(1)(A) of the Act and the sanctions
resulting from the application of section 4975 of the Code, by reason
of section 4975(c)(1)(A) and 4975(c)(1)(E) of the Code,\1\ shall not
apply:
---------------------------------------------------------------------------
\1\ For purposes of this proposed exemption, references to
specific provisions of Title I of the Act, unless otherwise
specified, refer also to the corresponding provisions of the Code.
---------------------------------------------------------------------------
(1) To the acquisition of certain rights (the ADS Rights) by the
Plan in connection with an offering (the Offering) of shares of stock
(the Stock) in HSBC Holding, plc (Holdings) by Holdings, a party in
interest with respect to the Plan,
(2) To the holding of the ADS Rights received by the Plan during
the subscription period of the Offering; provided that the conditions
as set forth in section II of this proposed exemption were satisfied;
Section II: Conditions
The relief provided in this exemption is conditioned upon adherence
to the material facts and representations described, herein, and as set
forth in the application file and upon compliance with the conditions,
as set forth in this proposed exemption.
(1) The receipt by the Plan of the ADS Rights occurred in
connection with the Offering made available by Holdings on the same
terms to all shareholders, such as the Plan, of American Depository
Shares \2\ (the HSBC ADS) which represent the Stock of Holdings;
---------------------------------------------------------------------------
\2\ American Depository Shares permit investment in foreign
securities to trade on markets in the United States without many of
the complications that would otherwise arise from such cross-border
and cross-currency transactions.
---------------------------------------------------------------------------
(2) The acquisition of the ADS Rights by the Plan resulted from an
independent act of Holdings, as a corporate entity, and all holders of
the ADS Rights, including the Plan, were treated in the same manner
with respect to the acquisition of such rights;
(3) All holders of the ADS Rights, such as the Plan, received the
same proportionate number of such rights based on the number of HSBC
ADS held; and
(4) All decisions regarding the ADS Rights made by the Plan were
made by an independent, qualified fiduciary (the I/F) which:
(a) Conducted a due diligence review of the Offering;
(b) Determined whether or not to direct the Plan to vote in favor
of the Offering; and
(c) Evaluated a prudent strategy for disposition of the ADS Rights
under the Offering that were allocated to the Plan.
Effective Date: This proposed exemption, if granted, will be
effective, on March 2, 2009, the date of the announcement of the
Offering.
Summary of Facts and Representations
1. The Plan is a defined contribution profit sharing plan, for
eligible employees of HSBC North America Holdings, Inc. (the Employer)
and its subsidiaries.
The Plan is qualified under section 401(a) of the Code. In
addition, the Plan contains a cash or deferred arrangement intended to
qualify under section 401(k) of the Code.
The Plan received a favorable determination letter, dated November
14, 2008, from the Internal Revenue Service. Although the Plan has been
amended since applying for the determination letter, the Plan
administrator and counsel for the Plan believe that the Plan is
designed and is currently being operated in compliance with the
applicable requirements of the Code.
[[Page 70497]]
As of September 30, 2009, the Plan had approximately 44,000
participants. The fair market value of the total assets of the Plan, as
of September 30, 2009, was $2.4 billion.
2. The Plan provides for participant directed investment of
contributions made to the Plan. Participants in the Plan may choose
among investment options, including mutual funds managed by
subsidiaries of the Employer and managed by Vanguard Fiduciary Trust
Co. (Vanguard). Vanguard is the trustee of HSBC-North American (U.S.)
Tax Reduction Investment Trust (the Trust) which holds the assets of
the Plan. In addition, the Vanguard Group of Investment Companies is
the record-keeper of the Plan.
3. The application was filed on behalf of the Employer, a financial
services company, which sponsors the Plan. The Employer, as an employer
any of whose employees are covered by the Plan, is a party in interest
with respect to the Plan, pursuant to section 3(14)(C) of the Act.
It is represented that the Employer neither had nor exercised
discretionary authority with respect to the ADS Rights acquired by the
Plan pursuant to the Offering, and therefore, was not acting as
fiduciary, as defined in section 3(21) of the Act. An administrative
committee (the Committee) is the named fiduciary of the Plan with
respect to daily administration of the Plan. The Committee, as a
fiduciary of the Plan, is a party in interest with respect to the Plan,
pursuant to section (3)(14)(A) of the Act.
4. The Employer is a subsidiary of Holdings, a public limited
liability company incorporated in England and Wales with operations
worldwide. The Employer comprises all of the business interests of
Holdings in the United States. As the parent of the Employer which
sponsors the Plan, Holdings is a party in interest with respect to the
Plan, pursuant to section 3(14)(E)of the Act.
5. Holdings is the ultimate parent of the HSBC Group. The HSBC
Group is not a separate legal entity, but rather the term, HSBC Group,
is an informal collective reference to the legal entities wholly or
partially owned by Holdings in Europe, Hong Kong, Asia Pacific, the
Middle East, North America, and Latin America. The HSBC Group is not
publicly traded on the London Stock Exchange (LSE) or any other stock
exchange.
6. The Stock of Holdings is traded on the LSE under the symbol
HSBA. The Stock of Holdings is also traded on stock exchanges in Hong
Kong, Paris, and Bermuda.
In the United States, shares of HSBC ADS (each representing five
(5) shares of the Stock of Holdings) are traded on the New York Stock
Exchange (NYSE) under the symbol HBS. BNY Mellon, Inc. (BNY Mellon) is
the depository bank that holds the Stock of Holdings in a custodial
account and issues shares of HSBC ADS to investors in the United
States.
