Proposed Exemptions From Certain Prohibited Transaction Restrictions, 29695-29718 [2016-11115]

Download as PDF Vol. 81 Thursday, No. 92 May 12, 2016 Part III Department of Labor asabaliauskas on DSK3SPTVN1PROD with NOTICES Employee Benefits Security Administration Proposed Exemptions From Certain Prohibited Transaction Restrictions; Notice VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\12MYN2.SGM 12MYN2 29696 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices 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– 11825, ABARTA, Inc. Pension Plan; D– 11846 and D–11847, Sears Holdings 401(k) Savings Plan (the Savings Plan) and the Sears Holdings Puerto Rico Savings Plan (the PR Plan); D–11851 and D–11852, Sears Holdings 401(k) Savings Plan (the Savings Plan) and the Sears Holdings Puerto Rico Savings Plan (the PR Plan); and D–11871 and D– 11872, Sears Holdings 401(k) Savings Plan (the Savings Plan) and the Sears Holdings Puerto Rico Savings Plan (the PR Plan). DATES: All interested persons are invited to submit written comments or requests for a hearing on the pending exemptions, unless otherwise stated in the Notice of Proposed Exemption, within 45 days from the date of publication of this Federal Register Notice. ADDRESSES: Comments and requests for a hearing should state: (1) The name, address, and telephone number of the person making the comment or request, and (2) the nature of the person’s interest in the exemption and the manner in which the person would be adversely affected by the exemption. A request for a hearing must also state the issues to be addressed and include a general description of the evidence to be presented at the hearing. All written comments and requests for a hearing (at least three copies) should be sent to the Employee Benefits Security Administration (EBSA), Office of Exemption Determinations, Room N– 5700, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210. Attention: Application No.__, stated in each Notice of Proposed Exemption. Interested persons are also invited to submit comments and/or hearing requests to EBSA via email or FAX. Any such comments or requests should be sent either by email to: asabaliauskas on DSK3SPTVN1PROD with NOTICES SUMMARY: VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 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–1515, 200 Constitution Avenue NW., Washington, DC 20210. Warning: All comments will be made available to the public. Do not include any personally identifiable information (such as Social Security number, name, address, or other contact information) or confidential business information that you do not want publicly disclosed. All comments may be posted on the Internet and can be retrieved by most Internet search engines. SUPPLEMENTARY INFORMATION: Notice to Interested Persons Notice of the proposed exemptions will be provided to all interested persons in the manner agreed upon by the applicant and the Department within 15 days of the date of publication in the Federal Register. Such notice shall include a copy of the notice of proposed exemption as published in the Federal Register and shall inform interested persons of their right to comment and to request a hearing (where appropriate). The proposed exemptions were requested in applications filed pursuant to section 408(a) of the Act and/or section 4975(c)(2) of the Code, and in accordance with procedures set forth in 29 CFR part 2570, Subpart B (76 FR 66637, 66644, October 27, 2011).1 Effective December 31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the Secretary of the Treasury to issue exemptions of the type requested to the Secretary of Labor. Therefore, these notices of proposed exemption are issued solely by the Department. 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. 1 The Department has considered exemption applications received prior to December 27, 2011 under the exemption procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). PO 00000 Frm 00002 Fmt 4701 Sfmt 4703 ABARTA, Inc. Pension Plan (the Plan or the Applicant), Located in Pittsburgh, PA [Application No. D–11825] Proposed Exemption The Department is considering granting an exemption under the authority of section 408(a) of the Act (or ERISA) and section 4975(c)(2) of the Code, and in accordance with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 46637, 66644, October 27, 2011).2 Section I. Covered Transactions If the exemption is granted, provided that the conditions and the definitions set forth below are satisfied, the restrictions of sections 406(a)(1)(A), 406(a)(1)(B), 406(a)(1)(D), 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 407(a) of the Act, and the sanctions resulting from the application of section 4975 of the Code, by reason of section 4975(c)(1)(A), (B), (D) and (E) of the Code, shall not apply to the following proposed transactions (the Covered Transactions): (a) The in-kind contribution by ABARTA Inc. (ABARTA) to the Plan (the Contribution) of ABARTA’s 100% ownership interests (the LLC Interests) in two special purpose entities: Delabarta Pennsylvania Real Estate, LLC (Delabarta Pennsylvania LLC); and Delabarta New York Real Estate, LLC (Delabarta New York LLC) (together, the LLCs): Each of which owns, as its only asset, a parcel of improved real property (a Property); (b) Following the Contribution: (1) the Plan’s leasing of the Property owned 100% by the Delabarta Pennsylvania LLC to an ABARTA subsidiary, CocaCola Bottling Company of Lehigh Valley, Inc. (Coca-Cola Lehigh Valley), and a one-time renewal of that lease; and (2) the Plan’s leasing of the Property owned 100% by the Delabarta New York LLC to another ABARTA subsidiary, Coca-Cola Bottling Company of Buffalo, Inc. (Coca-Cola Buffalo), and a one-time renewal of that lease. Hereinafter, these two leases are referred to as the Leases, and the two renewals of those Leases are referred to as the Lease Renewals; (c) The guarantees by Coca-Cola Buffalo and Coca-Cola Lehigh Valley (the Tenants) to the Plan in connection with a make whole obligation (the Make Whole Obligation), and any payments to the Plan in fulfillment of that obligation; 2 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. E:\FR\FM\12MYN2.SGM 12MYN2 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES (d) Each Tenant’s indemnification of the Plan (the Indemnification) in connection with a Leases and a Lease Renewal; and (e)(1) The Plan’s granting of a right of first offer (the Right of First Offer) to each Tenant, whereby the Tenant may purchase a Property or LLC interest from the Plan; and (2) a sale by the Plan of a Property or LLC Interest to a Tenant in connection with a Tenant’s exercise of that Right of First Offer. Section II. Conditions Regarding the InKind Contribution Described in Section I(A) (a) The Independent Fiduciary, as defined in Section X(c) of this proposed exemption, negotiates the terms and conditions of the Contribution, and approves the Contribution as being in the interest of the Plan; (b) The LLC Interests are contributed to the Plan at their current fair market value, as determined by the Independent Fiduciary, following the Independent Fiduciary’s review of an appraisal report (the Appraisal Report) prepared by the Independent Appraiser, as defined in Section X(d) of this proposed exemption; (c) On the date of the Contribution, the aggregate contributed value of the LLC Interests is no less than the current fair market value of the Properties underlying the LLC Interests, as verified by the Independent Fiduciary; (d) On the date of the Contribution, ABARTA contributes to the Plan a cash amount that is no less than $500,000; (e) Immediately following the Contribution, the aggregate fair market value of employer real property and employer securities held by the Plan represents less than 20% of the Plan’s assets; (f) As long as the Properties and/or LLC interests are owned by the Plan, the Properties are not altered in any way that: (1) Diminishes the fair market value or remaining useful life of the Property; (2) affects the structure or systems of any building existing on the Property; or (3) affects an expansion of any building existing on the Property, without the prior written approval of the Independent Fiduciary; and (g) Following the Contribution, the Plan does not transfer a portion of its ownership interests in the LLCs or in the Properties to a party in interest to the Plan. Section III. Conditions Regarding the Plan’s Leasing of the Properties to the Tenants Described in Section I(B) (a) The Independent Fiduciary negotiates the terms and conditions of the each Lease and Lease Renewal, and VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 approves the Plan’s entering into each Lease and Lease Renewal, as being in the interest of, and protective of, the Plan; (b) Each Lease and Lease Renewal remains, at all times, a bondable triple net lease, such that all costs attributable to a Property (including, among other things, taxes, insurance, utilities, and non-capital maintenance, repair, and capital improvements) are the responsibility of the Tenant, until the earlier of: (1) The date on which the Property or LLC Interest is first transferred to any person or entity that is not wholly-owned by the Plan; (2) the date on which the Plan sells a controlling interest in the LLC to an entity that is not wholly-owned by the Plan; or (3) the date the Lease or Lease Renewal terminates by operation of law; (c) Any amendment to a Lease or Lease Renewal must be negotiated and approved by the Independent Fiduciary; however, in no event may any amendment be inconsistent with the terms of this exemption, if granted; and (d) For each Lease Renewal, all provisions of the Lease on which the Lease Renewal is based, with the exception of the specific rent amount and any escalator provision, remain in effect. Section IV. The Make Whole Obligation Described in Section I(C) (a) After the Contribution, as of the earlier of: (1) The date of a sale by the Plan of a Property (or an LLC Interest) (a Sale Date); or (2) the date that is five years from the date of the Contribution (hereinafter, a First Calculation Date), if (A)(i) the proceeds received from the fair market value sale of a Property (or LLC interest), in the case of a sale, or (ii) the current fair market value of the Property (or the LLC interest) as of the First Calculation Date, in the case in which there has not been a sale, plus (B) any income generated by the Property during that period, less (C) any expenses attributable to the Property (or the LLC Interest) paid by the Plan during that period, is less than (D) the fair market value of such Property (or the LLC Interest) at the time of the Contribution, plus (E) an amount equal to a 5% percent rate of return on such Contributed Value during that period, compounded annually; then the Tenant must contribute an amount of cash to the Plan equal to any such difference, within 60 days of the Sale Date or First Calculation Date; (b) If the Plan continues to hold a Property or LLC Interest during all or a portion of any of the three consecutive five year periods that follow the First Calculation Date (each, a Lookback PO 00000 Frm 00003 Fmt 4701 Sfmt 4703 29697 Period), with respect to any of these three Lookback Periods, as of the earlier of: (1) A Sale Date; or (2) a date that is five years from the first day of the Lookback Period (a Subsequent Calculation Date), if (A)(i) the proceeds received from the fair market value sale of a Property (or LLC interest), in the case of a sale, or (ii) the current fair market value of the LLC interest as of the applicable Subsequent Calculation Date, in the case in which there has not been a sale, plus (B) any income generated by the Property during that period, (C) less any expenses paid by the Plan during that period regarding the LLC interest or Property, is less than (D) the fair market value of such LLC Interest as of the first day of the applicable Lookback Period, plus (E) an amount equal to a 5% percent rate of return on such Contributed Value during that period, compounded annually; then the Tenant must contribute to the Plan an amount of cash equal to any such difference, within 60 days of the Sale Date or Subsequent Calculation Date; and (c) The Plan receives the full amount that the Plan may be due under the Make Whole Obligation within 60 days of the applicable Sale Date, Calculation Date, or Subsequent Calculation Date, as verified by the Independent Fiduciary. Section VI. Tenants’ Indemnification of the Plan Described In Section I(d) (a) In connection with each Lease and Lease Renewal, and as set forth in writing therein, the Tenant indemnifies, defends upon request, and holds the Plan harmless from any, and against all, losses, penalties and court costs related to: (1) The Tenant’s use, repair, management, lease, sublease, maintenance or operation of a Property, (2) any violation of any applicable environmental laws, the Americans with Disabilities Act (the ADA), and other health and/or safety laws; and (3) any default by the Tenant under the Lease or Lease Renewal; and (b) Any amount owed the Plan in connection with a Tenant’s indemnification of the Plan, as described in the preceding paragraph, is negotiated and approved by the Independent Fiduciary, and paid to the Plan within the timeframe set forth by the Independent Fiduciary. Section VII. The Right of First Offer and the Sale by the Plan of a Property or an LLC Interest Described in Section I(E) (a) During the term of the Lease and any Lease Renewal, the Independent Fiduciary is solely responsible for determining whether, when, and under what terms the Plan may prudently sell E:\FR\FM\12MYN2.SGM 12MYN2 29698 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES one or both of: (1) The LLCs; or (2) the Properties; (b) During the term of the Lease and any Lease Renewal, the Independent Fiduciary must approve any sale by the Plan of one or both of: (1) The Properties; or (2) the LLC Interests, as being in the interest of, and protective of, the Plan; (c) The Independent Fiduciary may not implement the Right of First Offer unless the Independent Fiduciary has first negotiated the terms and conditions of a proposed sale of an LLC Interest (or a Property) to a party that is unrelated to ABARTA or any of its affiliates (the Unrelated Proposed Sale); (d) Any sale of an LLC Interest or Property to ABARTA or any of its affiliates (hereinafter, ABARTA) pursuant to the Right of First Offer, must equal the greater of: (1) The price negotiated by the Independent Fiduciary, as between the Plan and the party that is unrelated to ABARTA; or (2) the current fair market value of the Property, as determined by the Independent Appraiser; and (e) If ABARTA does not purchase the Property or LLC Interest under the same terms as the terms associated with the Unrelated Proposed Sale, the Plan may sell the Property or LLC Interest to the unrelated third party within 360 days without triggering a new Right of First Offer. Section VIII. The Independent Fiduciary (a) The Independent Fiduciary represents the interests of the Plan for all purposes with respect to the Covered Transactions; (b) The Independent Fiduciary must: (1) Review, negotiate and approve the terms and conditions of each Covered Transaction; (2) Review and approve the terms of the transfer agreement (the Transfer Agreement) that evidences the Contribution; (3) Monitor and enforce the Plan’s rights and interests with respect to the Properties; (4) Monitor ABARTA’s compliance with the terms of this exemption, including all obligations set forth under the Leases; and (5) Take all steps that are necessary and proper to protect the Plan in the event of any non-compliance by ABARTA. Section IX. General Conditions (a) The Plan does not pay any real estate fees, commissions, costs or other expenses in connection with the proposed transactions, including any fees that are currently charged, or any fees which accrue in the future; and VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 (b) The terms and conditions of the proposed transactions are no less favorable to the Plan than those obtainable under similar circumstances when negotiated at arm’s-length with unrelated third parties. Section X. Definitions (a) The term ABARTA means ABARTA, Inc., and any of its affiliates. (b) The term ‘‘affiliate’’ means: (1) Any person directly or indirectly through one or more intermediaries, controlling, controlled by, or under common control with the person; (2) any officer, director, employee, relative, or partner in any such person; or (3) any corporation or partnership of which such person is an officer, director, partner, or employee. For the purposes of clause (a)(1) above, the term ‘‘control’’ means the power to exercise a controlling influence over the management or policies of a person other than an individual. (c) The term ‘‘Independent Fiduciary’’ means Evercore Trust Company (Evercore), or another fiduciary of the Plan who: (1) Is independent of or unrelated to ABARTA and the Tenants, and has the appropriate training, experience, and facilities to act on behalf of the Plan regarding the Covered Transactions in accordance with the fiduciary duties and responsibilities prescribed by the Act (including, if necessary, the responsibility to seek the counsel of knowledgeable advisors to assist in its compliance with the Act); and (2) if relevant, succeeds Evercore in its capacity as Independent Fiduciary to the Plan in connection with the Covered Transactions. The Independent Fiduciary will not be deemed to be independent of and unrelated to ABARTA and the Tenants if: (1) Such Independent Fiduciary directly or indirectly controls, is controlled by or is under common control, with ABARTA or the Tenants; (2) such Independent Fiduciary directly or indirectly receives any compensation or other consideration in connection with any transaction described in this exemption other than for acting as Independent Fiduciary in connection with the transactions described herein, provided that the amount or payment of such compensation is not contingent upon, or in any way affected by, the Independent Fiduciary’s ultimate decision; and (3) the annual gross revenue received by the Independent Fiduciary, during any year of its engagement, from ABARTA and the Tenants, exceeds 2% of the Independent Fiduciary’s annual gross revenue from all sources (for federal PO 00000 Frm 00004 Fmt 4701 Sfmt 4703 income tax purposes) for is prior tax year. (d) The term ‘‘Independent Appraiser’’ means an individual or entity meeting the definition of a ‘‘Qualified Independent Appraiser’’ under Department Regulation 25 CFR 2570.31(i) retained to determine, on behalf of the Plan, the fair market value of the Properties as of the date of the Contribution. Summary of Facts and Representations 3 The Parties 1. ABARTA, which was founded in 1933 by Rolland Adams, currently maintains its headquarters in Pittsburgh, Pennsylvania. ABARTA is privatelyowned and operates in the oil and gas, soft-drink bottling, and frozen food industries. Within its soft-drink bottling division, ABARTA owns and operates four Coca-Cola bottling companies, two of which are Coca-Cola Buffalo and Coca-Cola Lehigh Valley. As of March 31, 2015, ABARTA held assets totaling $238,824,000 and liabilities totaling $182,748,000. Coca-Cola Lehigh Valley, which was purchased by ABARTA in 1963, owns the exclusive franchise rights in perpetuity to distribute products of the Coca-Cola Company throughout Lancaster, Northampton, and Lehigh counties, in Pennsylvania, and part of Warren County, in New Jersey. CocaCola Lehigh Valley has generated $3 million in average annual Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) since 2010. Coca-Cola Buffalo, which was purchased by ABARTA in 1980, owns the exclusive franchise rights in perpetuity to distribute products of the Coca-Cola Company throughout eight counties in and around Buffalo, New York. Coca-Cola Buffalo has generated $2.5 million in average annual EBITDA since 2010. 2. The Plan, which was adopted by ABARTA on January 1, 1981, is a noncontributory, defined benefit pension plan which covers approximately 4,000 non-union employees of ABARTA. As of January 1, 2015, the Plan had 1,265 participants. As of July 31, 2015, the Plan held assets totaling $36,737,158. The Plan Administrator is a Committee, the members of which are designated by ABARTA’s Board of Directors. Contributions required to fund the Plan are remitted to and held under the ABARTA, Inc. Defined Benefit Master 3 The Summary of Facts and Representations is based on the Applicant’s representations and does not reflect the views of the Department, unless indicated otherwise. E:\FR\FM\12MYN2.SGM 12MYN2 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES Trust (the Master Trust), the custodian of which is Fidelity Management Trust Company (Fidelity). In addition to ABARTA, seven other companies, including Coca-Cola Lehigh Valley and Coca-Cola Buffalo, participate in the Master Trust. The Plan’s trustees are John F. Blitzer III, Katherine W. Fedor, and William F. Holtz (the Trustees). Each of the Trustees serves concurrently as an officer of ABARTA: Mr. Blitzer, as Director, President and CEO; Ms. Fedor, as Secretary; and Mr. Holtz as Vice President, Treasurer, and Secretary. In addition, two Trustees, Mr. Holtz and Ms. Fedor, serve as officers for the LLCs, but, if this exemption is granted, they will not receive compensation from the Plan as officers of the LLCs following the Contribution. The Trustees have delegated investment management discretion over Plan assets to Fidelity, subject to a written investment policy approved by the Trustees which specifies ranges for asset allocations (the Investment Policy Statement). The Investment Policy Statement expressly permits the in-kind contribution of employer real property to the Plan. The LLCs 3. ABARTA is the sole member and 100% owner of both Delabarta New York LLC and Delabarta Pennsylvania LLC. The Applicant represents that the LLCs do not have any employees and there are no significant costs associated with ownership, other than a nominal annual administrative filing fee required by the State of New York, which ABARTA will continue to pay following the Contribution. Each LLC owns, as its only asset, a parcel of unencumbered real property, as well as certain buildings situated on each. The sole asset of Delabarta Lehigh Valley LLC consists of unencumbered title to approximately 10.615 acres of land and one improvement thereon, located at 2150 Industrial Drive Bethlehem, Pennsylvania (the Pennsylvania Property). Coca-Cola Lehigh Valley purchased the Pennsylvania Property as a vacant parcel of land in 1980 and subsequently constructed a 116,751-square foot warehouse/distribution facility on the Property in 1981. Currently, the Pennsylvania Property is 100% occupied by Coca-Cola Lehigh Valley. The sole asset of Delabarta New York LLC consists of unencumbered title to approximately 9.21 acres of land and two improvements thereon, located at 150 and 200 Milens Road in the Town of Tonawanda, New York (the New York Property). Coca-Cola Buffalo purchased VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 the New York Property in 1959 and subsequently constructed the two warehouse facilities in 1960 and 1967. Currently, the New York Property is 100% occupied by Coca-Cola Buffalo. Hereinafter, Coca-Cola Lehigh Valley and Coca-Cola Buffalo are referred to as the Tenants. The Contribution 4. ABARTA has requested an administrative exemption from the Department in order to contribute the LLC Interests to the Plan. To evidence the Contribution, ABARTA and the Plan will enter into a written transfer agreement (the Transfer Agreement), which will govern the terms upon which the LLC Interests will be contributed to and held by the Plan. As will be stated in the Transfer Agreement, the Independent Fiduciary must act on behalf of the Plan in connection with the Contribution, and must negotiate and approve the terms upon which the Plan will accept the LLC Interests. As also stated in the Transfer Agreement, the value of the Properties will be determined by the Independent Fiduciary based upon an appraisal of the Properties performed by the Independent Appraiser, as of the date of the Contribution. The Plan will not pay any commissions, costs or other expenses in connection with the Contribution, including any fees that are currently charged, or any fees which are charged in the future, by the Independent Appraiser or the Independent Fiduciary. 5. In addition to the Contribution and in connection therewith, ABARTA will make a one-time, cash contribution of $500,000 to the Plan. Taken together with the appraised fair market value of the Properties underlying the LLC Interests (see Representations 18 and 19), the estimated aggregate value of the Contribution amounts to $6,900,000, and is in excess of ABARTA’s 2015 minimum funding obligation under section 302 of the Act. The Leases 6. The Plan, through the LLCs, will enter into bondable, triple-net leases (the Leases) of the Properties with each Tenant. Each Lease will be substantially identical in all respects, other than the name of the Tenant, the name of the LLC Landlord,4 and the rent amount to be paid. Each Lease will also have an initial term of 10 years with the respective Tenant. The bondable, triple-net lease structure will ensure that all operating 4 References to the Plan as the Landlord under the Leases are meant to include the LLCs which hold title to the Properties. PO 00000 Frm 00005 Fmt 4701 Sfmt 4703 29699 costs related to the Properties, including taxes, insurance, utilities, and noncapital maintenance, repair, and capital improvements will be the responsibility of the Tenants. Additionally, the triplenet lease structure ensures that the rent payable by the Tenants to the Plan will remain payable under all circumstances, with the exception of a partial condemnation of the underlying Properties. The Leases will remain bondable until the earlier of: (a) The date on which Property or LLC Interest is first transferred to any person or entity that is not wholly owned by the Plan; (b) the date on which the Plan sells a controlling interest in the applicable LLC to an entity that is not wholly owned by the Plan; or (c) the date the Lease or Lease Renewal terminates by operation of law. With regard to alterations to the Properties by the Tenants, the Tenants must secure consent from the Independent Fiduciary prior to affecting any alteration which would: (a) Diminish the fair market value or remaining useful life of the Properties; (b) affect the structure or systems of any building existing on the Properties, or (c) effect an expansion of any building existing on the Properties. Further, any amendment to a Lease or Lease Renewal must be negotiated and approved by the Independent Fiduciary. However, in no event may an amendment be inconsistent with the terms of this exemption, if granted. Finally, each Lease or Lease Renewal prohibits the Plan from transferring a fractional part of its LLC Interests to ABARTA or a Tenant. 7. Under the Pennsylvania Property Lease, Coca-Cola Lehigh Valley will pay the Plan a base rental amount of $379,441, due in equal monthly installments of $31,620. In addition, on the first day of each Lease Year from and after the second Lease Year, the base rental amount under the Pennsylvania Property Lease will be increased by an amount equal to the product of the Base Rent then in effect multiplied by a 2.0% escalator adjustment.5 In effect, the Plan will receive an annualized 9.44% rate of return under such Lease. Under the New York Property Lease, Coca-Cola Buffalo will pay the Plan a base rental amount of $348,563, due in equal monthly installments of $29,047. 5 The annual escalator under the Pennsylvania Property Lease is based upon a market rent analysis performed by the Independent Appraiser. The Independent Fiduciary has confirmed that the rental rate under the Pennsylvania Property Lease is consistent with the fair market rental value in the Erie, Pennsylvania market. E:\FR\FM\12MYN2.SGM 12MYN2 29700 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices The New York Property Lease does not provide for annual rent escalations from and after the second lease year.6 However, it is anticipated that this Lease will generate a 13.94% annual rate of return to the Plan. 8. Over the initial 10 year term of the Leases, the Plan will receive aggregate rental income totaling $7,640,403.05 ($4,154,773.05 in aggregate income under the Pennsylvania Lease and $3,485,630.00 in aggregate income under the New York Lease). The Applicant represents that the rental rates under the Leases represent fair market value, as (a) they were agreed upon following arm’s length negotiations between the Independent Fiduciary and the Tenants, and (b) are supported by a market rent analysis performed by the Independent Appraiser. The Lease Renewals 9. With respect to each Lease, the Tenant has the right to renew the term of the Lease for an additional Renewal Term of ten years by giving the Plan written notice (the Renewal Notice) not later than the last day of the ninth Lease year. During such time, the Plan will be represented by the Independent Fiduciary. Within 90 days of its receipt of the Tenant’s Renewal Notice, the Independent Fiduciary will provide such Tenant with the Independent Fiduciary’s determination of the fair market annual base rent, and the escalation factor which it desires to be applicable during the Renewal Term. The Independent Fiduciary and the Tenant will then have thirty days to agree upon a base rent amount and escalation factor for the purposes of the Renewal Term.7 In no event, however, will the Independent Fiduciary be under any obligation to agree to a base rent for the first year of the Renewal Term which is less than the annual base rent in effect during the Lease Year immediately preceding the commencement of the Renewal Term. The Make Whole Obligation asabaliauskas on DSK3SPTVN1PROD with NOTICES 10. The Lease Agreements and any Lease Renewal Agreement will include 6 The absence of an annual rent escalator under the New York Property Lease is based upon the Independent Appraiser’s conclusion that rent escalators are not prevalent in commercial leases in the New York Property’s market. The Independent Fiduciary has confirmed that the rental rate under the New York Property Lease is consistent with the fair market rental value in the Buffalo, New York market. 7 In the event the Plan and Tenant are unable to agree upon a base rent amount and escalation factor, each will appoint an independent appraiser to determine a fair market base rent amount and escalation factor. VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 a Make Whole Obligation, whereby each Tenant will ensure that the Plan receives at least a five percent annualized rate of return in connection with the Plan’s ownership of the LLC Interests. After the Contribution, as of the earlier of: (i) A Sale Date; or (2) a First Calculation Date, if (A)(i) the proceeds received from the fair market value sale of a Property (or LLC interest), in the case of a sale, or (ii) the current fair market value of the Property (or the LLC interest) as of the First Calculation Date, in the case in which there has not been a sale, plus (B) any income generated by the Property during that period, less (C) any expenses attributable to the Property (or the LLC Interest) paid by the Plan during that period, is less than (D) the fair market value of such Property (or the LLC Interest) at the time of the Contribution, plus (E) an amount equal to a 5% percent rate of return on such Contributed Value during that period, compounded annually; then the Tenant must contribute an amount of cash to the Plan equal to any such difference, within 60 days of the Sale Date or First Calculation Date; Additionally, if the Plan continues to hold a Property or LLC Interest during all or a portion of the three consecutive five year Lookback Periods that follow the First Calculation Date, with respect to any of these Lookback Periods, as of the earlier of: (1) A Sale Date; or (2) a Subsequent Calculation Date, if (A)(i) the proceeds received from the fair market value sale of a Property (or LLC interest), in the case of a sale, or (ii) the current fair market value of the LLC interest as of the applicable Subsequent Calculation Date, in the case in which there has not been a sale, plus (B) any income generated by the Property during that period, (C) less any expenses paid by the Plan during that period regarding the LLC interest or Property, is less than (D) the fair market value of such LLC Interest as of the first day of the applicable Lookback Period, plus (E) an amount equal to a 5% percent rate of return on such Contributed Value during that period, compounded annually; then the Tenant must contribute to the Plan an amount of cash equal to any such difference, within 60 days of the Sale Date or Subsequent Calculation Date; and The Make Whole Obligation will remain in effect for up to twenty years, which is the maximum term of this proposed exemption, if granted, unless the Properties or LLC Interests are sold before then. The Independent Fiduciary will represent the interests of the Plan with respect to the Make Whole Obligation, and will ensure that the Plan PO 00000 Frm 00006 Fmt 4701 Sfmt 4703 receives any amount due under the Make Whole Obligation, within 60 days of the date that triggers the payment of such amount. The Indemnification 11. The Lease Agreements provide that each Tenant reimburse the Plan, and indemnify, defend upon request, and hold harmless the Plan from any, and against all losses, penalties and court costs related to: (a) The Tenant’s use, repair, management, lease, sublease, maintenance or operation of a Property; (b) any violation of any applicable environmental laws, the ADA, and other health and/or safety laws; and (c) any default by a Tenant under the Lease. Any reimbursement paid to the Plan by a Tenant in connection with the Tenant’s Indemnification, will be negotiated and approved by the Independent Fiduciary. The Right of First Offer 12. The Lease Agreements provide a Right of First Offer to the Tenants, which states that, in the event that the Plan desires to sell either a Property or an LLC Interest during the initial tenyear Lease term or during any Lease Renewal period, the Plan must first offer such Property or LLC Interest to the Tenant at terms the Plan intends to offer such Property or LLC Interest to an unrelated third party (the Unrelated Proposed Sale). Any sale of an LLC Interest or Property to ABARTA pursuant to the Right of First Offer must equal the greater of: (a) The price negotiated by the Independent Fiduciary, as between the Plan and the party that is unrelated to ABARTA; or (b) the current fair market value of the Property, as determined by the Independent Appraiser, as described herein in Representations 16–19. If ABARTA does not purchase the Property or LLC Interest under the same terms as the terms associated with the Unrelated Proposed Sale, the Plan may sell the Property or LLC Interest to the unrelated third party within 360 days without triggering a new Right of First Offer. During the term of the Lease and any Lease Renewal, the Independent Fiduciary is solely responsible for: (a) determining whether, when, and under what terms the Plan may prudently sell one or both of: (i) The LLC Interests; or (ii) the Properties; and (b) approving any such sale as being in the interest of, and protective of, the Plan. In addition, the Independent Fiduciary may not implement the Right of First Offer unless the Independent Fiduciary has first negotiated the terms and conditions of an Unrelated Proposed Sale. E:\FR\FM\12MYN2.SGM 12MYN2 asabaliauskas on DSK3SPTVN1PROD with NOTICES Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices Legal Analysis 13. The Act prohibits a wide range of transactions involving a plan. In this regard, section 406(a)(1)(A) of the Act provides that a fiduciary with respect to a plan shall not cause a plan to engage in a transaction if the fiduciary knows or should know that such transaction constitutes a direct or indirect sale or exchange, or leasing, of any property between a plan and a party in interest. Section 406(a)(1)(B) of the Act states that a fiduciary with respect to a plan shall not cause a plan to engage in a transaction if the fiduciary knows or has reason to know that such transaction constitutes a direct or indirect extension of credit between a plan and a party in interest. Section 406(a)(1)(D) of the Act provides that a fiduciary with respect to a plan shall not cause a plan to engage in a transaction if the fiduciary knows or should know that such transaction constitutes a direct or indirect transfer to, or use by or for the benefit of, a party in interest, of any assets of the plan. Section 406(b)(1) of the Act prohibits a fiduciary from dealing with the assets of the plan in such fiduciary’s own interest or for such fiduciary’s personal account. Section 406(b)(2) of the Act prohibits a fiduciary from acting in such fiduciary’s individual or other capacity in any transaction involving the plan on behalf of a party (or from representing a party) whose interests are adverse to the interests of the Plan, or the interests of the Plan participants and beneficiaries. 14. The term ‘‘party in interest’’ is defined in section 3(14)(A) and (C) of the Act to include a fiduciary with respect to a plan, and an employer, any of whose employees are covered by such Plan. In addition, section 3(14)(G) of the Act defines the term ‘‘party in interest’’ to include any corporation of which 50% or more of the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of such corporation is owned directly or indirectly, or held by such employer. As fiduciaries to the Plan, the Trustees are parties in interest with respect to the Plan pursuant to section 3(14)(A) of the Act. ABARTA, as an employer whose employees are covered by the Plan, and the Tenants, as wholly-owned subsidiaries of ABARTA, are parties in interest with respect to the Plan pursuant to section 3(14)(C) and (G) of the Act, respectively. If this proposed exemption is granted, the Contribution, the Leases and the Lease Renewals would violate section 406(a)(1)(A), 406(b)(1) and (b)(2) of the Act. The Right of First Offer would violate section 406(a)(1)(A), 406(b)(1) and (b)(2) of the Act. A sale back of a VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 Property or LLC interest by the Plan to ABARTA pursuant to the Right of First Offer would violate section 406(a)(1)(A) and (D) of the Act, as well as section 406(b)(1) and (b)(2) of the Act. In addition, the Indemnification and the Make Whole Obligation would violate section 406(a)(1)(C) of the Act, and section 406(b)(1) and (b)(2) of the Act. 15. In addition to the prohibited transaction provisions described above, sections 406(a)(1)(E) and 406(a)(2) of the Act prohibit a plan from acquiring or holding employer real property in violation of section 407(a) of the Act.8 Section 407(a) of the Act provides that a plan may not acquire or hold employer real property unless such property is ‘‘qualifying employer real property.’’ Section 407(d)(2) of the Act defines the term ‘‘employer real property’’ as real property that is leased to an employer or to an affiliate of such employer. Section 407(d)(4) of the Act defines the term ‘‘qualifying employer real property’’ to mean parcels of employer real property: (a) If a substantial number of the parcels are dispersed geographically; (b) if each parcel of real property and the improvements thereon are suitable (or adaptable without excessive cost) for more than one use; and (c) if the acquisition and retention of such property complies with the provisions of sections 406 and 407 of the Act. Section 407(a)(2) of the Act further prohibits a plan from acquiring or holding qualifying employer real property where ‘‘immediately after such acquisition the aggregate fair market value of employer securities and employer real property held by the plan exceeds 10% of the fair market value of the assets of the plan.’’ Given that: the acquisition and retention of the Properties by the Plan would not comply with the provisions of section 406 and 407 of the Act; and fair market values of the Properties immediately after acquisition would constitute approximately 18.7% of the fair market value of the Plan’s assets, the Plan’s acquisition and holding of the Properties would violate sections 406(a)(1)(E), 406(a)(2), and 407(a) of the Act. 29701 The Qualified Independent Appraiser 16. The Independent Fiduciary has retained CBRE, Inc. (CBRE) to render an opinion as to the fair market value of the Properties. CBRE is a real estate appraisal firm that provides real estate financial advisory services and employs personnel with extensive experience providing valuation and appraisal services for real estate classified as warehouse/distribution. Thomas H. Myers, Jr. and John B. Rush of CBRE’s Valuation and Advisory Services prepared the appraisal report for the Pennsylvania Property (the Pennsylvania Property Appraisal Report) in November, 2014, and will update that report for purposes of this exemption, if granted. Mr. Myers is a Certified General Real Estate Appraiser in Pennsylvania and New Jersey, and an Affiliate Member of the Appraisal Institute (MAI). Mr. Myers has 43 years of relevant real estate experience, with a primary focus on major industrial properties. Mr. Rush is a Certified General Real Estate Appraiser in Delaware, New Jersey, and Pennsylvania, and has over 39 years of relevant real estate experience, including experience that encompasses a wide variety of property types including office, retail, and industrial. Mr. Rush also holds an MAI designation from the Appraisal Institute and a CRE designation from the Counselors of Real Estate. Robert J. DiFalco and Joseph V. Ferranti of CBRE’s Valuation and Advisory Services prepared an appraisal report for the New York Property (the New York Appraisal Report) in November, 2014, and will update that report for purposes of this exemption, if granted. Mr. DiFalco is a Certified General Real Estate Appraiser in New York, New Jersey, and Connecticut and an MAI. 17. As represented by CBRE, each Appraisal Report is self-contained and intended to comply with the reporting requirements set forth under Standards Rule 2–2(a) of USPAP. Additionally, CBRE represents that the intended use of the Appraisal Report is to assist the Independent Fiduciary appointed to oversee the proposed transactions to comply with its responsibilities under the Act in connection with the proposed transactions. Finally, CBRE represents that its fee for appraisal services provided in connection with the proposed transactions represents less than 0.5% of its annual revenues in 2014 and 2015, which are the years it has provided such services. 8 According to the Applicant, the LLC Interests are pass-through entities, owning 100% of the underlying Properties. Therefore, the Applicant asserts that the LLC Interests are not considered securities, or for that matter, ‘‘employer securities’’ or ‘‘qualifying employer securities’’ under section 407(d)(1)or section 407(d)(5) of the Act. Pennsylvania Property Appraisal Report 18. In the Pennsylvania Property Appraisal Report, CBRE describes the Pennsylvania Property as a 10.615 acre parcel of land improved by a 116,751 square foot warehouse/distribution PO 00000 Frm 00007 Fmt 4701 Sfmt 4703 E:\FR\FM\12MYN2.SGM 12MYN2 29702 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES facility. CBRE notes that the Property is located in the Lehigh Valley region, an area with a relatively diverse economic base which protects the region from the effects of wide swings in the economy. CBRE also notes that the Pennsylvania Property lies in Bethlehem, which is the most populous city in the Lehigh Valley, and that the long-term trends of the region should exert positive influences on the Property’s value. CBRE states that modern warehouse/ distribution facilities, like the Pennsylvania Property, are a desirable commodity in the current marketplace. As explained by CBRE, this desirability is due to the general versatility of such facilities and a heightened demand for just-in-time delivery of products. CBRE also emphasizes that warehouse/ distribution facilities are generally perceived to be a relatively stable asset class. Pursuant to analysis based upon the Sales Comparison Approach and Income Capitalization Approach, CBRE concluded that the fair market value of the Pennsylvania Property was $4,400,000 as of November 7, 2014, in an appraisal report dated November 10, 2014. In addition, within its Income Capitalization analysis of the Pennsylvania Property, CBRE completed a market rent analysis and estimated that a base rental amount of $3.25 per square foot, or $379,441 per year was appropriate for the space. New York Property Appraisal Report 19. In the New York Property Appraisal Report, CBRE describes the New York Property as a 9.05 acre parcel of land improved by two adjacent warehouse buildings which cover a combined 107,250 square feet of space. CBRE notes that the structures are in average overall condition and that there are no known factors that impact their marketability. CBRE determined that the New York Property’s location in the Town of Tonawanda in Erie County, New York is suitable for the Property’s current industrial use. In the Appraisal Report, CBRE notes that the New York Property’s location places it in a stable industrial market, within an extensive transportation network near the United States-Canada border. Pursuant to analysis based upon the Sales Comparison Approach and the Income Capitalization Approach, CBRE concluded that the fair market value of the New York Property was $2,500,000, as of November 3, 2014, in an Appraisal Report dated November 4, 2014. In addition, within its Income Capitalization analysis of the New York Property, CBRE completed a market rent analysis and estimated that a base rental VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 amount of $3.25 per square foot on a triple-net basis, or $348,563 per year was appropriate for the space, as of November 4, 2014. The Qualified Independent Fiduciary 20. For the purposes of the Covered Transactions, the Trustees have retained Evercore Trust Company (Evercore) to serve as the Independent Fiduciary for the Plan. Evercore represents that it has provided independent fiduciary services to employee benefit plans since 1987, and that it has extensive experience in making and evaluating investment decisions and with transactions implicating the prohibited transaction provisions of the Act. Evercore also represents that it has significant experience with the management and disposition of Plan assets and transactions involving real estate. In its Engagement Letter, Evercore represents that it is independent of and unrelated to ABARTA, and that it does not directly or indirectly control, is not controlled by, and is not under common control with ABARTA. Evercore also represents that it will not directly or indirectly receive any compensation or other consideration for its own account in connection with the Covered Transactions, except for fees received in connection with its duties as Independent Fiduciary. Further, Evercore represents that its annual compensation received as Independent Fiduciary has been less than 0.5% of its annual revenues in each of the years it has been working on this engagement. Evercore states that it will perform the following duties as Independent Fiduciary of the Plan: (a) Determine whether the Covered Transactions are in the interest of the Plan and its participants and beneficiaries; (b) negotiate the terms and conditions of the Covered Transactions on behalf of the Plan, including the Transfer Agreements, the Leases, the Lease Renewals, the Make Whole Obligation, the Indemnification, and the Right of First Offer thereunder, and other documents which Evercore, together with its legal counsel, deems necessary and in the Plan’s interest to proceed with the proposed transactions; (c) determine whether and on what terms the Plan should agree to the Covered Transactions; (d) determine whether the Plan will enter into the Covered Transactions; (e) determine, together with the Independent Appraiser, the fair market value of the Properties to be contributed to the Plan, as well as the fair market rental values of the Properties under the Leases; and (e) prepare a written report for submission to the Department in connection with PO 00000 Frm 00008 Fmt 4701 Sfmt 4703 the exemption, if it determines that the Covered Transactions are in the interest of the Plan. Evercore will continue to serve as Independent Fiduciary to the Plan following the Contribution of the LLC Interests to the Plan. In this regard, Evercore will: (a) Review, negotiate, and approve the terms and conditions of such Covered Transactions; (b) ensure, for purposes of the Contribution, that the Appraisal Reports of the Properties are consistent with sound principles of valuation, and that the LLC interests are valued at fair market value as of the date of the Contribution, as determined by the the Independent Appraiser; (c) review and examine all aspects of the Properties and the LLC Interests under the provisions of the Transfer Agreement, and have the right to terminate such agreement on behalf of the Plan by providing appropriate written notice to ABARTA; (d) monitor and enforce the Plan’s rights and interests with respect to the Properties under the terms of the Leases, the Lease Renewals, the Make Whole Obligation, the Indemnification, and the Right of First Offer, and any other agreements regarding the Properties or the LLCs; (e) propose, negotiate, and decide whether to enter into any agreements on behalf of the Plan to amend the Leases; (f) evaluate and decide whether to grant requests for alterations to the Properties, to the extent that such alterations would: (i) Diminish the fair market value or remaining useful life of the Properties; (ii) affect the structure or systems of any building existing on the Properties, or (iii) effect an expansion of any building existing on the Properties; (g) ensure compliance with all of the terms of the Leases throughout the initial term of such Leases and throughout the duration of any renewal of such Leases; (h) arrange for appraisals of the Properties as may be necessary to satisfy the Plan’s responsibilities under ERISA and the terms of this exemption; (i) manage the disposition of the Properties or the LLC Interests in connection with the Right of First Offer, and ensure that the Plan does not transfer any portion of its LLC Interests to a party in interest, such as ABARTA or the Tenants; (j) determine whether the continued ownership of the LLC Interests or the Properties is in the interests of the Plan’s participants and beneficiaries and whether, when and on what terms to seek prudently to sell one or both of the LLCs or to cause the respective LLCs to sell one or both of the Properties; (k) negotiate the terms and conditions of, and consummate such sale and disposition, in the event E:\FR\FM\12MYN2.SGM 12MYN2 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices such fiduciary determines to sell one or both of the LLCs or to cause the respective LLCs to sell or otherwise dispose of one or both Properties; and (l) monitor and enforce compliance with the conditions of this exemption, if granted. To assist with the negotiation of the Leases and Transfer Agreements, Evercore engaged the law firms of Pillsbury Winthrop Shaw Pittman LLP (Pillsbury) and Chernow Kapustin LLC (Chernow). The fees and expenses of Evercore, as well as all fees and expenses of Pillsbury and Chernow, will be paid by ABARTA. asabaliauskas on DSK3SPTVN1PROD with NOTICES The Independent Fiduciary Report 21. In the preliminary Independent Fiduciary Report, Evercore concludes that the Covered Transactions are prudent and in the interest of the Plan’s participants and beneficiaries. In support of this conclusion, Evercore emphasizes that the Covered Transactions will immediately improve the Plan’s actuarial position, diversify the Plan’s overall portfolio of assets, and reduce the Plan’s reliance on future cash contributions from ABARTA. Specifically, Evercore notes that, absent receipt by the Plan of the LLC Interests and a $500,000 cash contribution, and assuming the Plan’s future receipt of required minimum contributions, the Plan’s AFTAP funding percentage would be 80.54% for Plan year 2016 and 83.14% for Plan year 2017. Evercore concludes that, with the acquisition of the LLC Interests and the $500,000 cash contribution from ABARTA, the Plan’s projected funding levels will improve, on a MAP–21/ HAFTA basis, to 83.37% for 2016 and 85.27% for 2017. In further support of this conclusion, Evercore asserts that the Covered Transactions will improve the diversification of the Plan’s investments. Evercore emphasizes that the Plan currently holds no real estate, and that its current investments consist entirely of liquid, marketable equity and fixed income securities. Evercore explains that the Plan’s ownership and leasing of the Properties to creditworthy tenants will enhance the diversification of its portfolio in view of the low correlation of returns between real estate and other asset classes, such as the equity and fixed income securities in which the Plan’s assets are currently invested. Based upon its analysis of the Plan’s current investments, Evercore concludes that adding real estate exposure to the Plan’s asset allocation can be expected to improve the Plan’s overall risk adjusted return. VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 Evercore asserts that the terms of the Covered Transactions, as set forth in the Transfer Agreements and Leases, are both reasonable and consistent with terms negotiated between unrelated parties in a similar arm’s-length transaction. Evercore emphasizes that its own representatives, as well as expert real estate counsel were directly involved in negotiations with ABARTA regarding the terms of the Transfer Agreements and the Leases. Evercore also emphasizes that the bondable structure of the Leases is advantageous to the Plan, as it (a) provides additional assurances that rent due under the Leases will be paid to the Plan; and (b) relieves the Plan of any obligation to expend Plan assets on the Properties for any purpose, including repairs and capital improvements. Evercore concludes that the Covered Transactions do not place any financial burden on the Tenants. Evercore notes that the annual rent of $379,441 under the Pennsylvania Property Lease represents only 12.6% of the $3.0 million average EBITDA generated by Coca-Cola Lehigh Valley, and that the annual rent of $348,563 under the New York Lease represents only 13.9% of the $2.5 million average EBITDA generated by Coca-Cola Buffalo. Evercore concludes that the rental rates and escalator clauses under the Leases are consistent with the Independent Appraiser’s determination of fair market rental value in the Properties’ respective markets. In this regard, Evercore asserts that the bondable structure of the Leases make them more marketable and financeable than a standard, non-bondable lease. With respect to the New York Lease, Evercore states that the bondable lease structure serves to mitigate the absence of an escalator clause. Finally, Evercore concludes that there is no marketability limitation attributable to the LLC Interests, other than as provided generally by applicable law. In this regard, Evercore asserts that the Right of First Offer will not impair the Plan’s ability to sell the LLC Interests or the Properties at fair market value. Evercore cites to the fact that the Right of First Offer is exercisable only at either: (a) Each Property’s fair market value; or (b) the value of an unsolicited offer from an unrelated party. Evercore also emphasizes that ABARTA has agreed that if it declines to exercise the Right of First Offer and the Plan proceeds with a sale to an unrelated party, the purchaser will not have any Right of First Offer obligation with respect to ABARTA. PO 00000 Frm 00009 Fmt 4701 Sfmt 4703 29703 Environmental Assessments of the Properties 22. The Independent Fiduciary retained CBRE to render a Limited Subsurface Environmental Site Assessment Reports for the Properties. CBRE conducted a Phase II Limited Subsurface Environmental Site Assessment of the Pennsylvania Property on January 5, 2015 (the Pennsylvania