Federal Register / Vol. 76, No. 50 / Tuesday, March 15, 2011 / Notices 14083 

(the Ford VEBA Plan) and its associated 

UAW Retiree Medical Benefits Trust 

(the VEBA Trust). 

(cc) The term ‘‘Verification Time 

Period’’ means: (1) With respect to each 

of the Securities other than the 

payments in respect of the New Notes, 

the period beginning on the date of 

publication of the final exemption in the 

Federal Register (or, if later, the date of 

the transfer of any such Security to the 

Ford VEBA Plan) and ending 90 

calendar days thereafter; (2) with 

respect to each payment pursuant to the 

New Notes, the period beginning on the 

date of the payment and ending 90 

calendar days thereafter; and (3) with 

respect to the TAA, the period 

beginning on the date of publication of 

the final exemption in the Federal 

Register (or, if later, the date of the 

transfer of the assets in the TAA to the 

Ford VEBA Plan) and ending 180 

calendar days thereafter. 

(dd) The term ‘‘Warrants’’ means 

warrants issued by Ford to acquire 

362,391,305 shares of Ford Common 

Stock at a strike price of $9.20 per share, 

expiring on January 1, 2013. For 

purposes of this definition, the term 

‘‘Warrants’’ includes additional warrants 

to acquire Ford Common Stock acquired 

in partial or complete exchange for, or 

adjustment to, the warrants described in 

the preceding sentence, at the direction 

of the Independent Fiduciary or 

pursuant to a reorganization, 

restructuring or recapitalization of Ford 

as well as a merger or similar corporate 

transaction involving Ford (each, a 

corporate transaction), provided that, in 

such corporate transaction, similarly 

situated warrantholders, if any, will be 

treated the same to the extent that the 

terms of such warrants and/or rights of 

such warrantholders are the same. 

SECTION VIII. Effective Date 

If granted, this proposed amendment 

to PTE 2010–08 will be effective as of 

December 31, 2009, except with respect 

to Section I(a)(7), which will be effective 

as of June 25, 2010. 

Signed at Washington, DC, this 9th day of 

March 2011. 

Ivan Strasfeld, 

Director of Exemption Determinations, 

Employee Benefits Security Administration, 

U.S. Department of Labor. 

[FR Doc. 2011–5912 Filed 3–14–11; 8:45 am] 

BILLING CODE 4510–29–P 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

Proposed Exemptions From Certain 

Prohibited Transaction Restrictions 

AGENCY: Employee Benefits Security 

Administration, Labor. 

ACTION: Notice of proposed exemptions. 

SUMMARY: This document contains 

notices of pendency before the 

Department of Labor (the Department) of 

proposed exemptions from certain of the 

prohibited transaction restrictions of the 

Employee Retirement Income Security 

Act of 1974 (ERISA or the Act) and/or 

the Internal Revenue Code of 1986 (the 

Code). This notice includes the 

following proposed exemptions: D– 

11468 & D–11469 The Krispy Kreme 

Doughnut Corporation Retirement 

Savings Plan, The Krispy Kreme ProfitSharing Stock Ownership Plan; D– 

11632 Millenium Trust Co. LLC, 

Custodian FBO William Etherington 

IRA; D–11642 H–E–B Brand Savings & 

Retirement Plan and H.E. Butt Grocery 

Company; and L-11625 The 

International Union of Painters and 

Allied Trades Finishing Institute. 

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 e-mail 

to: moffitt.betty@dol.gov, or by FAX to 

(202) 219–0204 by the end of the 

scheduled comment period. The 

applications for exemption and the 

comments received will be available for 

public inspection in the Public 

Documents Room of the Employee 

Benefits Security Administration, U.S. 

Department of Labor, Room N–1513, 

200 Constitution Avenue, NW., 

Washington, DC 20210. 

Warning: If you submit written comments 

or hearing requests, do not include any 

personally-identifiable or confidential 

business information that you do not want to 

be publicly-disclosed. All comments and 

hearing requests are posted on the Internet 

exactly as they are received, and they can be 

retrieved by most Internet search engines. 

The Department will make no deletions, 

modifications or redactions to the comments 

or hearing requests received, as they are 

public records. 

SUPPLEMENTARY INFORMATION: 

Notice to Interested Persons 

Notice of the proposed exemptions 

will be provided to all interested 

persons in the manner agreed upon by 

the applicant and the Department 

within 15 days of the date of publication 

in the Federal Register. Such notice 

shall include a copy of the notice of 

proposed exemption as published in the 

Federal Register and shall inform 

interested persons of their right to 

comment and to request a hearing 

(where appropriate). 

The proposed exemptions were 

requested in applications filed pursuant 

to section 408(a) of the Act and/or 

section 4975(c)(2) of the Code, and in 

accordance with procedures set forth in 

29 CFR part 2570, subpart B (55 FR 

32836, 32847, August 10, 1990). 

Effective December 31, 1978, section 

102 of Reorganization Plan No. 4 of 

1978, 5 U.S.C. App. 1 (1996), transferred 

the authority of the Secretary of the 

Treasury to issue exemptions of the type 

requested to the Secretary of Labor. 

Therefore, these notices of proposed 

exemption are issued solely by the 

Department. 

The applications contain 

representations with regard to the 

proposed exemptions which are 

summarized below. Interested persons 

are referred to the applications on file 

with the Department for a complete 

statement of the facts and 

representations. 


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14084 Federal Register / Vol. 76, No. 50 / Tuesday, March 15, 2011 / Notices 

1For purposes of this proposed exemption, 

references to the provisions of Title I of the Act, 

unless otherwise specified, refer also to the 

corresponding provisions of the Code. 