7. The shares of HSBC ADS are a permitted investment option under
the terms of the Plan. In this regard, although employee contributions,
as of March 28, 2003, may no longer be directed into the acquisition of
shares of HSBC ADS, any shares of HSBC ADS acquired prior to March 28,
2003, may continue to be held in participant accounts in the Plan.
The aggregate fair market value of the assets of the Plan invested
in shares of HSBC ADS, as reflected in the Plan's most recent annual
report dated, December 31, 2008, is $98,679,000. The approximate
percentage of the fair market value of the Plan's total assets, as of
December 31, 2008, that is represented by investments in shares of HSBC
ADS is 4.9 percent (4.9%).
8. On March 2, 2009, Holdings announced its decision, as a
corporate entity and issuer of securities, to issue, in connection with
the Offering, up to 5,060,239,065 shares of Stock in the form of new
ordinary shares, representing approximately 41.7 percent (41.7%) of the
existing issued ordinary shares of Stock of Holdings, as of February
27, 2009, the last business day prior to the announcement of the
Offering. It is represented that Holdings made this decision for the
sole purpose of raising additional capital. An aggregate of
4,887,538,091 new ordinary shares of the Stock of Holdings were
subscribed for in connection with the Offering. The gross proceeds from
such subscriptions in connection with the Offering totaled
[pound]12,072,952,215.50.
Completion of the Offering was conditional upon approval from the
shareholders of the Stock of Holdings and upon approval from the
shareholders of the HSBC ADS, such as the Plan. The Offering was
approved in a meeting (the General Meeting) held in London on March 19,
2009.
9. Under the terms of the Offering, all shareholders of the Stock
of Holdings received certain rights (the Share Rights) to purchase,
through the exercise of such Share Rights, the new ordinary shares of
the Stock of Holdings being issued by Holdings in connection with the
Offering. With respect to the Share Rights, under the terms of the
Offering, five (5) Share Rights were issued for every twelve (12)
shares of the Stock of Holdings, rounded down to the nearest whole
number, held by each shareholder on March 13, 2009, (the Record Date).
Each of the Share Rights permitted a shareholder of the Stock of
Holdings to purchase one (1) additional share of such stock at 254
pence per share.
In addition, under the terms of the Offering, all shareholders of
the HSBC ADS, such as the Plan, received ADS Rights to purchase HSBC
ADS. With respect to the ADS Rights, under the terms of the Offering,
five (5) ADS Rights were issued for every twelve (12) shares of the
HSBC ADS, rounded down to nearest whole number, held by each holder of
such shares, including the Plan, on the Record Date. Each of the ADS
Rights permitted a holder, such as the Plan, to purchase one (1)
additional share of the HSBC ADS for an estimated price of $17.75 per
each share.
As of March 13, 2009, the Record Date, the Plan held 2,067,667
shares of the HSBC ADS \3\ on behalf of 10,562 participants and
beneficiaries. Accordingly, based on a ratio of five (5) ADS Rights
issued for every twelve (12) shares of the HSBC ADS held, rounded down
to nearest whole number, on March 20, 2009, the Plan acquired 861,527
ADS Rights.
---------------------------------------------------------------------------
\3\ Based on the conversion of one HSBC ADS to five (5) shares
of Stock of Holdings, the Plan held the equivalent of 10.3 million
shares of the Stock of Holdings or less than 0.1% of the outstanding
shares of Stock of Holdings.
---------------------------------------------------------------------------
10. It is represented that there was no market for the ADS Rights
acquired by the Plan, because the terms of the Offering stipulated that
the ADS Rights were not transferrable and would not be admitted to
trading on the NYSE or any other stock exchange. In order to sell the
ADS Rights, holders of the ADS Rights, such as the Plan, had to convert
their ADS Rights into Share Rights. The conversion ratio between the
ADS Rights and the Share Rights was one to five (1:5). Therefore, it is
represented that underlying the 861,527 ADS Rights acquired by the Plan
in the Offering that there were 4,307,639 Share Rights.
11. A market for the Share Rights did develop, and the Share Rights
were listed on the LSE. In this regard, the Shares Rights began trading
on the LSE on March 20, 2009, at 8 a.m. GMT.
12. The Offering closed on March 31, 2009, at 5 p.m. EST with
respect to the ADS Rights. The Offering closed on April 3, 2009, at 11
a.m. BST with respect to the Share Rights. Pursuant to the terms of the
Offering all unexercised rights expired and became worthless after the
closing of the Offering.
[[Page 70498]]
13. To avoid engaging in a prohibited transaction, it is
represented that the Plan considered whether or not to accept the ADS
Rights. In this regard, the ADS Rights were accepted, because refusing
to accept such rights might constitute a breach of the Employer's
fiduciary duties to the Plan and to its participants and beneficiaries.
14. Although the Plan provides for participant directed investment,
the applicant represents that it was not practicable to initiate and
implement a participant level ``pass through'' voting during the proxy
vote for the General Meeting, relating to the approval of the Offering,
nor was it practicable to initiate and implement a participant level
``pass through'' of the exercise or sale of the ADS Rights, due to the
short duration of time between when such rights were acquired by the
Plan and when such rights expired under the terms of the Offering.
On March 12, 2009, the Employer first contacted U.S. Trust, Bank of
America Private Wealth Management, acting on behalf of Bank of America,
National Association (BANA),\4\ to discuss BANA serving as the I/F for
the Plan with respect to the Offering. On March 13, 2009, BANA issued
an engagement agreement to the Employer to be retained as the I/F for
the Plan with respect to the Offering. The Employer, as sponsor of the
Plan and settlor of the Trust, amended section 6.5(i) of the Trust
agreement, effective March 16, 2009, to retain BANA, to act as
investment manager and I/F on behalf of the Plan.