Assessment). To complete the Pennsylvania Assessment, CBRE engaged EnviroProbe Service, Inc., a Pennsylvania-licensed drilling contractor, to collect seven soil borings from the Pennsylvania Property. Once collected, CBRE submitted the soil samples to TestAmerica Laboratories, Inc. for an analysis of volatile organic compounds (VOCs) and semi-volatile organic compounds (SVOCs). Following its analysis, TestAmerica, Inc. concluded that no concentrations of VOCs or SVOCs were detectable at concentrations exceeding the most stringent soil standards established by the Pennsylvania Department of Environmental Protection. At the conclusion of the Pennsylvania Assessment, CBRE notes that no further assessment, remediation, or reporting to the state of Pennsylvania is recommended. On December 29, 2014, CBRE performed a Phase I Environmental Site Assessment of the New York Property (the New York Assessment). To complete the New York Assessment, CBRE engaged Nature’s Way Environmental, a New York-licensed drilling contractor, to collect five soil borings from the Pennsylvania Property. Once collected, CBRE submitted the soil samples to ESC Lab Sciences, a New York-certified laboratory, for an analysis of VOCs and SVOCs. Following its analysis, ESC Lab Sciences concluded that concentrations of both VOCs and SVOCs were well below the commercial and industrial soil cleanup objectives promulgated by the New York State Department of Environmental Conservation. At the conclusion of the New York Assessment, CBRE states that no further assessment, remediation, or reporting to the state of New York is recommended. Statutory Findings 23. The Applicant represents that Covered Transactions are administratively feasible because they will be carried out under the supervision and direction of the Independent Fiduciary. The Applicant emphasizes that the Independent Fiduciary will represent the Plan in all aspects of the transactions, including E:\FR\FM\12MYN2.SGM 12MYN2 29704 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES with respect to the Contribution of the LLC Interests, as well as all aspects of the Leases, including the ROFO and any renewal of the Leases. The Applicant represents that the Covered Transactions are in the interest of the Plan and its participants and beneficiaries and are protective of their rights. In this regard, the Applicant emphasizes that the Contribution, which is well in excess of ABARTA’s minimum required contribution amount, will significantly improve the Plan’s funding status, as well as reduce the Plan’s reliance on future cash contributions from ABARTA. Additionally, the Applicant emphasizes that the Plan will receive valuable, appreciating real property assets that will produce a steady stream of future income for the Plan. 24. The Applicant also represents that, in the event the exemption is denied, the Plan and its Participants will incur certain hardships. The Applicant asserts that a denial of the proposed exemption would cause the Plan to forego the benefit of a voluntary contribution that is in excess of the minimum required amount, and as such, would leave the Plan at a lessadvantageous funding level. The Applicant further represents that a denial of the proposed exemption would deprive the Plan of two appreciating real property assets which produce a steady stream of reliable rental income. Summary 25. In summary, it is represented that the Covered Transactions will satisfy the statutory criteria for an exemption under section 408(a) of the Act because: (a) The Independent Fiduciary will negotiate the terms and conditions of the Contribution, and approve the Contribution as being in the interest of the Plan; (b) The LLC Interests will be contributed to the Plan at their current fair market value, as determined by the Independent Fiduciary following its review of the Appraisal Report that has been prepared by the Independent Appraiser; (c) On the date of the Contribution, the aggregate contributed value of the LLC Interests will be no less than the current fair market value of the Properties underlying the LLC Interests, as verified by the Independent Fiduciary; (d) On the date of the Contribution, ABARTA will contribute to the Plan a cash amount that is no less than $500,000; (e) Immediately following the Contribution, the aggregate fair market VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 value of employer real property and employer securities held by the Plan will represent less than 20% of the Plan’s assets; (f) As long as the Properties and/or LLC Interests are owned by the Plan, the Properties will not be altered in any way that would: (i) Diminish their fair market value or remaining useful life; (ii) affect the structure or systems of any building existing on the Properties; or (iii) affect an expansion of any building existing on the Properties, without the prior written approval of the Independent Fiduciary; (g) Following the Contribution, the Plan will not transfer a portion of its ownership interests in the LLCs or in the Properties to a party in interest to the Plan; (h) The Independent Fiduciary will negotiate the terms and conditions of the each Lease and Lease Renewal, and approve the Plan’s entering into each Lease and Lease Renewal, as being in the interest of, and protective of, the Plan; (i) Each Lease and Lease Renewal will remain, at all times, a bondable triple net lease, such that all costs attributable to a Property (including, among other things, taxes, insurance, utilities, and non-capital maintenance, repair, and capital improvements) are the responsibility of the Tenant, until the earlier of: (i) The date on which the Property or LLC Interest is first transferred to any person or entity that is not wholly-owned by the Plan; (ii) the date on which the Plan sells a controlling interest in the LLC to an entity that is not wholly-owned by the Plan; or (iii) the date the Lease or Lease Renewal terminates by operation of law; (k) Any amendment to a Lease or Lease Renewal will be negotiated and approved by the Independent Fiduciary; however, in no event will any amendment be inconsistent with the terms of this exemption, if granted; (l) For each Lease Renewal, all provisions of the Lease on which the Lease Renewal is based, with the exception of the specific rent amount and any escalator provision, will remain in effect; (m) After the Contribution, as of the earlier of: (i) A Sale Date; or (ii) a First Calculation Date, if (A)(1) the current fair market value of a Property (or LLC interest), in the case of a sale, or (2) the current fair market value of the Property (or the LLC interest) as of the First Calculation Date, in the case in which there has not been a sale, plus (B) any income generated by the Property during that period, less (C) any expenses attributable to the Property (or the LLC Interest) paid by the Plan during that PO 00000 Frm 00010 Fmt 4701 Sfmt 4703 period, is less than (D) the fair market value of such Property (or the LLC Interest) at the time of the Contribution, plus (E) an amount equal to a 5% percent rate of return on such Contributed Value during that period, compounded annually; then the Tenant will contribute an amount of cash to the Plan equal to any such difference, within 60 days of the Sale Date or First Calculation Date; (n) If the Plan continues to hold a Property or LLC Interest during all or a portion of any of the three consecutive Lookback Periods, within 60 days of the earlier of: (i) A Sale Date; or (ii) a Subsequent Calculation Date, if (A)(1) the proceeds received from the fair market value sale of a Property (or LLC interest), in the case of a sale, or (2) the current fair market value of the LLC interest as of the applicable Subsequent Calculation Date, in the case in which there has not been a sale, plus (B) any income generated by the Property during that period, (C) less any expenses paid by the Plan during that period regarding the LLC interest or Property, is less than (D) the fair market value of such LLC Interest as of the first day of the applicable Lookback Period, plus (E) an amount equal to a 5% percent rate of return on such Contributed Value during that period, compounded annually; then the Tenant will contribute to the Plan an amount of cash equal to any such difference, within 60 days of the Sale Date or Subsequent Calculation Date; (o) The Plan will receive the full amount that the Plan may be due under the Make Whole Obligation within 60 days of the applicable Sale Date, Calculation Date, or Subsequent Calculation Date, as verified by the Independent Fiduciary; (p) In connection with each Lease and Lease Renewal, and as set forth in writing therein, the applicable Tenant will indemnify, defend upon request, and hold the Plan harmless from any, and against all, losses, penalties and court costs related to: (i) The Tenant’s use, repair, management, lease, sublease, maintenance or operation of a Property, (ii) any violation of any applicable environmental laws, the ADA, and other health and/or safety laws; and (iii) any default by the Tenant under the Lease or Lease Renewal; (q) Any amount owed the Plan in connection with a Tenant’s Indemnification of the Plan, as described in the preceding paragraph, will be negotiated and approved by the Independent Fiduciary, and will be paid to the Plan within the timeframe set forth by the Independent Fiduciary; E:\FR\FM\12MYN2.SGM 12MYN2 asabaliauskas on DSK3SPTVN1PROD with NOTICES Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices (r) During the term of the Lease and any Lease Renewal, the Independent Fiduciary will be solely responsible for determining whether, when, and under what terms the Plan may prudently sell one or both of: (i) The LLCs; or (ii) the Properties; (s) During the term of the Lease and any Lease Renewal, the Independent Fiduciary will approve any sale by the Plan of one or both of: (i) The Properties; or (ii) the LLC, as being in the interest of, and protective of, the Plan; (t) The Independent Fiduciary will not implement the Right of First Offer unless the Independent Fiduciary has first negotiated the terms and conditions of a proposed sale of an LLC Interest (or a Property) to a party that is unrelated to ABARTA or any of its affiliates; (u) Any sale of an LLC Interest or Property to ABARTA pursuant to the Right of First Offer, will equal the greater of: (1) The price negotiated by the Independent Fiduciary, as between the Plan and the party that is unrelated to ABARTA; or (2) the current fair market value of the Property, as determined by the Independent Appraiser; (v) If ABARTA does not purchase the Property or LLC Interest under the same terms as the terms associated with the Unrelated Proposed Sale, the Plan may sell the Property or LLC Interest to the unrelated third party within 360 days without triggering a new Right of First Offer; (w) The Independent Fiduciary will represent the interests of the Plan for all purposes with respect to the Covered Transactions; (x) The Independent Fiduciary will: (i) Review, negotiate and approve the terms and conditions of each Covered Transaction; (ii) review and approve the terms of the Transfer Agreement that evidences the Contribution; (iii) monitor and enforce the Plan’s rights and interests with respect to the Properties; (iv) monitor ABARTA’s compliance with the terms of this exemption, including all obligations set forth under the Leases; and (v) take all steps that are necessary and proper to protect the Plan in the event of any non-compliance by ABARTA; (y) The Plan will does not pay any real estate fees, commissions, costs or other expenses in connection with the proposed transactions, including any fees that are currently charged, or any fees which accrue in the future; and (z) The terms and conditions of the Covered Transactions will be no less favorable to the Plan than those obtainable under similar circumstances VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 when negotiated at arm’s-length with unrelated third parties. 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 all individuals who are participants in the Plan. It is represented that such interested persons will be notified of the publication of the Notice by first class mail to 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 on and/or to request a hearing. All written comments or hearing requests must be received by the Department from interested persons within 45 days of the publication of this proposed exemption in the Federal Register. All comments will be made available to the public. Warning: Do not include any personally identifiable information (such as name, address, or other contact information) or confidential business information that you do not want publicly disclosed. All comments may be posted on the Internet and can be retrieved by most Internet search engines. FOR FURTHER INFORMATION CONTACT: Mr. Joseph Brennan of the Department at (202) 693–8456. (This is not a toll-free number.) Sears Holdings 401(k) Savings Plan (the Savings Plan) and the Sears Holdings Puerto Rico Savings Plan (the PR Plan) (collectively, the Plans), Located in Hoffman Estates, IL [Exemption Application Nos. D–11846 and D–11847] Proposed Exemption The Department is considering granting an exemption under the authority of section 408(a) of the Employee Retirement Income Security Act of 1974, as amended (ERISA or the Act), and section 4975(c)(2) of the Internal Revenue Code of 1986, as amended (the Code), and in accordance with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011). Section I. Transactions (a) If the proposed exemption is granted, the restrictions of sections 406(a)(1)(E), 406(a)(2), 406(b)(1), PO 00000 Frm 00011 Fmt 4701 Sfmt 4703 29705 406(b)(2), and 407(a)(1)(A) of the Act and the sanctions resulting from the application of section 4975 of the Code, by reason of section 4975(c)(1)(E) of the Code,9 shall not apply to the acquisition and holding by the Savings Plan of certain subscription rights (the Rights) to purchase shares of common stock (the SC Stock) in Sears Canada Inc. (Sears Canada) in connection with an offering (the Offering) by Sears Holdings Corporation (Holdings) of shares of SC Stock, provided that the conditions as set forth, below, in Section II of this proposed exemption were satisfied for the duration of the acquisition and holding; and (b) If the proposed exemption is granted, the restrictions of sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 407(a)(1)(A) of the Act 10 shall not apply to the acquisition and holding of the Rights by the PR Plan in connection with the Offering of the SC Stock by Holdings, 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 (a) The receipt of the Rights by the Plans occurred in connection with the Offering, in which all shareholders of the common stock of Holdings (Holdings Stock), including the Plans, were treated in the same manner; (b) The acquisition of the Rights by the Plans resulted from an independent act of Holdings, as a corporate entity; (c) Each shareholder of Holdings Stock, including each of the Plans, received the same proportionate number of Rights based on the number of shares of Holdings Stock held by each such shareholder; (d) All decisions with regard to the holding and disposition of the Rights by the Plans were made by a qualified independent fiduciary (the Independent Fiduciary) within the meaning of 29 CFR 2570.31(j); 11 9 For purposes of this proposed exemption, unless indicated otherwise, references to section 406 of the Act should be read to refer as well to the corresponding provisions of section 4975 of the Code. 10 The Applicant represents that there is no jurisdiction under Title II of the Act with respect to the PR Plan. Accordingly, the Department is not providing any exemptive relief from section 4975(c)(1)(E) of the Code for the acquisition and holding of the Rights by the PR Plan. 11 29 CFR 2570.31(j) defines a ‘‘qualified independent fiduciary,’’ in relevant part, to mean ‘‘any individual or entity with appropriate training, experience, and facilities to act on behalf of the plan regarding the exemption transaction in accordance with the fiduciary duties and responsibilities prescribed by ERISA, that is E:\FR\FM\12MYN2.SGM Continued 12MYN2 29706 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices (e) The Independent Fiduciary determined that it would be in the interest of the Plans to sell all of the Rights received in the Offering by the Plans in blind transactions on the NASDAQ Global Select Market; (f) No brokerage fees, commissions, subscription fees, or other charges were paid by the Plans with respect to the acquisition and holding of the Rights, or were paid to any affiliate of Holdings, Sears Canada, or the Independent Fiduciary, with respect to the sale of the Rights. Section III. Definitions (a) The term ‘‘affiliate’’ of a person includes: (1) Any person directly or indirectly through one or more intermediaries, controlling, controlled by, or under common control with such person; (2) Any officer, director, partner, employee, or relative, as defined in section 3(15) of the Act, of such person; and (3) Any corporation or partnership of which such person is an officer, director, partner, or employee. (c) The term ‘‘control’’ means the power to exercise a controlling influence over the management or policies of a person other than an individual. Effective Date: This proposed exemption, if granted, will be effective for the period beginning October 16, 2014, and ending November 7, 2014 (the Offering Period). Summary of Facts and Representations asabaliauskas on DSK3SPTVN1PROD with NOTICES Background 1. Sears Holdings Corporation (Holdings), is the parent company of Kmart and Sears, Roebuck, & Co. (Sears Roebuck). Holdings was formed as a Delaware corporation in 2004 in connection with the merger of Kmart and Sears Roebuck on March 24, 2005. In August 2014, Sears Holdings operated a national network of stores with 1,870 full-line and specialty retail stores in the United States operating independent of and unrelated to any party in interest engaging in the exemption transaction and its affiliates;’’ in general, a fiduciary is presumed to be independent ‘‘if the revenues it receives or is projected to receive, within the current federal income tax year from parties in interest (and their affiliates) [with respect] to the transaction are not more than 2% of such fiduciary’s annual revenues based upon its prior income tax year. Although the presumption does not apply when the aforementioned percentage exceeds 2%, a fiduciary nonetheless may be considered independent based upon other facts and circumstances provided that it receives or is projected to receive revenues that are not more than 5% within the current federal income tax year from parties in interest (and their affiliates) [with respect] to the transaction based upon its prior income tax year.’’ VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 through Kmart and Sears Roebuck as well as full-line and specialty retail stores in Canada operating through Sears Canada, Inc. (Sears Canada). As of October 15, 2015, Holdings owned approximately 51% of Sears Canada. 2. Common stock issued by Holdings (Holdings Stock), par value $0.01 per share, is publicly-traded on the NASDAQ Global Select market under the symbol, ‘‘SHLD.’’ As of October 16, 2014, there were 12,293 shareholders of record and approximately 106,484,024 shares of Holdings Stock issued and outstanding. ESL Investments, Inc. and its affiliates (ESL), including Edward S. Lampert (Mr. Lampert) owned approximately 48.5 percent of the Holdings Stock, issued and outstanding, as of October 16, 2014. Mr. Lampert is the Chairman of the Board of Directors and Chief Executive Officer of Holdings. He is also the Chairman and Chief Executive Officer of ESL. 3. Holdings and certain of its affiliates sponsor the Sears Holdings Savings Plan (the Savings Plan) and the Sears Holdings Puerto Rico Savings Plan (the PR Plan) (collectively the Plans). Each Plan is a participant-directed account plan that permits participants to invest in equity, fixed income, balanced funds, and an investment fund (the Stock Fund) comprised of Holdings Stock. The Plans are designed and operated to comply with the requirements of section 404(c) of the Act. The Savings Plan and the PR Plan assets are held together within the Sears Holdings 401(k) Savings Plan Master Trust (the Master Trust), which also holds the Stock Fund and consequently, shares of Holdings Stock.12 The Plans’ participants, therefore, indirectly own shares of Holdings Stock, through investments in the Stock Fund. 4. Sears Roebuck and all of its whollyowned (direct and indirect) subsidiaries and Sears Holdings Management Corporation (SHMC), a wholly-owned subsidiary of Holdings, with respect to certain employees, have adopted the Savings Plan and are employers under that Plan. As of October 16, 2014 (the Record Date), there were 60,260 participants in the Savings Plan, and the Savings Plan’s share of the total assets of the Master Trust was $2,825,371,014. Also, as of the Record Date, the Savings Plan’s allocable share of the Holdings Stock held in the Stock Fund under the Master Trust was 1,515,803 shares, and the approximate percentage of the fair 12 State Street Bank and Trust Company serves as the master trustee and custodian for the Master Trust. PO 00000 Frm 00012 Fmt 4701 Sfmt 4703 market value of the total assets of the Savings Plan invested in Holdings Stock was two percent, which amount constituted approximately one percent of the 106 million shares of Holdings Stock issued and outstanding. The Savings Plan is administered by the Sears Holding Corporation Administrative Committee (the Administrative Committee), whose members are officers and/or employees of SHMC. The Sears Holdings Corporation Investment Committee (the Investment Committee), whose members are officers and/or employees of SHMC, has authority over decisions relating to the investment of the Savings Plan’s assets. 5. The PR Plan was established by Holdings for employees of Sears Roebuck de Puerto Rico (Sears Roebuck PR) who reside in the Commonwealth of Puerto Rico. The Applicant represents that the fiduciaries of the PR Plan have not made an election under section 1022(i)(2) of the Act, whereby such plan would be treated as a trust created and organized in the United States for purposes of tax qualification under section 401(a) of the Code. Therefore, according to the Applicant, there is no jurisdiction under Title II of the Act. There is, however, jurisdiction under Title I of the Act. As of December 31, 2014, there were 7,550 participants in the PR Plan. As of the Record Date there were 1,765 participants in the PR Plan with account balances, and the PR Plan’s share of the total assets of the Master Trust was $17,023,422. Also, as of the Record Date, the PR Plan’s allocable share of the Holdings Stock held in the Stock Fund under the Master Trust was 46,880 shares, and the approximate percentage of the fair market value of the total assets of the PR Plan invested in Holdings Stock was eight percent, which amount constituted less than one tenth of one percent of the 106 million shares of Holdings Stock issued and outstanding. The PR Plan is administered by the Administrative Committee, and the Investment Committee makes investment decisions for the PR Plan. Banco Popular de Puerto Rico serves as the trustee of the PR Plan. Sears Canada 6. Sears Canada was incorporated in Canada in 1952 and its headquarters are in Toronto, Ontario. It is a multi-format retailer and, as of October 14, 2014, had a total network of 113 full-line department stores, 307 specialty stores, 1,378 catalogue merchandise pick-up locations, and 96 Sears Travel offices. E:\FR\FM\12MYN2.SGM 12MYN2 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES As of October 16, 2014, approximately 51% of SC Stock was held by Holdings. Prior to the Offering, SC Stock traded on the Canadian Toronto Stock Exchange (TSX) under the symbol ‘‘SCC’’ and, as of October 8, 2014, it was also listed and trading on the U.S. NASDAQ under the symbol ‘‘SRSC.’’ The Offering 7. On October 2, 2014, Holdings announced its intent to conduct a rights offering to shareholders (the Offering) as a means of disposing of a non-core asset (its Sears Canada holdings) and raising substantial cash proceeds for Holdings. Furthermore, in the opinion of Holdings, the Offering gave shareholders of Holdings Stock the ability to avoid dilution by retaining their ownership percentage in Holdings and in Sears Canada. On October 15, 2014, Holdings issued the final prospectus describing the Offering to shareholders of record, including the Plans, as of the Record Date. Under the terms of the Offering, on October 16, 2014, all shareholders of record of Holdings Stock, including the Plans, automatically received one Right for each whole share of Holdings Stock held by each such shareholder. The Applicant represents that the Master Trust (the Trust) acquired 1,562,683 Rights through the Offering. 8. Each Right permitted the holder thereof to purchase 0.375643 shares of SC Stock from Holdings at a subscription price of $9.50 per whole share.13 Each Right also contained an over-subscription privilege permitting the holder to subscribe for additional shares of SC Stock, up to the number of shares of SC Stock that were not subscribed for by the other holders of the Rights. The Plans were not eligible to participate in the over-subscription privilege because a qualified, independent fiduciary acting on behalf of the Plans, sold the Rights received by the Plans, as discussed more fully below. 9. All shareholders of Holdings Stock held the Rights until such Rights expired, were exercised, or were sold. With regard to the exercise of the Rights, the Applicant represents that the Rights could only be exercised in whole numbers. Each shareholder of Holdings Stock needed to have at least three Rights to purchase a share of SC Stock, because only whole shares could be 13 The subscription price was determined by Holdings and is the U.S. dollar equivalent of the closing price of Sears Canada Stock on the TSX on September 26, 2014, the last trading day before Holdings requested Sears Canada’s cooperation with the filing of a prospectus qualifying the shares deliverable upon exercise of the Rights. VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 purchased by the exercise of the Rights. Fractional shares or cash in lieu of fractional shares were not issued in connection with the Offering. 10. With regard to the sale of the Rights, the Applicant represents that the Rights were transferable. Further, the Applicant represents that the Rights were traded on the NASDAQ Global Select Market under the symbol, ‘‘SHLDR.’’ The allocation of the Rights to shareholders was handled by Depository Trust Company (DTC). The Applicant represents that the public trading of Rights (the Trading Period) began on October 16, 2014, and continued until the close of business on November 4, 2014, the third business day prior to the close of the Offering. The Applicant further represents that this deadline applied uniformly to all holders of the Rights. 11. While the Plans generally permit participants to direct the investment of their own accounts, including their investments in Holdings Stock, all decisions regarding the holding and disposition of the Rights by each Plan were made, in accordance with the Plan provisions, by a qualified independent fiduciary acting solely in the interest of Plan participants.14 Participants in the Plans who were invested in Holdings Stock as of the Record Date were notified of the Offering, the engagement of the independent fiduciary, the fact that the Rights would be held in the Stock Fund, that the independent fiduciary would determine whether the Rights should be exercised or sold, and the means by which a participant could obtain more information. Holdings also communicated generally with employees regarding the Offering and with the public through public releases at www.searsholdings.com. 12. The Offering closed at 5 p.m. eastern standard time on November 7, 2014. The Applicant represents that 40,000,000 shares of SC Stock were subscribed for by shareholders or their transferees at a price of $9.50 per whole share. During the Trading Period, the price of the SC Stock on the NASDAQ ranged from $9.06 to $10.00 with a volume-weighted average price (VWAP) of $9.75. 14 Each of the Plans was amended to: (i) Permit the Plan to temporarily acquire and hold the Rights (and any Sears Canada stock acquired through the exercise of the Rights) pending their orderly disposition; (ii) confirm that participants were not entitled to direct the holding, exercise, sale, or other disposition of the Rights received by the Plan; and (iii) authorize the designated independent fiduciary to exercise discretionary authority with respect to the holding, exercise, sale, or other disposition of the Rights and any shares of Sears Canada stock acquired through the exercise of the Rights. PO 00000 Frm 00013 Fmt 4701 Sfmt 4703 29707 Following the Offering, Holdings’ interest in Sears Canada was reduced to approximately 11.7 percent. Accordingly, the Applicant states that following the closing of the Offering, Sears Canada became independent of Holdings. The Applicant represents that the gross proceeds payable to and received by Holdings from the sale of the SC Stock pursuant to the Offering, net of any selling expenses, was approximately $380 million. The Independent Fiduciary 13. Fiduciary Counselors Inc. (FCI) was retained by the Investment Committee pursuant to an agreement (the Agreement), dated October 16, 2014, to act as the independent fiduciary on behalf of the Plans, in connection with the Offering and an exemption application. Pursuant to the terms of the Agreement, FCI’s responsibilities were to determine whether or not and when to exercise or sell the Rights received by each Plan in the Offering.15 The Applicant represents that hiring an independent fiduciary to manage the holding and disposition of the Rights was appropriate in this case for the following reasons: (i) There would have been a significant cost to developing and implementing a process under each Plan to administer a pass-through of the Rights to participants; (ii) It was not practicable to initiate and implement a pass-through of the Rights to participants given the limited notice provided to shareholders of the Offering and the short subscription period (16 days), because such process would have included establishment of a ‘‘rights fund’’ and a Sears Canada fund within each Plan, the design and testing of procedures for allocating the Rights among participant accounts, soliciting participant directions on the exercise or sale of the Rights and identifying the source of funding (e.g., which investment account is to be liquidated) for each participant who chose to exercise the Rights, and the short Offering period meant that there would have been insufficient time to adequately educate participants regarding their rights and obligations; (iii) There would have been a loss of value that participants might otherwise have gained, because participants’ unfamiliarity with rights offerings as well as general participant inertia would have resulted in a significant percentage of participants allowing their Rights to 15 Because the Rights were automatically issued to all shareholders including the Plans and there was no option to decline them, the independent fiduciary was not asked to determine whether the Plans should acquire the Rights. E:\FR\FM\12MYN2.SGM 12MYN2 asabaliauskas on DSK3SPTVN1PROD with NOTICES 29708 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices expire without selling or exercising them; (iv) It was not in the interest of participants to require the Plans to offer and hold for participant investment a single stock (SC Stock) that had not been selected by the plan fiduciary as an investment option appropriate for the Plan; and (v) The Rights are most appropriately viewed as a non-cash dividend payable to owners of Holdings Stock such as the Plans, so that the fiduciary of the Stock Fund is the appropriate person to manage the ‘‘proceeds’’ of the Plans’ investment in Holdings Stock. The Applicant represents that, in this case, the independent fiduciary appointed to manage the Rights took responsibility for realizing the value in the Rights by selling them. The cash proceeds of that sale were then reinvested in Holdings Stock pursuant to the terms of the plan. The Applicant represents that FCI is qualified to serve as the independent fiduciary for the Plans in connection with the Offering, because FCI is a registered investment adviser under the Investment Advisers Act of 1940, and FCI is an independent company whose primary focus is providing independent fiduciary services for employee benefit plans. FCI has served as an independent fiduciary to employee benefit plans since 2001. In its ‘‘Report of Independent Fiduciary Regarding Sears Canada Rights Offering,’’ dated February 23, 2015 (The IF Report), FCI represents and warrants that it is independent and unrelated to Holdings. FCI further represents that it did not directly or indirectly receive any compensation or other consideration for its own account in connection with the Offering, except compensation from Holdings for performing services described in the Agreement. The percentage of FCI’s 2014 revenue derived from any party in interest involved in the subject transaction or its affiliates was less than five percent of FCI’s 2013 revenue. FCI represents further that it understands and acknowledges its duties and responsibilities under the Act in acting as a fiduciary on behalf of the Plans in connection with the Offering. In the IF Report, FCI represents that it conducted a due diligence process in evaluating the Offering on behalf of the Plans. This process included numerous discussions and correspondence with representatives of the Plans and Holdings, Holdings’ counsel, brokerdealers and representatives of the Plans’ trustee enabling FCI to better understand a number of important elements related to the Offering. In addition, FCI reviewed publicly VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 available information and information provided by Holdings. As detailed in the IF Report, with regard to the Offering, FCI considered the following four options: (i) Continue holding the Rights within the Stock Fund; (ii) Exercising all of the Rights and acquiring SC Stock; (iii) Selling a portion of the Rights and using the proceeds to exercise the remaining Rights to acquire SC Stock; or (iv) Selling all of the Rights on the NASDAQ Global Select Market at the prevailing market price. Acting as the independent fiduciary on behalf of the Plans, FCI chose to sell all of the Rights on the NASDAQ Global Select Market. In determining to sell all of the Plans’ Rights, FCI represents that the proceeds from the sale would be invested in Holdings Stock, as per the governing documents of the Stock Fund. As described in the IF Report, FCI determined that the benefits of selling the Rights included simplicity, lower transaction costs, and less exposure to risk than the options that involved exercising any of the Rights. According to FCI, this option allowed the Plans to realize the benefits of the Rights in a timely manner while maintaining maximum exposure to shares of Sears Holdings within the Stock Fund, consistent with the purpose of the Stock Fund. FCI understood that the Plans would incur some transactions costs through this option, estimated at $0.015 to $0.05 per Right traded. Accordingly, FCI concluded that this sale of the Rights was in the interest of the Plans and the Plans’ participants and beneficiaries and was protective of such participants and beneficiaries of the Plans. 14. The Trading Period ended on November 4, 2014. According to the IF Report, over the sixteen-day period that the Rights traded on the NASDAQ, the volume-weighted average price for the 58,546,218 Rights traded was $0.1239 according to data reported by Bloomberg. The IF Report provides that FCI completed the sale of the Plans’ 1,562,683 Rights in blind transactions on the NASDAQ Global Select Market between October 22 and October 31, 2014, realizing an average selling price of $0.1333 per Right. According to the Applicant, as a result of the Rights sale, the total net proceeds generated for the Savings Plan and the PR Plan was $200,557.36. These proceeds were credited to each Plan and the unit value of each participant’s account balance reflected the addition of assets credited to the Plan. 15. The Applicant represents that no brokerage fees, commissions, subscription fees, or other charges were PO 00000 Frm 00014 Fmt 4701 Sfmt 4703 paid by the Plans with respect to the acquisition and holding of the Rights, or were paid to any broker affiliated with FCI, Holdings, or Sears Canada in connection with the sale of the Rights. In this regard, FCI represents that it selected State Street Global Markets as the broker for the sale of the Plans’ Rights, based on FCI’s confidence in the broker’s execution ability and an attractive fee schedule of 0.005 cents per Right traded. In connection with the sale of the Rights, the Plans paid $7,813.42 in commissions to independent, third parties and $4.66 in SEC fees. Requested Relief 16. The Applicant represents that the subject transactions have already been consummated. In this regard, the Plans acquired the Rights pursuant to the Offering, and held such Rights until the Rights were sold by the independent fiduciary. The Applicant states that, because there was insufficient time between the dates when the Plans acquired the Rights and when such Rights were sold, to apply for and be granted an exemption, Holdings was required to request retroactive relief, effective as of October 16, 2014, the Record Date. 17. Section 406(a)(1)(E) of the Act prohibits a fiduciary from causing a plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or indirect acquisition, on behalf of a plan, of any employer security or employer real property in violation of section 407(a). Section 406(a)(2) of the Act prohibits a fiduciary who has authority or discretion to control or manage the assets of a plan from permitting a plan to hold any employer security or employer real property if he knows or should know that holding such security or real property violates section 407(a). The Applicant represents that because the Rights are non-qualifying employer securities, the acquisition and holding of the Rights violated sections 406(a)(1)(E), 406(a)(2), and 407(a) of the Act. Furthermore, section 406(b)(1) of the Act prohibits a fiduciary from dealing with the assets of a plan in his own interest or for his own account. Section 406(b)(2) of the Act prohibits a fiduciary, in his individual or in any other capacity, from acting in any transaction involving the plan on behalf of a party (or representing a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries. The Applicant states that, although Holdings retained an independent fiduciary to E:\FR\FM\12MYN2.SGM 12MYN2 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices represent the Plans in connection with the disposition of the Rights, by causing the participation of the Plans in the Offering, Holdings may have dealt with the assets of the Plans for its own account, and also may have acted in a transaction on behalf of itself and the Plans. Therefore, the Applicant requests an administrative exemption from sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 407(a)(1)(A) of the Act and section 4975 of the Code by reason of 4975(c)(1)(E) of the Code, with regard to the Savings Plan, and from sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 407(a)(1)(A) of the Act with regard to the PR Plan.16 asabaliauskas on DSK3SPTVN1PROD with NOTICES Statutory Findings 18. The Applicant represents that the requested exemption is administratively feasible because the acquisition, holding, and sale of the Rights by the Plans was a one-time transaction which will not require continued monitoring or other involvement by the Department. 19. The Applicant represents that the transactions which are the subject of this proposed exemption are in the interest of the Plans, because the Rights were automatically issued at no cost to all shareholders of Holdings Stock as of a specified Record Date, including the Plans. The Plans were then able to realize value through their sale. 20. The Applicant represents that the transactions were protective of the Plans and their respective participants and beneficiaries, as the Plans obtained the Rights as a result of an independent act of Holdings as a corporate entity. In addition, the acquisition of the Rights by the Plans occurred on the same terms made available to other holders of Holdings Stock and the Plans received the same proportionate number of Rights as other owners of Holdings Stock. The Plans were also protected in that all decisions regarding the holding and disposition of the Rights by the Plans were made, in accordance with Plan provisions, by the independent fiduciary. Furthermore, the independent fiduciary determined that it would be in the interest of the Plans to sell all of the Rights received in the Offering by the Plans in blind transactions on the NASDAQ Global Select Market. 16 The Applicant represents that there is no jurisdiction under Title II of the Act with respect to the PR Plan. Accordingly, the Department is not providing any exemptive relief from section 4975(c)(1)(E) of the Code for the acquisition and holding of the Rights by the PR Plan. VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 Summary 21. In summary, the Applicant represents that the proposed exemption satisfies the statutory criteria for an exemption under section 408(a) of the Act and section 4975(c)(2) of the Code for the reasons stated above and for the following reasons: (a) The receipt of the Rights by the Plans occurred in connection with the Offering, in which all shareholders of Holdings Stock, including the Plans, were treated in the same manner; (b) The acquisition of the Rights by the Plans resulted from an independent act of Holdings, as a corporate entity, and without any participation on the part of the Plans; (c) Each shareholder of Holdings Stock, including each of the Plans, received the same proportionate number of Rights based on the number of shares of Holdings Stock held by each such shareholder; (d) All decisions with regard to the holding and disposition of the Rights by the Plans were made by a qualified, independent fiduciary within the meaning of 29 CFR 2570.31(j); (e) The independent fiduciary determined that it would be in the interest of the Plans to sell all of the Rights received in the Offering by the Plans in blind transactions on the NASDAQ Global Select Market; and (f) No brokerage fees, commissions, subscription fees, or other charges were paid by the Plans with respect to the acquisition and holding of the Rights, or were paid to any affiliate of Holdings, Sears Canada, or the independent fiduciary with respect to the sale of the Rights. Notice to Interested Persons Notice of the proposed exemption will be given to all interested persons within 22 days of the publication of the notice of proposed exemption in the Federal Register, by first class U.S. mail to the last known address of all such individuals. Such notice will contain a copy of the notice of proposed exemption, as published in the Federal Register, and a supplemental statement, as required pursuant to 29 CFR 2570.43(a)(2). The supplemental statement will inform interested persons of their right to comment on and to request a hearing with respect to the pending exemption. Written comments and hearing requests are due within 52 days of the publication of the notice of proposed exemption in the Federal Register. All comments will be made available to the public. Warning: If you submit a comment, EBSA recommends that you include PO 00000 Frm 00015 Fmt 4701 Sfmt 4703 29709 your name and other contact information in the body of your comment, but DO NOT submit information that you consider to be confidential, or otherwise protected (such as Social Security number or an unlisted phone number) or confidential business information that you do not want publicly disclosed. All comments may be posted on the Internet and can be retrieved by most Internet search engines. FOR FURTHER INFORMATION CONTACT: Scott Ness of the Department, telephone (202) 693–8561. (This is not a toll-free number.) Sears Holdings 401(k) Savings Plan (the Savings Plan) and the Sears Holdings Puerto Rico Savings Plan (the PR Plan) (collectively, the Plans), Located in Hoffman Estates, IL [Exemption Application Nos. D–11851 and D–11852] Proposed Exemption The Department is considering granting an exemption under the authority of section 408(a) of the Employee Retirement Income Security Act of 1974, as amended (ERISA or the Act), and section 4975(c)(2) of the Internal Revenue Code of 1986, as amended (the Code), and in accordance with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011). Section I. Transactions (a) The restrictions of sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 407(a)(1)(A) of the Act and the sanctions resulting from the application of section 4975 of the Code, by reason of section 4975(c)(1)(E) of the Code,17 shall not apply to the acquisition and holding of certain subscription rights (the Rights) issued by Sears Holdings Corporation (Holdings) by the Savings Plan in connection with an offering (the Offering) by Holdings of unsecured obligations issued by Holdings (Notes) and warrants to purchase the common stock of Holdings (Warrants)(together referred to as Units), provided that the conditions as set forth, below, in Section II of this proposed exemption were satisfied for the duration of the acquisition and holding; and (b) The restrictions of sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 17 For purposes of this proposed exemption, unless indicated otherwise, references to section 406 of the Act should be read to refer as well to the corresponding provisions of section 4975 of the Code. E:\FR\FM\12MYN2.SGM 12MYN2 29710 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices 406(b)(2), and 407(a)(1)(A) of the Act 18 shall not apply to the acquisition and holding of the Rights by the PR Plan in connection with the Offering by Holdings, provided that the conditions as set forth in Section II of this proposed exemption were satisfied for the duration of the acquisition and holding. asabaliauskas on DSK3SPTVN1PROD with NOTICES Section II. Conditions (a) The receipt of the Rights by the Plans occurred in connection with the Offering, in which all shareholders of the common stock of Holdings (Holdings Stock), including the Plans, were treated in the same manner; (b) The acquisition of the Rights by the Plans resulted from an independent act of Holdings, as a corporate entity; (c) Each shareholder of Holdings Stock, including each of the Plans, received the same proportionate number of Rights based on the number of shares of Holdings Stock held by each such shareholder; (d) All decisions with regard to the holding and disposition of the Rights by the Plans were made by a qualified independent fiduciary (the Independent Fiduciary) within the meaning of 29 CFR 2570.31(j); (e) The Independent Fiduciary determined that it would be in the interest of the Plans to sell all of the Rights received in the Offering by the Plans in blind transactions on the NASDAQ Global Select Market; (f) No brokerage fees, commissions, subscription fees, or other charges were paid by the Plans with respect to the acquisition and holding of the Rights, or were paid to any affiliate of Holdings or the Independent Fiduciary in connection with the sale of the Rights. Section III. Definitions (a) The term ‘‘affiliate’’ of a person includes: (1) Any person directly or indirectly through one or more intermediaries, controlling, controlled by, or under common control with such person; (2) Any officer, director, partner, employee, or relative, as defined in section 3(15) of the Act, of such person; and (3) Any corporation or partnership of which such person is an officer, director, partner, or employee. (c) The term ‘‘control’’ means the power to exercise a controlling influence over the management or policies of a person other than an individual. 18 The Applicant represents that there is no jurisdiction under Title II of the Act with respect to the PR Plan. Accordingly, the Department is not providing any exemptive relief from section 4975(c)(1)(E) of the Code for the acquisition and holding of the Rights by the PR Plan. VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 Effective Date: This proposed exemption, if granted, will be effective for the period beginning October 30, 2014, and ending November 18, 2014 (the Offering Period). Summary of Facts and Representations Background 1. Sears Holdings Corporation (Holdings), is the parent company of Kmart and Sears, Roebuck, & Co. (Sears Roebuck). Holdings was formed as a Delaware corporation in 2004 in connection with the merger of Kmart and Sears Roebuck on March 24, 2005. By August 2014, Holdings operated a national network of stores with 1,870 full-line and specialty retail stores in the United States operating through Kmart and Sears Roebuck. In October 2014, Holdings completed the spin-off of a substantial portion of Sears Canada, Inc., which allowed it to dispose of a non-core asset and raise substantial cash proceeds. 2. Common stock issued by Holdings (Holdings Stock), par value $0.01 per share, is publicly-traded on the NASDAQ Global Select market under the symbol, ‘‘SHLD.’’ As of October 30, 2014, there were 12,236 shareholders of record and approximately 106.5 million shares of Holdings Stock issued and outstanding. 3. ESL Investments, Inc. and its affiliates (ESL), including Edward S. Lampert (Mr. Lampert) owned approximately 48.5 percent of the Holdings Stock, issued and outstanding, as of October 30, 2014. Mr. Lampert is the Chairman of the Board of Directors and Chief Executive Officer of Holdings. He is also the Chairman and Chief Executive Officer of ESL. 4. Holdings and certain of its affiliates sponsor the Sears Holdings 401(k) Savings Plan (the Savings Plan) and the Sears Holdings Puerto Rico Savings Plan (the PR Plan) (collectively the Plans). Each Plan is a participant-directed account plan that permits participants to invest in equity, fixed income, balanced funds, and an investment fund (the Stock Fund) comprised of Holdings Stock. The Plans are designed and operated to comply with the requirements of section 404(c) of the Act. The Savings Plan and the PR Plan assets are held together within the Sears Holdings 401(k) Savings Plan Master Trust (the Master Trust), which also holds the Stock Fund and consequently, shares of Holdings Stock.19 The Plans’ 19 State Street Bank and Trust Company serves as the master trustee and custodian for the Master Trust. As of October 30, 2014, the Master Trust had approximately $2.95 billion in total assets. As of October 30, 2014, the Stock Fund within the Master PO 00000 Frm 00016 Fmt 4701 Sfmt 4703 participants, therefore, indirectly own shares of Holdings Stock through investments in the Stock Fund. 5. Sears Roebuck and all of its whollyowned (direct and indirect) subsidiaries and Sears Holdings Management Corporation (SHMC), a wholly-owned subsidiary of Holdings, with respect to certain employees, have adopted the Savings Plan and are employers under that Plan. 6. As of October 30, 2014 (the Record Date), there were 60,260 participants in the Savings Plan, and the Savings Plan’s share of the total assets of the Master Trust was approximately $2.95 billion. Also, as of the Record Date, the Savings Plan’s allocable share of the Holdings Stock held in the Stock Fund under the Master Trust was 1,411,133 shares, and the approximate percentage of the fair market value of the total assets of the Savings Plan invested in Holdings Stock was 1.79 percent, which amount constituted approximately one percent of the 106.5 million shares of Holdings Stock issued and outstanding. 7. The Savings Plan is administered by the Sears Holding Corporation Administrative Committee (the Administrative Committee), whose members are officers and/or employees of SHMC. The Sears Holdings Corporation Investment Committee (the Investment Committee), whose members are officers and/or employees of SHMC, has authority over decisions relating to the investment of the Savings Plan’s assets. 8. The PR Plan was established by Holdings for employees of Sears Roebuck de Puerto Rico (Sears Roebuck PR) who reside in the Commonwealth of Puerto Rico. The Applicant represents that the fiduciaries of the PR Plan have not made an election under section 1022(i)(2) of the Act, whereby such plan would be treated as a trust created and organized in the United States for purposes of tax qualification under section 401(a) of the Code. Therefore, according to the Applicant, there is no jurisdiction under Title II of the Act. There is, however, jurisdiction under Title I of the Act. 9. As of December 31, 2014, there were 7550 participants in the PR Plan. As of the Record Date, there were 1,766 participants with account balances, and the PR Plan’s share of the total assets of the Master Trust was $17,859,181.57. Also, as of the Record Date, the PR Plan’s allocable share of the Holdings Stock held in the Stock Fund under the Master Trust was 40,650 shares, and the approximate percentage of the fair Trust held 1,451,783 shares of Holdings Stock with a fair market value of $53,338,507.40. E:\FR\FM\12MYN2.SGM 12MYN2 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices market value of the total assets of the PR Plan invested in Holdings Stock was 8.36 percent, which amount constituted 0.04 percent of the 106.5 million shares of Holdings Stock issued and outstanding. 10. The PR Plan is administered by the Administrative Committee, and the Investment Committee makes investment decisions for the PR Plan. Banco Popular de Puerto Rico serves as the trustee of the PR Plan. The Offering asabaliauskas on DSK3SPTVN1PROD with NOTICES 11. By late October 2014, Holdings had reduced its stake in Sears Canada, Inc. and raised significant cash through a rights offering. On October 20, 2014, Holdings announced its intent to conduct an additional rights offering to shareholders (the Offering) as a means of further evolving Holdings’ capital structure and enhancing its financial flexibility. On October 20, 2014, Holdings issued a prospectus describing the Offering to shareholders of record, including the Plans, as of the Record Date. The prospectus was supplemented on October 30, 2014. 12. Under the terms of the Offering, on October 30, 2014, each shareholder of record of Holdings Stock, including the Plans, automatically received one (1) Right for every 85.1872 shares of Holdings Stock held by such shareholder. The Applicant represents that only whole Rights were distributed to shareholders, including the Plans, and the Master Trust acquired 17,189 Rights through the Offering. The allocation of the Rights to shareholders was handled by Depository Trust Company. 13. Each Right permitted the holder thereof to purchase for $500, one ‘‘Unit,’’ consisting of (a) a note issued by Holdings in the principal amount of $500 (Note),20 and (b) 17.5994 warrants (Warrants), each entitling the holder to purchase one share of Holdings Stock.21 20 The Notes are unsecured obligations and bear interest at a rate of 8% per annum, which is paid semi-annually. The Notes mature on December 15, 2019. While the Notes are transferable, they are not listed on any exchange and can only be sold in a private transaction. Holdings issued $625 million aggregate original principal amount of the Notes in the Offering. 21 Each Warrant is initially exercisable for one share of Holdings stock at an exercise price per share of $28.41. Subject to applicable laws and regulations, the Warrants may be exercised at any time starting on their date of issuance until 5:00 p.m., New York City time, on December 15, 2019. The exercise price may be paid with cash or Notes, provided that Holdings maintains an effective registration statement for the Holdings Stock issuable upon exercise of the Warrants. If the exercise of a Right would result in the delivery of a fractional Warrant, the number of Warrants would be rounded down to the nearest whole number. The VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 Each Right also contained an oversubscription privilege permitting the holder to subscribe for additional Units, up to the number of Units that were not subscribed for by the other holders of the Rights. The Plans were not eligible to participate in the over-subscription privilege because a qualified, independent fiduciary acting on behalf of the Plans, sold the Rights received by the Plans, as discussed more fully below. 