The Krispy Kreme Doughnut 

Corporation Retirement Savings Plan 

(the Savings Plan) and the Krispy 

Kreme Profit-Sharing Stock Ownership 

Plan the KSOP; Together, the Plans or 

the Applicants) 

Located in Winston-Salem, North 

Carolina 

[Application Nos. D–11468 and D– 

11469, Respectively] 

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 (55 FR 32836, 32847, 

August 10, 1990).1 If the exemption is 

granted, the restrictions of section 

406(a)(1)(A), (D), (E), section 406(a)(2), 

section 406(b)(2) and section 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) 

and (D) of the Code, shall not apply, 

effective January 16, 2007, to (1) the 

release by the Plans of their claims 

against Krispy Kreme Doughnut 

Corporation (KKDC), the sponsor of the 

Plans and a party in interest, in 

exchange for cash, shares of common 

stock (the Common Stock) and warrants 

(the Warrants) issued by Krispy Kreme 

Doughnuts, Inc. (KKDI), the parent of 

KKDC and also a party in interest, in 

settlement of certain litigation (the 

Securities Litigation) between the Plans 

and KKDC; and (2) the holding of the 

Warrants by the Plans. 

This proposed exemption is subject to 

the following conditions: 

(a) The receipt and holding of cash, 

the Common Stock and the Warrants 

occurred in connection with a genuine 

controversy in which the Plans were 

parties. 

(b) An independent fiduciary was 

retained on behalf of the Plans to 

determine whether or not the Plans 

should have joined in the Securities 

Litigation and accept cash, the Common 

Stock and the Warrants pursuant to a 

settlement agreement (the Settlement 

Agreement). Such independent 

fiduciary— 

(1) Had no relationship to, or interest 

in, any of the parties involved in the 

Securities Litigation that might affect 

the exercise of such person’s judgment 

as a fiduciary; 

(2) Acknowledged, in writing, that it 

was a fiduciary for the Plans with 

respect to the settlement of the 

Securities Litigation; and 

(3) Determined that an all cash 

settlement was either not feasible or was 

less beneficial to the participants and 

beneficiaries of the Plans than accepting 

all or part of the settlement in non-cash 

assets. 

(4) Thoroughly reviewed and 

determined whether it would be in the 

best interests of the Plans and their 

participants and beneficiaries to engage 

in the covered transactions. 

(5) Determined whether the decision 

by the Plans’ fiduciaries to cause the 

Plans not to opt out of the Securities 

Litigation was more beneficial to the 

Plans than having the Plans file a 

separate lawsuit against KKDC. 

(c) The terms of the Settlement 

Agreement, including the scope of the 

release of claims, the amount of cash 

and the value of any non-cash assets 

received by the Plans, and the amount 

of any attorney’s fee award or any other 

sums to be paid from the recovery were 

reasonable in light of the Plans’ 

likelihood of receiving full recovery, the 

risks and costs of litigation, and the 

value of claims foregone. 

(d) The terms and conditions of the 

transactions were no less favorable to 

the Plans than comparable arm’s length 

terms and conditions that would have 

been agreed to by unrelated parties 

under similar circumstances. 

(e) The transactions were not part of 

an agreement, arrangement, or 

understanding designed to benefit a 

party in interest. 

(f) All terms of the Settlement 

Agreement were specifically described 

in a written document approved by the 

United States District Court for the 

Middle District of North Carolina (the 

District Court). 

(g) Non-cash assets, which included 

the Common Stock and Warrants 

received by the Plans from KKDC under 

the Settlement Agreement, were 

specifically described in the Settlement 

Agreement and valued as determined in 

accordance with a court-approved 

objective methodology; 

(h) The Plans did not pay any fees or 

commissions in connection with the 

receipt or holding of the Common Stock 

and the Warrants. 

(i) KKDC maintains, or causes to be 

maintained, for a period of six years 

such records as are necessary to enable 

the persons described in paragraph (j)(1) 

below to determine whether the 

conditions of this exemption have been 

met, except that— 

(1) If the records necessary to enable 

the persons described in paragraph (j)(1) 

to determine whether the conditions of 

this exemption have been met are lost, 

or destroyed, due to circumstances 

beyond the control of KKDC, then no 

prohibited transaction will be 

considered to have occurred solely on 

the basis of the unavailability of those 

records; and 

(2) No party in interest with respect 

to the Plans other than KKDC shall be 

subject to the civil penalty that may be 

assessed under section 502(i) of the Act 

or to the taxes imposed by section 

4975(a) and (b) of the Code if such 

records are not maintained or are not 

available for examination as required by 

paragraph (i). 

(j)(1) Except as provided in this 

paragraph (j) and notwithstanding any 

provision of section 504(a)(2) and (b) of 

the Act, the records referred to in 

paragraph (i) above are unconditionally 

available at their customary locations 

for examination during normal business 

hours by: 

(A) Any duly authorized employee, 

agent or representative of the 

Department or the Internal Revenue 

Service, or the Securities and Exchange 

Commission (SEC); 

(B) Any fiduciary of the Plans or any 

duly authorized representative of such 

participant or beneficiary; 

(C) Any participant or beneficiary of 

the Plans or duly authorized 

representative of such participant or 

beneficiary; 

(D) Any employer whose employees 

are covered by the Plans; or 

(E) Any employee organization whose 

members are covered by such Plans. 

(2) None of the persons described in 

paragraph (j)(1)(B) through (E) shall be 

authorized to examine trade secrets of 

KKDC or commercial or financial 

information which is privileged or 

confidential. 