---------------------------------------------------------------------------
\4\ It is represented that Evercore Trust subsequently acquired
the business within BANA that performed the services as I/F with
respect to the subject transactions. Norman Goldberg, the individual
who supervised BANA's work in connection with this matter and who
signed the April 9, 2009, letter from BANA, is currently employed
with Evercore Trust, as Managing Director.
---------------------------------------------------------------------------
15. BANA had sole authority to vote the shares of the HSBC ADS held
under the Plan and to direct Vanguard to exercise or otherwise dispose
of the ADS Rights acquired and held by the Trust, pursuant to the
Offering. Specifically, BANA was responsible for: (i) Conducting a due
diligence review of the Offering; (ii) determining whether or not to
direct the Committee to vote in favor of the Offering at the General
Meeting; and (iii) if the Offering were approved at the General Meeting
to prudently evaluate a disposition strategy under the Offering for the
ADS Rights that were allocated to the Plan.
With regard to the responsibility of BANA to instruct Vanguard, the
Trustee of the Trust, on how to vote at the General Meeting held on
March 19, 2009, it is represented that BANA performed an independent
financial analysis of Holdings to determine the need for additional
capital and the potential benefits of additional capital. BANA
determined that Holdings appeared to be adequately capitalized, and
that Holdings had taken steps to restructure its operations to better
position itself for the future, in light of recent turmoil across a
wide range of markets and industries, and in particular the financial
services industry. Accordingly, it is represented that on March 16,
2009, BANA instructed Vanguard to vote the Plan's shares of the HSBC
ADS in favor of the Offering at the General Meeting.
It is represented that on March 20, 2009, the participants and
beneficiaries in the Plan whose accounts held shares of the HSBC ADS
received their pro rata share of the ADS Rights. In this regard, BANA
was responsible for analyzing and recommending a course of action for
such rights received by such accounts.
As stated in the HSBC Rights Issue Prospectus (the Prospectus),
issued by Holdings on March 17, 2009, shareholders of the HSBC ADS,
including the Plan, were permitted to elect among the following three
(3) options: (a) Exercise all or part of the ADS Rights for the
purchase of shares of the HSBC ADS; (b) direct BNY Mellon to sell the
Share Rights underlying the ADS Rights; (c) surrender the ADS Rights
and receive Share Rights.
Option (A) Exercise All or Part of the ADS Rights
Under this option, a holder of the ADS Rights, including the Plan,
could exercise all or only a part of the ADS Rights acquired in
conjunction with the Offering and could purchase shares of HSBC ADS. In
order to exercise the ADS Rights, a holder, such as the Plan, would
have to deposit 110% of the subscription price for the HSBC ADS upon
the exercise of each of the ADS Rights. The additional amount over and
above the subscription price for the HSBC ADS was to increase the
likelihood that the agent would have sufficient funds to pay the final
subscription price for the HSBC ADS in light of a possible appreciation
of Pounds Sterling against the U.S. dollar between the instruction date
and the end of the subscription period, and to pay applicable United
Kingdom stamp duty reserve taxes, and to pay any currency conversion
expenses. It is represented that BANA understood that the Plan lacked
available unallocated funds needed to exercise all of the ADS Rights.
The Plan could surrender a portion of the ADS Rights to BNY Mellon
and direct BNY Mellon to sell the Share Rights underlying such ADS
Rights, in order for the Plan to raise sufficient funds to exercise its
remaining ADS Rights. According to BANA, this transaction would have
resulted in the Plan receiving Pounds Sterling from the sale of the
Share Rights, which would then have had to be converted back into U.S.
dollars in order for the Plan to purchase shares of the HSBC ADS
through the exercise of the remaining ADS Rights. The conversion from
Pounds Sterling to U.S. dollars would have had to have been executed at
the then-prevailing exchange rate. In the opinion of BANA, given the
volatility in the foreign exchange markets and the uncertainty in
future exchange rates, there was no guarantee that the Plan would have
been able to convert the proceeds from the sale of the Share Rights
into sufficient funds to exercise the remaining ADS Rights. If the Plan
had received insufficient funds to exercise the remaining ADS Rights,
such rights would have been deemed to have been declined and would have
lapsed. Accordingly, for the reasons summarized above, BANA determined
that the Plan would not select Option (A).
Option (B) Direct BNY Mellon To Sell the Share Rights Underlying the
ADS Rights
Under this option, HSBC established a process by which a holder of
ADS Rights, including the Plan, could elect to liquidate such ADS
Rights by directing BNY Mellon to attempt to sell the underlying Share
Rights on the LSE. Unlike Option (A) above, under Option (B), the Plan
was not required to deposit any funds in order for BNY Mellon to
liquidate the Plan's ADS Rights. Further, it is represented that BNY
Mellon, as depository and as a premier trading firm that was familiar
with the transaction, had appropriate trading accounts already in place
to facilitate the trading, had the expertise and the processes in place
to sell the Share Rights underlying the ADS Rights within the permitted
time period. Notwithstanding the fact that there was some currency risk
from the conversion of Pounds Sterling into U.S. dollars, according to
the I/F, Option (B), offered the Plan an expedited, low cost,
frictionless way to liquidate the Plan's interests in the ADS Rights.
In this regard, it is represented that under Option (B), the Plan did
not have to pay any brokerage commissions in
[[Page 70499]]
connection with the liquidation of its holding in ADS Rights.