14. All shareholders of Holdings Stock held the Rights until such Rights expired, were exercised, or were sold. With regard to the exercise of the Rights, the Applicant represents that the Rights could only be exercised in whole numbers. Furthermore, each shareholder of Holdings Stock needed to have at least eighty-six Rights to purchase a Unit, because only whole Units could be purchased through the exercise of the Rights. Fractional Units or cash in lieu of fractional Units were not issued in connection with the Offering. 15. With regard to the sale of the Rights, the Applicant represents that the Rights were transferable and that they traded on the NASDAQ Global Select Market under the symbol ‘‘SHLDZ.’’ The Applicant represents that the public trading of Rights (the Trading Period) began on or around October 31, 2014, and continued until the close of business on November 13, 2014, the third business day prior to the close of the Offering. The Applicant further represents that this deadline applied uniformly to all holders of the Rights. 16. While the Plans generally permit participants to direct the investment of their own accounts, including their investments in Holdings Stock, all decisions regarding the holding and disposition of the Rights by each Plan were made, in accordance with the Plan provisions, by a qualified independent fiduciary acting solely in the interest of Plan participants.22 Participants in the Plans who were invested in Holdings Stock as of the Record Date were notified of the Offering, the engagement of the independent fiduciary, the fact that the Rights would be held in the Warrants are transferable and listed on the Nasdaq Global Select Market under ‘‘SHLDW.’’ 22 Each of the Plans was amended as required to: (i) Permit the Plan to temporarily acquire and hold the Rights (and any Notes or Warrants acquired through the exercise of the Rights) pending their orderly disposition; (ii) confirm that participants are not entitled to direct the holding, exercise, sale or other disposition of the Rights received by the Plan; and (iii) authorize the designated independent fiduciary to exercise discretionary authority with respect to the holding, exercise, sale or other disposition of the Rights and any Notes or Warrants acquired through the exercise of the Rights. PO 00000 Frm 00017 Fmt 4701 Sfmt 4703 29711 Stock Fund, that the independent fiduciary would determine whether the Rights should be exercised or sold, and the means by which a participant could obtain more information. Holdings also communicated generally with employees regarding the Offering and with the public through public releases at www.searsholdings.com. 17. The Offering expired at 5 p.m. eastern standard time on November 18, 2014. The Applicant represents that Holdings issued 1,250,000 Units, including $625 million aggregated principal amount of Notes and Warrants to purchase 21,999,296 shares of Holdings Stock. Over the 10-day period that the Rights traded on the Nasdaq, the volume weighted average price per Right for the 751,041 Rights traded was $201.1554, according to data reported by Bloomberg. The Applicant represents that the gross proceeds payable to and received by Holdings from the sale of the Units pursuant to the Offering, net of any selling expenses, was approximately $625 million. The Independent Fiduciary 18. Fiduciary Counselors Inc. (FCI) was retained by the Investment Committee pursuant to an agreement (the Agreement), dated November 3, 2014, to act as the independent fiduciary on behalf of the Plans, in connection with the Offering and an exemption application. Pursuant to the terms of the Agreement, FCI’s responsibilities were to determine: (a) Whether or not and when to exercise or sell the Rights received by each Plan in the Offering; or (b) if it determined to exercise any of a Plan’s Rights to purchase the Units, to manage the investment in the Notes and Warrants within that Plan’s Stock Fund, and determine when to liquidate or exercise the Notes and Warrants for the purpose of reinvesting the proceeds in Holdings Stock.23 19. The Applicant represents that hiring an independent fiduciary to manage the holding and disposition of the Rights was appropriate in this case for the following reasons: (a) There would have been a significant cost to each Plan to develop and implement a process to administer a pass-through of the Rights to participants; (b) It was not practicable to initiate and implement a pass-through of the Rights to participants given the limited notice provided to shareholders of the Offering and the short subscription period (15 23 Because the Rights were automatically issued to all shareholders including the Plans and there was no option to decline them, the independent fiduciary was not asked to determine whether the Plans should acquire the Rights. E:\FR\FM\12MYN2.SGM 12MYN2 asabaliauskas on DSK3SPTVN1PROD with NOTICES 29712 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices days); (c) Participants’ unfamiliarity with rights offerings as well as general participant inertia may have resulted in a significant percentage of participants allowing their Rights to expire without selling or exercising them; (d) The Notes and Warrants had not been previously selected by the plan fiduciary as an investment option appropriate for the Plan; and (5) The Rights are most appropriately viewed as a non-cash dividend payable to owners of Holdings Stock such as the Plans, so that the fiduciary of the Stock Fund is the appropriate person to manage the ‘‘proceeds’’ of the Plans’ investment in Holdings Stock. The Applicant represents that, in this case, the independent fiduciary appointed to manage the Rights took responsibility for realizing the value in the Rights by selling them. The cash proceeds of that sale were then reinvested in Holdings Stock pursuant to the terms of the plan. 20. The Applicant represents that FCI is qualified to serve as the independent fiduciary for the Plans in connection with the Offering, because FCI is a registered investment adviser under the Investment Advisers Act of 1940, and over the past 13 years, FCI has served or is serving as an independent fiduciary on behalf of employee benefit plans in connection with more than 14 prohibited transaction exemption applications, not counting applications involving the Plans. Additionally, FCI represents that it is an independent company whose primary focus is providing independent fiduciary services for employee benefit plans. 21. In its ‘‘Report of Independent Fiduciary Regarding Sears Rights Offering for Debt and Warrants,’’ dated February 23, 2015 (the IF Report), FCI represents and warrants that it is independent and unrelated to Holdings. FCI further represents that it did not directly or indirectly receive any compensation or other consideration for its own account in connection with the Offering, except compensation from Holdings for performing services described in the Agreement. The percentage of FCI’s 2014 revenue derived from any party in interest involved in the subject transaction or its affiliates was less than five percent of FCI’s 2013 revenue. 22. FCI represents further that it understands and acknowledges its duties and responsibilities under the Act in acting as a fiduciary on behalf of the Plans in connection with the Offering. In the IF Report, FCI represents that it conducted a due diligence process in evaluating the Offering on behalf of the Plans. This process included numerous discussions VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 and correspondence with representatives of the Plans and Holdings, Holdings’ counsel, brokerdealers, and representatives of the Plans’ trustee, enabling FCI to better understand a number of important elements related to the Offering. In addition, FCI reviewed publicly available information and information provided by Holdings. 23. As detailed in the IF Report, with regard to the Offering, FCI considered the following four (4) options: (a) Continue holding the Rights within the Stock Fund; (b) Exercising all of the Rights and acquiring the Notes and Warrants, then sell the Notes or use them to exercise Warrants, sell or exercise the Warrants, and use any remaining cash to acquire Holdings Stock in the market; (c) Selling all of the Rights on the NASDAQ Global Select Market at the prevailing market price; or (d) Selling a portion of the Rights and using the proceeds to exercise the remaining Rights, so as to acquire Notes and Warrants (then sell the Notes or use them to exercise Warrants, then sell or exercise the Warrants and use any remaining cash to acquire Holdings Stock in the market). Acting as the independent fiduciary on behalf of the Plans, FCI chose to sell all of the Rights on the NASDAQ Global Select Market. 24. In determining to sell all of the Plans’ Rights, FCI represents that the proceeds from the sale would be invested in Holdings Stock, as per the governing documents of the Stock Fund. As described in the IF Report, FCI determined that the benefits of selling the Rights included simplicity, lower transaction costs, and less exposure to risk than the options that involved exercising any of the Rights. According to FCI, this option allowed the Plans to realize the benefits of the Rights in a timely manner at the best available market prices so that cash raised through the sale could be reinvested in Holdings Stock, consistent with the purpose and intent of the Stock Fund. FCI understood that the Plans would incur some transactions costs through this option, estimated at $0.015 to $0.05 per Right traded. Accordingly, FCI concluded that this sale of the Rights was in the interest of the Plans and the Plans’ participants and beneficiaries and was protective of such participants and beneficiaries of the Plans. 25. At FCI’s direction, the Plans sold the Rights over a period of days while trying not to be too high a percentage of the daily volume so as to avoid putting downward pressure on the price of the Rights. The Trading Period ended on November 13, 2014. According to the IF Report, and as noted above, over the PO 00000 Frm 00018 Fmt 4701 Sfmt 4703 ten-day period that the Rights traded on the NASDAQ, the volume-weighted average price for the 751,041 Rights traded was $201.1554 according to data reported by Bloomberg. The IF Report provides that FCI completed the sale of the Plans’ 17,189 Rights in blind transactions on the NASDAQ Global Select Market between November 4 and November 7, 2014, realizing an average selling price of $211.6283 per Right. 26. According to the Applicant, as a result of the Rights sale, the total net proceeds generated for the Savings Plan and the PR Plan was $3,637,509.54. These proceeds were credited to each Plan and the unit value of each participant’s account balance reflected the addition of assets credited to the Plan. 27. The Applicant represents that no brokerage fees, commissions, subscription fees, or other charges were paid by the Plans with respect to the acquisition and holding of the Rights, or were paid to any broker affiliated with FCI or Holdings in connection with the sale of the Rights. In this regard, FCI represents that it selected State Street Global Markets as the broker for the sale of the Plans’ Rights, based on FCI’s confidence in the broker’s execution ability and an attractive fee schedule of 0.015 cents per Right traded. In connection with the sale of the Rights, the Plans paid $257.84 in commissions to independent, third parties and $80.42 in SEC fees. Requested Relief 28. The Applicant represents that the subject transactions have already been consummated. In this regard, the Plans acquired the Rights pursuant to the Offering, and held such Rights until the Rights were sold by the independent fiduciary. The Applicant states that, because there was insufficient time before the Plans acquired the Rights to apply for and be granted an exemption, Holdings was required to request retroactive relief, effective as of October 30, 2014, the Record Date. 29. Section 406(a)(1)(E) of the Act prohibits a fiduciary from causing a plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or indirect acquisition, on behalf of a plan, of any employer security or employer real property in violation of section 407(a). Section 406(a)(2) of the Act prohibits a fiduciary who has authority or discretion to control or manage the assets of a plan from permitting a plan to hold any employer security or employer real property if he knows or should know that holding such security or real property violates section 407(a). E:\FR\FM\12MYN2.SGM 12MYN2 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES The Applicant represents that because the Rights are non-qualifying employer securities, the acquisition and holding of the Rights violated sections 406(a)(1)(E), 406(a)(2), and 407(a) of the Act. 30. Furthermore, section 406(b)(1) of the Act prohibits a fiduciary from dealing with the assets of a plan in his own interest or for his own account. Section 406(b)(2) of the Act prohibits a fiduciary, in his individual or in any other capacity, from acting in any transaction involving the plan on behalf of a party (or representing a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries. The Applicant states that, although Holdings retained an independent fiduciary to represent the Plans in connection with the disposition of the Rights, by causing the participation of the Plans in the Offering, Holdings may have dealt with the assets of the Plans for its own account, and also may have acted in a transaction on behalf of itself and the Plans. 31. Therefore, the Applicant requests an administrative exemption from sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 407(a)(1)(A) of the Act and section 4975 of the Code by reason of 4975(c)(1)(E) of the Code, with regard to the Savings Plan, and from sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 407(a)(1)(A) of the Act with regard to the PR Plan.24 Statutory Findings 32. The Applicant represents that the requested exemption is administratively feasible because the acquisition, holding, and sale of the Rights by the Plans was a one-time transaction which will not require continued monitoring or other involvement by the Department. 33. The Applicant represents that the transactions which are the subject of this proposed exemption are in the interest of the Plans, because the Rights were automatically issued at no cost to all shareholders of Holdings Stock as of a specified Record Date, including the Plans. The Plans were then able to realize value through their sale. 34. The Applicant represents that the transactions were protective of the Plans, and their respective participants and beneficiaries, as the Plans obtained the Rights as a result of an independent act of Holdings as a corporate entity. In 24 The Applicant represents that there is no jurisdiction under Title II of the Act with respect to the PR Plan. Accordingly, the Department is not providing any exemptive relief from section 4975(c)(1)(E) of the Code for the acquisition and holding of the Rights by the PR Plan. VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 addition, the acquisition of the Rights by the Plans occurred on the same terms made available to other holders of Holdings Stock and the Plans received the same proportionate number of Rights as other owners of Holdings Stock. The Plans were also protected in that all decisions regarding the holding and disposition of the Rights by the Plans were made, in accordance with Plan provisions, by the independent fiduciary. Furthermore, the independent fiduciary determined that it would be in the interest of the Plans to sell all of the Rights received in the Offering by the Plans in blind transactions on the NASDAQ Global Select Market. Summary 35. In summary, the Applicant represents that the proposed exemption satisfies the statutory criteria for an exemption under section 408(a) of the Act and section 4975(c)(2) of the Code for the reasons stated above and for the following reasons: (a) The receipt of the Rights by the Plans occurred in connection with the Offering, in which all shareholders of Holdings Stock, including the Plans, were treated in the same manner; (b) The acquisition of the Rights by the Plans resulted from an independent act of Holdings, as a corporate entity, and without any participation on the part of the Plans; (c) Each shareholder of Holdings Stock, including each of the Plans, received the same proportionate number of Rights based on the number of shares of Holdings Stock held by each such shareholder; (d) All decisions with regard to the holding and disposition of the Rights by the Plans were made by a qualified, independent fiduciary within the meaning of 29 CFR 2570.31(j); (e) The independent fiduciary determined that it would be in the interest of the Plans to sell all of the Rights received in the Offering by the Plans in blind transactions on the NASDAQ Global Select Market; and (f) No brokerage fees, commissions, subscription fees, or other charges were paid by the Plans with respect to the acquisition and holding of the Rights, or were paid to any affiliate of Holdings or the independent fiduciary in connection with the sale of the Rights. Notice to Interested Persons Notice of the proposed exemption will be given to all interested persons within 22 days of the publication of the notice of proposed exemption in the Federal Register, by first class U.S. mail to the last known address of all such individuals. Such notice will contain a PO 00000 Frm 00019 Fmt 4701 Sfmt 4703 29713 copy of the notice of proposed exemption, as published in the Federal Register, and a supplemental statement, as required pursuant to 29 CFR 2570.43(a)(2). The supplemental statement will inform interested persons of their right to comment on and to request a hearing with respect to the pending exemption. Written comments and hearing requests are due within 52 days of the publication of the notice of proposed exemption in the Federal Register. All comments will be made available to the public. Warning: If you submit a comment, EBSA recommends that you include your name and other contact information in the body of your comment, but DO NOT submit information that you consider to be confidential, or otherwise protected (such as Social Security number or an unlisted phone number) or confidential business information that you do not want publicly disclosed. All comments may be posted on the Internet and can be retrieved by most Internet search engines. Erin S. Hesse of the Department, telephone (202) 693–8546. (This is not a toll-free number.) FOR FURTHER INFORMATION CONTACT: Sears Holdings 401(k) Savings Plan (the Savings Plan) and the Sears Holdings Puerto Rico Savings Plan (the PR Plan) (together, the Plans) Located in Hoffman Estates, IL [Application Nos. D–11871 and D–11872, Respectively] Proposed Exemption The Department is considering granting an exemption under the authority of section 408(a) of the Act (or ERISA), as amended, and section 4975(c)(2) of the Code, as amended, and in accordance with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011). Section I. Transactions (a) If the proposed exemption is granted, the restrictions of sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 407(a)(1)(A) of the Act and the sanctions resulting from the application of section 4975 of the Code, by reason of section 4975(c)(1)(E) of the Code,25 shall not apply, effective for the period beginning June 11, 2015 and ending July 2, 2015, to the acquisition and holding by the Savings Plan of certain subscription rights (the Rights) 25 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. E:\FR\FM\12MYN2.SGM 12MYN2 29714 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices to purchase shares of common stock (Seritage Growth Stock) in Seritage Growth Properties (Seritage Growth), in connection with an offering (the Offering) by Sears Holdings Corporation (Holdings or the Applicant) of Seritage Growth Stock, provided that the conditions, as set forth below in Section II of this proposed exemption were satisfied for the duration of the acquisition and holding; and (b) If the proposed exemption is granted, the restrictions of sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 407(a)(1)(A) of the Act 26 shall not apply, effective for the period beginning June 11, 2015, and ending July 2, 2015, to the acquisition and holding of the Rights by the PR Plan in connection with the Offering of Seritage Growth Stock by Holdings, provided that the conditions, as set forth in Section II of this proposed exemption were satisfied for the duration of the acquisition and holding. asabaliauskas on DSK3SPTVN1PROD with NOTICES Section II. Conditions (a) The receipt of the Rights by the Plans occurred in connection with the Offering, in which all shareholders of the common stock of Holdings (Holdings Stock), including the Plans, were treated in the same manner; (b) The acquisition of the Rights by the Plans resulted solely from an independent act of Holdings, as a corporate entity; (c) Each shareholder of Holdings Stock, including each of the Plans, received the same proportionate number of Rights based on the number of shares of Holdings Stock held by each such shareholder; (d) All decisions with regard to the holding and disposition of the Rights by the Plans were made by a qualified independent fiduciary (the Independent Fiduciary) within the meaning of 29 CFR 2570.31(j); 27 26 The Applicant represents that there is no jurisdiction under Title II of the Act with respect to the PR Plan because the PR Plan fiduciaries have not made an election under section 1022(i)(2) of the Act, whereby the PR Plan would be treated as a trust created and organized in the United States for purposes of tax qualification under section 401(a) of the Code. Accordingly, the Department is not providing exemptive relief from section 4975(c)(1)(E) of the Code for the acquisition and holding of the Rights by the PR Plan. 27 29 CFR 2570.31(j) defines a ‘‘qualified independent fiduciary,’’ in relevant part, to mean ‘‘any individual or entity with appropriate training, experience, and facilities to act on behalf of the plan regarding the exemption transaction in accordance with the fiduciary duties and responsibilities prescribed under the Act, that is independent of and unrelated to any party in interest engaging in the exemption transaction and its affiliates;’’ in general, a fiduciary is presumed to be independent ‘‘if the revenues it receives or is projected to receive, within the current federal VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 (e) The Independent Fiduciary determined that it would be in the interest of the Plans to sell all of the Rights received in the Offering by the Plans in blind transactions on the New York Stock Exchange (NYSE); and (f) No brokerage fees, commissions, subscription fees, or other charges were paid by the Plans with respect to the acquisition and holding of the Rights; or were paid to any affiliate of the Independent Fiduciary or Holdings, in connection with the sale of the Rights. Section III. Definitions (a) The term ‘‘Holdings’’ refers to Sears Holdings Corporation and its affiliates. (b) The term ‘‘affiliate’’ of a person includes: (1) Any person directly or indirectly through one or more intermediaries, controlling, controlled by, or under common control with such person; (2) Any officer, director, partner, employee, or relative, as defined in section 3(15) of the Act, of such person; and (3) Any corporation or partnership of which such person is an officer, director, partner, or employee. (c) The term ‘‘control’’ means the power to exercise a controlling influence over the management or policies of a person other than an individual. EFFECTIVE DATE: This proposed exemption, if granted, will be effective for the Offering period, beginning June 11, 2015, and ending July 2, 2015 (the Offering Period). Summary of Facts and Representations 28 The Plans 1. Employees of certain affiliates of Holdings participate in the Plans. The Plans consist of the Savings Plan and the PR Plan. The Plans are defined contribution, eligible individual account plans that are designed and operated to comply with the requirements of section 404(c) of the Act. The Plans allow income tax year from parties in interest (and their affiliates) [with respect] to the transaction are not more than 2% of such fiduciary’s annual revenues based upon its prior income tax year. Although the presumption does not apply when the aforementioned percentage exceeds 2%, a fiduciary nonetheless may be considered independent based upon other facts and circumstances provided that it receives or is projected to receive revenues that are not more than 5% within the current federal income tax year from parties in interest (and their affiliates) [with respect] to the transaction based upon its prior income tax year.’’ 28 The Summary of Facts and Representations is based solely on the representations of the Applicant and does not reflect the views of the Department, unless indicated otherwise. PO 00000 Frm 00020 Fmt 4701 Sfmt 4703 participants to purchase units in certain stock funds which invest in Holdings Stock. In this regard, the Savings Plan and the PR Plan share a single stock fund (the Stock Fund) within the Sears Holdings 401(k) Savings Plan Master Trust (the Master Trust) to hold shares of Holdings Stock. As of June 11, 2015, the Master Trust held approximately $2.8 billion in total assets. State Street Bank and Trust Company (State Street) serves as the Master Trustee and Custodian for the Master Trust. 2. Sears, Roebuck and Co. (Sears Roebuck) and all of its wholly-owned (direct and indirect) subsidiaries (except Lands’ End Inc. (Lands’ End), Sears de Puerto Rico, Inc., Kmart Holding Corporation (Kmart), and its whollyowned (direct and indirect) subsidiaries (excluding employees residing in Puerto Rico), and Sears Holdings Management Corporation, with respect to certain employees, have adopted the Savings Plan and are employers under such plan. As of June 11, 2015, (the Record Date), there were 53,831 participants in the Savings Plan, and the Savings Plan’s share of the total assets of the Master Trust was $2,820,235,014. Also, as of the Record Date, the Savings Plan’s allocable portion of Holdings Stock held in the Stock Fund on behalf of 14,476 participants under the Master Trust was 1,286,302.45 shares, which constituted approximately 1.2% of the 106,603,021 shares of Holdings Stock issued and outstanding. The approximate percentage of the fair market value of the total assets of the Savings Plan invested in Holdings Stock was 1.3%. The Savings Plan is administered by the Sears Holding Corporation Administrative Committee (the Administrative Committee), whose members are employees of Holdings. The Sears Holdings Corporation Investment Committee (the Investment Committee), whose members are officers and/or employees of Holdings and/or its subsidiaries, has authority over decisions relating to the investment of the Plans’ assets. 3. The PR Plan, which is sponsored and maintained by Holdings, was originally established by Sears Roebuck for employees of Sears Roebuck de Puerto Rico Inc. (Sears Roebuck de Puerto Rico) and Kmart, who reside in the Commonwealth of Puerto Rico, upon the merger of the Kmart Corporation Retirement Savings Plan for Puerto Rico employees with and into the prior Sears Roebuck de Puerto Rico Savings Plan, as of March 31, 2012. According to the Applicant, the PR Plan has not made an election under section 1022(i)(2)of the Act, whereby such plan E:\FR\FM\12MYN2.SGM 12MYN2 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices would be treated as a trust created and organized in the United States for purposes of tax qualification under section 401(a) of the Code. Therefore, according to the Applicant, there is no jurisdiction under Title II of the Act. There is, however, jurisdiction under Title I of the Act. As of the Record Date, there were 1,696 participants in the PR Plan, and the PR Plan’s share of the total assets of the Master Trust was $17,324,339. Also, as of the Record Date, the PR Plan’s allocable portion of Holdings Stock held in the Stock Fund under the Master Trust on behalf of 629 participants was 39,782,55 shares, which constituted approximately 0.04% of the 106,603,021 shares of Holdings Stock issued and outstanding, on June 11, 2015. The approximate percentage of the fair market value of the total assets of the PR Plan invested in Holdings Stock was 6.5%, The PR Plan is administered by the Administrative Committee, and the Investment Committee makes investment decisions for such plan. Banco Popular de Puerto Rico serves as the PR Plan trustee. asabaliauskas on DSK3SPTVN1PROD with NOTICES Holdings 4. Holdings, the sponsor of each of the Plans, is a retail merchant with full-line and specialty retail stores in the United States, Guam, Puerto Rico, the U.S. Virgin Islands, and Canada. Holdings was formed as a Delaware corporation in 2004 in connection with the merger of Kmart and Sears Roebuck, which took place on March 24, 2005. Holdings is the parent company of Kmart Holding Company and Sears Roebuck. The principal executive office of Holdings is located in Hoffman Estates, Illinois. According to the Form 10–K for the fiscal year ending January 31, 2015, Holdings and its subsidiaries had total assets of approximately $11.3 billion. Also as of January 31, 2015, Holdings and its subsidiaries employed approximately 196,000 employees. Holdings Stock/Ownership 5. Common stock issued by Holdings (i.e., Holdings Stock), with a par value $0.01 per share, is publicly-traded on the NASDAQ Global Select Market under the symbol, ‘‘SHLD.’’ There were 11,659 shareholders of record, as of June 11, 2015. ESL Investments, Inc. and its affiliates, (ESL), including Edward S. Lampert (Mr. Lampert) owned approximately 53.2% of Holdings Stock issued and outstanding as of June 9, 2015. Mr. Lampert is the Chairman of the Board of Directors and Chief Executive Officer of Holdings. He is also VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 the Chairman and Chief Executive Officer of ESL. Seritage Growth 6. Seritage Growth is a publicly traded, self-administered, self-managed real estate investment trust that is primarily engaged in the real property business through its investment in its operating partnership, Seritage Growth Properties, L.P. Seritage Growth’s portfolio contains 235 wholly-owned properties and 31 joint venture properties, consisting of approximately 42 million square feet of building space, which is broadly diversified by location across 49 states and Puerto Rico. Pursuant to a master lease, 224 of Seritage Growth’s wholly-owned properties are leased to Holdings and are operated under either the Sears Roebuck or K-Mart brand. The master lease provides Seritage with rights to recapture certain space from Sears Holdings at each property. Prior to the Offering described below, Seritage Growth Stock was owned exclusively by Benjamin Schall, the Chief Executive Officer of Seritage Growth. Immediately following the Offering, ESL owned 4% of Seritage Growth Stock, 100% of Seritage Growth’s Class B non-economic shares, 9.8% of Seritage Growth’s voting power, 43.5% of Seritage Growth (Operating Partnership) units, and 45.3% of the consolidated economics of Seritage Growth and the Operating Partnership.29 The Offering 7. On April 1, 2015, Holdings announced its intention to conduct a Rights Offering of 53,298,899 shares of Seritage Growth Stock to Holdings shareholders. Holdings issued a prospectus describing the Offering of certain subscription Rights to shareholders of record, including the Master Trust, as of June 11, 2015, the Record Date. The Holdings Board of Directors determined that the Offering was in the best interest of Holdings and its stockholders. According to the Applicant, the purpose of the Offering was to allow Seritage Growth to purchase a portfolio of Holdings real properties from Holdings using the proceeds obtained from the Offering. Under the terms of the Offering, all shareholders of Holdings Stock automatically received the Rights, at no charge. Specifically, each shareholder as 29 To clarify the relationship between Seritage Growth and the Operating Partnership, the Applicant represents that Seritage Growth is the general partner of the Operating Partnership and owns the majority of the Operating Partnership units. PO 00000 Frm 00021 Fmt 4701 Sfmt 4703 29715 of the Record Date, received one Right for every whole share of Holdings Stock it held. Each Right entitled the holder to purchase one half of one share of Seritage Growth Stock at the subscription price of $29.58 per whole share. According to the Applicant, the Rights were distributed as practicable as possible after the June 11, 2015 Record Date. 8. Each Right also contained an oversubscription privilege permitting the holder to subscribe for additional Seritage Growth Stock, up to the number of common shares that were not subscribed for by the other holders of the Rights. The Plans were not eligible to participate in the over-subscription privilege because the Independent Fiduciary sold the Rights received by the Plan, as discussed more fully below. 9. All shareholders of Holdings Stock held the Rights until such Rights expired, were exercised, or were sold. A shareholder had the right to exercise some, all, or none of its Rights. However, its election to exercise the Rights had to be received by the subscription agent, Computershare Trust Company, N.A., by July 2, 2015. The election to exercise any of the Rights was irrevocable. All shareholders of Holdings Stock held the Rights until such Rights expired, were exercised, or were sold. Each shareholder of the Holdings Stock needed to have at least two Rights to purchase one whole share of Seritage Growth Stock, because only whole shares could be purchased by the exercise of the Rights. Fractional shares or cash in lieu of fractional shares were not issued in connection with the Offering. Fractional shares of the Seritage Growth Stock resulting from the exercise of basic Rights, as to any holder of such Rights were rounded down to the nearest whole number. 10. With regard to the sale of the Rights, the Applicant represents that the Rights were transferable. The Applicant also represents that the Rights began to trade on the NYSE under the symbol ‘‘SRGRT’’ on or around June 12, 2015, and continued to trade until the trading deadline at the close of business on June 26, 2015. Further, the Applicant explains that the trading deadline applied uniformly to all holders of the Rights. 11. The Offering expired at 5 p.m. New York City time on July 2, 2015. The Applicant represents that the Offering was oversubscribed and all of the Rights were exercised at a price of U.S. $29.58 per share of Seritage Growth Stock. Accordingly, in connection with the Offering, Seritage Growth offered and issued up to 106,603,021 Rights to E:\FR\FM\12MYN2.SGM 12MYN2 29716 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES purchase up to 53,298,899 shares of Seritage Growth Stock. 12. All of the gross proceeds from the exercise of the Rights to purchase Seritage Growth Stock, approximately $1,576,581,444, net of any selling expenses, were payable to and received by Seritage Growth. The Applicant asserts that the proceeds were or will be used by Seritage Growth to purchase a portfolio of real properties from Holdings. 13. Based on the ratio of one Right for each share of Holdings Stock held, the Applicant explains that the Master Trust acquired 1,326,085 Rights as a result of the Offering. While the Plans generally permit participants to direct the investment of their own accounts, including their investments in Holdings Stock, the Applicant represents that all decisions regarding the holding and disposition of the Rights by each Plan were made, in accordance with the Plan provisions, by the Independent Fiduciary acting solely in the interest of Plan participants. According to the Applicant, participants in the Plans who were invested in Holdings Stock as of the Record Date were notified of the Offering, the engagement of the Independent Fiduciary, the fact that the Rights would be held in the Stock Fund, that the Independent Fiduciary would determine whether the Rights should be exercised or sold, and the means by which a participant could obtain more information. The Applicant further represents that Holdings communicated generally with employees regarding the Offering and with the public through public releases at www.searsholdings.com. Role of the Independent Fiduciary 14. Evercore Trust Company, N.A. (Evercore) was retained by the Investment Committee, pursuant to an agreement (the Agreement) dated June 5, 2015, to act as the Independent Fiduciary on behalf of the Plans, in connection with the Offering and with the application for exemption submitted to the Department. Pursuant to the terms of the Agreement, Evercore’s responsibilities were: (a) To determine whether and when to exercise or sell each of the Plan’s Rights; and (b) if it determined to exercise any of a Plan’s Rights to purchase Seritage Growth Stock, to manage the investment within that Plan’s Stock Fund, and determine when to liquidate or exercise the shares for the purpose of reinvesting the proceeds in Holdings Stock. The Applicant represents that hiring an Independent Fiduciary to manage the holding and disposition of the Rights was appropriate in this case for the VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 following reasons: (a) There would have been a significant cost to develop and implement a process under each Plan to administer the pass-through of the Rights to participants; (b) it was not practicable to initiate and implement a pass-through of the Rights to participants given the limited notice provided to shareholders of the Offering and the short subscription period (21 days), because such process would have included the establishment of a ‘‘rights fund’’ and a Seritage Growth fund within each Plan, the design and testing of procedures for allocating the Rights among participant accounts, soliciting participant directions on the exercise or sale of the Rights and identifying the source of funding (e.g., which investment account is to be liquidated) for each participant who chose to exercise the Rights, and the short Offering Period meant that there would have been insufficient time to adequately educate participants regarding their rights and obligations; (c) there would have been a loss of value that participants might otherwise have gained, because participants’ unfamiliarity with rights offerings as well as general participant inertia would have resulted in a significant percentage of participants allowing their Rights to expire without selling or exercising them; (d) it was not in the interest of participants to require the Plans to offer and hold for participant investment a single stock (i.e., Seritage Growth Stock) that had not been selected by the plan fiduciary as an investment option appropriate for the Plans; and (e) the Rights are most appropriately viewed as a non-cash dividend payable to owners of Holdings Stock, such as the Plans, so that the fiduciary of the Stock Fund is the appropriate person to manage the ‘‘proceeds’’ of the Plans’ investment in Holdings Stock. The Applicant represents that, in this case, the Independent Fiduciary appointed to manage the Rights on behalf of the Plans took responsibility for realizing the value in the Rights by selling them. The cash proceeds of the sale were then reinvested in Holdings Stock pursuant to the terms of the Plans. In the Agreement, Evercore represents that it is qualified to serve as the Independent Fiduciary for the Plans in connection with the Offering because it is a national trust bank chartered by the Office of the Comptroller of the Currency. Evercore states that it has provided specialized investment management, independent fiduciary, and trustee services to employee benefit plans since 1987. Evercore also represents that it has served or is PO 00000 Frm 00022 Fmt 4701 Sfmt 4703 serving as an independent fiduciary on behalf of employee benefit plans in connection with more than 50 prohibited transaction exemption applications that have been filed with the Department. In the Agreement, Evercore further represents that it is independent and unrelated to Holdings, and that it did not directly or indirectly receive any compensation or other consideration for its own account in connection with the Offering, except compensation from Holdings for performing services described in the Agreement. According to the Agreement, Evercore states that the gross revenue it received (or expected to receive) in 2015 that was derived from any party in interest or an affiliate of such party in interest involved in the Seritage Growth transaction, would represent less than 2% its 2014 gross revenue. Also, in the Agreement, Evercore represents that it understood and acknowledged its duties and responsibilities under the Act in acting as a fiduciary on behalf of the Plans in connection with the Offering. In addition, Evercore represents that it conducted a due diligence process in evaluating the Offering on behalf of the Plans. This process included discussions and correspondence with representatives of the Plans, Holdings, Holdings’ counsel, broker-dealers, and representatives of the trustee of the Master Trust, enabling Evercore to improve certain elements related to the Offering. Evercore also states that it reviewed publicly available information and information provided by Holdings. With regard to the Offering, Evercore explains that it considered four options on behalf of the Plans: (a) To continue holding the Rights within the Stock Fund; (b) to exercise all of the Rights to acquire Seritage Growth Stock; (c) to sell all of the Rights on the NYSE at the prevailing market price; or (d) to sell a portion of the Rights and use the proceeds to exercise the remaining Rights to acquire Seritage Growth Stock. In determining to sell all of the Plans’ Rights, Evercore represents that the proceeds from the sale would be invested in Holdings Stock, in accordance with the governing documents of the Stock Fund. Evercore reasoned that, although the Plans would incur some transaction costs by selling the Rights, estimated at $0.01 per Right traded, plus a similar expense in connection with the reinvestment of the proceeds into shares of Holdings Stock, the benefits of selling the Rights included the fact that the proceeds could be quickly redeployed into shares of Holdings Stock, lower transaction costs, and less exposure to risk than the E:\FR\FM\12MYN2.SGM 12MYN2 asabaliauskas on DSK3SPTVN1PROD with NOTICES Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices options that involved exercising any of the Rights. Accordingly, Evercore concluded that the sale of the Rights was in the interest of the Plans and the Plans’ participants and beneficiaries and was protective of such participants and beneficiaries of the Plans. 15. As a result of the sale of 1,326,085 Rights that were acquired by the Master Trust during the Offering, the total net proceeds generated for the Savings Plan and the PR Plan was $4,106,921.19. These proceeds were credited to the Stock Fund, and thus, to each Plan. The unit value of each participant’s account balance in each Plan reflected the addition of the proceeds to the Stock Fund (as applicable). The trading period for the sale of the Rights on the NYSE ended on June 26, 2015. Evercore sold the Plans’ 1,326,085 Rights in blind transactions on the NYSE between June 16 and June 19, 2015, realizing an average selling price of $3.10 per Right. According to the Applicant, the volume-weighted average price for a total of 46,699,673 Rights that were sold during the trading period was $3.66, according to data reported by Factset. 16. Evercore represents that, as noted in the Independent Fiduciary Report, its goal in selling the Rights was to dispose of them in a timely manner at the best available market prices so that cash raised through the sale could be reinvested in shares of Holdings Stock as soon as possible and at the discretion of State Street, the Master Trustee and Custodian of the Master Trust. This, according to Evercore was consistent with the purpose and intent of the Stock Fund. Evercore explains that it also believed it was prudent to take advantage of available liquidity early in the Offering Period, given the typical decline in trading volume experienced over the course of a rights offering period. Evercore states that it promptly began to sell the Rights once it was informed that the Rights had been delivered to the Stock Fund account. The liquidation lasted four days, beginning on June 16, 2015, and ending on June 19, 2015. The Rights continued to trade over five more days (June 22 to June 26), during which time the price of the Rights rose. This rise in price, Evercore asserts, was entirely unpredictable beforehand. Waiting for such a potential outcome, Evercore explains, would have been at odds with its goal of promptly realizing and reallocating proceeds, and further would have exposed the Plans to the risk of a significant decline in the price of the Rights over the course of the offering period. VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 17. In the opinion of Evercore, the actions outlined above in which it was engaged on behalf of the Plans, were in the interest of the Plans and the Plans’ participants and beneficiaries, and were protective of the rights of such participants and beneficiaries of the Plans. 18. No brokerage fees, commissions, subscription fees, or other charges were paid by the Plans with respect to the acquisition and holding of the Rights, or were paid to any broker affiliated with Evercore, or Holdings, in connection with the sale of the Rights. In this regard, it is represented that Evercore selected State Street Global Markets to execute the trades for the sale of the Rights issued to the Master Trust, based on Evercore’s confidence in that broker’s execution ability and an attractive fee schedule of 0.01 cent per Right traded. In connection with the sale of the Rights, the Plans (through the Master Trust) paid $13,260.85 in commissions and $75.83 in SEC fees.30 Requested Relief 19. The application was filed by Holdings on behalf of itself and its affiliates. In this regard, Holdings has requested an exemption for the acquisition and holding of the Rights by the Plans in connection with the Offering of Seritage Growth Stock by Holdings. The Applicant represents that the subject transactions have already been consummated. In this regard, the Plans acquired the Rights pursuant to the Offering, and held such Rights until they were sold by the Independent Fiduciary. The Applicant states that, because there was insufficient time between the dates the Plans acquired the Rights and when the Rights were sold to apply for and be granted an administrative exemption by the Department, Holdings requested retroactive exemptive relief for the period June 11, 2015, through July 2, 2015. 20. Section 406(a)(1)(E) of the Act prohibits a fiduciary from causing a plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or 30 The Applicant represents that the brokerage services and the fees that were received by State Street Global Markets in connection with the sale of the Rights by the Plans, are exempt under section 408(b)(2) of the Act. The Department, herein, is not providing any relief for the receipt of any commissions, fees, or expenses in connection with the sale of the Rights in blind transactions to unrelated third parties on the NYSE, beyond that provided pursuant to section 408(b)(2) of the Act. In this regard, the Department is not opining as to whether the conditions as set forth in section 408(b)(2) of the Act and the Department’s regulations, pursuant to 29 CFR 2550.408(b)(2) have been satisfied. PO 00000 Frm 00023 Fmt 4701 Sfmt 4703 29717 indirect acquisition, on behalf of a plan, of any employer security or employer real property in violation of section 407(a). Section 406(a)(2) of the Act prohibits a fiduciary who has authority or discretion to control or manage the assets of a plan from permitting a plan to hold any employer security or employer real property if he knows or should know that holding such security or real property violates section 407(a). The Applicant represents that because the Rights are non-qualifying employer securities, the acquisition and holding of the Rights by the Plans violated sections 406(a)(1)(E), 406(a)(2), and 407(a) of the Act. Furthermore, section 406(b)(1) of the Act prohibits a fiduciary from dealing with the assets of a plan in his own interest or for his own account. Section 406(b)(2) of the Act prohibits a fiduciary, in his individual or in any other capacity, from acting in any transaction involving the plan on behalf of a party (or representing a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries. The Applicant states that, although Holdings retained the Independent Fiduciary to represent the Plans in connection with the disposition of the Rights, by causing the participation of the Plans in the Offering, Holdings may have dealt with the assets of the Plans for its own account, and also may have acted in a transaction on behalf of itself and the Plans. Therefore, the Applicant requests an administrative exemption from sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 407(a)(1)(A) of the Act and section 4975 of the Code by reason of 4975(c)(1)(E) of the Code, with regard to the Savings Plan, and from sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 407(a)(1)(A) of the Act with regard to the PR Plan. Statutory Findings 21. The Applicant represents that the proposed transactions are administratively feasible because the acquisition and holding of the Rights by the Plans were one-time transactions that involved an automatic distribution of the Rights to all shareholders, that would not require any continuing oversight by the Department. The Applicant also represents that the subject transactions were in the interest of the Plans and their respective participants and beneficiaries, because the Rights were automatically issued at no cost to the shareholders of Holdings Stock, including the Plans, as of the Record Date. E:\FR\FM\12MYN2.SGM 12MYN2 29718 Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES Finally, the Applicant represents that the transactions were protective of the rights of the participants and beneficiaries of the respective Plans because the Plans obtained the Rights as a result of an independent act of Holdings as a corporate entity. In addition, the acquisition of the Rights by the Plans occurred on the same terms made available to other holders of Holdings Stock, and the Plans received the same proportionate number of Rights as other owners of Holdings Stock. The Plans were also protected in that all decisions regarding the holding and disposition of the Rights by the Plans were made, in accordance with Plan provisions, by the Independent Fiduciary. Furthermore, the Applicant represents that the Independent Fiduciary determined that it would be in the interest of the Plans to sell all of the Rights received in the Offering by the Plans in blind transactions on the NYSE. Summary 22. In summary, Holdings represents that the subject transactions satisfy the statutory criteria for an exemption under of section 408(a) of the Act because: (a) The receipt of the Rights by the Plans occurred in connection with the Offering in which all shareholders of Holdings Stock, including the Plans, were treated in the same manner; (b) The acquisition of the Rights by the Plans resulted solely from an independent act of Holdings, as a corporate entity; (c) Each shareholder of Holdings Stock, including each of the Plans, received the same proportionate number of Rights based on the number of shares of Holdings Stock held by each such shareholder; (d) All decisions with regard to the holding and disposition of the Rights by the Plans were made by the Independent Fiduciary on behalf of the Plans; (e) The Independent Fiduciary determined that it would be in the interest of the Plans to sell all of the Rights received in the Offering by the Plans in blind transactions on the NYSE; (f) No brokerage fees, commissions, subscription fees, or other charges were paid by the Plans with respect to the VerDate Sep<11>2014 17:52 May 11, 2016 Jkt 238001 acquisition and holding of the Rights; or were paid to any broker affiliated with the Independent Fiduciary or Holdings, in connection with the sale of the Rights; and (g) The acquisition of the Rights by the Plans occurred on the same terms made available to other shareholders of Holdings Stock. 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 all participants whose accounts in the Plans were invested on the Record Date through the Master Trust in the Stock Fund which held the Holdings Stock. 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 22 days of publication of the Notice in the Federal Register. Such mailing will contain a copy of the Notice, as it appears in the Federal Register on the date of publication, plus a copy of the Supplemental Statement, as required, pursuant to 29 CFR 2570.43(a)(2), which will advise all interested persons of their right to comment and to request a hearing. A11 written comments and/or requests for a hearing must be received by the Department from interested persons within 52 days of the publication of this proposed exemption in the Federal Register. All comments will be made available to the public. Warning: Do not include any personally identifiable information (such as name, address, or other contact information) or confidential business information that you do not want publicly disclosed. All comments may be posted on the Internet and can be retrieved by most Internet search engines. Ms. Blessed Chuksorji-Keefe of the Department, telephone (202) 693–8567. (This is not a toll-free number.) FOR FURTHER INFORMATION CONTACT: 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 PO 00000 Frm 00024 Fmt 4701 Sfmt 9990 408(a) of the Act and/or section 4975(c)(2) of the Code does not relieve a fiduciary or other party in interest or disqualified person from certain other provisions of the Act and/or the Code, including any prohibited transaction provisions to which the exemption does not apply and the general fiduciary responsibility provisions of section 404 of the Act, which, among other things, require a fiduciary to discharge his duties respecting the plan solely in the interest of the participants and beneficiaries of the plan and in a prudent fashion in accordance with section 404(a)(1)(b) of the Act; nor does it affect the requirement of section 401(a) of the Code that the plan must operate for the exclusive benefit of the employees of the employer maintaining the plan and their beneficiaries; (2) Before an exemption may be granted under section 408(a) of the Act and/or section 4975(c)(2) of the Code, the Department must find that the exemption is administratively feasible, in the interests of the plan and of its participants and beneficiaries, and protective of the rights of participants and beneficiaries of the plan; (3) The proposed exemptions, if granted, will be supplemental to, and not in derogation of, any other provisions of the Act and/or the Code, including statutory or administrative exemptions and transitional rules. Furthermore, the fact that a transaction is subject to an administrative or statutory exemption is not dispositive of whether the transaction is in fact a prohibited transaction; and (4) The proposed exemptions, if granted, will be subject to the express condition that the material facts and representations contained in each application are true and complete, and that each application accurately describes all material terms of the transaction which is the subject of the exemption. Signed at Washington, DC, this 6th day of May, 2016. Lyssa E. Hall, Director, Office of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor. [FR Doc. 2016–11115 Filed 5–11–16; 8:45 am] BILLING CODE 4510–29–P E:\FR\FM\12MYN2.SGM 12MYN2