(3) Should KKDC refuse to disclose 

information on the basis that such 

information is exempt from disclosure, 

KKDC shall, by the close of the thirtieth 

(30th) day following the request, 

provide written notice advising that 

person of the reason for the refusal and 

that the Department may request such 

information. 

Effective Date: If granted, this 

proposed exemption will be effective as 

of January 16, 2007. 

Summary of Facts and Representations 

KKDI and KKDC 

1. KKDI is a branded retailer and 

wholesaler of doughnuts. KKDI’s 

principal business, which began in 

1937, is franchising and owning Krispy 

Kreme doughnut stores. KKDI’s 

principal, wholly-owned operating 

subsidiary is KKDC. KKDI Common 

Stock is publicly traded on the New 


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2The Savings Plan and the KSOP were not parties 

in interest with respect to each other. 

3 In such capacity, U.S Trust was given specific 

authority and responsibility to: (a) Impose any 

restriction on the investment of participant 

accounts in the Stock Fund; (b) eliminate the Stock 

Fund as an investment option under the Savings 

Plan and to sell or to otherwise dispose of all of any 

portion of the Common Stock held in the Stock 

Fund; (c) designate an alternate investment fund 

under the Plans for the investment of any proceeds 

from any sale or other disposition of the Common 

Stock; and (d) instruct the Trustees of the Plans 

with respect to the foregoing matters. 

4The ERISA Settlement is not the subject of this 

proposed exemption. It is discussed here as part of 

the historic background of this proposed 

exemption. 

5The Applicants represent that the Settlement 

Fund was managed by the Class Lead Counsel for 

Continued 

York Stock Exchange under the ticker 

symbol ‘‘KKD’’. Both KKDI and KKDC 

are located in Winston-Salem, North 

Carolina. 

The Plans 

2. Effective February 1, 1999, KKDC 

established the KSOP, a defined 

contribution employee stock ownership 

plan. Under the terms of this qualified 

plan, KKDC could contribute a 

discretionary percentage of each 

employee’s compensation, subject to 

Code limits, to each eligible employee’s 

account under the KSOP. The 

contribution could be made in the form 

of cash or newly-issued shares of the 

Common Stock. If cash was contributed, 

the KSOP could acquire the Common 

Stock on the open market. As of 

December 31, 2006, the KSOP had total 

assets, consisting primarily of the 

Common Stock and having a fair market 

value of $4,705,581, and 1,471 

participants. The trustee of the KSOP 

was Branch Banking and Trust 

Company of Winston-Salem, North 

Carolina (BB&T). 

3. On February 1, 1982, KKDC 

established the Savings Plan, which is 

subject to the provisions of section 

401(k) of the Code.2 Under the Savings 

Plan, employees may contribute up to 

100% of their salary and bonus to this 

plan on a tax-deferred basis, subject to 

statutory limitations. Effective August 1, 

2004, KKDC began matching employee 

contributions to the Savings Plan in 

cash. KKDC matches 50% of the first 

6% of compensation contributed by 

each employee. Participants in the 

Savings Plan are permitted to self-direct 

the investment of their account balances 

(including matching account balances) 

among a number of investment options, 

including the Krispy Kreme Stock Fund 

(the Stock Fund) (whose assets consist 

of the Common Stock and cash). As of 

December 31, 2006, the Savings Plan 

had total assets of $24,529,174 and 

4,188 participants. Of the Saving Plan’s 

assets, approximately 3.5% was 

invested in shares of the Common 

Stock. The trustee of the Savings Plan 

was also BB&T. 

4. The documents for each Plan 

provided that KKDC would be the 

‘‘named fiduciary’’ for investment 

purposes, except with respect to the 

Stock Fund for which U.S Trust 

Company, N.A. (U.S. Trust) would serve 

as the independent fiduciary.3 KKDC’s 

responsibilities included broad 

oversight of and ultimate decisionmaking authority over the management 

and administration of the Plans’ assets, 

as well as the appointment, removal and 

monitoring of other fiduciaries of the 

Plans. KKDC could also exercise its 

authority as named fiduciary through an 

eight-member Investment Committee 

established for the Plans. The 

Investment Committee selected 

investment alternatives into which 

participants in the KSOP and 

participants in the Savings Plan could 

diversify their interests in their 

Participant accounts. 

Merger of the Plans and the ERISA 

Litigation 

5. Effective June 1, 2007, KKDC 

merged the KSOP into the Savings Plan. 

The merger occurred due to separate 

litigation commenced by different 

plaintiffs on March 3, 2005. The 

plaintiffs alleged violations of the Act in 

a class action lawsuit captioned as 

Smith v. Krispy Kreme Doughnut 

Corporation, M.D.N.C. No. 1:05CV00187 

(i.e., the ERISA Litigation), that was 

brought in the District Court. The 

plaintiffs’ complaint alleged the 

defendant, KKDC, had breached its 

fiduciary duty with respect to 

investment in KKDI stock within the 

Plans and had caused the Plans to suffer 

losses. The parties litigated for over two 

years and ultimately reached a 

settlement (the ERISA Settlement), 

which was reviewed and approved by 

the Department’s Atlanta Regional 

Office and by Independent Fiduciary 

Services, Inc. (IFS), a qualified 

independent fiduciary. The ERISA 

Settlement, which received the District 

Court’s approval on January 10, 2007, 

required both a monetary recovery of 

$4.75 million and structural relief 

valued at approximately $3.82 million 

for the class.4 Finally, the ERISA 

Settlement stipulated the merger of the 

Plans. As of December 31, 2009, the 

Savings Plan had $26,986,884 in total 

assets and 2,491 participants. 