Option (C) Surrender ADS Rights and Receive Share Rights
Under this option, a holder of ADS Rights, including the Plan,
could elect to exchange such rights for the underlying Share Rights and
to sell such Share Rights or exercise such Share Rights to purchase the
Stock of Holdings on the LSE. To do so, the Plan would have had to
direct BNY Mellon to cancel the ADS Rights and to deliver the
underlying Share Rights to a brokerage account set up by the Plan at a
firm in the United Kingdom that trades on the LSE. To surrender the ADS
Rights and receive the underlying Share Rights, the Plan would have had
to pay a 1.5% stamp tax. Finally, the Plan would have had to direct the
broker to sell all of the Share Rights, or to exercise all of the Share
Rights, or to sell sufficient Share Rights to generate the funds needed
to exercise the Plan's remaining Share Rights. To sell and/or exercise
the Share Rights through a broker selected by BANA on behalf of the
Plan, BANA would have had to negotiate the brokerage fees and other
expenses that the Plan would have had to pay such broker for the sale
and/or exercise of the Share Rights. Additionally, the Plan would have
had to assume the risks and responsibilities attendant to the Share
Rights, including effecting the exercise or sale of such rights.
According to BANA, Option (C) presented a number of issues to the
Plan that could have resulted in higher trading costs. As there was no
market for the ADS Rights, the sale of such rights required conversion
into the underlying Share Rights. The conversion of the ADS Rights and
receipt of Share Rights would have required the Plan, rather than BNY
Mellon, to sell the Share Rights and to receive the proceeds
denominated in Pounds Sterling. In addition, the Plan would have had to
effect a foreign exchange conversion at the then-prevailing exchange
rate, repatriate the funds back into the U.S. (possibly paying any
applicable taxes), and then either deposit the proceeds in participant
accounts or use the proceeds to purchase shares of HSBC ADS on the
NYSE. Furthermore, the Plan would have had to pay wire fees to move the
proceeds back to the U.S. BANA points out that during this process, the
share price of both the Stock of Holdings on the LSE and the share
price of the HSBC ADS on the NYSE would be fluctuating and could
possibly have moved against the Plan. Accordingly, BANA determined that
the uncertainty of the stock markets and the foreign exchange markets,
along with the costs associated with executing the different trades and
repatriating the funds back to the U.S. and the uncertainty related to
trade settlement and execution, might have resulted in higher trading
costs to the Plan, and therefore, lower proceeds to Plan participants.
For the foregoing reasons, BANA determined that Option (C) was not in
the interest of the Plan.
The applicant provided the following chart which compares the three
(3) options, discussed above, and assesses the risks associated with
each of the three (3) options:
------------------------------------------------------------------------
Option (B)
Option (A) Direct BNY Option (C)
Exercise All or Mellon to Sell Surrender ADS
Risks Part of the ADS the Share Rights Rights and
Rights Underlying the Receive Share
ADS Rights Rights
------------------------------------------------------------------------
Plan Funding Risk: High Risk: Low Risk: High
In order to The Plan lacked No funds were The Plan lacked
exercise the ADS available required for available
Rights, the Plan unallocated BNY Mellon to unallocated
needed to funds needed to sell the ADS funds needed to
deposit 110% of exercise the ADS Rights exercise the
the 254 pence Rights. To (technically to Share Rights it
per share generate the sell the Share would receive
subscription necessary funds, Rights after
price with BNY the Plan would underlying the surrendering
Mellon. have had to ADS Rights) on the ADS Rights,
direct BNY the public meaning the
Mellon to sell a market. Plan's most
portion of the viable
Plan's ADS alternative
Rights would have been
(technically to to sell the
sell the Share Share Rights it
Rights received. In
underlying the order to
ADS Rights) to exercise the
raise sufficient Share Rights,
cash to exercise the Plan would
its remaining have had to
ADS Rights. first sell a
portion of the
Share Rights to
raise
sufficient cash
to exercise the
remaining
rights. This
would raise
other risks as
outlined
herein.
Operational Risks Risk: High Risk: Low Risk: High
[[Page 70500]]
In order to HSBC had The Plan would
exercise the ADS established a have been
Rights, the Plan process to responsible for
would have had liquidate ADS selecting a
to first sell a Rights through broker to sell
portion of the BNY Mellon. BNY the Share
ADS Rights Mellon is a Rights on the
(technically to premier trading open market. To
sell the Share firm that was do so, the Plan
Rights familiar with would have had
underlying the the to set up a
ADS Rights) to transaction, brokerage
raise sufficient was well-suited account at a
funds to to execute all firm in London
exercise its options that trades on
remaining ADS available to the LSE. This
Rights. The shareholders, would have
uncertainty of and offered entailed a
the proceeds competitive number of
from this sale fees. BNY risks,
(due to Mellon also had including the
constantly appropriate time to set up
changing foreign trading and verify an
exchange rates, accounts account and the
a fluctuating already in lesser
price for the place to familiarity by
Share Rights, facilitate the the broker
and uncertainty trading. (compared with
as to the timing BNY Mellon)
of any such with the
sale) made it transaction. In
impossible to addition, no
accurately other broker
calculate the selected on
number of Share behalf of the
Rights to sell Plan was likely
in order to to have had the
raise sufficient market access
proceeds to and the trading
exercise the volume enjoyed
remaining ADS by BNY Mellon.
Rights. The Plan
could have
either raised
insufficient
funds, leaving
it holding
unexercised (and
possibly
unsellable) ADS
Rights which
would have
lapsed; or would
have ended up
with excess
cash.