Agencies

[Federal Register Volume 81, Number 92 (Thursday, May 12, 2016)]
[Notices]
[Pages 29695-29718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11115]



[[Page 29695]]

Vol. 81

Thursday,

No. 92

May 12, 2016

Part III





Department of Labor





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Employee Benefits Security Administration





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Proposed Exemptions From Certain Prohibited Transaction Restrictions; 
Notice

Federal Register / Vol. 81 , No. 92 / Thursday, May 12, 2016 / 
Notices

[[Page 29696]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration


Proposed Exemptions From Certain Prohibited Transaction 
Restrictions

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the 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-11825, ABARTA, Inc. Pension Plan; D-
11846 and D-11847, Sears Holdings 401(k) Savings Plan (the Savings 
Plan) and the Sears Holdings Puerto Rico Savings Plan (the PR Plan); D-
11851 and D-11852, Sears Holdings 401(k) Savings Plan (the Savings 
Plan) and the Sears Holdings Puerto Rico Savings Plan (the PR Plan); 
and D-11871 and D-11872, Sears Holdings 401(k) Savings Plan (the 
Savings Plan) and the Sears Holdings Puerto Rico Savings Plan (the PR 
Plan).

DATES: All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice.

ADDRESSES: Comments and requests for a hearing should state: (1) The 
name, address, and telephone number of the person making the comment or 
request, and (2) the nature of the person's interest in the exemption 
and the manner in which the person would be adversely affected by the 
exemption. A request for a hearing must also state the issues to be 
addressed and include a general description of the evidence to be 
presented at the hearing. All written comments and requests for a 
hearing (at least three copies) should be sent to the Employee Benefits 
Security Administration (EBSA), Office of Exemption Determinations, 
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue NW., 
Washington, DC 20210. Attention: Application No.__, stated in each 
Notice of Proposed Exemption. Interested persons are also invited to 
submit comments and/or hearing requests to EBSA via email or FAX. Any 
such comments or requests should be sent either by email to: 
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-1515, 200 Constitution Avenue NW., 
Washington, DC 20210.
    Warning: All comments will be made available to the public. Do not 
include any personally identifiable information (such as Social 
Security number, name, address, or other contact information) or 
confidential business information that you do not want publicly 
disclosed. All comments may be posted on the Internet and can be 
retrieved by most Internet search engines.