(Notwithstanding the merger, for 

convenience of reference, this proposed 

exemption is meant to cover both the 

post-merger KSOP and the Savings Plan 

which are treated as separate plans). 

The Securities Litigation 

6. On May 12, 2004, certain plaintiff 

investors filed another class action 

lawsuit in the District Court on behalf 

of all persons who had purchased 

securities issued by KKDI between 

August 21, 2003 and May 7, 2004 (a 

timeframe that was later extended from 

March 8, 2001 to April 18, 2005 and 

referred to herein as the ‘‘Class Period’’). 

The class members included the Savings 

Plan and the KSOP. On October 6, 2004, 

the District Court appointed the 

Pompano Beach Police & Firefighters 

Retirement Systems, the Alaska 

Electrical Pension Fund, the City of St. 

Clair Shores Police and Fire Retirement 

System, the City of Sterling Heights 

General Employees Retirement System 

and James Hennessey as the lead 

plaintiffs (the Class Lead Plaintiffs) to 

represent the class plaintiffs (the Class 

Plaintiffs). None of the Class Plaintiffs 

were parties in interest with respect to 

the Plans. The District Court also 

appointed Coughlin Stoia Gellar 

Rudman & Robbins, LLP as lead counsel 

(the Class Lead Counsel) for the Class 

Plaintiffs. The class action defendants 

(the Class Defendants) included KKDC, 

PriceWaterhouseCoopers (PwC) and 

Michael Phalen, who served as the Chief 

Financial Officer of KKDI and a member 

of each Plan’s committee. 

The complaint alleged that the Class 

Defendants had violated Federal 

securities laws by issuing materially 

false and misleading statements 

throughout the Class Period that had the 

effect of artificially inflating the market 

price of KKDI’s securities. On June 14, 

2004, the class action lawsuit and other 

related cases were consolidated by the 

District Court into the Securities 

Litigation. Newer cases were later 

consolidated by the District Court in an 

order dated June 25, 2004. 

Settlement Fund Consideration 

7. The Securities Litigation was 

eventually settled. Pursuant to the 

Settlement Agreement signed on 

October 30, 2006, a $75 million 

Settlement Fund (the Settlement Fund) 

comprised of $39,167,000 in cash, 

$17,916,500 in shares of the Common 

Stock, and $17,916,500 in KKDI freely 

tradable Warrants was established for 

the benefit of the settlement class (the 

Settlement Class), which included all 

persons, including the Plans, who had 

purchased the Common Stock during 

the Class Period. The District Court 

designated Class Lead Counsel to 

manage the Settlement Fund.5


srobinson on DSKHWCL6B1PROD with NOTICES
14086 Federal Register / Vol. 76, No. 50 / Tuesday, March 15, 2011 / Notices 

the benefit of the Settlement Class and ultimately 

under the direction of the District Court as the 

entire Settlement Fund was deemed to be in 

custodia legis of the District Court. As approved by 

the Court, some of the cash portion of the 

Settlement Fund was used to pay costs and 

expenses including taxes actually incurred in 

distributing the Settlement Notice to the Settlement 

Class members and the administration and 

distribution of the Settlement Fund. 

6The Black-Scholes Model is an option pricing 

model developed by Fischer Black and Myron 

Scholes using the research of Robert Merton. The 

Black-Scholes Model assumes that there is a 

continuum of stock prices, and therefore to 

replicate an option, an investor must continuously 

adjust their holding in the stock. The formula also 

makes several simplifying assumptions including 

that the risk-free rate of return and the stock price 

volatility are constant over time and that the stock 

will not pay dividends during the life of the option. 

7These assumptions included basing (a) the 

volatility of the Common Stock on the historical 

and implied volatilities of the Common Stock and 

the common stock of companies similar to KKDC; 

(b) basing the risk free rate of interest on the 

Treasury bill rate most closely corresponding to the 

5-year term of the Warrants; and (c) the dividend 

yield at 0%. The price per share of the Common 

Stock utilized in the Black-Scholes Model would be 

equal to the Measurement Price. 

8On June 15, 2010, the Department published an 

amendment (the Amendment) to PTE 2003–39 at 75 

FR 33830. The Amendment modifies PTE 2003–39 

and it expands the categories of assets that plans 

may accept in the settlement of litigation, subject 

to certain conditions. Among other things, the 

Amendment permits the receipt by a plan of noncash assets in settlement of a legal claim (including 

the promise of future employer contributions) but 

only in instances where the consideration can be 

objectively valued. The Amendment is 

prospectively effective June 15, 2010 and it does not 

cover the transactions described herein due to the 

retroactive nature of the submission. 

8. Under the District Court-ordered 

formula, the number of shares of the 

Common Stock issued to the Settlement 

Fund was determined by dividing 

$17,916,500 by the ‘‘Measurement 

Price.’’ The ‘‘Measurement Price’’ was 

defined in the Settlement Agreement as 

‘‘the average of the daily closing prices 

for each trading day of Common Stock 

for the ten trading day period 

commencing on the fifth trading day 

next preceding the date KKDI filed its 

Form 10–K’’ (Annual Report Pursuant to 

Section 13 or 15(d) of the Securities and 

Exchange Act of 1934) with the SEC for 

Fiscal Year 2006 (Ten Day Method). The 

Settlement Agreement defined the 

‘‘Closing Price’’ for each day as the last 

reported sales price for the Common 

Stock on the New York Stock Exchange. 