Timing Risks Risk: Moderate- Risk: Low Risk: High
High
The Plan received It was understood The Plan needed The Plan needed
the ADS Rights that the Plan to direct BNY to convert the
on March 20, did not have Mellon to sell ADS Rights into
2009. Under the cash available the ADS Rights Share Rights,
terms of the to exercise the (technically, set up
Offering, the ADS Rights and the Share brokerage
ADS Rights the Plan was not Rights accounts at a
expired on March intending to underlying the firm in London
31, 2009 and the sell other ADS Rights) that trades on
Share Rights investments to before such the LSE, and
expired on April raise sufficient rights expired. either sell all
3, 2009. BANA cash. Because of As the of the Share
had only 10 the timing of depository and Rights or sell
business days the Offering, a premier sufficient
from the date on the Plan would trading firm, Share Rights to
which the have had to BNY Mellon generate the
Prospectus instruct BNY already had the funds needed to
describing the Mellon at the expertise and exercise the
terms of the same time with processes in remaining
Offering was respect to both place to sell rights. This
issued to the sale and the the ADS Rights option
evaluate the exercise of the within the presented the
options ADS Rights; cash permitted greatest timing
available to the also had to be period. risks because
Plan, decide deposited at any delay in
which of the this time for setting up the
options was in the exercise of brokerage
the best the ADS Rights. accounts or
interest of the Even assuming executing the
Plan's the Plan could sales could
participant and have immediately have resulted
beneficiaries, monetized (for in the ADS
and carry out deposit with BNY Rights expiring
its decision. Mellon) its and becoming
expected worthless.
proceeds from
the sale of the
ADS Rights,
Option (A)
nonetheless
presented
moderate timing
risk, because if
insufficient
funds were
generated from
the sale, there
was not enough
time to
supplement the
cash to ensure
the remaining
ADS Rights could
be exercised. If
the necessary
funds were not
generated in
time the ADS
Rights would
have expired and
likely become
worthless.
Trading Costs Risk: Low Risk: Low Risk: High
[[Page 70501]]
This option This option The Plan would
presented low presented low have incurred
risk since the risk since the an estimated
Plan would have Plan would not 1.5% stamp tax
incurred the have had to pay to surrender
same costs brokerage the ADS Rights
described in commissions for and receive the
Option (B) in the sale of the underlying
order to sell a ADS Rights Share Rights.
portion of the (technically, In addition,
ADS Rights the Share BANA would have
(technically, Rights had to
the Share Rights underlying the negotiate and
underlying the ADS Rights) the Plan would
ADS Rights) through BNY have had to pay
through BNY Mellon. The brokerage fees
Mellon to raise Plan would have for the sale or
sufficient cash had to have exercise of the
to exercise its paid an ADS Share Rights.
remaining ADS depository fee Furthermore,
Rights. of $0.02 per the Plan would
In order to ADS Right, any have had to pay
exercise the applicable wire fees to
remaining ADS taxes, and any move the
Rights, the Plan other proceeds back
needed to applicable fees to the U.S.
deposit 110% of and expenses of This option
the 254 pence BNY Mellon, as presented the
per share provided under highest risk
subscription the deposit since it could
price with BNY agreement, pro have resulted
Mellon. 110% of rata to the in higher
the subscription holders of the trading costs
price needed to ADS Rights who to the Plan
be deposited in directed BNY with
order to cover Mellon to sell uncertainty
possible the ADS Rights. related to
exchange rate trade
fluctuations, settlement and
applicable execution, as
United Kingdom well as
stamp duty requiring
reserve taxes, additional
and any currency trades to
conversion convert any
expenses. shares of Stock
of Holdings
acquired into
HSBC ADS.
Foreign Exchange Risk: High Risk: Low Risk: Moderate
Rates
Although certain BNY Mellon would The extent of
foreign exchange need to convert this risk
rate risks were the proceeds varied
involved in all from the sale depending on
three options, of the ADS whether BANA
this option Rights decided to sell
presented the (technically, all of the
highest risk to the Shares Share Rights or
the Plan since Rights sell a portion
foreign exchange underlying the of the Share
rate ADS Rights) Rights to raise
fluctuations into U.S. sufficient
could have dollars at the proceeds to
prevented the prevailing execute the
Plan's ability rate. The risk remaining Share
to exercise all is low since Rights. The
of the ADS the same risk would have
Rights. The Plan conversion is been similar to
would have needed to Option (A) had
needed to sell a convert the BANA decided to
portion of the proceeds under sell some of
ADS Rights any of the the Share
(technically, three options Rights to
the Shares into U.S. exercise the
Rights dollars. remaining Share
underlying the Rights. The
ADS Rights) in risk would have
order to been similar
generate the too or less
funds needed to than that in
exercise the Option (B) had
remaining ADS BANA decided to
Rights. If the sell all of the
funds generated Share Rights,
were as BANA would
insufficient due have controlled
to a change in the timing of
foreign exchange the sale.
rates, the Plan
likely would not
have had time to
sell additional
ADS Rights in
order to
generate the
additional funds
needed to
exercise the
remaining ADS
Rights.
------------------------------------------------------------------------
Accordingly, it is represented that for the reasons cited above, on
March 23, 2009, BANA chose Option (B), above, and instructed Vanguard,
as Trustee, in turn to instruct BNY Mellon, as depository agent, to
liquidate the entire position of ADS Rights \5\ from the Plan and to
convert the proceeds \6\ received from such sale in Pounds Sterling
into U.S. dollars.\7\ It is represented that the Share Rights
underlying the Plan's ADS Rights that BNY Mellon was directed to sell
were aggregated by BNY Mellon with the Share Rights underlying other
ADS Rights that BNY Mellon was directed to sell by other holders of ADS
Rights. Based on information provided by BNY Mellon, the aggregated
Share Rights underlying the ADS Rights were sold throughout the period
beginning on March 27, 2009 and ending on April 3, 2009, at an average
price of 147 pence, after expenses.\8\ Accordingly, it is represented
that the Plan received total net proceeds of $7,291,066.81, on April 7,
2009, from the liquidation of the Plan's ADS Rights. It is represented
that the proceeds represented less than .5% of the fair market value of
the total assets of the Plan determined, as of September 30, 2009.