SUPPLEMENTARY INFORMATION: 

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).
    The proposed exemptions were requested in applications filed 
pursuant to section 408(a) of the Act and/or section 4975(c)(2) of the 
Code, and in accordance with procedures set forth in 29 CFR part 2570, 
Subpart B (76 FR 66637, 66644, October 27, 2011).\1\ Effective December 
31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. 
App. 1 (1996), transferred the authority of the Secretary of the 
Treasury to issue exemptions of the type requested to the Secretary of 
Labor. Therefore, these notices of proposed exemption are issued solely 
by the Department.
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    \1\ The Department has considered exemption applications 
received prior to December 27, 2011 under the exemption procedures 
set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 
10, 1990).
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    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

ABARTA, Inc. Pension Plan (the Plan or the Applicant), Located in 
Pittsburgh, PA

[Application No. D-11825]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act (or ERISA) and section 
4975(c)(2) of the Code, and in accordance with the procedures set forth 
in 29 CFR part 2570, subpart B (76 FR 46637, 66644, October 27, 
2011).\2\
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    \2\ 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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Section I. Covered Transactions
    If the exemption is granted, provided that the conditions and the 
definitions set forth below are satisfied, the restrictions of sections 
406(a)(1)(A), 406(a)(1)(B), 406(a)(1)(D), 406(a)(1)(E), 406(a)(2), 
406(b)(1), 406(b)(2), and 407(a) of the Act, and the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1)(A), (B), (D) and (E) of the Code, shall not apply 
to the following proposed transactions (the Covered Transactions):
    (a) The in-kind contribution by ABARTA Inc. (ABARTA) to the Plan 
(the Contribution) of ABARTA's 100% ownership interests (the LLC 
Interests) in two special purpose entities: Delabarta Pennsylvania Real 
Estate, LLC (Delabarta Pennsylvania LLC); and Delabarta New York Real 
Estate, LLC (Delabarta New York LLC) (together, the LLCs): Each of 
which owns, as its only asset, a parcel of improved real property (a 
Property);
    (b) Following the Contribution: (1) the Plan's leasing of the 
Property owned 100% by the Delabarta Pennsylvania LLC to an ABARTA 
subsidiary, Coca-Cola Bottling Company of Lehigh Valley, Inc. (Coca-
Cola Lehigh Valley), and a one-time renewal of that lease; and (2) the 
Plan's leasing of the Property owned 100% by the Delabarta New York LLC 
to another ABARTA subsidiary, Coca-Cola Bottling Company of Buffalo, 
Inc. (Coca-Cola Buffalo), and a one-time renewal of that lease. 
Hereinafter, these two leases are referred to as the Leases, and the 
two renewals of those Leases are referred to as the Lease Renewals;
    (c) The guarantees by Coca-Cola Buffalo and Coca-Cola Lehigh Valley 
(the Tenants) to the Plan in connection with a make whole obligation 
(the Make Whole Obligation), and any payments to the Plan in 
fulfillment of that obligation;

[[Page 29697]]

    (d) Each Tenant's indemnification of the Plan (the Indemnification) 
in connection with a Leases and a Lease Renewal; and
    (e)(1) The Plan's granting of a right of first offer (the Right of 
First Offer) to each Tenant, whereby the Tenant may purchase a Property 
or LLC interest from the Plan; and (2) a sale by the Plan of a Property 
or LLC Interest to a Tenant in connection with a Tenant's exercise of 
that Right of First Offer.
Section II. Conditions Regarding the In-Kind Contribution Described in 
Section I(A)
    (a) The Independent Fiduciary, as defined in Section X(c) of this 
proposed exemption, negotiates the terms and conditions of the 
Contribution, and approves the Contribution as being in the interest of 
the Plan;
    (b) The LLC Interests are contributed to the Plan at their current 
fair market value, as determined by the Independent Fiduciary, 
following the Independent Fiduciary's review of an appraisal report 
(the Appraisal Report) prepared by the Independent Appraiser, as 
defined in Section X(d) of this proposed exemption;
    (c) On the date of the Contribution, the aggregate contributed 
value of the LLC Interests is no less than the current fair market 
value of the Properties underlying the LLC Interests, as verified by 
the Independent Fiduciary;
    (d) On the date of the Contribution, ABARTA contributes to the Plan 
a cash amount that is no less than $500,000;
    (e) Immediately following the Contribution, the aggregate fair 
market value of employer real property and employer securities held by 
the Plan represents less than 20% of the Plan's assets;
    (f) As long as the Properties and/or LLC interests are owned by the 
Plan, the Properties are not altered in any way that: (1) Diminishes 
the fair market value or remaining useful life of the Property; (2) 
affects the structure or systems of any building existing on the 
Property; or (3) affects an expansion of any building existing on the 
Property, without the prior written approval of the Independent 
Fiduciary; and
    (g) Following the Contribution, the Plan does not transfer a 
portion of its ownership interests in the LLCs or in the Properties to 
a party in interest to the Plan.
Section III. Conditions Regarding the Plan's Leasing of the Properties 
to the Tenants Described in Section I(B)
    (a) The Independent Fiduciary negotiates the terms and conditions 
of the each Lease and Lease Renewal, and approves the Plan's entering 
into each Lease and Lease Renewal, as being in the interest of, and 
protective of, the Plan;
    (b) Each Lease and Lease Renewal remains, at all times, a bondable 
triple net lease, such that all costs attributable to a Property 
(including, among other things, taxes, insurance, utilities, and non-
capital maintenance, repair, and capital improvements) are the 
responsibility of the Tenant, until the earlier of: (1) The date on 
which the Property or LLC Interest is first transferred to any person 
or entity that is not wholly-owned by the Plan; (2) the date on which 
the Plan sells a controlling interest in the LLC to an entity that is 
not wholly-owned by the Plan; or (3) the date the Lease or Lease 
Renewal terminates by operation of law;
    (c) Any amendment to a Lease or Lease Renewal must be negotiated 
and approved by the Independent Fiduciary; however, in no event may any 
amendment be inconsistent with the terms of this exemption, if granted; 
and
    (d) For each Lease Renewal, all provisions of the Lease on which 
the Lease Renewal is based, with the exception of the specific rent 
amount and any escalator provision, remain in effect.
Section IV. The Make Whole Obligation Described in Section I(C)
    (a) After the Contribution, as of the earlier of: (1) The date of a 
sale by the Plan of a Property (or an LLC Interest) (a Sale Date); or 
(2) the date that is five years from the date of the Contribution 
(hereinafter, a First Calculation Date), if (A)(i) the proceeds 
received from the fair market value sale of a Property (or LLC 
interest), in the case of a sale, or (ii) the current fair market value 
of the Property (or the LLC interest) as of the First Calculation Date, 
in the case in which there has not been a sale, plus (B) any income 
generated by the Property during that period, less (C) any expenses 
attributable to the Property (or the LLC Interest) paid by the Plan 
during that period, is less than (D) the fair market value of such 
Property (or the LLC Interest) at the time of the Contribution, plus 
(E) an amount equal to a 5% percent rate of return on such Contributed 
Value during that period, compounded annually; then the Tenant must 
contribute an amount of cash to the Plan equal to any such difference, 
within 60 days of the Sale Date or First Calculation Date;
    (b) If the Plan continues to hold a Property or LLC Interest during 
all or a portion of any of the three consecutive five year periods that 
follow the First Calculation Date (each, a Lookback Period), with 
respect to any of these three Lookback Periods, as of the earlier of: 
(1) A Sale Date; or (2) a date that is five years from the first day of 
the Lookback Period (a Subsequent Calculation Date), if (A)(i) the 
proceeds received from the fair market value sale of a Property (or LLC 
interest), in the case of a sale, or (ii) the current fair market value 
of the LLC interest as of the applicable Subsequent Calculation Date, 
in the case in which there has not been a sale, plus (B) any income 
generated by the Property during that period, (C) less any expenses 
paid by the Plan during that period regarding the LLC interest or 
Property, is less than (D) the fair market value of such LLC Interest 
as of the first day of the applicable Lookback Period, plus (E) an 
amount equal to a 5% percent rate of return on such Contributed Value 
during that period, compounded annually; then the Tenant must 
contribute to the Plan an amount of cash equal to any such difference, 
within 60 days of the Sale Date or Subsequent Calculation Date; and
    (c) The Plan receives the full amount that the Plan may be due 
under the Make Whole Obligation within 60 days of the applicable Sale 
Date, Calculation Date, or Subsequent Calculation Date, as verified by 
the Independent Fiduciary.
Section VI. Tenants' Indemnification of the Plan Described In Section 
I(d)
    (a) In connection with each Lease and Lease Renewal, and as set 
forth in writing therein, the Tenant indemnifies, defends upon request, 
and holds the Plan harmless from any, and against all, losses, 
penalties and court costs related to: (1) The Tenant's use, repair, 
management, lease, sublease, maintenance or operation of a Property, 
(2) any violation of any applicable environmental laws, the Americans 
with Disabilities Act (the ADA), and other health and/or safety laws; 
and (3) any default by the Tenant under the Lease or Lease Renewal; and
    (b) Any amount owed the Plan in connection with a Tenant's 
indemnification of the Plan, as described in the preceding paragraph, 
is negotiated and approved by the Independent Fiduciary, and paid to 
the Plan within the timeframe set forth by the Independent Fiduciary.
Section VII. The Right of First Offer and the Sale by the Plan of a 
Property or an LLC Interest Described in Section I(E)
    (a) During the term of the Lease and any Lease Renewal, the 
Independent Fiduciary is solely responsible for determining whether, 
when, and under what terms the Plan may prudently sell

[[Page 29698]]

one or both of: (1) The LLCs; or (2) the Properties;
    (b) During the term of the Lease and any Lease Renewal, the 
Independent Fiduciary must approve any sale by the Plan of one or both 
of: (1) The Properties; or (2) the LLC Interests, as being in the 
interest of, and protective of, the Plan;
    (c) The Independent Fiduciary may not implement the Right of First 
Offer unless the Independent Fiduciary has first negotiated the terms 
and conditions of a proposed sale of an LLC Interest (or a Property) to 
a party that is unrelated to ABARTA or any of its affiliates (the 
Unrelated Proposed Sale);
    (d) Any sale of an LLC Interest or Property to ABARTA or any of its 
affiliates (hereinafter, ABARTA) pursuant to the Right of First Offer, 
must equal the greater of: (1) The price negotiated by the Independent 
Fiduciary, as between the Plan and the party that is unrelated to 
ABARTA; or (2) the current fair market value of the Property, as 
determined by the Independent Appraiser; and
    (e) If ABARTA does not purchase the Property or LLC Interest under 
the same terms as the terms associated with the Unrelated Proposed 
Sale, the Plan may sell the Property or LLC Interest to the unrelated 
third party within 360 days without triggering a new Right of First 
Offer.
Section VIII. The Independent Fiduciary
    (a) The Independent Fiduciary represents the interests of the Plan 
for all purposes with respect to the Covered Transactions;
    (b) The Independent Fiduciary must:
    (1) Review, negotiate and approve the terms and conditions of each 
Covered Transaction;
    (2) Review and approve the terms of the transfer agreement (the 
Transfer Agreement) that evidences the Contribution;
    (3) Monitor and enforce the Plan's rights and interests with 
respect to the Properties;
    (4) Monitor ABARTA's compliance with the terms of this exemption, 
including all obligations set forth under the Leases; and
    (5) Take all steps that are necessary and proper to protect the 
Plan in the event of any non-compliance by ABARTA.
Section IX. General Conditions
    (a) The Plan does not pay any real estate fees, commissions, costs 
or other expenses in connection with the proposed transactions, 
including any fees that are currently charged, or any fees which accrue 
in the future; and
    (b) The terms and conditions of the proposed transactions are no 
less favorable to the Plan than those obtainable under similar 
circumstances when negotiated at arm's-length with unrelated third 
parties.
Section X. Definitions
    (a) The term ABARTA means ABARTA, Inc., and any of its affiliates.
    (b) The term ``affiliate'' means: (1) Any person directly or 
indirectly through one or more intermediaries, controlling, controlled 
by, or under common control with the person; (2) any officer, director, 
employee, relative, or partner in any such person; or (3) any 
corporation or partnership of which such person is an officer, 
director, partner, or employee.
    For the purposes of clause (a)(1) above, the term ``control'' means 
the power to exercise a controlling influence over the management or 
policies of a person other than an individual.
    (c) The term ``Independent Fiduciary'' means Evercore Trust Company 
(Evercore), or another fiduciary of the Plan who: (1) Is independent of 
or unrelated to ABARTA and the Tenants, and has the appropriate 
training, experience, and facilities to act on behalf of the Plan 
regarding the Covered Transactions in accordance with the fiduciary 
duties and responsibilities prescribed by the Act (including, if 
necessary, the responsibility to seek the counsel of knowledgeable 
advisors to assist in its compliance with the Act); and (2) if 
relevant, succeeds Evercore in its capacity as Independent Fiduciary to 
the Plan in connection with the Covered Transactions. The Independent 
Fiduciary will not be deemed to be independent of and unrelated to 
ABARTA and the Tenants if: (1) Such Independent Fiduciary directly or 
indirectly controls, is controlled by or is under common control, with 
ABARTA or the Tenants; (2) such Independent Fiduciary directly or 
indirectly receives any compensation or other consideration in 
connection with any transaction described in this exemption other than 
for acting as Independent Fiduciary in connection with the transactions 
described herein, provided that the amount or payment of such 
compensation is not contingent upon, or in any way affected by, the 
Independent Fiduciary's ultimate decision; and (3) the annual gross 
revenue received by the Independent Fiduciary, during any year of its 
engagement, from ABARTA and the Tenants, exceeds 2% of the Independent 
Fiduciary's annual gross revenue from all sources (for federal income 
tax purposes) for is prior tax year.
    (d) The term ``Independent Appraiser'' means an individual or 
entity meeting the definition of a ``Qualified Independent Appraiser'' 
under Department Regulation 25 CFR 2570.31(i) retained to determine, on 
behalf of the Plan, the fair market value of the Properties as of the 
date of the Contribution.

Summary of Facts and Representations 3
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    \3\ The Summary of Facts and Representations is based on the 
Applicant's representations and does not reflect the views of the 
Department, unless indicated otherwise.
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The Parties
    1. ABARTA, which was founded in 1933 by Rolland Adams, currently 
maintains its headquarters in Pittsburgh, Pennsylvania. ABARTA is 
privately-owned and operates in the oil and gas, soft-drink bottling, 
and frozen food industries. Within its soft-drink bottling division, 
ABARTA owns and operates four Coca-Cola bottling companies, two of 
which are Coca-Cola Buffalo and Coca-Cola Lehigh Valley. As of March 
31, 2015, ABARTA held assets totaling $238,824,000 and liabilities 
totaling $182,748,000.
    Coca-Cola Lehigh Valley, which was purchased by ABARTA in 1963, 
owns the exclusive franchise rights in perpetuity to distribute 
products of the Coca-Cola Company throughout Lancaster, Northampton, 
and Lehigh counties, in Pennsylvania, and part of Warren County, in New 
Jersey. Coca-Cola Lehigh Valley has generated $3 million in average 
annual Earnings Before Interest, Tax, Depreciation, and Amortization 
(EBITDA) since 2010.
    Coca-Cola Buffalo, which was purchased by ABARTA in 1980, owns the 
exclusive franchise rights in perpetuity to distribute products of the 
Coca-Cola Company throughout eight counties in and around Buffalo, New 
York. Coca-Cola Buffalo has generated $2.5 million in average annual 
EBITDA since 2010.
    2. The Plan, which was adopted by ABARTA on January 1, 1981, is a 
noncontributory, defined benefit pension plan which covers 
approximately 4,000 non-union employees of ABARTA. As of January 1, 
2015, the Plan had 1,265 participants. As of July 31, 2015, the Plan 
held assets totaling $36,737,158. The Plan Administrator is a 
Committee, the members of which are designated by ABARTA's Board of 
Directors. Contributions required to fund the Plan are remitted to and 
held under the ABARTA, Inc. Defined Benefit Master

[[Page 29699]]

Trust (the Master Trust), the custodian of which is Fidelity Management 
Trust Company (Fidelity). In addition to ABARTA, seven other companies, 
including Coca-Cola Lehigh Valley and Coca-Cola Buffalo, participate in 
the Master Trust.
    The Plan's trustees are John F. Blitzer III, Katherine W. Fedor, 
and William F. Holtz (the Trustees). Each of the Trustees serves 
concurrently as an officer of ABARTA: Mr. Blitzer, as Director, 
President and CEO; Ms. Fedor, as Secretary; and Mr. Holtz as Vice 
President, Treasurer, and Secretary. In addition, two Trustees, Mr. 
Holtz and Ms. Fedor, serve as officers for the LLCs, but, if this 
exemption is granted, they will not receive compensation from the Plan 
as officers of the LLCs following the Contribution.
    The Trustees have delegated investment management discretion over 
Plan assets to Fidelity, subject to a written investment policy 
approved by the Trustees which specifies ranges for asset allocations 
(the Investment Policy Statement). The Investment Policy Statement 
expressly permits the in-kind contribution of employer real property to 
the Plan.
The LLCs
    3. ABARTA is the sole member and 100% owner of both Delabarta New 
York LLC and Delabarta Pennsylvania LLC. The Applicant represents that 
the LLCs do not have any employees and there are no significant costs 
associated with ownership, other than a nominal annual administrative 
filing fee required by the State of New York, which ABARTA will 
continue to pay following the Contribution.
    Each LLC owns, as its only asset, a parcel of unencumbered real 
property, as well as certain buildings situated on each. The sole asset 
of Delabarta Lehigh Valley LLC consists of unencumbered title to 
approximately 10.615 acres of land and one improvement thereon, located 
at 2150 Industrial Drive Bethlehem, Pennsylvania (the Pennsylvania 
Property). Coca-Cola Lehigh Valley purchased the Pennsylvania Property 
as a vacant parcel of land in 1980 and subsequently constructed a 
116,751-square foot warehouse/distribution facility on the Property in 
1981. Currently, the Pennsylvania Property is 100% occupied by Coca-
Cola Lehigh Valley.
    The sole asset of Delabarta New York LLC consists of unencumbered 
title to approximately 9.21 acres of land and two improvements thereon, 
located at 150 and 200 Milens Road in the Town of Tonawanda, New York 
(the New York Property). Coca-Cola Buffalo purchased the New York 
Property in 1959 and subsequently constructed the two warehouse 
facilities in 1960 and 1967. Currently, the New York Property is 100% 
occupied by Coca-Cola Buffalo.
    Hereinafter, Coca-Cola Lehigh Valley and Coca-Cola Buffalo are 
referred to as the Tenants.
The Contribution
    4. ABARTA has requested an administrative exemption from the 
Department in order to contribute the LLC Interests to the Plan. To 
evidence the Contribution, ABARTA and the Plan will enter into a 
written transfer agreement (the Transfer Agreement), which will govern 
the terms upon which the LLC Interests will be contributed to and held 
by the Plan.
    As will be stated in the Transfer Agreement, the Independent 
Fiduciary must act on behalf of the Plan in connection with the 
Contribution, and must negotiate and approve the terms upon which the 
Plan will accept the LLC Interests. As also stated in the Transfer 
Agreement, the value of the Properties will be determined by the 
Independent Fiduciary based upon an appraisal of the Properties 
performed by the Independent Appraiser, as of the date of the 
Contribution.
    The Plan will not pay any commissions, costs or other expenses in 
connection with the Contribution, including any fees that are currently 
charged, or any fees which are charged in the future, by the 
Independent Appraiser or the Independent Fiduciary.
    5. In addition to the Contribution and in connection therewith, 
ABARTA will make a one-time, cash contribution of $500,000 to the Plan. 
Taken together with the appraised fair market value of the Properties 
underlying the LLC Interests (see Representations 18 and 19), the 
estimated aggregate value of the Contribution amounts to $6,900,000, 
and is in excess of ABARTA's 2015 minimum funding obligation under 
section 302 of the Act.
The Leases
    6. The Plan, through the LLCs, will enter into bondable, triple-net 
leases (the Leases) of the Properties with each Tenant. Each Lease will 
be substantially identical in all respects, other than the name of the 
Tenant, the name of the LLC Landlord,\4\ and the rent amount to be 
paid. Each Lease will also have an initial term of 10 years with the 
respective Tenant.
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    \4\ References to the Plan as the Landlord under the Leases are 
meant to include the LLCs which hold title to the Properties.
---------------------------------------------------------------------------

    The bondable, triple-net lease structure will ensure that all 
operating costs related to the Properties, including taxes, insurance, 
utilities, and non-capital maintenance, repair, and capital 
improvements will be the responsibility of the Tenants. Additionally, 
the triple-net lease structure ensures that the rent payable by the 
Tenants to the Plan will remain payable under all circumstances, with 
the exception of a partial condemnation of the underlying Properties.
    The Leases will remain bondable until the earlier of: (a) The date 
on which Property or LLC Interest is first transferred to any person or 
entity that is not wholly owned by the Plan; (b) the date on which the 
Plan sells a controlling interest in the applicable LLC to an entity 
that is not wholly owned by the Plan; or (c) the date the Lease or 
Lease Renewal terminates by operation of law.
    With regard to alterations to the Properties by the Tenants, the 
Tenants must secure consent from the Independent Fiduciary prior to 
affecting any alteration which would: (a) Diminish the fair market 
value or remaining useful life of the Properties; (b) affect the 
structure or systems of any building existing on the Properties, or (c) 
effect an expansion of any building existing on the Properties.
    Further, any amendment to a Lease or Lease Renewal must be 
negotiated and approved by the Independent Fiduciary. However, in no 
event may an amendment be inconsistent with the terms of this 
exemption, if granted. Finally, each Lease or Lease Renewal prohibits 
the Plan from transferring a fractional part of its LLC Interests to 
ABARTA or a Tenant.
    7. Under the Pennsylvania Property Lease, Coca-Cola Lehigh Valley 
will pay the Plan a base rental amount of $379,441, due in equal 
monthly installments of $31,620. In addition, on the first day of each 
Lease Year from and after the second Lease Year, the base rental amount 
under the Pennsylvania Property Lease will be increased by an amount 
equal to the product of the Base Rent then in effect multiplied by a 
2.0% escalator adjustment.\5\ In effect, the Plan will receive an 
annualized 9.44% rate of return under such Lease.
---------------------------------------------------------------------------

    \5\ The annual escalator under the Pennsylvania Property Lease 
is based upon a market rent analysis performed by the Independent 
Appraiser. The Independent Fiduciary has confirmed that the rental 
rate under the Pennsylvania Property Lease is consistent with the 
fair market rental value in the Erie, Pennsylvania market.
---------------------------------------------------------------------------

    Under the New York Property Lease, Coca-Cola Buffalo will pay the 
Plan a base rental amount of $348,563, due in equal monthly 
installments of $29,047.

[[Page 29700]]

The New York Property Lease does not provide for annual rent 
escalations from and after the second lease year.\6\ However, it is 
anticipated that this Lease will generate a 13.94% annual rate of 
return to the Plan.
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    \6\ The absence of an annual rent escalator under the New York 
Property Lease is based upon the Independent Appraiser's conclusion 
that rent escalators are not prevalent in commercial leases in the 
New York Property's market. The Independent Fiduciary has confirmed 
that the rental rate under the New York Property Lease is consistent 
with the fair market rental value in the Buffalo, New York market.
---------------------------------------------------------------------------

    8. Over the initial 10 year term of the Leases, the Plan will 
receive aggregate rental income totaling $7,640,403.05 ($4,154,773.05 
in aggregate income under the Pennsylvania Lease and $3,485,630.00 in 
aggregate income under the New York Lease).
    The Applicant represents that the rental rates under the Leases 
represent fair market value, as (a) they were agreed upon following 
arm's length negotiations between the Independent Fiduciary and the 
Tenants, and (b) are supported by a market rent analysis performed by 
the Independent Appraiser.
The Lease Renewals
    9. With respect to each Lease, the Tenant has the right to renew 
the term of the Lease for an additional Renewal Term of ten years by 
giving the Plan written notice (the Renewal Notice) not later than the 
last day of the ninth Lease year. During such time, the Plan will be 
represented by the Independent Fiduciary. Within 90 days of its receipt 
of the Tenant's Renewal Notice, the Independent Fiduciary will provide 
such Tenant with the Independent Fiduciary's determination of the fair 
market annual base rent, and the escalation factor which it desires to 
be applicable during the Renewal Term. The Independent Fiduciary and 
the Tenant will then have thirty days to agree upon a base rent amount 
and escalation factor for the purposes of the Renewal Term.\7\ In no 
event, however, will the Independent Fiduciary be under any obligation 
to agree to a base rent for the first year of the Renewal Term which is 
less than the annual base rent in effect during the Lease Year 
immediately preceding the commencement of the Renewal Term.
---------------------------------------------------------------------------

    \7\ In the event the Plan and Tenant are unable to agree upon a 
base rent amount and escalation factor, each will appoint an 
independent appraiser to determine a fair market base rent amount 
and escalation factor.
---------------------------------------------------------------------------

The Make Whole Obligation
    10. The Lease Agreements and any Lease Renewal Agreement will 
include a Make Whole Obligation, whereby each Tenant will ensure that 
the Plan receives at least a five percent annualized rate of return in 
connection with the Plan's ownership of the LLC Interests. After the 
Contribution, as of the earlier of: (i) A Sale Date; or (2) a First 
Calculation Date, if (A)(i) the proceeds received from the fair market 
value sale of a Property (or LLC interest), in the case of a sale, or 
(ii) the current fair market value of the Property (or the LLC 
interest) as of the First Calculation Date, in the case in which there 
has not been a sale, plus (B) any income generated by the Property 
during that period, less (C) any expenses attributable to the Property 
(or the LLC Interest) paid by the Plan during that period, is less than 
(D) the fair market value of such Property (or the LLC Interest) at the 
time of the Contribution, plus (E) an amount equal to a 5% percent rate 
of return on such Contributed Value during that period, compounded 
annually; then the Tenant must contribute an amount of cash to the Plan 
equal to any such difference, within 60 days of the Sale Date or First 
Calculation Date;
    Additionally, if the Plan continues to hold a Property or LLC 
Interest during all or a portion of the three consecutive five year 
Lookback Periods that follow the First Calculation Date, with respect 
to any of these Lookback Periods, as of the earlier of: (1) A Sale 
Date; or (2) a Subsequent Calculation Date, if (A)(i) the proceeds 
received from the fair market value sale of a Property (or LLC 
interest), in the case of a sale, or (ii) the current fair market value 
of the LLC interest as of the applicable Subsequent Calculation Date, 
in the case in which there has not been a sale, plus (B) any income 
generated by the Property during that period, (C) less any expenses 
paid by the Plan during that period regarding the LLC interest or 
Property, is less than (D) the fair market value of such LLC Interest 
as of the first day of the applicable Lookback Period, plus (E) an 
amount equal to a 5% percent rate of return on such Contributed Value 
during that period, compounded annually; then the Tenant must 
contribute to the Plan an amount of cash equal to any such difference, 
within 60 days of the Sale Date or Subsequent Calculation Date; and
    The Make Whole Obligation will remain in effect for up to twenty 
years, which is the maximum term of this proposed exemption, if 
granted, unless the Properties or LLC Interests are sold before then. 
The Independent Fiduciary will represent the interests of the Plan with 
respect to the Make Whole Obligation, and will ensure that the Plan 
receives any amount due under the Make Whole Obligation, within 60 days 
of the date that triggers the payment of such amount.
The Indemnification
    11. The Lease Agreements provide that each Tenant reimburse the 
Plan, and indemnify, defend upon request, and hold harmless the Plan 
from any, and against all losses, penalties and court costs related to: 
(a) The Tenant's use, repair, management, lease, sublease, maintenance 
or operation of a Property; (b) any violation of any applicable 
environmental laws, the ADA, and other health and/or safety laws; and 
(c) any default by a Tenant under the Lease. Any reimbursement paid to 
the Plan by a Tenant in connection with the Tenant's Indemnification, 
will be negotiated and approved by the Independent Fiduciary.
The Right of First Offer
    12. The Lease Agreements provide a Right of First Offer to the 
Tenants, which states that, in the event that the Plan desires to sell 
either a Property or an LLC Interest during the initial ten-year Lease 
term or during any Lease Renewal period, the Plan must first offer such 
Property or LLC Interest to the Tenant at terms the Plan intends to 
offer such Property or LLC Interest to an unrelated third party (the 
Unrelated Proposed Sale). Any sale of an LLC Interest or Property to 
ABARTA pursuant to the Right of First Offer must equal the greater of: 
(a) The price negotiated by the Independent Fiduciary, as between the 
Plan and the party that is unrelated to ABARTA; or (b) the current fair 
market value of the Property, as determined by the Independent 
Appraiser, as described herein in Representations 16-19.
    If ABARTA does not purchase the Property or LLC Interest under the 
same terms as the terms associated with the Unrelated Proposed Sale, 
the Plan may sell the Property or LLC Interest to the unrelated third 
party within 360 days without triggering a new Right of First Offer.
    During the term of the Lease and any Lease Renewal, the Independent 
Fiduciary is solely responsible for: (a) determining whether, when, and 
under what terms the Plan may prudently sell one or both of: (i) The 
LLC Interests; or (ii) the Properties; and (b) approving any such sale 
as being in the interest of, and protective of, the Plan. In addition, 
the Independent Fiduciary may not implement the Right of First Offer 
unless the Independent Fiduciary has first negotiated the terms and 
conditions of an Unrelated Proposed Sale.

[[Page 29701]]

Legal Analysis
    13. The Act prohibits a wide range of transactions involving a 
plan. In this regard, section 406(a)(1)(A) of the Act provides that a 
fiduciary with respect to a plan shall not cause a plan to engage in a 
transaction if the fiduciary knows or should know that such transaction 
constitutes a direct or indirect sale or exchange, or leasing, of any 
property between a plan and a party in interest. Section 406(a)(1)(B) 
of the Act states that a fiduciary with respect to a plan shall not 
cause a plan to engage in a transaction if the fiduciary knows or has 
reason to know that such transaction constitutes a direct or indirect 
extension of credit between a plan and a party in interest. Section 
406(a)(1)(D) of the Act provides that a fiduciary with respect to a 
plan shall not cause a plan to engage in a transaction if the fiduciary 
knows or should know that such transaction constitutes a direct or 
indirect transfer to, or use by or for the benefit of, a party in 
interest, of any assets of the plan. Section 406(b)(1) of the Act 
prohibits a fiduciary from dealing with the assets of the plan in such 
fiduciary's own interest or for such fiduciary's personal account. 
Section 406(b)(2) of the Act prohibits a fiduciary from acting in such 
fiduciary's individual or other capacity in any transaction involving 
the plan on behalf of a party (or from representing a party) whose 
interests are adverse to the interests of the Plan, or the interests of 
the Plan participants and beneficiaries.
    14. The term ``party in interest'' is defined in section 3(14)(A) 
and (C) of the Act to include a fiduciary with respect to a plan, and 
an employer, any of whose employees are covered by such Plan. In 
addition, section 3(14)(G) of the Act defines the term ``party in 
interest'' to include any corporation of which 50% or more of the 
combined voting power of all classes of stock entitled to vote or the 
total value of shares of all classes of stock of such corporation is 
owned directly or indirectly, or held by such employer. As fiduciaries 
to the Plan, the Trustees are parties in interest with respect to the 
Plan pursuant to section 3(14)(A) of the Act. ABARTA, as an employer 
whose employees are covered by the Plan, and the Tenants, as wholly-
owned subsidiaries of ABARTA, are parties in interest with respect to 
the Plan pursuant to section 3(14)(C) and (G) of the Act, respectively.
    If this proposed exemption is granted, the Contribution, the Leases 
and the Lease Renewals would violate section 406(a)(1)(A), 406(b)(1) 
and (b)(2) of the Act. The Right of First Offer would violate section 
406(a)(1)(A), 406(b)(1) and (b)(2) of the Act. A sale back of a 
Property or LLC interest by the Plan to ABARTA pursuant to the Right of 
First Offer would violate section 406(a)(1)(A) and (D) of the Act, as 
well as section 406(b)(1) and (b)(2) of the Act. In addition, the 
Indemnification and the Make Whole Obligation would violate section 
406(a)(1)(C) of the Act, and section 406(b)(1) and (b)(2) of the Act.
    15. In addition to the prohibited transaction provisions described 
above, sections 406(a)(1)(E) and 406(a)(2) of the Act prohibit a plan 
from acquiring or holding employer real property in violation of 
section 407(a) of the Act.\8\ Section 407(a) of the Act provides that a 
plan may not acquire or hold employer real property unless such 
property is ``qualifying employer real property.'' Section 407(d)(2) of 
the Act defines the term ``employer real property'' as real property 
that is leased to an employer or to an affiliate of such employer. 
Section 407(d)(4) of the Act defines the term ``qualifying employer 
real property'' to mean parcels of employer real property: (a) If a 
substantial number of the parcels are dispersed geographically; (b) if 
each parcel of real property and the improvements thereon are suitable 
(or adaptable without excessive cost) for more than one use; and (c) if 
the acquisition and retention of such property complies with the 
provisions of sections 406 and 407 of the Act. Section 407(a)(2) of the 
Act further prohibits a plan from acquiring or holding qualifying 
employer real property where ``immediately after such acquisition the 
aggregate fair market value of employer securities and employer real 
property held by the plan exceeds 10% of the fair market value of the 
assets of the plan.''
---------------------------------------------------------------------------

    \8\ According to the Applicant, the LLC Interests are pass-
through entities, owning 100% of the underlying Properties. 
Therefore, the Applicant asserts that the LLC Interests are not 
considered securities, or for that matter, ``employer securities'' 
or ``qualifying employer securities'' under section 407(d)(1)or 
section 407(d)(5) of the Act.
---------------------------------------------------------------------------

    Given that: the acquisition and retention of the Properties by the 
Plan would not comply with the provisions of section 406 and 407 of the 
Act; and fair market values of the Properties immediately after 
acquisition would constitute approximately 18.7% of the fair market 
value of the Plan's assets, the Plan's acquisition and holding of the 
Properties would violate sections 406(a)(1)(E), 406(a)(2), and 407(a) 
of the Act.
The Qualified Independent Appraiser
    16. The Independent Fiduciary has retained CBRE, Inc. (CBRE) to 
render an opinion as to the fair market value of the Properties. CBRE 
is a real estate appraisal firm that provides real estate financial 
advisory services and employs personnel with extensive experience 
providing valuation and appraisal services for real estate classified 
as warehouse/distribution.
    Thomas H. Myers, Jr. and John B. Rush of CBRE's Valuation and 
Advisory Services prepared the appraisal report for the Pennsylvania 
Property (the Pennsylvania Property Appraisal Report) in November, 
2014, and will update that report for purposes of this exemption, if 
granted. Mr. Myers is a Certified General Real Estate Appraiser in 
Pennsylvania and New Jersey, and an Affiliate Member of the Appraisal 
Institute (MAI). Mr. Myers has 43 years of relevant real estate 
experience, with a primary focus on major industrial properties. Mr. 
Rush is a Certified General Real Estate Appraiser in Delaware, New 
Jersey, and Pennsylvania, and has over 39 years of relevant real estate 
experience, including experience that encompasses a wide variety of 
property types including office, retail, and industrial. Mr. Rush also 
holds an MAI designation from the Appraisal Institute and a CRE 
designation from the Counselors of Real Estate.
    Robert J. DiFalco and Joseph V. Ferranti of CBRE's Valuation and 
Advisory Services prepared an appraisal report for the New York 
Property (the New York Appraisal Report) in November, 2014, and will 
update that report for purposes of this exemption, if granted. Mr. 
DiFalco is a Certified General Real Estate Appraiser in New York, New 
Jersey, and Connecticut and an MAI.
    17. As represented by CBRE, each Appraisal Report is self-contained 
and intended to comply with the reporting requirements set forth under 
Standards Rule 2-2(a) of USPAP. Additionally, CBRE represents that the 
intended use of the Appraisal Report is to assist the Independent 
Fiduciary appointed to oversee the proposed transactions to comply with 
its responsibilities under the Act in connection with the proposed 
transactions. Finally, CBRE represents that its fee for appraisal 
services provided in connection with the proposed transactions 
represents less than 0.5% of its annual revenues in 2014 and 2015, 
which are the years it has provided such services.
Pennsylvania Property Appraisal Report
    18. In the Pennsylvania Property Appraisal Report, CBRE describes 
the Pennsylvania Property as a 10.615 acre parcel of land improved by a 
116,751 square foot warehouse/distribution