Thus, the Measurement Price was 

established on a ten-day Closing Price 

average ending November 7, 2006. This 

date represented five days before and 

five days after the filing of the KKDI’s 

Form 10–K with the SEC. As a result, a 

Measurement Price of $9.77 was 

selected. The dollar amount of 

$17,916,500 was divided by the 

Measurement Price which yielded 

1,833,828 shares of the Common Stock 

for the Settlement Fund. 

9. Pursuant to the Settlement 

Agreement, the number of Warrants 

issued to the Settlement Fund was 

determined by dividing $17,916,500 by 

the fair market value of one Warrant, 

based on an independent valuation 

analysis as of the last day of the tentrading day period referred to in 

Representation 8. This valuation was 

also based on the Black-Scholes Model 6

and certain assumptions 7 specified in 

the Settlement Agreement. Under the 

terms of the Settlement Agreement, the 

Warrants were required to be listed on 

the New York Stock Exchange within 

ten days of their distribution to the 

Class Lead Plaintiffs. Thus, a generally 

recognized market for the Warrants 

would have existed upon distribution to 

the Plans. 

Appraisal of the Warrants 

10. KKDI retained Huron Consulting 

Group of Chicago, Illinois (Huron), on 

behalf of all Class Plaintiffs, to provide 

the fair market value of the Warrants in 

order to determine how many Warrants 

to issue the Settlement Fund. Huron 

represented that its appraisal report, 

dated for March 12, 2007, which 

‘‘looked back’’ to November 7, 2006 (the 

Huron Appraisal), was made in 

conformance with the Uniform 

Standards of Professional Appraisal 

Practice of The Appraisal Foundation. 

Huron Managing Director James 

Dondero, Huron Director John Sawtell 

CPA, ASA, and Huron Manager Derick 

Champagne, CPA certified the Huron 

Appraisal. The Applicants represented 

that Mr. Dondero has 20 years of 

experience in financial and economic 

analysis, corporate finance, valuation 

and operations. Mr. Dondero also serves 

on the Appraisal Issues Task Force 

advising both the Financial Accounting 

Standards Board and the SEC on 

valuation-related issues. 

Furthermore, in the Huron Appraisal, 

Huron represented that it had no 

present or prospective interest in the 

Warrants that were the subject of its 

appraisal and no personal interest with 

respect to the parties involved. Huron 

also stated that it had no bias with 

respect to the Warrants or to the parties 

involved and that its engagement was 

not contingent upon developing or 

reporting predetermined results. 

Using the Black-Scholes Model and 

the assumptions described in the 

footnote references in Representation 9, 

the Huron Appraisal placed the fair 

market value of a single Warrant at 

$4.17 per share as of November 7, 2006. 

Based on the settlement amount of 

$17,916,500, Huron stated that KKDC 

could issue 4,296,523 Warrants. 

Notice and Effect of the Settlement 

11. A Notice of Pendency and 

Proposed Settlement of Class Action 

(the Settlement Notice) was mailed to 

class members (including the Plans) on 

November 15, 2006. The Settlement 

Notice gave class members until January 

16, 2007 to exclude themselves from the 

class and preserve their right to file an 

individual action. The Plans did not 

exclude themselves as class members by 

the January 16, 2007 deadline. 

By operation of the Settlement 

Agreement, all class members were 

deemed to fully, finally and forever 

release all known or unknown claims, 

demands, rights, liabilities and causes of 

action, arising out of, relating to, or in 

connection with the acquisition of KKDI 

Common Stock and Warrants during the 

Class Period. Thus, in effect, by failing 

to exclude themselves from the class, 

the Plans (like all other class members) 

were bound by the release contained in 

the Settlement Agreement. After a 

hearing, the District Court approved the 

Settlement Agreement and entered final 

judgment on February 15, 2007. 

Appointment of an Independent 

Fiduciary 

12. On April 5, 2007, KKDC formally 

retained IFS, a Delaware corporation 

based in Washington, DC, and a 

registered investment adviser under the 

Investment Advisers Act of 1940, to 

serve as independent fiduciary to the 

Plans with respect to the Plans’ interest 

in the Settlement Agreement. In an 

agreement entitled ‘‘Independent 

Fiduciary Engagement Between Krispy 

Kreme Doughnut Corporation and 

Independent Fiduciary Services, Inc.’’ 

(the IFS Agreement), IFS accepted its 

independent fiduciary duties and 

responsibilities as an fiduciary under 

the Act on behalf of the Plans. 

IFS provides fiduciary decisionmaking and advisory services to 

institutional investors, including 

employee benefit plans subject to 

ERISA. In this capacity, IFS has 

evaluated potential claims for 

investment losses suffered by such 

plans, including claims arising from 

State and Federal securities laws. More 

particularly, IFS has served as 

independent fiduciary under the ‘‘Class 

Exemption for the Release of Claims and 

Extensions of Credit in Connection with 

Litigation,’’ (PTE 2003–39, 68 FR 75632, 

December 31, 2003),8 to decide whether 

to grant a release in favor of the plans’ 

parties in interest of securities law 

claims similar to the claims asserted 

above in the Securities Litigation. IFS 


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9By amendment, the Department revised and 

updated the VFC Program at 71 FR 20262 (April 19, 

2006). 