---------------------------------------------------------------------------
\5\ The applicant has not requested, nor is the Department,
herein, providing any relief from section 406 of the Act with
respect to decision to liquidate the Plan's entire position of ADS
Rights.
\6\ The applicant has not requested, nor is the Department,
herein, providing any relief from section 406 of the Act with
respect to the foreign exchange transaction in connection with the
conversion from Pounds Sterling into U.S. dollars.
\7\ The responsible plan fiduciary must determine, consistent
with its responsibilities under section 404 of the Act, whether the
Plan suffered any losses with respect to the liquidation of the ADS
Rights and the conversion of the proceeds into US Dollars by BNY
Mellon and takes appropriate action in light of the potential
magnitude of the recovery and the risks and costs of pursuing legal
action on behalf of the Plan.
\8\ It is represented that on March 27, 2009, the Share Rights
traded in a range of 132 pence to 162 pence. On the same date, the
HSBC ADS traded in a range of $28.26 to $29.02. At the close of
trading on March 27, 2009, the Share Rights closed on the LSE at 147
pence, and the HSBC ADS closed on the NYSE at $28.47.
---------------------------------------------------------------------------
It is represented that the proceeds from the transactions were
distributed, after accounting for the ADS depository's fees paid to BNY
Mellon of
[[Page 70502]]
up to $0.02 per each share of HSBC ADS and expenses, pro rata to the
shareholders of the ADS Rights, including the Plan.\9\
---------------------------------------------------------------------------
\9\ The applicant has not requested, nor is the Department,
herein, providing any relief from section 406 of the Act for the
receipt of depository's fees by BNY Mellon in connection with the
sale of the Share Rights underlying the ADS Rights.
---------------------------------------------------------------------------
With regard to expenses, in addition to the ADS depository fees,
the Plan paid foreign exchange charges incurred by BNY Mellon with
respect to the conversion of Pounds Sterling to U.S. dollars. It is
represented that on March 27, 2009, 1.4554 was the foreign exchange
rate for converting Pounds Sterling to U. S. dollars. It is represented
that this rate was obtained from OANDA \10\ Corporation and reflects
the average rate for converting Pounds Sterling into U.S. dollars on
March 27, 2009. The foreign exchange charges were allocated pro rata to
all holders of ADS Rights who directed BNY Mellon to sell the Share
Rights underlying the ADS Rights, and the Plan's pro rata share of such
foreign exchange charges were deducted from the final amount that the
Plan received from the sale of such rights. It is represented that BANA
does not have information as to the amount of such charges.\11\
Further, the Prospectus also indicated that holders of ADS Rights who
directed BNY Mellon to sell the Share Rights underlying their ADS
Rights would have to pay any applicable taxes, and any other applicable
fees and expenses of BNY Mellon, as provided under the deposit
agreement,\12\ with such fees and expenses allocated pro rata to all
holders of ADS Rights who directed BNY Mellon to sell the Share Rights
underlying their ADS Rights. It is represented that BANA does not have
information on whether any such fees or expenses were applicable to the
Share Rights underlying the ADS Rights sold by BNY Mellon on behalf of
the Plan.
---------------------------------------------------------------------------
\10\ OANDA uses innovative computer and financial technology to
provide Internet-based forex trading and currency information
services to everyone, from individuals to large corporations, from
portfolio managers to financial institutions. OANDA is a market
maker and a source for currency data. It has access to one of the
world's largest historical, high frequency, filtered currency
databases.
\11\ The applicant has not requested, nor is the Department
providing any relief for the receipt of fees by BNY Mellon with
respect to the foreign exchange transaction in connection with the
conversion from Pounds Sterling into U.S. dollars.
\12\ The applicant has not requested, nor is the Department,
herein, providing any relief from section 406 of the Act with
respect to receipt of any other applicable fees and expenses by BNY
Mellon, as provided under the deposit agreement.
---------------------------------------------------------------------------
16. The Employer has requested an exemption with respect to the
transactions which are the subject of this proposed exemption. In this
regard, relief has been requested: (a) for the acquisition of the ADS
Rights by the Plan in connection with the Offering by Holdings, and (b)
for the holding of the ADS Rights by the Plan during the subscription
period of the Offering. It is represented that the ADS Rights acquired
by the Plan satisfy the definition of ``employer securities,'' pursuant
to section 407(d)(1) of the Act, but do not meet the definition of
``qualifying employer securities,'' as set forth in section 407(d)(5)
of the Act. Accordingly, the subject transactions constitute an
acquisition and holding on behalf of a plan, of an employer security in
violation of section 407(a) of the Act, for which the applicant has
requested relief from sections 406(a)(1)(A) and 406(a)(1)(E),
406(a)(2), and 407(a)(1)(A). The subject transactions also raise
conflict of interest issues by fiduciaries of the Plan for which relief
from the prohibitions of 406(b)(1) and 406(b)(2) of the Act is needed.
17. It is represented that the subject transactions have already
been consummated. In this regard, the Plan acquired the ADS Rights
pursuant to the Offering on March 20, 2009, and held such rights
pending the liquidation of such rights. It is represented that there
was insufficient time between the date the Plan acquired the ADS Rights
and the date such rights expired, to apply for and be granted an
exemption. Accordingly, the Employer is seeking a retroactive exemption
to be granted, effective as of March 2, 2009, the date that Holdings
announced the Offering.