[[Page 29702]]

facility. CBRE notes that the Property is located in the Lehigh Valley 
region, an area with a relatively diverse economic base which protects 
the region from the effects of wide swings in the economy. CBRE also 
notes that the Pennsylvania Property lies in Bethlehem, which is the 
most populous city in the Lehigh Valley, and that the long-term trends 
of the region should exert positive influences on the Property's value.
    CBRE states that modern warehouse/distribution facilities, like the 
Pennsylvania Property, are a desirable commodity in the current 
marketplace. As explained by CBRE, this desirability is due to the 
general versatility of such facilities and a heightened demand for 
just-in-time delivery of products. CBRE also emphasizes that warehouse/
distribution facilities are generally perceived to be a relatively 
stable asset class.
    Pursuant to analysis based upon the Sales Comparison Approach and 
Income Capitalization Approach, CBRE concluded that the fair market 
value of the Pennsylvania Property was $4,400,000 as of November 7, 
2014, in an appraisal report dated November 10, 2014. In addition, 
within its Income Capitalization analysis of the Pennsylvania Property, 
CBRE completed a market rent analysis and estimated that a base rental 
amount of $3.25 per square foot, or $379,441 per year was appropriate 
for the space.
New York Property Appraisal Report
    19. In the New York Property Appraisal Report, CBRE describes the 
New York Property as a 9.05 acre parcel of land improved by two 
adjacent warehouse buildings which cover a combined 107,250 square feet 
of space. CBRE notes that the structures are in average overall 
condition and that there are no known factors that impact their 
marketability. CBRE determined that the New York Property's location in 
the Town of Tonawanda in Erie County, New York is suitable for the 
Property's current industrial use. In the Appraisal Report, CBRE notes 
that the New York Property's location places it in a stable industrial 
market, within an extensive transportation network near the United 
States-Canada border.
    Pursuant to analysis based upon the Sales Comparison Approach and 
the Income Capitalization Approach, CBRE concluded that the fair market 
value of the New York Property was $2,500,000, as of November 3, 2014, 
in an Appraisal Report dated November 4, 2014. In addition, within its 
Income Capitalization analysis of the New York Property, CBRE completed 
a market rent analysis and estimated that a base rental amount of $3.25 
per square foot on a triple-net basis, or $348,563 per year was 
appropriate for the space, as of November 4, 2014.
The Qualified Independent Fiduciary
    20. For the purposes of the Covered Transactions, the Trustees have 
retained Evercore Trust Company (Evercore) to serve as the Independent 
Fiduciary for the Plan. Evercore represents that it has provided 
independent fiduciary services to employee benefit plans since 1987, 
and that it has extensive experience in making and evaluating 
investment decisions and with transactions implicating the prohibited 
transaction provisions of the Act. Evercore also represents that it has 
significant experience with the management and disposition of Plan 
assets and transactions involving real estate.
    In its Engagement Letter, Evercore represents that it is 
independent of and unrelated to ABARTA, and that it does not directly 
or indirectly control, is not controlled by, and is not under common 
control with ABARTA. Evercore also represents that it will not directly 
or indirectly receive any compensation or other consideration for its 
own account in connection with the Covered Transactions, except for 
fees received in connection with its duties as Independent Fiduciary. 
Further, Evercore represents that its annual compensation received as 
Independent Fiduciary has been less than 0.5% of its annual revenues in 
each of the years it has been working on this engagement.
    Evercore states that it will perform the following duties as 
Independent Fiduciary of the Plan: (a) Determine whether the Covered 
Transactions are in the interest of the Plan and its participants and 
beneficiaries; (b) negotiate the terms and conditions of the Covered 
Transactions on behalf of the Plan, including the Transfer Agreements, 
the Leases, the Lease Renewals, the Make Whole Obligation, the 
Indemnification, and the Right of First Offer thereunder, and other 
documents which Evercore, together with its legal counsel, deems 
necessary and in the Plan's interest to proceed with the proposed 
transactions; (c) determine whether and on what terms the Plan should 
agree to the Covered Transactions; (d) determine whether the Plan will 
enter into the Covered Transactions; (e) determine, together with the 
Independent Appraiser, the fair market value of the Properties to be 
contributed to the Plan, as well as the fair market rental values of 
the Properties under the Leases; and (e) prepare a written report for 
submission to the Department in connection with the exemption, if it 
determines that the Covered Transactions are in the interest of the 
Plan.
    Evercore will continue to serve as Independent Fiduciary to the 
Plan following the Contribution of the LLC Interests to the Plan. In 
this regard, Evercore will: (a) Review, negotiate, and approve the 
terms and conditions of such Covered Transactions; (b) ensure, for 
purposes of the Contribution, that the Appraisal Reports of the 
Properties are consistent with sound principles of valuation, and that 
the LLC interests are valued at fair market value as of the date of the 
Contribution, as determined by the the Independent Appraiser; (c) 
review and examine all aspects of the Properties and the LLC Interests 
under the provisions of the Transfer Agreement, and have the right to 
terminate such agreement on behalf of the Plan by providing appropriate 
written notice to ABARTA; (d) monitor and enforce the Plan's rights and 
interests with respect to the Properties under the terms of the Leases, 
the Lease Renewals, the Make Whole Obligation, the Indemnification, and 
the Right of First Offer, and any other agreements regarding the 
Properties or the LLCs; (e) propose, negotiate, and decide whether to 
enter into any agreements on behalf of the Plan to amend the Leases; 
(f) evaluate and decide whether to grant requests for alterations to 
the Properties, to the extent that such alterations would: (i) Diminish 
the fair market value or remaining useful life of the Properties; (ii) 
affect the structure or systems of any building existing on the 
Properties, or (iii) effect an expansion of any building existing on 
the Properties; (g) ensure compliance with all of the terms of the 
Leases throughout the initial term of such Leases and throughout the 
duration of any renewal of such Leases; (h) arrange for appraisals of 
the Properties as may be necessary to satisfy the Plan's 
responsibilities under ERISA and the terms of this exemption; (i) 
manage the disposition of the Properties or the LLC Interests in 
connection with the Right of First Offer, and ensure that the Plan does 
not transfer any portion of its LLC Interests to a party in interest, 
such as ABARTA or the Tenants; (j) determine whether the continued 
ownership of the LLC Interests or the Properties is in the interests of 
the Plan's participants and beneficiaries and whether, when and on what 
terms to seek prudently to sell one or both of the LLCs or to cause the 
respective LLCs to sell one or both of the Properties; (k) negotiate 
the terms and conditions of, and consummate such sale and disposition, 
in the event

[[Page 29703]]

such fiduciary determines to sell one or both of the LLCs or to cause 
the respective LLCs to sell or otherwise dispose of one or both 
Properties; and (l) monitor and enforce compliance with the conditions 
of this exemption, if granted.
    To assist with the negotiation of the Leases and Transfer 
Agreements, Evercore engaged the law firms of Pillsbury Winthrop Shaw 
Pittman LLP (Pillsbury) and Chernow Kapustin LLC (Chernow). The fees 
and expenses of Evercore, as well as all fees and expenses of Pillsbury 
and Chernow, will be paid by ABARTA.
The Independent Fiduciary Report
    21. In the preliminary Independent Fiduciary Report, Evercore 
concludes that the Covered Transactions are prudent and in the interest 
of the Plan's participants and beneficiaries. In support of this 
conclusion, Evercore emphasizes that the Covered Transactions will 
immediately improve the Plan's actuarial position, diversify the Plan's 
overall portfolio of assets, and reduce the Plan's reliance on future 
cash contributions from ABARTA.
    Specifically, Evercore notes that, absent receipt by the Plan of 
the LLC Interests and a $500,000 cash contribution, and assuming the 
Plan's future receipt of required minimum contributions, the Plan's 
AFTAP funding percentage would be 80.54% for Plan year 2016 and 83.14% 
for Plan year 2017. Evercore concludes that, with the acquisition of 
the LLC Interests and the $500,000 cash contribution from ABARTA, the 
Plan's projected funding levels will improve, on a MAP-21/HAFTA basis, 
to 83.37% for 2016 and 85.27% for 2017.
    In further support of this conclusion, Evercore asserts that the 
Covered Transactions will improve the diversification of the Plan's 
investments. Evercore emphasizes that the Plan currently holds no real 
estate, and that its current investments consist entirely of liquid, 
marketable equity and fixed income securities. Evercore explains that 
the Plan's ownership and leasing of the Properties to creditworthy 
tenants will enhance the diversification of its portfolio in view of 
the low correlation of returns between real estate and other asset 
classes, such as the equity and fixed income securities in which the 
Plan's assets are currently invested. Based upon its analysis of the 
Plan's current investments, Evercore concludes that adding real estate 
exposure to the Plan's asset allocation can be expected to improve the 
Plan's overall risk adjusted return.
    Evercore asserts that the terms of the Covered Transactions, as set 
forth in the Transfer Agreements and Leases, are both reasonable and 
consistent with terms negotiated between unrelated parties in a similar 
arm's-length transaction. Evercore emphasizes that its own 
representatives, as well as expert real estate counsel were directly 
involved in negotiations with ABARTA regarding the terms of the 
Transfer Agreements and the Leases. Evercore also emphasizes that the 
bondable structure of the Leases is advantageous to the Plan, as it (a) 
provides additional assurances that rent due under the Leases will be 
paid to the Plan; and (b) relieves the Plan of any obligation to expend 
Plan assets on the Properties for any purpose, including repairs and 
capital improvements.
    Evercore concludes that the Covered Transactions do not place any 
financial burden on the Tenants. Evercore notes that the annual rent of 
$379,441 under the Pennsylvania Property Lease represents only 12.6% of 
the $3.0 million average EBITDA generated by Coca-Cola Lehigh Valley, 
and that the annual rent of $348,563 under the New York Lease 
represents only 13.9% of the $2.5 million average EBITDA generated by 
Coca-Cola Buffalo.
    Evercore concludes that the rental rates and escalator clauses 
under the Leases are consistent with the Independent Appraiser's 
determination of fair market rental value in the Properties' respective 
markets. In this regard, Evercore asserts that the bondable structure 
of the Leases make them more marketable and financeable than a 
standard, non-bondable lease. With respect to the New York Lease, 
Evercore states that the bondable lease structure serves to mitigate 
the absence of an escalator clause.
    Finally, Evercore concludes that there is no marketability 
limitation attributable to the LLC Interests, other than as provided 
generally by applicable law. In this regard, Evercore asserts that the 
Right of First Offer will not impair the Plan's ability to sell the LLC 
Interests or the Properties at fair market value. Evercore cites to the 
fact that the Right of First Offer is exercisable only at either: (a) 
Each Property's fair market value; or (b) the value of an unsolicited 
offer from an unrelated party. Evercore also emphasizes that ABARTA has 
agreed that if it declines to exercise the Right of First Offer and the 
Plan proceeds with a sale to an unrelated party, the purchaser will not 
have any Right of First Offer obligation with respect to ABARTA.
Environmental Assessments of the Properties
    22. The Independent Fiduciary retained CBRE to render a Limited 
Subsurface Environmental Site Assessment Reports for the Properties. 
CBRE conducted a Phase II Limited Subsurface Environmental Site 
Assessment of the Pennsylvania Property on January 5, 2015 (the 
Pennsylvania Assessment). To complete the Pennsylvania Assessment, CBRE 
engaged EnviroProbe Service, Inc., a Pennsylvania-licensed drilling 
contractor, to collect seven soil borings from the Pennsylvania 
Property. Once collected, CBRE submitted the soil samples to 
TestAmerica Laboratories, Inc. for an analysis of volatile organic 
compounds (VOCs) and semi-volatile organic compounds (SVOCs). Following 
its analysis, TestAmerica, Inc. concluded that no concentrations of 
VOCs or SVOCs were detectable at concentrations exceeding the most 
stringent soil standards established by the Pennsylvania Department of 
Environmental Protection. At the conclusion of the Pennsylvania 
Assessment, CBRE notes that no further assessment, remediation, or 
reporting to the state of Pennsylvania is recommended.
    On December 29, 2014, CBRE performed a Phase I Environmental Site 
Assessment of the New York Property (the New York Assessment). To 
complete the New York Assessment, CBRE engaged Nature's Way 
Environmental, a New York-licensed drilling contractor, to collect five 
soil borings from the Pennsylvania Property. Once collected, CBRE 
submitted the soil samples to ESC Lab Sciences, a New York-certified 
laboratory, for an analysis of VOCs and SVOCs. Following its analysis, 
ESC Lab Sciences concluded that concentrations of both VOCs and SVOCs 
were well below the commercial and industrial soil cleanup objectives 
promulgated by the New York State Department of Environmental 
Conservation. At the conclusion of the New York Assessment, CBRE states 
that no further assessment, remediation, or reporting to the state of 
New York is recommended.
Statutory Findings
    23. The Applicant represents that Covered Transactions are 
administratively feasible because they will be carried out under the 
supervision and direction of the Independent Fiduciary. The Applicant 
emphasizes that the Independent Fiduciary will represent the Plan in 
all aspects of the transactions, including

[[Page 29704]]

with respect to the Contribution of the LLC Interests, as well as all 
aspects of the Leases, including the ROFO and any renewal of the 
Leases.
    The Applicant represents that the Covered Transactions are in the 
interest of the Plan and its participants and beneficiaries and are 
protective of their rights. In this regard, the Applicant emphasizes 
that the Contribution, which is well in excess of ABARTA's minimum 
required contribution amount, will significantly improve the Plan's 
funding status, as well as reduce the Plan's reliance on future cash 
contributions from ABARTA. Additionally, the Applicant emphasizes that 
the Plan will receive valuable, appreciating real property assets that 
will produce a steady stream of future income for the Plan.
    24. The Applicant also represents that, in the event the exemption 
is denied, the Plan and its Participants will incur certain hardships. 
The Applicant asserts that a denial of the proposed exemption would 
cause the Plan to forego the benefit of a voluntary contribution that 
is in excess of the minimum required amount, and as such, would leave 
the Plan at a less-advantageous funding level. The Applicant further 
represents that a denial of the proposed exemption would deprive the 
Plan of two appreciating real property assets which produce a steady 
stream of reliable rental income.
Summary
    25. In summary, it is represented that the Covered Transactions 
will satisfy the statutory criteria for an exemption under section 
408(a) of the Act because:
    (a) The Independent Fiduciary will negotiate the terms and 
conditions of the Contribution, and approve the Contribution as being 
in the interest of the Plan;
    (b) The LLC Interests will be contributed to the Plan at their 
current fair market value, as determined by the Independent Fiduciary 
following its review of the Appraisal Report that has been prepared by 
the Independent Appraiser;
    (c) On the date of the Contribution, the aggregate contributed 
value of the LLC Interests will be no less than the current fair market 
value of the Properties underlying the LLC Interests, as verified by 
the Independent Fiduciary;
    (d) On the date of the Contribution, ABARTA will contribute to the 
Plan a cash amount that is no less than $500,000;
    (e) Immediately following the Contribution, the aggregate fair 
market value of employer real property and employer securities held by 
the Plan will represent less than 20% of the Plan's assets;
    (f) As long as the Properties and/or LLC Interests are owned by the 
Plan, the Properties will not be altered in any way that would: (i) 
Diminish their fair market value or remaining useful life; (ii) affect 
the structure or systems of any building existing on the Properties; or 
(iii) affect an expansion of any building existing on the Properties, 
without the prior written approval of the Independent Fiduciary;
    (g) Following the Contribution, the Plan will not transfer a 
portion of its ownership interests in the LLCs or in the Properties to 
a party in interest to the Plan;
    (h) The Independent Fiduciary will negotiate the terms and 
conditions of the each Lease and Lease Renewal, and approve the Plan's 
entering into each Lease and Lease Renewal, as being in the interest 
of, and protective of, the Plan;
    (i) Each Lease and Lease Renewal will remain, at all times, a 
bondable triple net lease, such that all costs attributable to a 
Property (including, among other things, taxes, insurance, utilities, 
and non-capital maintenance, repair, and capital improvements) are the 
responsibility of the Tenant, until the earlier of: (i) The date on 
which the Property or LLC Interest is first transferred to any person 
or entity that is not wholly-owned by the Plan; (ii) the date on which 
the Plan sells a controlling interest in the LLC to an entity that is 
not wholly-owned by the Plan; or (iii) the date the Lease or Lease 
Renewal terminates by operation of law;
    (k) Any amendment to a Lease or Lease Renewal will be negotiated 
and approved by the Independent Fiduciary; however, in no event will 
any amendment be inconsistent with the terms of this exemption, if 
granted;
    (l) For each Lease Renewal, all provisions of the Lease on which 
the Lease Renewal is based, with the exception of the specific rent 
amount and any escalator provision, will remain in effect;
    (m) After the Contribution, as of the earlier of: (i) A Sale Date; 
or (ii) a First Calculation Date, if (A)(1) the current fair market 
value of a Property (or LLC interest), in the case of a sale, or (2) 
the current fair market value of the Property (or the LLC interest) as 
of the First Calculation Date, in the case in which there has not been 
a sale, plus (B) any income generated by the Property during that 
period, less (C) any expenses attributable to the Property (or the LLC 
Interest) paid by the Plan during that period, is less than (D) the 
fair market value of such Property (or the LLC Interest) at the time of 
the Contribution, plus (E) an amount equal to a 5% percent rate of 
return on such Contributed Value during that period, compounded 
annually; then the Tenant will contribute an amount of cash to the Plan 
equal to any such difference, within 60 days of the Sale Date or First 
Calculation Date;
    (n) If the Plan continues to hold a Property or LLC Interest during 
all or a portion of any of the three consecutive Lookback Periods, 
within 60 days of the earlier of: (i) A Sale Date; or (ii) a Subsequent 
Calculation Date, if (A)(1) the proceeds received from the fair market 
value sale of a Property (or LLC interest), in the case of a sale, or 
(2) the current fair market value of the LLC interest as of the 
applicable Subsequent Calculation Date, in the case in which there has 
not been a sale, plus (B) any income generated by the Property during 
that period, (C) less any expenses paid by the Plan during that period 
regarding the LLC interest or Property, is less than (D) the fair 
market value of such LLC Interest as of the first day of the applicable 
Lookback Period, plus (E) an amount equal to a 5% percent rate of 
return on such Contributed Value during that period, compounded 
annually; then the Tenant will contribute to the Plan an amount of cash 
equal to any such difference, within 60 days of the Sale Date or 
Subsequent Calculation Date;
    (o) The Plan will receive the full amount that the Plan may be due 
under the Make Whole Obligation within 60 days of the applicable Sale 
Date, Calculation Date, or Subsequent Calculation Date, as verified by 
the Independent Fiduciary;
    (p) In connection with each Lease and Lease Renewal, and as set 
forth in writing therein, the applicable Tenant will indemnify, defend 
upon request, and hold the Plan harmless from any, and against all, 
losses, penalties and court costs related to: (i) The Tenant's use, 
repair, management, lease, sublease, maintenance or operation of a 
Property, (ii) any violation of any applicable environmental laws, the 
ADA, and other health and/or safety laws; and (iii) any default by the 
Tenant under the Lease or Lease Renewal;
    (q) Any amount owed the Plan in connection with a Tenant's 
Indemnification of the Plan, as described in the preceding paragraph, 
will be negotiated and approved by the Independent Fiduciary, and will 
be paid to the Plan within the timeframe set forth by the Independent 
Fiduciary;

[[Page 29705]]

    (r) During the term of the Lease and any Lease Renewal, the 
Independent Fiduciary will be solely responsible for determining 
whether, when, and under what terms the Plan may prudently sell one or 
both of: (i) The LLCs; or (ii) the Properties;
    (s) During the term of the Lease and any Lease Renewal, the 
Independent Fiduciary will approve any sale by the Plan of one or both 
of: (i) The Properties; or (ii) the LLC, as being in the interest of, 
and protective of, the Plan;
    (t) The Independent Fiduciary will not implement the Right of First 
Offer unless the Independent Fiduciary has first negotiated the terms 
and conditions of a proposed sale of an LLC Interest (or a Property) to 
a party that is unrelated to ABARTA or any of its affiliates;
    (u) Any sale of an LLC Interest or Property to ABARTA pursuant to 
the Right of First Offer, will equal the greater of: (1) The price 
negotiated by the Independent Fiduciary, as between the Plan and the 
party that is unrelated to ABARTA; or (2) the current fair market value 
of the Property, as determined by the Independent Appraiser;
    (v) If ABARTA does not purchase the Property or LLC Interest under 
the same terms as the terms associated with the Unrelated Proposed 
Sale, the Plan may sell the Property or LLC Interest to the unrelated 
third party within 360 days without triggering a new Right of First 
Offer;
    (w) The Independent Fiduciary will represent the interests of the 
Plan for all purposes with respect to the Covered Transactions;
    (x) The Independent Fiduciary will: (i) Review, negotiate and 
approve the terms and conditions of each Covered Transaction; (ii) 
review and approve the terms of the Transfer Agreement that evidences 
the Contribution; (iii) monitor and enforce the Plan's rights and 
interests with respect to the Properties; (iv) monitor ABARTA's 
compliance with the terms of this exemption, including all obligations 
set forth under the Leases; and (v) take all steps that are necessary 
and proper to protect the Plan in the event of any non-compliance by 
ABARTA;
    (y) The Plan will does not pay any real estate fees, commissions, 
costs or other expenses in connection with the proposed transactions, 
including any fees that are currently charged, or any fees which accrue 
in the future; and
    (z) The terms and conditions of the Covered Transactions will be no 
less favorable to the Plan than those obtainable under similar 
circumstances when negotiated at arm's-length with unrelated third 
parties.

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 all 
individuals who are participants in the Plan. It is represented that 
such interested persons will be notified of the publication of the 
Notice by first class mail to 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 on and/or to request a hearing. All written comments or 
hearing requests must be received by the Department from interested 
persons within 45 days of the publication of this proposed exemption in 
the Federal Register.
    All comments will be made available to the public. Warning: Do not 
include any personally identifiable information (such as name, address, 
or other contact information) or confidential business information that 
you do not want publicly disclosed. All comments may be posted on the 
Internet and can be retrieved by most Internet search engines.

FOR FURTHER INFORMATION CONTACT: Mr. Joseph Brennan of the Department 
at (202) 693-8456. (This is not a toll-free number.)

Sears Holdings 401(k) Savings Plan (the Savings Plan) and the Sears 
Holdings Puerto Rico Savings Plan (the PR Plan) (collectively, the 
Plans), Located in Hoffman Estates, IL

[Exemption Application Nos. D-11846 and D-11847]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Employee Retirement Income Security 
Act of 1974, as amended (ERISA or the Act), and section 4975(c)(2) of 
the Internal Revenue Code of 1986, as amended (the Code), and in 
accordance with the procedures set forth in 29 CFR part 2570, subpart B 
(76 FR 66637, 66644, October 27, 2011).
Section I. Transactions
    (a) If the proposed exemption is granted, the restrictions of 
sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 
407(a)(1)(A) of the Act and the sanctions resulting from the 
application of section 4975 of the Code, by reason of section 
4975(c)(1)(E) of the Code,\9\ shall not apply to the acquisition and 
holding by the Savings Plan of certain subscription rights (the Rights) 
to purchase shares of common stock (the SC Stock) in Sears Canada Inc. 
(Sears Canada) in connection with an offering (the Offering) by Sears 
Holdings Corporation (Holdings) of shares of SC Stock, provided that 
the conditions as set forth, below, in Section II of this proposed 
exemption were satisfied for the duration of the acquisition and 
holding; and
---------------------------------------------------------------------------

    \9\ For purposes of this proposed exemption, unless indicated 
otherwise, references to section 406 of the Act should be read to 
refer as well to the corresponding provisions of section 4975 of the 
Code.
---------------------------------------------------------------------------

    (b) If the proposed exemption is granted, the restrictions of 
sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 
407(a)(1)(A) of the Act \10\ shall not apply to the acquisition and 
holding of the Rights by the PR Plan in connection with the Offering of 
the SC Stock by Holdings, provided that the conditions as set forth in 
Section II of this proposed exemption were satisfied for the duration 
of the acquisition and holding.
---------------------------------------------------------------------------

    \10\ The Applicant represents that there is no jurisdiction 
under Title II of the Act with respect to the PR Plan. Accordingly, 
the Department is not providing any exemptive relief from section 
4975(c)(1)(E) of the Code for the acquisition and holding of the 
Rights by the PR Plan.
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Section II. Conditions
    (a) The receipt of the Rights by the Plans occurred in connection 
with the Offering, in which all shareholders of the common stock of 
Holdings (Holdings Stock), including the Plans, were treated in the 
same manner;
    (b) The acquisition of the Rights by the Plans resulted from an 
independent act of Holdings, as a corporate entity;
    (c) Each shareholder of Holdings Stock, including each of the 
Plans, received the same proportionate number of Rights based on the 
number of shares of Holdings Stock held by each such shareholder;
    (d) All decisions with regard to the holding and disposition of the 
Rights by the Plans were made by a qualified independent fiduciary (the 
Independent Fiduciary) within the meaning of 29 CFR 2570.31(j); \11\
---------------------------------------------------------------------------

    \11\ 29 CFR 2570.31(j) defines a ``qualified independent 
fiduciary,'' in relevant part, to mean ``any individual or entity 
with appropriate training, experience, and facilities to act on 
behalf of the plan regarding the exemption transaction in accordance 
with the fiduciary duties and responsibilities prescribed by ERISA, 
that is independent of and unrelated to any party in interest 
engaging in the exemption transaction and its affiliates;'' in 
general, a fiduciary is presumed to be independent ``if the revenues 
it receives or is projected to receive, within the current federal 
income tax year from parties in interest (and their affiliates) 
[with respect] to the transaction are not more than 2% of such 
fiduciary's annual revenues based upon its prior income tax year. 
Although the presumption does not apply when the aforementioned 
percentage exceeds 2%, a fiduciary nonetheless may be considered 
independent based upon other facts and circumstances provided that 
it receives or is projected to receive revenues that are not more 
than 5% within the current federal income tax year from parties in 
interest (and their affiliates) [with respect] to the transaction 
based upon its prior income tax year.''

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[[Page 29706]]

    (e) The Independent Fiduciary determined that it would be in the 
interest of the Plans to sell all of the Rights received in the 
Offering by the Plans in blind transactions on the NASDAQ Global Select 
Market;
    (f) No brokerage fees, commissions, subscription fees, or other 
charges were paid by the Plans with respect to the acquisition and 
holding of the Rights, or were paid to any affiliate of Holdings, Sears 
Canada, or the Independent Fiduciary, with respect to the sale of the 
Rights.
Section III. Definitions
    (a) The term ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with such person;
    (2) Any officer, director, partner, employee, or relative, as 
defined in section 3(15) of the Act, of such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    Effective Date: This proposed exemption, if granted, will be 
effective for the period beginning October 16, 2014, and ending 
November 7, 2014 (the Offering Period).

Summary of Facts and Representations

Background
    1. Sears Holdings Corporation (Holdings), is the parent company of 
Kmart and Sears, Roebuck, & Co. (Sears Roebuck). Holdings was formed as 
a Delaware corporation in 2004 in connection with the merger of Kmart 
and Sears Roebuck on March 24, 2005. In August 2014, Sears Holdings 
operated a national network of stores with 1,870 full-line and 
specialty retail stores in the United States operating through Kmart 
and Sears Roebuck as well as full-line and specialty retail stores in 
Canada operating through Sears Canada, Inc. (Sears Canada). As of 
October 15, 2015, Holdings owned approximately 51% of Sears Canada.
    2. Common stock issued by Holdings (Holdings Stock), par value 
$0.01 per share, is publicly-traded on the NASDAQ Global Select market 
under the symbol, ``SHLD.'' As of October 16, 2014, there were 12,293 
shareholders of record and approximately 106,484,024 shares of Holdings 
Stock issued and outstanding.
    ESL Investments, Inc. and its affiliates (ESL), including Edward S. 
Lampert (Mr. Lampert) owned approximately 48.5 percent of the Holdings 
Stock, issued and outstanding, as of October 16, 2014. Mr. Lampert is 
the Chairman of the Board of Directors and Chief Executive Officer of 
Holdings. He is also the Chairman and Chief Executive Officer of ESL.
    3. Holdings and certain of its affiliates sponsor the Sears 
Holdings Savings Plan (the Savings Plan) and the Sears Holdings Puerto 
Rico Savings Plan (the PR Plan) (collectively the Plans). Each Plan is 
a participant-directed account plan that permits participants to invest 
in equity, fixed income, balanced funds, and an investment fund (the 
Stock Fund) comprised of Holdings Stock. The Plans are designed and 
operated to comply with the requirements of section 404(c) of the Act. 
The Savings Plan and the PR Plan assets are held together within the 
Sears Holdings 401(k) Savings Plan Master Trust (the Master Trust), 
which also holds the Stock Fund and consequently, shares of Holdings 
Stock.\12\ The Plans' participants, therefore, indirectly own shares of 
Holdings Stock, through investments in the Stock Fund.
---------------------------------------------------------------------------

    \12\ State Street Bank and Trust Company serves as the master 
trustee and custodian for the Master Trust.
---------------------------------------------------------------------------

    4. Sears Roebuck and all of its wholly-owned (direct and indirect) 
subsidiaries and Sears Holdings Management Corporation (SHMC), a 
wholly-owned subsidiary of Holdings, with respect to certain employees, 
have adopted the Savings Plan and are employers under that Plan.
    As of October 16, 2014 (the Record Date), there were 60,260 
participants in the Savings Plan, and the Savings Plan's share of the 
total assets of the Master Trust was $2,825,371,014. Also, as of the 
Record Date, the Savings Plan's allocable share of the Holdings Stock 
held in the Stock Fund under the Master Trust was 1,515,803 shares, and 
the approximate percentage of the fair market value of the total assets 
of the Savings Plan invested in Holdings Stock was two percent, which 
amount constituted approximately one percent of the 106 million shares 
of Holdings Stock issued and outstanding.
    The Savings Plan is administered by the Sears Holding Corporation 
Administrative Committee (the Administrative Committee), whose members 
are officers and/or employees of SHMC. The Sears Holdings Corporation 
Investment Committee (the Investment Committee), whose members are 
officers and/or employees of SHMC, has authority over decisions 
relating to the investment of the Savings Plan's assets.
    5. The PR Plan was established by Holdings for employees of Sears 
Roebuck de Puerto Rico (Sears Roebuck PR) who reside in the 
Commonwealth of Puerto Rico. The Applicant represents that the 
fiduciaries of the PR Plan have not made an election under section 
1022(i)(2) of the Act, whereby such plan would be treated as a trust 
created and organized in the United States for purposes of tax 
qualification under section 401(a) of the Code. Therefore, according to 
the Applicant, there is no jurisdiction under Title II of the Act. 
There is, however, jurisdiction under Title I of the Act.
    As of December 31, 2014, there were 7,550 participants in the PR 
Plan. As of the Record Date there were 1,765 participants in the PR 
Plan with account balances, and the PR Plan's share of the total assets 
of the Master Trust was $17,023,422. Also, as of the Record Date, the 
PR Plan's allocable share of the Holdings Stock held in the Stock Fund 
under the Master Trust was 46,880 shares, and the approximate 
percentage of the fair market value of the total assets of the PR Plan 
invested in Holdings Stock was eight percent, which amount constituted 
less than one tenth of one percent of the 106 million shares of 
Holdings Stock issued and outstanding.
    The PR Plan is administered by the Administrative Committee, and 
the Investment Committee makes investment decisions for the PR Plan. 
Banco Popular de Puerto Rico serves as the trustee of the PR Plan.
Sears Canada
    6. Sears Canada was incorporated in Canada in 1952 and its 
headquarters are in Toronto, Ontario. It is a multi-format retailer 
and, as of October 14, 2014, had a total network of 113 full-line 
department stores, 307 specialty stores, 1,378 catalogue merchandise 
pick-up locations, and 96 Sears Travel offices.