10 KKDC represents the noncompliance with 

Sections III(c) and (d) of PTE 2003–39 did not result 

in harm to the Plans. Instead of using a 

measurement ‘‘such of a single date’’ as specified by 

PTE 2003–39, KKDC used the Ten Day Method. In 

contrast, had the parties used the January 16, 2007 

(i.e., the last day for claimants to exclude 

themselves from the Securities Litigation) to 

calculate the Common Stock’s share price, the 

Common Stock’s share price of $11.42 would have 

been used as the Measurement Price. Consequently, 

the Settlement Fund would have received 1,568,870 

shares of the Common Stock or 250,000 fewer 

shares. Accordingly, the Ten Day Method did not 

result in harm to the Plans. 

has had no business relationship with 

KKDC or the Plans other than its service 

under the IFS Agreement and its service 

in 2006 pursuant to a separate 

agreement as independent fiduciary to 

the Plans pursuant to PTE 2003–39 

claims arising under ERISA that were 

related to the allegations made in the 

ERISA Litigation. In this regard, the fees 

IFS derived from KKDC and its affiliates 

represented less than 1% of IFS’ gross 

revenue for 2006 and less than 1.5% of 

IFS’ gross revenue for 2007. 

13. As stated in the IFS Agreement, 

IFS proposed to attempt, on behalf of 

the Plans, to obtain an agreement from 

KKDC, which provided that, in the 

event IFS should determine that a claim 

in the class action suit should not be 

filed on behalf of the Plans, KKDC 

would waive and forego benefits of any 

release it had obtained from each of the 

Plans by virtue of the fact that the Plans 

did not timely seek exclusion from the 

settlement class. Moreover, KKDC 

would support all efforts by the Plans to 

obtain a reasonable extension of time to 

file claims on their behalf, including if 

necessary, an application to the District 

Court. Thus, IFS had an opportunity to 

pursue either a class action lawsuit or 

an individual lawsuit on behalf of the 

Plans. 

14. By letter dated July 25, 2007, (the 

IFS Letter), IFS stated that it had 

reviewed the Settlement Agreement and 

determined, consistent with PTE 2003– 

39, that the terms and conditions were 

in substance essentially fair and 

reasonable from the perspective of the 

settlement class members, including the 

Plans. As stated briefly above, PTE 

2003–39 provides, in part, exemptive 

relief for the release by a plan or a plan 

fiduciary, of a legal or equitable claim 

against a party in interest in exchange 

for consideration, given by, or on behalf 

of, a party in interest to the plan in 

partial or complete settlement of the 

plan’s or the fiduciary’s claim. The 

relevant conditions of PTE 2003–39 

require among other things, that (a) 

there be a genuine controversy 

involving the plan, (b) an independent 

fiduciary authorize the terms of the 

settlement; (c) the settlement is 

reasonable and no less favorable to the 

plan than the terms offered to similarlysituated unrelated parties on an arm’s 

length basis; (d) the settlement is set 

forth in a written agreement or consent 

decree; (e) the transaction is not part of 

an agreement, arrangement or 

understanding designed to benefit a 

party in interest; and (f) the transaction 

is not described in Section A.I. of PTE 

76–1 (relating to delinquent employer 

contributions to multiemployer and 

multiple employer collectivelybargained plans). 

In the IFS letter, IFS identified two 

instances by which the Settlement 

Agreement’s terms would not allow the 

Plan to take advantage of PTE 2003–39. 

First, IFS noted that under PTE 2003– 

39, Section III(c) states that assets other 

than cash may only be received by a 

plan from a party in interest in 

connection with a settlement if: (a) It is 

necessary to rescind a transaction that is 

the subject of the litigation; or (b) such 

assets are securities for which there is 

a generally recognized market, as 

defined in section 3(18)(A) of the Act, 

and which can be objectively valued. 

IFS stated that the receipt of the 

Warrants by the Plans did not 

necessarily comply with Section III(c) of 

PTE 2003–39, because such receipt was 

not necessary to rescind any transaction 

that was the subject of litigation and the 

Warrants would not become subject to 

a generally recognized market until after 

their distribution to the Plans. 

Additionally, IFS determined that the 

Warrants were not qualifying employer 

securities under section 407(d)(5) of the 

Act. 

Secondly, IFS noted that under 

Section III(d) of PTE 2003–39, to the 

extent assets, other than cash, are 

received by a plan in exchange for the 

release of the plan’s or the plan 

fiduciary’s claims, such assets must be 

specifically described in the written 

settlement agreement and valued at 

their fair market value, as determined in 

accordance with section 5 of the 

Voluntary Fiduciary Correction (VFC) 

Program, 67 FR 15062 (March 28, 

2002).9 According to PTE 2003–39, the 

methodology for determining fair 

market value, including the appropriate 

date for such determination, must be set 

forth in the written settlement 

agreement. For example, under Section 

5 of the VFC Program, the valuation 

must meet either of the following 

conditions: (a) If there is a generally 

recognized market for the property (e.g., 

the New York Stock Exchange), the fair 

market value of the asset is the average 

value of the asset on such market on the 

applicable date, unless the plan 

document specifies another objectively 

determined value (e.g. closing price); or 

(b) if there is no generally recognized 

market for the asset, the fair market 

value of the asset must be determined in 

accordance with generally accepted 

appraisal standards by a qualified, G73 

independent appraiser and reflected in 

a written appraisal report signed by the 

appraiser. 

IFS stated that it was not satisfied that 

the terms of Section III(d) of PTE 2003– 

39 were met because the terms of the 

Settlement Agreement provided for a 

payment to the members of the class 

consisting of cash, the Common Stock 

and the Warrants.10 Moreover, IFS noted 

that the Settlement Agreement valued 

the Common Stock over a 10-day period 

rather than at the closing or average 

price on a specific day. Also, the 

documents for each Plan did not specify 

another objectively determined value for 

the Common Stock. Accordingly, 

because the terms of the Settlement 

Agreement did not meet all of the 

requirements of PTE 2003–39, IFS could 

not conclude that the Plans should file 

claims with respect to the Settlement 

Notice. 