18. The applicant represents that the proposed exemption is
feasible. In this regard, it is represented that the subject
transactions are customary for the industry involved, as evidenced by
the fact that the Department has granted individual administrative
exemptions under similar circumstances. Further, the Employer bore the
costs of the application for exemption, and the cost of the fee payable
to BANA, and will bear the cost of notifying interested persons of the
publication of the proposed exemption.
19. The applicant represents that the transactions which are the
subject of this proposed exemption are in the interest of the Plan,
because if the Plan had not participated in the Offering, those
participants and beneficiaries whose accounts were invested in shares
of HSBC ADS on the Record Date would not have received the benefit
received by all other shareholders of the Stock of Holdings and
shareholders of HSBC ADS.
20. The applicant represents that the proposed exemption provides
sufficient safeguards for the protection of the Plan and its
participants and beneficiaries. In this regard, the interests of the
participants and beneficiaries of the Plan were independently
represented at all times during the subject transactions by BANA.
Further, BANA concluded that the most prudent course of action that the
Plan could take with respect to the disposition of the ADS Rights and
the course of action that was in the best interest of the affected
participants and beneficiaries was to liquidate the ADS Rights under
Option (B). Further, it is represented that the report prepared by BANA
confirms that the subject transactions were administrative feasible, in
the interest of, and protective of the rights of the Plan and its
participants and beneficiaries.
21. In summary, the applicant represents that the subject
transactions satisfy the statutory criteria of section 408(a) of the
Act and section 4975(c)(2) of the Code because:
(a) The receipt by the Plan of the ADS Rights occurred in
connection with the Offering made available by Holdings on the same
terms to all shareholders of the HSBC ADS, including the Plan;
(b) The acquisition of the ADS Rights by the Plan resulted from an
independent act of Holdings as a corporate entity, and all holders of
the ADS Rights, including the Plan, were treated in the same manner
with respect to the acquisition of such rights;
(c) All shareholders of HSBC ADS, such as the Plan, received the
same proportionate number of ADS Rights based on the number of shares
of HSBC ADS held; and
(d) All decisions regarding the disposition of the ADS Rights made
on behalf of the Plan were made by BANA, acting as the I/F.
Notice to Interested Persons
The persons who may be interested in the publication in the Federal
Register of the Notice of Proposed Exemption (the Notice) include
participants and beneficiaries of the Plan whose accounts in the Plan
held Stock.
It is represented that each of these classes of interested persons
will be notified of the publication of the Notice by first class mail,
within fifteen (15) days of publication of the Notice in the Federal
Register. Such mailing will contain a copy of the Notice, as it appears
in the Federal Register on the date of publication, plus a copy of the
Supplemental Statement, as required, pursuant to 29 CFR 2570.43(b)(2),
which will advise all interested persons of their right to comment and
to request a hearing.
[[Page 70503]]
All written comments and/or requests for a hearing must be received
by the Department from interested persons within 45 days of the
publication of this proposed exemption in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Ms. Angelena C. Le Blanc of the
Department, telephone (202) 693-8540. (This is not a toll-free number.)
Sammons Enterprises, Inc. Employee Stock Ownership ESOP, (the
ESOP), Located in Dallas, Texas, Application No. D-11679].
Proposed Exemption
The Department of Labor (the Department) is considering granting an
exemption under the authority of section 408(a) of the Act in
accordance with procedures set forth in 29 CFR Part 2570, Subpart B (55
FR 32836, 32847, August 10, 1990). If the proposed exemption is
granted, the restrictions of sections 406(a)(1)(A) and (D), 406(b)(1),
and 406(b)(2) of the Act, and the sanctions resulting from the
application of section 4975 of the Code, by reason of section
4975(c)(1)(A), (D) and (E) of the Code, shall not apply to the personal
holding company consent dividend election (the Consent) with respect to
Sammons Enterprises, Inc. (Sammons), by the trustee of the ESOP,
provided that the following conditions are satisfied:
(a) The trustee of the ESOP is an independent, qualified fiduciary
(the I/F), acting on behalf of the ESOP, which determines prior to
entering into the transaction that the transaction is feasible, in the
interest of, and protective of the ESOP and the participants and
beneficiaries of the ESOP;
(b) Before the ESOP enters into the proposed transaction, the I/F
reviews the transaction, and determines whether or not to approve the
transaction, in accordance with the fiduciary provisions of the Act;
(c) The I/F monitors compliance with the terms and conditions of
this proposed exemption, as described herein, and ensures that such
terms and conditions are at all times satisfied;
(d) Sammons provides to the I/F, in a timely fashion, all
information reasonably requested by the I/F to assist it in making its
decision whether or not to approve the transaction;
(e) The consent dividend will represent no more than two percent
(2%) of the ESOP's assets in any taxable year within the timeframe of
the exemption proposed herein;
(f) Shares of Sammons stock are held in an ESOP suspense account,
and are allocated each year to each eligible ESOP participant at the
maximum level permitted under the Code;
(g) All of the requirements of section 565 of the Code are met with
respect to the Consent; and
(h) All shareholders of Sammons are requested to consent to the
dividend in the manner prescribed under section 565 of the Code.
Temporary Nature of Exemption: This exemption, if granted, will
expire at the earlier of (i) the first day of the first fiscal year of
Sammons next following the fiscal year in which falls the fifth
anniversary of the date of grant of the exemption; and (ii) the first
day upon which the ESOP fails to own at least 99% of the issued and
outstanding shares of Sammons.