[[Page 29707]]

    As of October 16, 2014, approximately 51% of SC Stock was held by 
Holdings. Prior to the Offering, SC Stock traded on the Canadian 
Toronto Stock Exchange (TSX) under the symbol ``SCC'' and, as of 
October 8, 2014, it was also listed and trading on the U.S. NASDAQ 
under the symbol ``SRSC.''
The Offering
    7. On October 2, 2014, Holdings announced its intent to conduct a 
rights offering to shareholders (the Offering) as a means of disposing 
of a non-core asset (its Sears Canada holdings) and raising substantial 
cash proceeds for Holdings. Furthermore, in the opinion of Holdings, 
the Offering gave shareholders of Holdings Stock the ability to avoid 
dilution by retaining their ownership percentage in Holdings and in 
Sears Canada. On October 15, 2014, Holdings issued the final prospectus 
describing the Offering to shareholders of record, including the Plans, 
as of the Record Date.
    Under the terms of the Offering, on October 16, 2014, all 
shareholders of record of Holdings Stock, including the Plans, 
automatically received one Right for each whole share of Holdings Stock 
held by each such shareholder. The Applicant represents that the Master 
Trust (the Trust) acquired 1,562,683 Rights through the Offering.
    8. Each Right permitted the holder thereof to purchase 0.375643 
shares of SC Stock from Holdings at a subscription price of $9.50 per 
whole share.\13\ Each Right also contained an over-subscription 
privilege permitting the holder to subscribe for additional shares of 
SC Stock, up to the number of shares of SC Stock that were not 
subscribed for by the other holders of the Rights. The Plans were not 
eligible to participate in the over-subscription privilege because a 
qualified, independent fiduciary acting on behalf of the Plans, sold 
the Rights received by the Plans, as discussed more fully below.
---------------------------------------------------------------------------

    \13\ The subscription price was determined by Holdings and is 
the U.S. dollar equivalent of the closing price of Sears Canada 
Stock on the TSX on September 26, 2014, the last trading day before 
Holdings requested Sears Canada's cooperation with the filing of a 
prospectus qualifying the shares deliverable upon exercise of the 
Rights.
---------------------------------------------------------------------------

    9. All shareholders of Holdings Stock held the Rights until such 
Rights expired, were exercised, or were sold. With regard to the 
exercise of the Rights, the Applicant represents that the Rights could 
only be exercised in whole numbers. Each shareholder of Holdings Stock 
needed to have at least three Rights to purchase a share of SC Stock, 
because only whole shares could be purchased by the exercise of the 
Rights. Fractional shares or cash in lieu of fractional shares were not 
issued in connection with the Offering.
    10. With regard to the sale of the Rights, the Applicant represents 
that the Rights were transferable. Further, the Applicant represents 
that the Rights were traded on the NASDAQ Global Select Market under 
the symbol, ``SHLDR.'' The allocation of the Rights to shareholders was 
handled by Depository Trust Company (DTC). The Applicant represents 
that the public trading of Rights (the Trading Period) began on October 
16, 2014, and continued until the close of business on November 4, 
2014, the third business day prior to the close of the Offering. The 
Applicant further represents that this deadline applied uniformly to 
all holders of the Rights.
    11. While the Plans generally permit participants to direct the 
investment of their own accounts, including their investments in 
Holdings Stock, all decisions regarding the holding and disposition of 
the Rights by each Plan were made, in accordance with the Plan 
provisions, by a qualified independent fiduciary acting solely in the 
interest of Plan participants.\14\ Participants in the Plans who were 
invested in Holdings Stock as of the Record Date were notified of the 
Offering, the engagement of the independent fiduciary, the fact that 
the Rights would be held in the Stock Fund, that the independent 
fiduciary would determine whether the Rights should be exercised or 
sold, and the means by which a participant could obtain more 
information. Holdings also communicated generally with employees 
regarding the Offering and with the public through public releases at 
www.searsholdings.com.
---------------------------------------------------------------------------

    \14\ Each of the Plans was amended to: (i) Permit the Plan to 
temporarily acquire and hold the Rights (and any Sears Canada stock 
acquired through the exercise of the Rights) pending their orderly 
disposition; (ii) confirm that participants were not entitled to 
direct the holding, exercise, sale, or other disposition of the 
Rights received by the Plan; and (iii) authorize the designated 
independent fiduciary to exercise discretionary authority with 
respect to the holding, exercise, sale, or other disposition of the 
Rights and any shares of Sears Canada stock acquired through the 
exercise of the Rights.
---------------------------------------------------------------------------

    12. The Offering closed at 5 p.m. eastern standard time on November 
7, 2014. The Applicant represents that 40,000,000 shares of SC Stock 
were subscribed for by shareholders or their transferees at a price of 
$9.50 per whole share. During the Trading Period, the price of the SC 
Stock on the NASDAQ ranged from $9.06 to $10.00 with a volume-weighted 
average price (VWAP) of $9.75.
    Following the Offering, Holdings' interest in Sears Canada was 
reduced to approximately 11.7 percent. Accordingly, the Applicant 
states that following the closing of the Offering, Sears Canada became 
independent of Holdings. The Applicant represents that the gross 
proceeds payable to and received by Holdings from the sale of the SC 
Stock pursuant to the Offering, net of any selling expenses, was 
approximately $380 million.
The Independent Fiduciary
    13. Fiduciary Counselors Inc. (FCI) was retained by the Investment 
Committee pursuant to an agreement (the Agreement), dated October 16, 
2014, to act as the independent fiduciary on behalf of the Plans, in 
connection with the Offering and an exemption application. Pursuant to 
the terms of the Agreement, FCI's responsibilities were to determine 
whether or not and when to exercise or sell the Rights received by each 
Plan in the Offering.\15\
---------------------------------------------------------------------------

    \15\ Because the Rights were automatically issued to all 
shareholders including the Plans and there was no option to decline 
them, the independent fiduciary was not asked to determine whether 
the Plans should acquire the Rights.
---------------------------------------------------------------------------

    The Applicant represents that hiring an independent fiduciary to 
manage the holding and disposition of the Rights was appropriate in 
this case for the following reasons: (i) There would have been a 
significant cost to developing and implementing a process under each 
Plan to administer a pass-through of the Rights to participants; (ii) 
It was not practicable to initiate and implement a pass-through of the 
Rights to participants given the limited notice provided to 
shareholders of the Offering and the short subscription period (16 
days), because such process would have included establishment of a 
``rights fund'' and a Sears Canada fund within each Plan, the design 
and testing of procedures for allocating the Rights among participant 
accounts, soliciting participant directions on the exercise or sale of 
the Rights and identifying the source of funding (e.g., which 
investment account is to be liquidated) for each participant who chose 
to exercise the Rights, and the short Offering period meant that there 
would have been insufficient time to adequately educate participants 
regarding their rights and obligations; (iii) There would have been a 
loss of value that participants might otherwise have gained, because 
participants' unfamiliarity with rights offerings as well as general 
participant inertia would have resulted in a significant percentage of 
participants allowing their Rights to

[[Page 29708]]

expire without selling or exercising them; (iv) It was not in the 
interest of participants to require the Plans to offer and hold for 
participant investment a single stock (SC Stock) that had not been 
selected by the plan fiduciary as an investment option appropriate for 
the Plan; and (v) The Rights are most appropriately viewed as a non-
cash dividend payable to owners of Holdings Stock such as the Plans, so 
that the fiduciary of the Stock Fund is the appropriate person to 
manage the ``proceeds'' of the Plans' investment in Holdings Stock. The 
Applicant represents that, in this case, the independent fiduciary 
appointed to manage the Rights took responsibility for realizing the 
value in the Rights by selling them. The cash proceeds of that sale 
were then reinvested in Holdings Stock pursuant to the terms of the 
plan.
    The Applicant represents that FCI is qualified to serve as the 
independent fiduciary for the Plans in connection with the Offering, 
because FCI is a registered investment adviser under the Investment 
Advisers Act of 1940, and FCI is an independent company whose primary 
focus is providing independent fiduciary services for employee benefit 
plans. FCI has served as an independent fiduciary to employee benefit 
plans since 2001.
    In its ``Report of Independent Fiduciary Regarding Sears Canada 
Rights Offering,'' dated February 23, 2015 (The IF Report), FCI 
represents and warrants that it is independent and unrelated to 
Holdings. FCI further represents that it did not directly or indirectly 
receive any compensation or other consideration for its own account in 
connection with the Offering, except compensation from Holdings for 
performing services described in the Agreement. The percentage of FCI's 
2014 revenue derived from any party in interest involved in the subject 
transaction or its affiliates was less than five percent of FCI's 2013 
revenue.
    FCI represents further that it understands and acknowledges its 
duties and responsibilities under the Act in acting as a fiduciary on 
behalf of the Plans in connection with the Offering. In the IF Report, 
FCI represents that it conducted a due diligence process in evaluating 
the Offering on behalf of the Plans. This process included numerous 
discussions and correspondence with representatives of the Plans and 
Holdings, Holdings' counsel, broker-dealers and representatives of the 
Plans' trustee enabling FCI to better understand a number of important 
elements related to the Offering. In addition, FCI reviewed publicly 
available information and information provided by Holdings.
    As detailed in the IF Report, with regard to the Offering, FCI 
considered the following four options: (i) Continue holding the Rights 
within the Stock Fund; (ii) Exercising all of the Rights and acquiring 
SC Stock; (iii) Selling a portion of the Rights and using the proceeds 
to exercise the remaining Rights to acquire SC Stock; or (iv) Selling 
all of the Rights on the NASDAQ Global Select Market at the prevailing 
market price. Acting as the independent fiduciary on behalf of the 
Plans, FCI chose to sell all of the Rights on the NASDAQ Global Select 
Market.
    In determining to sell all of the Plans' Rights, FCI represents 
that the proceeds from the sale would be invested in Holdings Stock, as 
per the governing documents of the Stock Fund. As described in the IF 
Report, FCI determined that the benefits of selling the Rights included 
simplicity, lower transaction costs, and less exposure to risk than the 
options that involved exercising any of the Rights. According to FCI, 
this option allowed the Plans to realize the benefits of the Rights in 
a timely manner while maintaining maximum exposure to shares of Sears 
Holdings within the Stock Fund, consistent with the purpose of the 
Stock Fund. FCI understood that the Plans would incur some transactions 
costs through this option, estimated at $0.015 to $0.05 per Right 
traded. Accordingly, FCI concluded that this sale of the Rights was in 
the interest of the Plans and the Plans' participants and beneficiaries 
and was protective of such participants and beneficiaries of the Plans.
    14. The Trading Period ended on November 4, 2014. According to the 
IF Report, over the sixteen-day period that the Rights traded on the 
NASDAQ, the volume-weighted average price for the 58,546,218 Rights 
traded was $0.1239 according to data reported by Bloomberg. The IF 
Report provides that FCI completed the sale of the Plans' 1,562,683 
Rights in blind transactions on the NASDAQ Global Select Market between 
October 22 and October 31, 2014, realizing an average selling price of 
$0.1333 per Right.
    According to the Applicant, as a result of the Rights sale, the 
total net proceeds generated for the Savings Plan and the PR Plan was 
$200,557.36. These proceeds were credited to each Plan and the unit 
value of each participant's account balance reflected the addition of 
assets credited to the Plan.
    15. The Applicant represents that no brokerage fees, commissions, 
subscription fees, or other charges were paid by the Plans with respect 
to the acquisition and holding of the Rights, or were paid to any 
broker affiliated with FCI, Holdings, or Sears Canada in connection 
with the sale of the Rights. In this regard, FCI represents that it 
selected State Street Global Markets as the broker for the sale of the 
Plans' Rights, based on FCI's confidence in the broker's execution 
ability and an attractive fee schedule of 0.005 cents per Right traded. 
In connection with the sale of the Rights, the Plans paid $7,813.42 in 
commissions to independent, third parties and $4.66 in SEC fees.
Requested Relief
    16. The Applicant represents that the subject transactions have 
already been consummated. In this regard, the Plans acquired the Rights 
pursuant to the Offering, and held such Rights until the Rights were 
sold by the independent fiduciary. The Applicant states that, because 
there was insufficient time between the dates when the Plans acquired 
the Rights and when such Rights were sold, to apply for and be granted 
an exemption, Holdings was required to request retroactive relief, 
effective as of October 16, 2014, the Record Date.
    17. Section 406(a)(1)(E) of the Act prohibits a fiduciary from 
causing a plan to engage in a transaction, if he knows or should know 
that such transaction constitutes a direct or indirect acquisition, on 
behalf of a plan, of any employer security or employer real property in 
violation of section 407(a). Section 406(a)(2) of the Act prohibits a 
fiduciary who has authority or discretion to control or manage the 
assets of a plan from permitting a plan to hold any employer security 
or employer real property if he knows or should know that holding such 
security or real property violates section 407(a). The Applicant 
represents that because the Rights are non-qualifying employer 
securities, the acquisition and holding of the Rights violated sections 
406(a)(1)(E), 406(a)(2), and 407(a) of the Act.
    Furthermore, section 406(b)(1) of the Act prohibits a fiduciary 
from dealing with the assets of a plan in his own interest or for his 
own account. Section 406(b)(2) of the Act prohibits a fiduciary, in his 
individual or in any other capacity, from acting in any transaction 
involving the plan on behalf of a party (or representing a party) whose 
interests are adverse to the interests of the plan or the interests of 
its participants or beneficiaries. The Applicant states that, although 
Holdings retained an independent fiduciary to

[[Page 29709]]

represent the Plans in connection with the disposition of the Rights, 
by causing the participation of the Plans in the Offering, Holdings may 
have dealt with the assets of the Plans for its own account, and also 
may have acted in a transaction on behalf of itself and the Plans.
    Therefore, the Applicant requests an administrative exemption from 
sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 
407(a)(1)(A) of the Act and section 4975 of the Code by reason of 
4975(c)(1)(E) of the Code, with regard to the Savings Plan, and from 
sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 
407(a)(1)(A) of the Act with regard to the PR Plan.\16\
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    \16\ The Applicant represents that there is no jurisdiction 
under Title II of the Act with respect to the PR Plan. Accordingly, 
the Department is not providing any exemptive relief from section 
4975(c)(1)(E) of the Code for the acquisition and holding of the 
Rights by the PR Plan.
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Statutory Findings
    18. The Applicant represents that the requested exemption is 
administratively feasible because the acquisition, holding, and sale of 
the Rights by the Plans was a one-time transaction which will not 
require continued monitoring or other involvement by the Department.
    19. The Applicant represents that the transactions which are the 
subject of this proposed exemption are in the interest of the Plans, 
because the Rights were automatically issued at no cost to all 
shareholders of Holdings Stock as of a specified Record Date, including 
the Plans. The Plans were then able to realize value through their 
sale.
    20. The Applicant represents that the transactions were protective 
of the Plans and their respective participants and beneficiaries, as 
the Plans obtained the Rights as a result of an independent act of 
Holdings as a corporate entity. In addition, the acquisition of the 
Rights by the Plans occurred on the same terms made available to other 
holders of Holdings Stock and the Plans received the same proportionate 
number of Rights as other owners of Holdings Stock. The Plans were also 
protected in that all decisions regarding the holding and disposition 
of the Rights by the Plans were made, in accordance with Plan 
provisions, by the independent fiduciary. Furthermore, the independent 
fiduciary determined that it would be in the interest of the Plans to 
sell all of the Rights received in the Offering by the Plans in blind 
transactions on the NASDAQ Global Select Market.
Summary
    21. In summary, the Applicant represents that the proposed 
exemption satisfies the statutory criteria for an exemption under 
section 408(a) of the Act and section 4975(c)(2) of the Code for the 
reasons stated above and for the following reasons:
    (a) The receipt of the Rights by the Plans occurred in connection 
with the Offering, in which all shareholders of Holdings Stock, 
including the Plans, were treated in the same manner;
    (b) The acquisition of the Rights by the Plans resulted from an 
independent act of Holdings, as a corporate entity, and without any 
participation on the part of the Plans;
    (c) Each shareholder of Holdings Stock, including each of the 
Plans, received the same proportionate number of Rights based on the 
number of shares of Holdings Stock held by each such shareholder;
    (d) All decisions with regard to the holding and disposition of the 
Rights by the Plans were made by a qualified, independent fiduciary 
within the meaning of 29 CFR 2570.31(j);
    (e) The independent fiduciary determined that it would be in the 
interest of the Plans to sell all of the Rights received in the 
Offering by the Plans in blind transactions on the NASDAQ Global Select 
Market; and
    (f) No brokerage fees, commissions, subscription fees, or other 
charges were paid by the Plans with respect to the acquisition and 
holding of the Rights, or were paid to any affiliate of Holdings, Sears 
Canada, or the independent fiduciary with respect to the sale of the 
Rights.

Notice to Interested Persons

    Notice of the proposed exemption will be given to all interested 
persons within 22 days of the publication of the notice of proposed 
exemption in the Federal Register, by first class U.S. mail to the last 
known address of all such individuals. Such notice will contain a copy 
of the notice of proposed exemption, as published in the Federal 
Register, and a supplemental statement, as required pursuant to 29 CFR 
2570.43(a)(2). The supplemental statement will inform interested 
persons of their right to comment on and to request a hearing with 
respect to the pending exemption. Written comments and hearing requests 
are due within 52 days of the publication of the notice of proposed 
exemption in the Federal Register. All comments will be made available 
to the public.
    Warning: If you submit a comment, EBSA recommends that you include 
your name and other contact information in the body of your comment, 
but DO NOT submit information that you consider to be confidential, or 
otherwise protected (such as Social Security number or an unlisted 
phone number) or confidential business information that you do not want 
publicly disclosed. All comments may be posted on the Internet and can 
be retrieved by most Internet search engines.

FOR FURTHER INFORMATION CONTACT: Scott Ness of the Department, 
telephone (202) 693-8561. (This is not a toll-free number.)

Sears Holdings 401(k) Savings Plan (the Savings Plan) and the Sears 
Holdings Puerto Rico Savings Plan (the PR Plan) (collectively, the 
Plans), Located in Hoffman Estates, IL

[Exemption Application Nos. D-11851 and D-11852]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Employee Retirement Income Security 
Act of 1974, as amended (ERISA or the Act), and section 4975(c)(2) of 
the Internal Revenue Code of 1986, as amended (the Code), and in 
accordance with the procedures set forth in 29 CFR part 2570, subpart B 
(76 FR 66637, 66644, October 27, 2011).
Section I. Transactions
    (a) The restrictions of sections 406(a)(1)(E), 406(a)(2), 
406(b)(1), 406(b)(2), and 407(a)(1)(A) of the Act and the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1)(E) of the Code,\17\ shall not apply to the 
acquisition and holding of certain subscription rights (the Rights) 
issued by Sears Holdings Corporation (Holdings) by the Savings Plan in 
connection with an offering (the Offering) by Holdings of unsecured 
obligations issued by Holdings (Notes) and warrants to purchase the 
common stock of Holdings (Warrants)(together referred to as Units), 
provided that the conditions as set forth, below, in Section II of this 
proposed exemption were satisfied for the duration of the acquisition 
and holding; and
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    \17\ For purposes of this proposed exemption, unless indicated 
otherwise, references to section 406 of the Act should be read to 
refer as well to the corresponding provisions of section 4975 of the 
Code.
---------------------------------------------------------------------------

    (b) The restrictions of sections 406(a)(1)(E), 406(a)(2), 
406(b)(1),

[[Page 29710]]

406(b)(2), and 407(a)(1)(A) of the Act \18\ shall not apply to the 
acquisition and holding of the Rights by the PR Plan in connection with 
the Offering by Holdings, provided that the conditions as set forth in 
Section II of this proposed exemption were satisfied for the duration 
of the acquisition and holding.
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    \18\ The Applicant represents that there is no jurisdiction 
under Title II of the Act with respect to the PR Plan. Accordingly, 
the Department is not providing any exemptive relief from section 
4975(c)(1)(E) of the Code for the acquisition and holding of the 
Rights by the PR Plan.
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Section II. Conditions
    (a) The receipt of the Rights by the Plans occurred in connection 
with the Offering, in which all shareholders of the common stock of 
Holdings (Holdings Stock), including the Plans, were treated in the 
same manner;
    (b) The acquisition of the Rights by the Plans resulted from an 
independent act of Holdings, as a corporate entity;
    (c) Each shareholder of Holdings Stock, including each of the 
Plans, received the same proportionate number of Rights based on the 
number of shares of Holdings Stock held by each such shareholder;
    (d) All decisions with regard to the holding and disposition of the 
Rights by the Plans were made by a qualified independent fiduciary (the 
Independent Fiduciary) within the meaning of 29 CFR 2570.31(j);
    (e) The Independent Fiduciary determined that it would be in the 
interest of the Plans to sell all of the Rights received in the 
Offering by the Plans in blind transactions on the NASDAQ Global Select 
Market;
    (f) No brokerage fees, commissions, subscription fees, or other 
charges were paid by the Plans with respect to the acquisition and 
holding of the Rights, or were paid to any affiliate of Holdings or the 
Independent Fiduciary in connection with the sale of the Rights.
Section III. Definitions
    (a) The term ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with such person;
    (2) Any officer, director, partner, employee, or relative, as 
defined in section 3(15) of the Act, of such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    Effective Date: This proposed exemption, if granted, will be 
effective for the period beginning October 30, 2014, and ending 
November 18, 2014 (the Offering Period).

Summary of Facts and Representations

Background

    1. Sears Holdings Corporation (Holdings), is the parent company of 
Kmart and Sears, Roebuck, & Co. (Sears Roebuck). Holdings was formed as 
a Delaware corporation in 2004 in connection with the merger of Kmart 
and Sears Roebuck on March 24, 2005. By August 2014, Holdings operated 
a national network of stores with 1,870 full-line and specialty retail 
stores in the United States operating through Kmart and Sears Roebuck. 
In October 2014, Holdings completed the spin-off of a substantial 
portion of Sears Canada, Inc., which allowed it to dispose of a non-
core asset and raise substantial cash proceeds.
    2. Common stock issued by Holdings (Holdings Stock), par value 
$0.01 per share, is publicly-traded on the NASDAQ Global Select market 
under the symbol, ``SHLD.'' As of October 30, 2014, there were 12,236 
shareholders of record and approximately 106.5 million shares of 
Holdings Stock issued and outstanding.
    3. ESL Investments, Inc. and its affiliates (ESL), including Edward 
S. Lampert (Mr. Lampert) owned approximately 48.5 percent of the 
Holdings Stock, issued and outstanding, as of October 30, 2014. Mr. 
Lampert is the Chairman of the Board of Directors and Chief Executive 
Officer of Holdings. He is also the Chairman and Chief Executive 
Officer of ESL.
    4. Holdings and certain of its affiliates sponsor the Sears 
Holdings 401(k) Savings Plan (the Savings Plan) and the Sears Holdings 
Puerto Rico Savings Plan (the PR Plan) (collectively the Plans). Each 
Plan is a participant-directed account plan that permits participants 
to invest in equity, fixed income, balanced funds, and an investment 
fund (the Stock Fund) comprised of Holdings Stock. The Plans are 
designed and operated to comply with the requirements of section 404(c) 
of the Act. The Savings Plan and the PR Plan assets are held together 
within the Sears Holdings 401(k) Savings Plan Master Trust (the Master 
Trust), which also holds the Stock Fund and consequently, shares of 
Holdings Stock.\19\ The Plans' participants, therefore, indirectly own 
shares of Holdings Stock through investments in the Stock Fund.
---------------------------------------------------------------------------

    \19\ State Street Bank and Trust Company serves as the master 
trustee and custodian for the Master Trust. As of October 30, 2014, 
the Master Trust had approximately $2.95 billion in total assets. As 
of October 30, 2014, the Stock Fund within the Master Trust held 
1,451,783 shares of Holdings Stock with a fair market value of 
$53,338,507.40.
---------------------------------------------------------------------------

    5. Sears Roebuck and all of its wholly-owned (direct and indirect) 
subsidiaries and Sears Holdings Management Corporation (SHMC), a 
wholly-owned subsidiary of Holdings, with respect to certain employees, 
have adopted the Savings Plan and are employers under that Plan.
    6. As of October 30, 2014 (the Record Date), there were 60,260 
participants in the Savings Plan, and the Savings Plan's share of the 
total assets of the Master Trust was approximately $2.95 billion. Also, 
as of the Record Date, the Savings Plan's allocable share of the 
Holdings Stock held in the Stock Fund under the Master Trust was 
1,411,133 shares, and the approximate percentage of the fair market 
value of the total assets of the Savings Plan invested in Holdings 
Stock was 1.79 percent, which amount constituted approximately one 
percent of the 106.5 million shares of Holdings Stock issued and 
outstanding.
    7. The Savings Plan is administered by the Sears Holding 
Corporation Administrative Committee (the Administrative Committee), 
whose members are officers and/or employees of SHMC. The Sears Holdings 
Corporation Investment Committee (the Investment Committee), whose 
members are officers and/or employees of SHMC, has authority over 
decisions relating to the investment of the Savings Plan's assets.
    8. The PR Plan was established by Holdings for employees of Sears 
Roebuck de Puerto Rico (Sears Roebuck PR) who reside in the 
Commonwealth of Puerto Rico. The Applicant represents that the 
fiduciaries of the PR Plan have not made an election under section 
1022(i)(2) of the Act, whereby such plan would be treated as a trust 
created and organized in the United States for purposes of tax 
qualification under section 401(a) of the Code. Therefore, according to 
the Applicant, there is no jurisdiction under Title II of the Act. 
There is, however, jurisdiction under Title I of the Act.
    9. As of December 31, 2014, there were 7550 participants in the PR 
Plan. As of the Record Date, there were 1,766 participants with account 
balances, and the PR Plan's share of the total assets of the Master 
Trust was $17,859,181.57. Also, as of the Record Date, the PR Plan's 
allocable share of the Holdings Stock held in the Stock Fund under the 
Master Trust was 40,650 shares, and the approximate percentage of the 
fair

[[Page 29711]]

market value of the total assets of the PR Plan invested in Holdings 
Stock was 8.36 percent, which amount constituted 0.04 percent of the 
106.5 million shares of Holdings Stock issued and outstanding.
    10. The PR Plan is administered by the Administrative Committee, 
and the Investment Committee makes investment decisions for the PR 
Plan. Banco Popular de Puerto Rico serves as the trustee of the PR 
Plan.
The Offering
    11. By late October 2014, Holdings had reduced its stake in Sears 
Canada, Inc. and raised significant cash through a rights offering. On 
October 20, 2014, Holdings announced its intent to conduct an 
additional rights offering to shareholders (the Offering) as a means of 
further evolving Holdings' capital structure and enhancing its 
financial flexibility. On October 20, 2014, Holdings issued a 
prospectus describing the Offering to shareholders of record, including 
the Plans, as of the Record Date. The prospectus was supplemented on 
October 30, 2014.
    12. Under the terms of the Offering, on October 30, 2014, each 
shareholder of record of Holdings Stock, including the Plans, 
automatically received one (1) Right for every 85.1872 shares of 
Holdings Stock held by such shareholder. The Applicant represents that 
only whole Rights were distributed to shareholders, including the 
Plans, and the Master Trust acquired 17,189 Rights through the 
Offering. The allocation of the Rights to shareholders was handled by 
Depository Trust Company.
    13. Each Right permitted the holder thereof to purchase for $500, 
one ``Unit,'' consisting of (a) a note issued by Holdings in the 
principal amount of $500 (Note),\20\ and (b) 17.5994 warrants 
(Warrants), each entitling the holder to purchase one share of Holdings 
Stock.\21\ Each Right also contained an over-subscription privilege 
permitting the holder to subscribe for additional Units, up to the 
number of Units that were not subscribed for by the other holders of 
the Rights. The Plans were not eligible to participate in the over-
subscription privilege because a qualified, independent fiduciary 
acting on behalf of the Plans, sold the Rights received by the Plans, 
as discussed more fully below.
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    \20\ The Notes are unsecured obligations and bear interest at a 
rate of 8% per annum, which is paid semi-annually. The Notes mature 
on December 15, 2019. While the Notes are transferable, they are not 
listed on any exchange and can only be sold in a private 
transaction. Holdings issued $625 million aggregate original 
principal amount of the Notes in the Offering.
    \21\ Each Warrant is initially exercisable for one share of 
Holdings stock at an exercise price per share of $28.41. Subject to 
applicable laws and regulations, the Warrants may be exercised at 
any time starting on their date of issuance until 5:00 p.m., New 
York City time, on December 15, 2019. The exercise price may be paid 
with cash or Notes, provided that Holdings maintains an effective 
registration statement for the Holdings Stock issuable upon exercise 
of the Warrants. If the exercise of a Right would result in the 
delivery of a fractional Warrant, the number of Warrants would be 
rounded down to the nearest whole number. The Warrants are 
transferable and listed on the Nasdaq Global Select Market under 
``SHLDW.''
---------------------------------------------------------------------------

    14. All shareholders of Holdings Stock held the Rights until such 
Rights expired, were exercised, or were sold. With regard to the 
exercise of the Rights, the Applicant represents that the Rights could 
only be exercised in whole numbers. Furthermore, each shareholder of 
Holdings Stock needed to have at least eighty-six Rights to purchase a 
Unit, because only whole Units could be purchased through the exercise 
of the Rights. Fractional Units or cash in lieu of fractional Units 
were not issued in connection with the Offering.
    15. With regard to the sale of the Rights, the Applicant represents 
that the Rights were transferable and that they traded on the NASDAQ 
Global Select Market under the symbol ``SHLDZ.'' The Applicant 
represents that the public trading of Rights (the Trading Period) began 
on or around October 31, 2014, and continued until the close of 
business on November 13, 2014, the third business day prior to the 
close of the Offering. The Applicant further represents that this 
deadline applied uniformly to all holders of the Rights.
    16. While the Plans generally permit participants to direct the 
investment of their own accounts, including their investments in 
Holdings Stock, all decisions regarding the holding and disposition of 
the Rights by each Plan were made, in accordance with the Plan 
provisions, by a qualified independent fiduciary acting solely in the 
interest of Plan participants.\22\ Participants in the Plans who were 
invested in Holdings Stock as of the Record Date were notified of the 
Offering, the engagement of the independent fiduciary, the fact that 
the Rights would be held in the Stock Fund, that the independent 
fiduciary would determine whether the Rights should be exercised or 
sold, and the means by which a participant could obtain more 
information. Holdings also communicated generally with employees 
regarding the Offering and with the public through public releases at 
www.searsholdings.com.
---------------------------------------------------------------------------

    \22\ Each of the Plans was amended as required to: (i) Permit 
the Plan to temporarily acquire and hold the Rights (and any Notes 
or Warrants acquired through the exercise of the Rights) pending 
their orderly disposition; (ii) confirm that participants are not 
entitled to direct the holding, exercise, sale or other disposition 
of the Rights received by the Plan; and (iii) authorize the 
designated independent fiduciary to exercise discretionary authority 
with respect to the holding, exercise, sale or other disposition of 
the Rights and any Notes or Warrants acquired through the exercise 
of the Rights.
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    17. The Offering expired at 5 p.m. eastern standard time on 
November 18, 2014. The Applicant represents that Holdings issued 
1,250,000 Units, including $625 million aggregated principal amount of 
Notes and Warrants to purchase 21,999,296 shares of Holdings Stock. 
Over the 10-day period that the Rights traded on the Nasdaq, the volume 
weighted average price per Right for the 751,041 Rights traded was 
$201.1554, according to data reported by Bloomberg. The Applicant 
represents that the gross proceeds payable to and received by Holdings 
from the sale of the Units pursuant to the Offering, net of any selling 
expenses, was approximately $625 million.
The Independent Fiduciary
    18. Fiduciary Counselors Inc. (FCI) was retained by the Investment 
Committee pursuant to an agreement (the Agreement), dated November 3, 
2014, to act as the independent fiduciary on behalf of the Plans, in 
connection with the Offering and an exemption application. Pursuant to 
the terms of the Agreement, FCI's responsibilities were to determine: 
(a) Whether or not and when to exercise or sell the Rights received by 
each Plan in the Offering; or (b) if it determined to exercise any of a 
Plan's Rights to purchase the Units, to manage the investment in the 
Notes and Warrants within that Plan's Stock Fund, and determine when to 
liquidate or exercise the Notes and Warrants for the purpose of 
reinvesting the proceeds in Holdings Stock.\23\
---------------------------------------------------------------------------

    \23\ Because the Rights were automatically issued to all 
shareholders including the Plans and there was no option to decline 
them, the independent fiduciary was not asked to determine whether 
the Plans should acquire the Rights.
---------------------------------------------------------------------------

    19. The Applicant represents that hiring an independent fiduciary 
to manage the holding and disposition of the Rights was appropriate in 
this case for the following reasons: (a) There would have been a 
significant cost to each Plan to develop and implement a process to 
administer a pass-through of the Rights to participants; (b) It was not 
practicable to initiate and implement a pass-through of the Rights to 
participants given the limited notice provided to shareholders of the 
Offering and the short subscription period (15

[[Page 29712]]

days); (c) Participants' unfamiliarity with rights offerings as well as 
general participant inertia may have resulted in a significant 
percentage of participants allowing their Rights to expire without 
selling or exercising them; (d) The Notes and Warrants had not been 
previously selected by the plan fiduciary as an investment option 
appropriate for the Plan; and (5) The Rights are most appropriately 
viewed as a non-cash dividend payable to owners of Holdings Stock such 
as the Plans, so that the fiduciary of the Stock Fund is the 
appropriate person to manage the ``proceeds'' of the Plans' investment 
in Holdings Stock. The Applicant represents that, in this case, the 
independent fiduciary appointed to manage the Rights took 
responsibility for realizing the value in the Rights by selling them. 
The cash proceeds of that sale were then reinvested in Holdings Stock 
pursuant to the terms of the plan.
    20. The Applicant represents that FCI is qualified to serve as the 
independent fiduciary for the Plans in connection with the Offering, 
because FCI is a registered investment adviser under the Investment 
Advisers Act of 1940, and over the past 13 years, FCI has served or is 
serving as an independent fiduciary on behalf of employee benefit plans 
in connection with more than 14 prohibited transaction exemption 
applications, not counting applications involving the Plans. 
Additionally, FCI represents that it is an independent company whose 
primary focus is providing independent fiduciary services for employee 
benefit plans.
    21. In its ``Report of Independent Fiduciary Regarding Sears Rights 
Offering for Debt and Warrants,'' dated February 23, 2015 (the IF 
Report), FCI represents and warrants that it is independent and 
unrelated to Holdings. FCI further represents that it did not directly 
or indirectly receive any compensation or other consideration for its 
own account in connection with the Offering, except compensation from 
Holdings for performing services described in the Agreement. The 
percentage of FCI's 2014 revenue derived from any party in interest 
involved in the subject transaction or its affiliates was less than 
five percent of FCI's 2013 revenue.
    22. FCI represents further that it understands and acknowledges its 
duties and responsibilities under the Act in acting as a fiduciary on 
behalf of the Plans in connection with the Offering. In the IF Report, 
FCI represents that it conducted a due diligence process in evaluating 
the Offering on behalf of the Plans. This process included numerous 
discussions and correspondence with representatives of the Plans and 
Holdings, Holdings' counsel, broker-dealers, and representatives of the 
Plans' trustee, enabling FCI to better understand a number of important 
elements related to the Offering. In addition, FCI reviewed publicly 
available information and information provided by Holdings.
    23. As detailed in the IF Report, with regard to the Offering, FCI 
considered the following four (4) options: (a) Continue holding the 
Rights within the Stock Fund; (b) Exercising all of the Rights and 
acquiring the Notes and Warrants, then sell the Notes or use them to 
exercise Warrants, sell or exercise the Warrants, and use any remaining 
cash to acquire Holdings Stock in the market; (c) Selling all of the 
Rights on the NASDAQ Global Select Market at the prevailing market 
price; or (d) Selling a portion of the Rights and using the proceeds to 
exercise the remaining Rights, so as to acquire Notes and Warrants 
(then sell the Notes or use them to exercise Warrants, then sell or 
exercise the Warrants and use any remaining cash to acquire Holdings 
Stock in the market). Acting as the independent fiduciary on behalf of 
the Plans, FCI chose to sell all of the Rights on the NASDAQ Global 
Select Market.
    24. In determining to sell all of the Plans' Rights, FCI represents 
that the proceeds from the sale would be invested in Holdings Stock, as 
per the governing documents of the Stock Fund. As described in the IF 
Report, FCI determined that the benefits of selling the Rights included 
simplicity, lower transaction costs, and less exposure to risk than the 
options that involved exercising any of the Rights. According to FCI, 
this option allowed the Plans to realize the benefits of the Rights in 
a timely manner at the best available market prices so that cash raised 
through the sale could be reinvested in Holdings Stock, consistent with 
the purpose and intent of the Stock Fund. FCI understood that the Plans 
would incur some transactions costs through this option, estimated at 
$0.015 to $0.05 per Right traded. Accordingly, FCI concluded that this 
sale of the Rights was in the interest of the Plans and the Plans' 
participants and beneficiaries and was protective of such participants 
and beneficiaries of the Plans.
    25. At FCI's direction, the Plans sold the Rights over a period of 
days while trying not to be too high a percentage of the daily volume 
so as to avoid putting downward pressure on the price of the Rights. 
The Trading Period ended on November 13, 2014. According to the IF 
Report, and as noted above, over the ten-day period that the Rights 
traded on the NASDAQ, the volume-weighted average price for the 751,041 
Rights traded was $201.1554 according to data reported by Bloomberg. 
The IF Report provides that FCI completed the sale of the Plans' 17,189 
Rights in blind transactions on the NASDAQ Global Select Market between 
November 4 and November 7, 2014, realizing an average selling price of 
$211.6283 per Right.
    26. According to the Applicant, as a result of the Rights sale, the 
total net proceeds generated for the Savings Plan and the PR Plan was 
$3,637,509.54. These proceeds were credited to each Plan and the unit 
value of each participant's account balance reflected the addition of 
assets credited to the Plan.
    27. The Applicant represents that no brokerage fees, commissions, 
subscription fees, or other charges were paid by the Plans with respect 
to the acquisition and holding of the Rights, or were paid to any 
broker affiliated with FCI or Holdings in connection with the sale of 
the Rights. In this regard, FCI represents that it selected State 
Street Global Markets as the broker for the sale of the Plans' Rights, 
based on FCI's confidence in the broker's execution ability and an 
attractive fee schedule of 0.015 cents per Right traded. In connection 
with the sale of the Rights, the Plans paid $257.84 in commissions to 
independent, third parties and $80.42 in SEC fees.
Requested Relief
    28. The Applicant represents that the subject transactions have 
already been consummated. In this regard, the Plans acquired the Rights 
pursuant to the Offering, and held such Rights until the Rights were 
sold by the independent fiduciary. The Applicant states that, because 
there was insufficient time before the Plans acquired the Rights to 
apply for and be granted an exemption, Holdings was required to request 
retroactive relief, effective as of October 30, 2014, the Record Date.
    29. Section 406(a)(1)(E) of the Act prohibits a fiduciary from 
causing a plan to engage in a transaction, if he knows or should know 
that such transaction constitutes a direct or indirect acquisition, on 
behalf of a plan, of any employer security or employer real property in 
violation of section 407(a). Section 406(a)(2) of the Act prohibits a 
fiduciary who has authority or discretion to control or manage the 
assets of a plan from permitting a plan to hold any employer security 
or employer real property if he knows or should know that holding such 
security or real property violates section 407(a).