15. Despite the foregoing, IFS 

represented that the terms of the 

Settlement Agreement were in 

substance essentially fair and reasonable 

and that it would be in the interest of 

the Plans to obtain consideration equal 

to their proportionate share of the value 

of the Settlement Fund in exchange for 

granting a release to the Class 

Defendants, including KKDC and Mr. 

Phalen, and that it would likely not be 

practical for the Plans to pursue 

separate litigation against the KKDC and 

Mr. Phalen to obtain that result. 

IFS also suggested three options 

designed to enable the Plans to receive 

the appropriate amounts of recovery 

from the Settlement Fund. The first 

option involved having the Plans obtain 

from KKDC, Mr. Phalen, and PwC an 

agreement to forego the benefits of the 

release which the Plans could provide 

by filing a claim with the Settlement 

Funds, so that the Plans would not be 

releasing a party in interest to the Plans 

and therefore the Plans could file such 

claims, accordingly. 

The second option suggested by IFS 

would be for the Plans to enter into a 

separate agreement with KKDC, PwC 

and Mr. Phalen under which KKDC 

would agree to provide a payment to the 

Plans equal to the Plans’ proportionate 

share of the Settlement Fund calculated 


srobinson on DSKHWCL6B1PROD with NOTICES
14088 Federal Register / Vol. 76, No. 50 / Tuesday, March 15, 2011 / Notices 

11The Department is expressing no opinion 

herein on whether the cash, the Common Stock and 

the Warrants that were being held on behalf of the 

Plans in the Settlement Fund would constitute 

‘‘plan assets’’ within the meaning of 29 CFR 2510.3– 

101. Nevertheless, the Department is providing 

exemptive relief with respect to the release, by the 

Plans, of their claims against KKDC in settlement 

of the Securities Litigation, in exchange for the 

consideration allocated to the Plans in the 

Settlement Fund. The Department is also proposing 

as though the entire settlement payment 

of $75 million had been made in cash, 

rather than a combination of cash, the 

Common Stock and the Warrants. In 

consideration of that payment, the Plans 

could assign/offset to KKDC the value of 

their respective claims, and the Settling 

Defendants would receive the releases 

that would otherwise be associated with 

the filing of the Plans’ claims. Such 

separate agreement would need to be 

approved by IFS and otherwise 

structured to meet the requirements of 

PTE 2003–39. IFS recommended that 

under this second option, the separate 

agreement should be executed and 

become effective before the Plans filed 

their claims. 

The third option suggested by IFS, 

would be for KKDC to apply to the 

Department for an individual exemption 

to allow the Plans to file a claim with 

the Settlement Fund and accept cash 

and non-cash assets as a settling class 

member, notwithstanding the lack of 

compliance with Section III(c) and 

Section III(d) of PTE 2003–39. 

16. In an addendum to the IFS letter, 

IFS explained, that it reached its 

recommendation for KKDC to exercise 

the third option based upon a thorough 

review of the available facts. IFS 

retained legal assistance from outside 

counsel. With assistance from outside 

counsel, IFS reviewed the operative 

complaint as well as a number of 

documents, which included motions to 

dismiss the Securities Litigation, the 

Class Defendant’s mediation statements 

and damage analysis, the Class 

Plaintiffs’ application for attorneys’ fees 

and the Settlement Agreement. IFS also 

reviewed records of the Plans’ holdings 

and transactions in the Common Stock, 

KKDC’s insurance policies and it 

interviewed attorneys for the parties to 

the Securities Litigation. IFS stated that 

it took into account the recovery the 

Plans received from the ERISA 

Litigation. 

Based on its investigation and 

supported by analysis by outside 

counsel, IFS concluded that the 

Settlement Agreement’s terms and 

conditions were in substance essentially 

fair and reasonable from the perspective 

of the Plans. IFS also concluded, based 

on its investigation and analysis, that 

pursing separate litigation in lieu of 

accepting consideration equal to the 

Plan’s proportionate share of the value 

of the Settlement Agreement ‘‘would 

likely not be practical.’’ 

IFS stated that it reached its 

conclusion in light of the following 

factors: 

• The Plans Would Receive Small 

Recoverable Damages as a Result of 

Their De Minimus Holdings of the 

Common Stock. IFS noted that the 

Plans’ relatively small holdings of the 

Common Stock and in particular the 

KSOP’s de minimus purchases of the 

Common Stock rendered the Plans’ 

potentially recoverable damages in a 

separate action relatively small. IFS also 

represented that even if the Class 

Plantiffs’ most optimistic projections for 

the damages totaled $800 million, the 

Plans’ share would have come to some 

$4.8 million, a figure that assumes no 

offset for the Plans’ net cash recovery 

(i.e., less attorneys’ and other fees) from 

the ERISA Settlement. Significantly, IFS 

noted that the Settlement Agreement 

did not require that the Plans reduce 

their claims based on the proceeds from 

the ERISA Settlement. 

• KKDC Had Limited Financial 

Resources to Satisfy a Separate Claim 

by the Plans. IFS noted that KKDC had 

limited financial resources available to 

satisfy a separate claim by the Plans had 

such a claim been substantial. Pursuant 

to the Settlement Agreement, KKDC had 

released all claims under its applicable 

insurance policies for payments in 

excess of what the carriers, who had 

disputed coverage for the claims in the 

Securities Litigation. IFS represented 

that, at the time of its determination, 

KKDC’s most recent SEC Form 10–Q 

showed that KKDC’s total cash assets as 

of April 29, 2007 were less than $31 

million, down from $36 million three 

months earlier. 