Summary of Facts and Representations
1. Sammons Enterprises, Inc. (Sammons) is a multi-faceted, global
holding corporation headquartered in Dallas, Texas that owns and
operates businesses and manages an investment portfolio across a
diverse range of industries. Sammons was founded by Charles A. Sammons
in 1962. Its roots originate in Dallas, Texas, where Mr. Sammons began
Reserve Life Insurance Company in 1938, providing the foundation for
what has grown into Sammons. Beginning in the early 1950's, Mr. Sammons
began to diversify Sammons' operations, purchasing interests in the
communications, industrial products distribution, insurance, travel and
hospitality industries. Sammons has now concentrated its investments
into three sectors--life insurance/annuities, equipment distribution,
and hospitality and real estate.
2. The Sammons Enterprises, Inc. Employee Stock Ownership ESOP (the
ESOP) was originally established in 1978 and, prior to 2010, had
acquired approximately 4% of Sammons' outstanding shares. Prior to his
death in 1988, almost all of Sammons' outstanding shares, other than
those owned by the ESOP, were owned by Charles A. Sammons. At the time
of his death, Mr. Sammons' shares passed to a charitable remainder
trust with his widow Elaine D. Simmons as lifetime beneficiary. In
1997, Congress amended the Internal Revenue Code of 1986, as amended
(the Code) to permit an ESOP and its related trust to be a beneficiary
of a charitable remainder trust. This change in law allowed the ESOP to
be named remainder beneficiary of the charitable trust established by
Mr. Sammons. In January 2010, following the death of Mrs. Sammons, all
of the Sammons shares held in the charitable remainder trust were
transferred to the ESOP. The ESOP made no payment for the shares
received from the charitable remainder trust.
3. As a result of the transfer to the ESOP, it presently owns
99.997% of Sammons' outstanding shares. The remaining 258 shares
(representing .003% of Sammons' outstanding shares) are owned by 12
individuals who are former Sammons employees and ESOP participants who
received their shares as part of their ESOP distributions.
4. As of December 31, 2010, the Sammons stock was valued by the
ESOP's independent appraiser at $512 per share. The aggregate fair
market value of the ESOP's Sammons share holdings is
$4,099,394,048.\13\ The ESOP had approximately 1,064 participants as of
the end of the 2010 plan year.
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\13\ The applicant represents that, consistent with the
requirements of the Act, including definitions of ``adequate
consideration'' and ``current value'' found in Act sections 3(18)
and 3(26), the value of the Sammons stock held by the ESOP is
determined in good faith by the Plan's trustee, GreatBanc Trust
Company, based upon valuations by the Plan's independent appraiser
as required under Code section 401(a)(28)(C), and taking into
account those factors determined to be relevant under Revenue
Procedure 59-60 and the Department's Proposed Regulation section
2510.3-18. The applicant represents that, consistent with its
fiduciary responsibilities under ERISA, it will, as the ESOP's
independent trustee, continue to value the Sammons stock held by the
ESOP in good faith based upon valuations performed by a qualified
independent appraiser engaged by the Plan to ensure that all
transactions are conducted at fair market value. The applicant
further represents that Sammons regularly evaluates the performance
of the qualified independent fiduciary under the terms of the ESOP
Trust, and, as part of that evaluation, Sammons also regularly
evaluates the performance of the ESOP's independent appraiser which
is engaged on behalf of the ESOP by the qualified independent
fiduciary.
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5. Although the ESOP is not leveraged, under a special structure
established pursuant to section 664(g) of the Code, the shares acquired
from the charitable remainder trust are held in an ESOP suspense
account, and are currently allocated each year to each eligible ESOP
participant at the maximum level permitted under Code section
664(g)(7), i.e., 25% of compensation (up to a maximum allocation of
$45,000).\14\
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\14\ The Code provides for a maximum allocation of $30,000,
adjusted annually for cost-of-living. For 2011, the maximum
allocation is $45,000.
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6. The trustee of the ESOP trust is the applicant, GreatBanc Trust
Company (GreatBanc). GreatBanc is nationally recognized as a highly
skilled independent ERISA trustee specializing in ESOPs and ESOP
transactions. GreatBanc's management team and staff have an average of
over 20 years' experience in the financial services industry, and
include legal and
[[Page 70504]]
regulatory experts and investment management professionals who hold the
Chartered Financial Analyst designation. GreatBanc serves as trustee or
independent fiduciary for over 200 ESOPs and other qualified plans
sponsored by both public and private companies, and has fiduciary
responsibility for over $18 billion in plan assets. Fees received by
GreatBanc for fiduciary services to the Sammons ESOP currently
represent approximately 3% of GreatBanc's annual revenue.
7. As a result of its closely held nature and the types of revenue
generated by certain of its lines of business, Sammons is potentially
subject each year to a set of federal tax rules referred to as
``personal holding company taxes'' (PHCT). Although Sammons is a
subchapter ``C'' corporation and pays its full share of corporate
income taxes, the applicant represents that these PHCT rules can
subject Sammons to a significant federal tax burden over and above that
applied to most other companies. Given the ESOP's almost complete
ownership of Sammons, these additional taxes would operate to the
direct detriment of the ESOP and its participants.
8. The applicant represents that the pertinent sections of the Code
were first adopted in 1934 at a time when federal corporate tax rules
were substantially lower than individual tax rates. This rate
differential prompted wealthy individuals to place their passive
investments in controlled corporations, with the idea that ongoing
investment earnings could grow and be reinvested in substantially
greater amounts than if held directly by the individual investor. The
PHCT rules seek to thwart this strategy by imposing an additional tax,
at the highest individual tax rate, on the corporation's
``undistributed personal holding com