[[Page 29713]]

The Applicant represents that because the Rights are non-qualifying 
employer securities, the acquisition and holding of the Rights violated 
sections 406(a)(1)(E), 406(a)(2), and 407(a) of the Act.
    30. Furthermore, section 406(b)(1) of the Act prohibits a fiduciary 
from dealing with the assets of a plan in his own interest or for his 
own account. Section 406(b)(2) of the Act prohibits a fiduciary, in his 
individual or in any other capacity, from acting in any transaction 
involving the plan on behalf of a party (or representing a party) whose 
interests are adverse to the interests of the plan or the interests of 
its participants or beneficiaries. The Applicant states that, although 
Holdings retained an independent fiduciary to represent the Plans in 
connection with the disposition of the Rights, by causing the 
participation of the Plans in the Offering, Holdings may have dealt 
with the assets of the Plans for its own account, and also may have 
acted in a transaction on behalf of itself and the Plans.
    31. Therefore, the Applicant requests an administrative exemption 
from sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 
407(a)(1)(A) of the Act and section 4975 of the Code by reason of 
4975(c)(1)(E) of the Code, with regard to the Savings Plan, and from 
sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 
407(a)(1)(A) of the Act with regard to the PR Plan.\24\
---------------------------------------------------------------------------

    \24\ The Applicant represents that there is no jurisdiction 
under Title II of the Act with respect to the PR Plan. Accordingly, 
the Department is not providing any exemptive relief from section 
4975(c)(1)(E) of the Code for the acquisition and holding of the 
Rights by the PR Plan.
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Statutory Findings
    32. The Applicant represents that the requested exemption is 
administratively feasible because the acquisition, holding, and sale of 
the Rights by the Plans was a one-time transaction which will not 
require continued monitoring or other involvement by the Department.
    33. The Applicant represents that the transactions which are the 
subject of this proposed exemption are in the interest of the Plans, 
because the Rights were automatically issued at no cost to all 
shareholders of Holdings Stock as of a specified Record Date, including 
the Plans. The Plans were then able to realize value through their 
sale.
    34. The Applicant represents that the transactions were protective 
of the Plans, and their respective participants and beneficiaries, as 
the Plans obtained the Rights as a result of an independent act of 
Holdings as a corporate entity. In addition, the acquisition of the 
Rights by the Plans occurred on the same terms made available to other 
holders of Holdings Stock and the Plans received the same proportionate 
number of Rights as other owners of Holdings Stock. The Plans were also 
protected in that all decisions regarding the holding and disposition 
of the Rights by the Plans were made, in accordance with Plan 
provisions, by the independent fiduciary. Furthermore, the independent 
fiduciary determined that it would be in the interest of the Plans to 
sell all of the Rights received in the Offering by the Plans in blind 
transactions on the NASDAQ Global Select Market.
Summary
    35. In summary, the Applicant represents that the proposed 
exemption satisfies the statutory criteria for an exemption under 
section 408(a) of the Act and section 4975(c)(2) of the Code for the 
reasons stated above and for the following reasons:
    (a) The receipt of the Rights by the Plans occurred in connection 
with the Offering, in which all shareholders of Holdings Stock, 
including the Plans, were treated in the same manner;
    (b) The acquisition of the Rights by the Plans resulted from an 
independent act of Holdings, as a corporate entity, and without any 
participation on the part of the Plans;
    (c) Each shareholder of Holdings Stock, including each of the 
Plans, received the same proportionate number of Rights based on the 
number of shares of Holdings Stock held by each such shareholder;
    (d) All decisions with regard to the holding and disposition of the 
Rights by the Plans were made by a qualified, independent fiduciary 
within the meaning of 29 CFR 2570.31(j);
    (e) The independent fiduciary determined that it would be in the 
interest of the Plans to sell all of the Rights received in the 
Offering by the Plans in blind transactions on the NASDAQ Global Select 
Market; and
    (f) No brokerage fees, commissions, subscription fees, or other 
charges were paid by the Plans with respect to the acquisition and 
holding of the Rights, or were paid to any affiliate of Holdings or the 
independent fiduciary in connection with the sale of the Rights.

Notice to Interested Persons

    Notice of the proposed exemption will be given to all interested 
persons within 22 days of the publication of the notice of proposed 
exemption in the Federal Register, by first class U.S. mail to the last 
known address of all such individuals. Such notice will contain a copy 
of the notice of proposed exemption, as published in the Federal 
Register, and a supplemental statement, as required pursuant to 29 CFR 
2570.43(a)(2). The supplemental statement will inform interested 
persons of their right to comment on and to request a hearing with 
respect to the pending exemption. Written comments and hearing requests 
are due within 52 days of the publication of the notice of proposed 
exemption in the Federal Register. All comments will be made available 
to the public.
    Warning: If you submit a comment, EBSA recommends that you include 
your name and other contact information in the body of your comment, 
but DO NOT submit information that you consider to be confidential, or 
otherwise protected (such as Social Security number or an unlisted 
phone number) or confidential business information that you do not want 
publicly disclosed. All comments may be posted on the Internet and can 
be retrieved by most Internet search engines.

FOR FURTHER INFORMATION CONTACT: Erin S. Hesse of the Department, 
telephone (202) 693-8546. (This is not a toll-free number.)

Sears Holdings 401(k) Savings Plan (the Savings Plan) and the Sears 
Holdings Puerto Rico Savings Plan (the PR Plan) (together, the Plans) 
Located in Hoffman Estates, IL

[Application Nos. D-11871 and D-11872, Respectively]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act (or ERISA), as amended, and 
section 4975(c)(2) of the Code, as amended, and in accordance with the 
procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 
66644, October 27, 2011).
Section I. Transactions
    (a) If the proposed exemption is granted, the restrictions of 
sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 
407(a)(1)(A) of the Act and the sanctions resulting from the 
application of section 4975 of the Code, by reason of section 
4975(c)(1)(E) of the Code,\25\ shall not apply, effective for the 
period beginning June 11, 2015 and ending July 2, 2015, to the 
acquisition and holding by the Savings Plan of certain subscription 
rights (the Rights)

[[Page 29714]]

to purchase shares of common stock (Seritage Growth Stock) in Seritage 
Growth Properties (Seritage Growth), in connection with an offering 
(the Offering) by Sears Holdings Corporation (Holdings or the 
Applicant) of Seritage Growth Stock, provided that the conditions, as 
set forth below in Section II of this proposed exemption were satisfied 
for the duration of the acquisition and holding; and
---------------------------------------------------------------------------

    \25\ 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.
---------------------------------------------------------------------------

    (b) If the proposed exemption is granted, the restrictions of 
sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 
407(a)(1)(A) of the Act \26\ shall not apply, effective for the period 
beginning June 11, 2015, and ending July 2, 2015, to the acquisition 
and holding of the Rights by the PR Plan in connection with the 
Offering of Seritage Growth Stock by Holdings, provided that the 
conditions, as set forth in Section II of this proposed exemption were 
satisfied for the duration of the acquisition and holding.
---------------------------------------------------------------------------

    \26\ The Applicant represents that there is no jurisdiction 
under Title II of the Act with respect to the PR Plan because the PR 
Plan fiduciaries have not made an election under section 1022(i)(2) 
of the Act, whereby the PR Plan would be treated as a trust created 
and organized in the United States for purposes of tax qualification 
under section 401(a) of the Code. Accordingly, the Department is not 
providing exemptive relief from section 4975(c)(1)(E) of the Code 
for the acquisition and holding of the Rights by the PR Plan.
---------------------------------------------------------------------------

Section II. Conditions
    (a) The receipt of the Rights by the Plans occurred in connection 
with the Offering, in which all shareholders of the common stock of 
Holdings (Holdings Stock), including the Plans, were treated in the 
same manner;
    (b) The acquisition of the Rights by the Plans resulted solely from 
an independent act of Holdings, as a corporate entity;
    (c) Each shareholder of Holdings Stock, including each of the 
Plans, received the same proportionate number of Rights based on the 
number of shares of Holdings Stock held by each such shareholder;
    (d) All decisions with regard to the holding and disposition of the 
Rights by the Plans were made by a qualified independent fiduciary (the 
Independent Fiduciary) within the meaning of 29 CFR 2570.31(j); \27\
---------------------------------------------------------------------------

    \27\ 29 CFR 2570.31(j) defines a ``qualified independent 
fiduciary,'' in relevant part, to mean ``any individual or entity 
with appropriate training, experience, and facilities to act on 
behalf of the plan regarding the exemption transaction in accordance 
with the fiduciary duties and responsibilities prescribed under the 
Act, that is independent of and unrelated to any party in interest 
engaging in the exemption transaction and its affiliates;'' in 
general, a fiduciary is presumed to be independent ``if the revenues 
it receives or is projected to receive, within the current federal 
income tax year from parties in interest (and their affiliates) 
[with respect] to the transaction are not more than 2% of such 
fiduciary's annual revenues based upon its prior income tax year. 
Although the presumption does not apply when the aforementioned 
percentage exceeds 2%, a fiduciary nonetheless may be considered 
independent based upon other facts and circumstances provided that 
it receives or is projected to receive revenues that are not more 
than 5% within the current federal income tax year from parties in 
interest (and their affiliates) [with respect] to the transaction 
based upon its prior income tax year.''
---------------------------------------------------------------------------

    (e) The Independent Fiduciary determined that it would be in the 
interest of the Plans to sell all of the Rights received in the 
Offering by the Plans in blind transactions on the New York Stock 
Exchange (NYSE); and
    (f) No brokerage fees, commissions, subscription fees, or other 
charges were paid by the Plans with respect to the acquisition and 
holding of the Rights; or were paid to any affiliate of the Independent 
Fiduciary or Holdings, in connection with the sale of the Rights.
Section III. Definitions
    (a) The term ``Holdings'' refers to Sears Holdings Corporation and 
its affiliates.
    (b) The term ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with such person;
    (2) Any officer, director, partner, employee, or relative, as 
defined in section 3(15) of the Act, of such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.

EFFECTIVE DATE:  This proposed exemption, if granted, will be effective 
for the Offering period, beginning June 11, 2015, and ending July 2, 
2015 (the Offering Period).

Summary of Facts and Representations \28\
---------------------------------------------------------------------------

    \28\ The Summary of Facts and Representations is based solely on 
the representations of the Applicant and does not reflect the views 
of the Department, unless indicated otherwise.
---------------------------------------------------------------------------

The Plans
    1. Employees of certain affiliates of Holdings participate in the 
Plans. The Plans consist of the Savings Plan and the PR Plan. The Plans 
are defined contribution, eligible individual account plans that are 
designed and operated to comply with the requirements of section 404(c) 
of the Act. The Plans allow participants to purchase units in certain 
stock funds which invest in Holdings Stock. In this regard, the Savings 
Plan and the PR Plan share a single stock fund (the Stock Fund) within 
the Sears Holdings 401(k) Savings Plan Master Trust (the Master Trust) 
to hold shares of Holdings Stock. As of June 11, 2015, the Master Trust 
held approximately $2.8 billion in total assets. State Street Bank and 
Trust Company (State Street) serves as the Master Trustee and Custodian 
for the Master Trust.
    2. Sears, Roebuck and Co. (Sears Roebuck) and all of its wholly-
owned (direct and indirect) subsidiaries (except Lands' End Inc. 
(Lands' End), Sears de Puerto Rico, Inc., Kmart Holding Corporation 
(Kmart), and its wholly-owned (direct and indirect) subsidiaries 
(excluding employees residing in Puerto Rico), and Sears Holdings 
Management Corporation, with respect to certain employees, have adopted 
the Savings Plan and are employers under such plan.
    As of June 11, 2015, (the Record Date), there were 53,831 
participants in the Savings Plan, and the Savings Plan's share of the 
total assets of the Master Trust was $2,820,235,014. Also, as of the 
Record Date, the Savings Plan's allocable portion of Holdings Stock 
held in the Stock Fund on behalf of 14,476 participants under the 
Master Trust was 1,286,302.45 shares, which constituted approximately 
1.2% of the 106,603,021 shares of Holdings Stock issued and 
outstanding. The approximate percentage of the fair market value of the 
total assets of the Savings Plan invested in Holdings Stock was 1.3%.
    The Savings Plan is administered by the Sears Holding Corporation 
Administrative Committee (the Administrative Committee), whose members 
are employees of Holdings. The Sears Holdings Corporation Investment 
Committee (the Investment Committee), whose members are officers and/or 
employees of Holdings and/or its subsidiaries, has authority over 
decisions relating to the investment of the Plans' assets.
    3. The PR Plan, which is sponsored and maintained by Holdings, was 
originally established by Sears Roebuck for employees of Sears Roebuck 
de Puerto Rico Inc. (Sears Roebuck de Puerto Rico) and Kmart, who 
reside in the Commonwealth of Puerto Rico, upon the merger of the Kmart 
Corporation Retirement Savings Plan for Puerto Rico employees with and 
into the prior Sears Roebuck de Puerto Rico Savings Plan, as of March 
31, 2012. According to the Applicant, the PR Plan has not made an 
election under section 1022(i)(2)of the Act, whereby such plan

[[Page 29715]]

would be treated as a trust created and organized in the United States 
for purposes of tax qualification under section 401(a) of the Code. 
Therefore, according to the Applicant, there is no jurisdiction under 
Title II of the Act. There is, however, jurisdiction under Title I of 
the Act.
    As of the Record Date, there were 1,696 participants in the PR 
Plan, and the PR Plan's share of the total assets of the Master Trust 
was $17,324,339. Also, as of the Record Date, the PR Plan's allocable 
portion of Holdings Stock held in the Stock Fund under the Master Trust 
on behalf of 629 participants was 39,782,55 shares, which constituted 
approximately 0.04% of the 106,603,021 shares of Holdings Stock issued 
and outstanding, on June 11, 2015. The approximate percentage of the 
fair market value of the total assets of the PR Plan invested in 
Holdings Stock was 6.5%,
    The PR Plan is administered by the Administrative Committee, and 
the Investment Committee makes investment decisions for such plan. 
Banco Popular de Puerto Rico serves as the PR Plan trustee.
Holdings
    4. Holdings, the sponsor of each of the Plans, is a retail merchant 
with full-line and specialty retail stores in the United States, Guam, 
Puerto Rico, the U.S. Virgin Islands, and Canada. Holdings was formed 
as a Delaware corporation in 2004 in connection with the merger of 
Kmart and Sears Roebuck, which took place on March 24, 2005. Holdings 
is the parent company of Kmart Holding Company and Sears Roebuck. The 
principal executive office of Holdings is located in Hoffman Estates, 
Illinois. According to the Form 10-K for the fiscal year ending January 
31, 2015, Holdings and its subsidiaries had total assets of 
approximately $11.3 billion. Also as of January 31, 2015, Holdings and 
its subsidiaries employed approximately 196,000 employees.
Holdings Stock/Ownership
    5. Common stock issued by Holdings (i.e., Holdings Stock), with a 
par value $0.01 per share, is publicly-traded on the NASDAQ Global 
Select Market under the symbol, ``SHLD.'' There were 11,659 
shareholders of record, as of June 11, 2015.
    ESL Investments, Inc. and its affiliates, (ESL), including Edward 
S. Lampert (Mr. Lampert) owned approximately 53.2% of Holdings Stock 
issued and outstanding as of June 9, 2015. Mr. Lampert is the Chairman 
of the Board of Directors and Chief Executive Officer of Holdings. He 
is also the Chairman and Chief Executive Officer of ESL.
Seritage Growth
    6. Seritage Growth is a publicly traded, self-administered, self-
managed real estate investment trust that is primarily engaged in the 
real property business through its investment in its operating 
partnership, Seritage Growth Properties, L.P. Seritage Growth's 
portfolio contains 235 wholly-owned properties and 31 joint venture 
properties, consisting of approximately 42 million square feet of 
building space, which is broadly diversified by location across 49 
states and Puerto Rico. Pursuant to a master lease, 224 of Seritage 
Growth's wholly-owned properties are leased to Holdings and are 
operated under either the Sears Roebuck or K-Mart brand. The master 
lease provides Seritage with rights to recapture certain space from 
Sears Holdings at each property.
    Prior to the Offering described below, Seritage Growth Stock was 
owned exclusively by Benjamin Schall, the Chief Executive Officer of 
Seritage Growth. Immediately following the Offering, ESL owned 4% of 
Seritage Growth Stock, 100% of Seritage Growth's Class B non-economic 
shares, 9.8% of Seritage Growth's voting power, 43.5% of Seritage 
Growth (Operating Partnership) units, and 45.3% of the consolidated 
economics of Seritage Growth and the Operating Partnership.\29\
---------------------------------------------------------------------------

    \29\ To clarify the relationship between Seritage Growth and the 
Operating Partnership, the Applicant represents that Seritage Growth 
is the general partner of the Operating Partnership and owns the 
majority of the Operating Partnership units.
---------------------------------------------------------------------------

The Offering
    7. On April 1, 2015, Holdings announced its intention to conduct a 
Rights Offering of 53,298,899 shares of Seritage Growth Stock to 
Holdings shareholders. Holdings issued a prospectus describing the 
Offering of certain subscription Rights to shareholders of record, 
including the Master Trust, as of June 11, 2015, the Record Date. The 
Holdings Board of Directors determined that the Offering was in the 
best interest of Holdings and its stockholders. According to the 
Applicant, the purpose of the Offering was to allow Seritage Growth to 
purchase a portfolio of Holdings real properties from Holdings using 
the proceeds obtained from the Offering.
    Under the terms of the Offering, all shareholders of Holdings Stock 
automatically received the Rights, at no charge. Specifically, each 
shareholder as of the Record Date, received one Right for every whole 
share of Holdings Stock it held. Each Right entitled the holder to 
purchase one half of one share of Seritage Growth Stock at the 
subscription price of $29.58 per whole share. According to the 
Applicant, the Rights were distributed as practicable as possible after 
the June 11, 2015 Record Date.
    8. Each Right also contained an over-subscription privilege 
permitting the holder to subscribe for additional Seritage Growth 
Stock, up to the number of common shares that were not subscribed for 
by the other holders of the Rights. The Plans were not eligible to 
participate in the over-subscription privilege because the Independent 
Fiduciary sold the Rights received by the Plan, as discussed more fully 
below.
    9. All shareholders of Holdings Stock held the Rights until such 
Rights expired, were exercised, or were sold. A shareholder had the 
right to exercise some, all, or none of its Rights. However, its 
election to exercise the Rights had to be received by the subscription 
agent, Computershare Trust Company, N.A., by July 2, 2015. The election 
to exercise any of the Rights was irrevocable.
    All shareholders of Holdings Stock held the Rights until such 
Rights expired, were exercised, or were sold. Each shareholder of the 
Holdings Stock needed to have at least two Rights to purchase one whole 
share of Seritage Growth Stock, because only whole shares could be 
purchased by the exercise of the Rights. Fractional shares or cash in 
lieu of fractional shares were not issued in connection with the 
Offering. Fractional shares of the Seritage Growth Stock resulting from 
the exercise of basic Rights, as to any holder of such Rights were 
rounded down to the nearest whole number.
    10. With regard to the sale of the Rights, the Applicant represents 
that the Rights were transferable. The Applicant also represents that 
the Rights began to trade on the NYSE under the symbol ``SRGRT'' on or 
around June 12, 2015, and continued to trade until the trading deadline 
at the close of business on June 26, 2015. Further, the Applicant 
explains that the trading deadline applied uniformly to all holders of 
the Rights.
    11. The Offering expired at 5 p.m. New York City time on July 2, 
2015. The Applicant represents that the Offering was oversubscribed and 
all of the Rights were exercised at a price of U.S. $29.58 per share of 
Seritage Growth Stock. Accordingly, in connection with the Offering, 
Seritage Growth offered and issued up to 106,603,021 Rights to

[[Page 29716]]

purchase up to 53,298,899 shares of Seritage Growth Stock.
    12. All of the gross proceeds from the exercise of the Rights to 
purchase Seritage Growth Stock, approximately $1,576,581,444, net of 
any selling expenses, were payable to and received by Seritage Growth. 
The Applicant asserts that the proceeds were or will be used by 
Seritage Growth to purchase a portfolio of real properties from 
Holdings.
    13. Based on the ratio of one Right for each share of Holdings 
Stock held, the Applicant explains that the Master Trust acquired 
1,326,085 Rights as a result of the Offering. While the Plans generally 
permit participants to direct the investment of their own accounts, 
including their investments in Holdings Stock, the Applicant represents 
that all decisions regarding the holding and disposition of the Rights 
by each Plan were made, in accordance with the Plan provisions, by the 
Independent Fiduciary acting solely in the interest of Plan 
participants. According to the Applicant, participants in the Plans who 
were invested in Holdings Stock as of the Record Date were notified of 
the Offering, the engagement of the Independent Fiduciary, the fact 
that the Rights would be held in the Stock Fund, that the Independent 
Fiduciary would determine whether the Rights should be exercised or 
sold, and the means by which a participant could obtain more 
information. The Applicant further represents that Holdings 
communicated generally with employees regarding the Offering and with 
the public through public releases at www.searsholdings.com.
Role of the Independent Fiduciary
    14. Evercore Trust Company, N.A. (Evercore) was retained by the 
Investment Committee, pursuant to an agreement (the Agreement) dated 
June 5, 2015, to act as the Independent Fiduciary on behalf of the 
Plans, in connection with the Offering and with the application for 
exemption submitted to the Department. Pursuant to the terms of the 
Agreement, Evercore's responsibilities were: (a) To determine whether 
and when to exercise or sell each of the Plan's Rights; and (b) if it 
determined to exercise any of a Plan's Rights to purchase Seritage 
Growth Stock, to manage the investment within that Plan's Stock Fund, 
and determine when to liquidate or exercise the shares for the purpose 
of reinvesting the proceeds in Holdings Stock.
    The Applicant represents that hiring an Independent Fiduciary to 
manage the holding and disposition of the Rights was appropriate in 
this case for the following reasons: (a) There would have been a 
significant cost to develop and implement a process under each Plan to 
administer the pass-through of the Rights to participants; (b) it was 
not practicable to initiate and implement a pass-through of the Rights 
to participants given the limited notice provided to shareholders of 
the Offering and the short subscription period (21 days), because such 
process would have included the establishment of a ``rights fund'' and 
a Seritage Growth fund within each Plan, the design and testing of 
procedures for allocating the Rights among participant accounts, 
soliciting participant directions on the exercise or sale of the Rights 
and identifying the source of funding (e.g., which investment account 
is to be liquidated) for each participant who chose to exercise the 
Rights, and the short Offering Period meant that there would have been 
insufficient time to adequately educate participants regarding their 
rights and obligations; (c) there would have been a loss of value that 
participants might otherwise have gained, because participants' 
unfamiliarity with rights offerings as well as general participant 
inertia would have resulted in a significant percentage of participants 
allowing their Rights to expire without selling or exercising them; (d) 
it was not in the interest of participants to require the Plans to 
offer and hold for participant investment a single stock (i.e., 
Seritage Growth Stock) that had not been selected by the plan fiduciary 
as an investment option appropriate for the Plans; and (e) the Rights 
are most appropriately viewed as a non-cash dividend payable to owners 
of Holdings Stock, such as the Plans, so that the fiduciary of the 
Stock Fund is the appropriate person to manage the ``proceeds'' of the 
Plans' investment in Holdings Stock. The Applicant represents that, in 
this case, the Independent Fiduciary appointed to manage the Rights on 
behalf of the Plans took responsibility for realizing the value in the 
Rights by selling them. The cash proceeds of the sale were then 
reinvested in Holdings Stock pursuant to the terms of the Plans.
    In the Agreement, Evercore represents that it is qualified to serve 
as the Independent Fiduciary for the Plans in connection with the 
Offering because it is a national trust bank chartered by the Office of 
the Comptroller of the Currency. Evercore states that it has provided 
specialized investment management, independent fiduciary, and trustee 
services to employee benefit plans since 1987. Evercore also represents 
that it has served or is serving as an independent fiduciary on behalf 
of employee benefit plans in connection with more than 50 prohibited 
transaction exemption applications that have been filed with the 
Department.
    In the Agreement, Evercore further represents that it is 
independent and unrelated to Holdings, and that it did not directly or 
indirectly receive any compensation or other consideration for its own 
account in connection with the Offering, except compensation from 
Holdings for performing services described in the Agreement. According 
to the Agreement, Evercore states that the gross revenue it received 
(or expected to receive) in 2015 that was derived from any party in 
interest or an affiliate of such party in interest involved in the 
Seritage Growth transaction, would represent less than 2% its 2014 
gross revenue. Also, in the Agreement, Evercore represents that it 
understood and acknowledged its duties and responsibilities under the 
Act in acting as a fiduciary on behalf of the Plans in connection with 
the Offering.
    In addition, Evercore represents that it conducted a due diligence 
process in evaluating the Offering on behalf of the Plans. This process 
included discussions and correspondence with representatives of the 
Plans, Holdings, Holdings' counsel, broker-dealers, and representatives 
of the trustee of the Master Trust, enabling Evercore to improve 
certain elements related to the Offering. Evercore also states that it 
reviewed publicly available information and information provided by 
Holdings.
    With regard to the Offering, Evercore explains that it considered 
four options on behalf of the Plans: (a) To continue holding the Rights 
within the Stock Fund; (b) to exercise all of the Rights to acquire 
Seritage Growth Stock; (c) to sell all of the Rights on the NYSE at the 
prevailing market price; or (d) to sell a portion of the Rights and use 
the proceeds to exercise the remaining Rights to acquire Seritage 
Growth Stock.
    In determining to sell all of the Plans' Rights, Evercore 
represents that the proceeds from the sale would be invested in 
Holdings Stock, in accordance with the governing documents of the Stock 
Fund. Evercore reasoned that, although the Plans would incur some 
transaction costs by selling the Rights, estimated at $0.01 per Right 
traded, plus a similar expense in connection with the reinvestment of 
the proceeds into shares of Holdings Stock, the benefits of selling the 
Rights included the fact that the proceeds could be quickly redeployed 
into shares of Holdings Stock, lower transaction costs, and less 
exposure to risk than the

[[Page 29717]]

options that involved exercising any of the Rights. Accordingly, 
Evercore concluded that the sale of the Rights was in the interest of 
the Plans and the Plans' participants and beneficiaries and was 
protective of such participants and beneficiaries of the Plans.
    15. As a result of the sale of 1,326,085 Rights that were acquired 
by the Master Trust during the Offering, the total net proceeds 
generated for the Savings Plan and the PR Plan was $4,106,921.19. These 
proceeds were credited to the Stock Fund, and thus, to each Plan. The 
unit value of each participant's account balance in each Plan reflected 
the addition of the proceeds to the Stock Fund (as applicable).
    The trading period for the sale of the Rights on the NYSE ended on 
June 26, 2015. Evercore sold the Plans' 1,326,085 Rights in blind 
transactions on the NYSE between June 16 and June 19, 2015, realizing 
an average selling price of $3.10 per Right. According to the 
Applicant, the volume-weighted average price for a total of 46,699,673 
Rights that were sold during the trading period was $3.66, according to 
data reported by Factset.
    16. Evercore represents that, as noted in the Independent Fiduciary 
Report, its goal in selling the Rights was to dispose of them in a 
timely manner at the best available market prices so that cash raised 
through the sale could be reinvested in shares of Holdings Stock as 
soon as possible and at the discretion of State Street, the Master 
Trustee and Custodian of the Master Trust. This, according to Evercore 
was consistent with the purpose and intent of the Stock Fund.
    Evercore explains that it also believed it was prudent to take 
advantage of available liquidity early in the Offering Period, given 
the typical decline in trading volume experienced over the course of a 
rights offering period. Evercore states that it promptly began to sell 
the Rights once it was informed that the Rights had been delivered to 
the Stock Fund account. The liquidation lasted four days, beginning on 
June 16, 2015, and ending on June 19, 2015. The Rights continued to 
trade over five more days (June 22 to June 26), during which time the 
price of the Rights rose. This rise in price, Evercore asserts, was 
entirely unpredictable beforehand. Waiting for such a potential 
outcome, Evercore explains, would have been at odds with its goal of 
promptly realizing and reallocating proceeds, and further would have 
exposed the Plans to the risk of a significant decline in the price of 
the Rights over the course of the offering period.
    17. In the opinion of Evercore, the actions outlined above in which 
it was engaged on behalf of the Plans, were in the interest of the 
Plans and the Plans' participants and beneficiaries, and were 
protective of the rights of such participants and beneficiaries of the 
Plans.
    18. No brokerage fees, commissions, subscription fees, or other 
charges were paid by the Plans with respect to the acquisition and 
holding of the Rights, or were paid to any broker affiliated with 
Evercore, or Holdings, in connection with the sale of the Rights. In 
this regard, it is represented that Evercore selected State Street 
Global Markets to execute the trades for the sale of the Rights issued 
to the Master Trust, based on Evercore's confidence in that broker's 
execution ability and an attractive fee schedule of 0.01 cent per Right 
traded. In connection with the sale of the Rights, the Plans (through 
the Master Trust) paid $13,260.85 in commissions and $75.83 in SEC 
fees.\30\
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    \30\ The Applicant represents that the brokerage services and 
the fees that were received by State Street Global Markets in 
connection with the sale of the Rights by the Plans, are exempt 
under section 408(b)(2) of the Act. The Department, herein, is not 
providing any relief for the receipt of any commissions, fees, or 
expenses in connection with the sale of the Rights in blind 
transactions to unrelated third parties on the NYSE, beyond that 
provided pursuant to section 408(b)(2) of the Act. In this regard, 
the Department is not opining as to whether the conditions as set 
forth in section 408(b)(2) of the Act and the Department's 
regulations, pursuant to 29 CFR 2550.408(b)(2) have been satisfied.
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Requested Relief
    19. The application was filed by Holdings on behalf of itself and 
its affiliates. In this regard, Holdings has requested an exemption for 
the acquisition and holding of the Rights by the Plans in connection 
with the Offering of Seritage Growth Stock by Holdings. The Applicant 
represents that the subject transactions have already been consummated. 
In this regard, the Plans acquired the Rights pursuant to the Offering, 
and held such Rights until they were sold by the Independent Fiduciary. 
The Applicant states that, because there was insufficient time between 
the dates the Plans acquired the Rights and when the Rights were sold 
to apply for and be granted an administrative exemption by the 
Department, Holdings requested retroactive exemptive relief for the 
period June 11, 2015, through July 2, 2015.
    20. Section 406(a)(1)(E) of the Act prohibits a fiduciary from 
causing a plan to engage in a transaction, if he knows or should know 
that such transaction constitutes a direct or indirect acquisition, on 
behalf of a plan, of any employer security or employer real property in 
violation of section 407(a). Section 406(a)(2) of the Act prohibits a 
fiduciary who has authority or discretion to control or manage the 
assets of a plan from permitting a plan to hold any employer security 
or employer real property if he knows or should know that holding such 
security or real property violates section 407(a). The Applicant 
represents that because the Rights are non-qualifying employer 
securities, the acquisition and holding of the Rights by the Plans 
violated sections 406(a)(1)(E), 406(a)(2), and 407(a) of the Act.
    Furthermore, section 406(b)(1) of the Act prohibits a fiduciary 
from dealing with the assets of a plan in his own interest or for his 
own account. Section 406(b)(2) of the Act prohibits a fiduciary, in his 
individual or in any other capacity, from acting in any transaction 
involving the plan on behalf of a party (or representing a party) whose 
interests are adverse to the interests of the plan or the interests of 
its participants or beneficiaries. The Applicant states that, although 
Holdings retained the Independent Fiduciary to represent the Plans in 
connection with the disposition of the Rights, by causing the 
participation of the Plans in the Offering, Holdings may have dealt 
with the assets of the Plans for its own account, and also may have 
acted in a transaction on behalf of itself and the Plans.
    Therefore, the Applicant requests an administrative exemption from 
sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 
407(a)(1)(A) of the Act and section 4975 of the Code by reason of 
4975(c)(1)(E) of the Code, with regard to the Savings Plan, and from 
sections 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 
407(a)(1)(A) of the Act with regard to the PR Plan.
Statutory Findings
    21. The Applicant represents that the proposed transactions are 
administratively feasible because the acquisition and holding of the 
Rights by the Plans were one-time transactions that involved an 
automatic distribution of the Rights to all shareholders, that would 
not require any continuing oversight by the Department.
    The Applicant also represents that the subject transactions were in 
the interest of the Plans and their respective participants and 
beneficiaries, because the Rights were automatically issued at no cost 
to the shareholders of Holdings Stock, including the Plans, as of the 
Record Date.

[[Page 29718]]

    Finally, the Applicant represents that the transactions were 
protective of the rights of the participants and beneficiaries of the 
respective Plans because the Plans obtained the Rights as a result of 
an independent act of Holdings as a corporate entity. In addition, the 
acquisition of the Rights by the Plans occurred on the same terms made 
available to other holders of Holdings Stock, and the Plans received 
the same proportionate number of Rights as other owners of Holdings 
Stock. The Plans were also protected in that all decisions regarding 
the holding and disposition of the Rights by the Plans were made, in 
accordance with Plan provisions, by the Independent Fiduciary. 
Furthermore, the Applicant represents that the Independent Fiduciary 
determined that it would be in the interest of the Plans to sell all of 
the Rights received in the Offering by the Plans in blind transactions 
on the NYSE.
Summary
    22. In summary, Holdings represents that the subject transactions 
satisfy the statutory criteria for an exemption under of section 408(a) 
of the Act because:
    (a) The receipt of the Rights by the Plans occurred in connection 
with the Offering in which all shareholders of Holdings Stock, 
including the Plans, were treated in the same manner;
    (b) The acquisition of the Rights by the Plans resulted solely from 
an independent act of Holdings, as a corporate entity;
    (c) Each shareholder of Holdings Stock, including each of the 
Plans, received the same proportionate number of Rights based on the 
number of shares of Holdings Stock held by each such shareholder;
    (d) All decisions with regard to the holding and disposition of the 
Rights by the Plans were made by the Independent Fiduciary on behalf of 
the Plans;
    (e) The Independent Fiduciary determined that it would be in the 
interest of the Plans to sell all of the Rights received in the 
Offering by the Plans in blind transactions on the NYSE;
    (f) No brokerage fees, commissions, subscription fees, or other 
charges were paid by the Plans with respect to the acquisition and 
holding of the Rights; or were paid to any broker affiliated with the 
Independent Fiduciary or Holdings, in connection with the sale of the 
Rights; and
    (g) The acquisition of the Rights by the Plans occurred on the same 
terms made available to other shareholders of Holdings Stock.

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 all 
participants whose accounts in the Plans were invested on the Record 
Date through the Master Trust in the Stock Fund which held the Holdings 
Stock.
    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 22 days of publication of 
the Notice in the Federal Register. Such mailing will contain a copy of 
the Notice, as it appears in the Federal Register on the date of 
publication, plus a copy of the Supplemental Statement, as required, 
pursuant to 29 CFR 2570.43(a)(2), which will advise all interested 
persons of their right to comment and to request a hearing. A11 written 
comments and/or requests for a hearing must be received by the 
Department from interested persons within 52 days of the publication of 
this proposed exemption in the Federal Register.
    All comments will be made available to the public.
    Warning: Do not include any personally identifiable information 
(such as name, address, or other contact information) or confidential 
business information that you do not want publicly disclosed. All 
comments may be posted on the Internet and can be retrieved by most 
Internet search engines.

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

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which, among other things, require a fiduciary 
to discharge his duties respecting the plan solely in the interest of 
the participants and beneficiaries of the plan and in a prudent fashion 
in accordance with section 404(a)(1)(b) of the Act; nor does it affect 
the requirement of section 401(a) of the Code that the plan must 
operate for the exclusive benefit of the employees of the employer 
maintaining the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries, and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 6th day of May, 2016.
Lyssa E. Hall,
Director, Office of Exemption Determinations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. 2016-11115 Filed 5-11-16; 8:45 am]
 BILLING CODE 4510-29-P