• The Plans Would Incur Great Costs 

in Proving Complex Allegations Against 

KKDC. IFS explained that the allegations 

asserted against KKDC in the Securities 

Litigation raised complex issues 

regarding the proper accounting 

treatment of a series of intricate 

franchising, financing, leasing and 

derivative transactions. IFS represented 

that proving such allegations would 

have required extensive discovery and 

costly retention of accounting and other 

experts. IFS noted that the potential 

defendants also had significant defenses 

available to the claims that would have 

been asserted by the Plans. The Fourth 

Circuit, where such action would have 

been brought, would not favor an 

allegation that the misapplication of 

accounting principles established the 

state of mind to support a claim of fraud 

under Federal securities laws. 

• No Opt Outs or Separate Lawsuits 

Were Filed by Securities Litigation Class 

Members. At the time of its 

determination in the IFS Letter, IFS 

stated that it knew of no material opt 

outs from the Securities Litigation by 

class members. Moreover, IFS asserted 

that there were no separate lawsuits 

outside of the Securities Litigation 

brought by any party to recover damages 

based on the allegations. The only 

objection, according to IFS, by an 

institutional investor to the Settlement 

Agreement addressed the plaintiff’s 

attorney fees which the District Court 

rejected. The only individual investor 

who objected to the settlement asserted 

that investors should not receive 

anything because equity investors take 

risks. Thus, IFS stated no party with a 

financial stake in the matter had 

asserted that class members would have 

been better off with more litigation as 

opposed to the Settlement Agreement. 

In light of these factors, IFS 

represented that pursuing separate 

litigation in lieu of participating in the 

Settlement Agreement would have 

entailed significant expense for the 

Plans. There would also have been a 

substantial risk that the Plans would 

recover little or nothing. In light of the 

relatively small size of the Plans’ 

potential claims, the fact the Plans had 

already achieved a material recovery 

through the ERISA Settlement, and the 

complexity of the case, IFS concluded 

that the claims would not be attractive 

to law firms that litigate securities fraud 

cases on a contingency fee basis. 

Finally, IFS stated that the 

reasonableness of these conclusions is 

further evidenced by the fact that as of 

July 2010, no cases had been brought 

against KKDC outside the Securities 

Litigation that asserted the claims that 

were settled. 

Request for Exemptive Relief 

17. The Applicants represent that the 

Plans’ decision to grant the release was 

primarily based on the advice of IFS. 

Instead of filing by the January 16, 2007 

deadline, stipulated in the Settlement 

Notice, the Plans filed their Proof of 

Claim and Release with the District 

Court on August 8, 2007, and 

subsequently applied for an 

administrative exemption from the 

Department. 

If granted, the exemption would apply 

effective January 16, 2007, to (a) the 

release by the Plans of their claims 

against KKDC in exchange for cash, the 

Common Stock and the Warrants in 

settlement of the Securities Litigation; 

and (b) the holding of the Warrants by 

the Plans.11


srobinson on DSKHWCL6B1PROD with NOTICES
Federal Register / Vol. 76, No. 50 / Tuesday, March 15, 2011 / Notices 14089 

exemptive relief for the holding of the Warrants by 

the Settlement Fund for the Plans. 

Section 407(a)(1) of the Act states that 

a plan may not acquire or hold any 

‘‘employer security’’ which is not a 

‘‘qualifying employer security.’’ Both the 

Common Stock and the Warrants are 

‘‘employer securities’’ within the 

meaning of section 407(d)(1) of the Act 

in that they are ‘‘securities issued by an 

employer of employees covered by the 

plan, or by an affiliate of such 

employer.’’ The Common Stock, but not 

the Warrants, is also a ‘‘qualifying 

employer security.’’ Section 407(d)(5) of 

the Act defines a ‘‘qualifying employer 

security,’’ as stock, a marketable 

obligation, or an interest in a publiclytraded partnership (provided that such 

partnership is an existing partnership as 

defined in the Code). Moreover, section 

406(a)(1)(E) of the Act prohibits the 

acquisition, on behalf of a plan, of any 

‘‘employer security’’ in violation of 

section 407(a) of the Act. Finally, 

section 406(a)(2) of the Act prohibits a 

fiduciary who has authority or 

discretion to control or manage the 

assets of a plan to permit the plan to 

hold any ‘‘employer security’’ that 

violates section 407(a) of the Act. 

Section 408(e) of the Act provides, in 

part, a statutory exemption from the 

provisions of sections 406 and 407 of 

the Act with respect to the acquisition 

by a plan of ‘‘qualifying employer 

securities’’ (1) if such acquisition is for 

adequate consideration, (2) if no 

commission is charged with respect 

thereto, and (3) if the plan is an ‘‘eligible 

individual account plan’’ (as defined in 

section 407(d)(3) of the Act, e.g., a profit 

sharing, stock bonus, thrift, savings 

plan, an employee stock ownership 

plan, or a money purchase plan). 

It appears that the Plans’ acquisition 

of the Common Stock from KKDC 

through the Settlement Fund would not 

be covered by section 408(e) of the Act 

because this provision does not cover 

the acquisition of qualifying employer 

securities by a plan in exchange for such 

plan’s release of claims against a party 

in interest. Additionally, an issue 

remains as to whether the ‘‘adequate 

consideration’’ requirement of section 

408(e)(1) of the Act was satisfied 

insomuch as the Measurement Price for 

the Common Stock of $9.77 per share 

was calculated on the basis of the Ten 

Day Method. Therefore, the Department 

has decided to provide exemptive relief 

with respect to the Plans’ acquisition of 

such stock from KKDC in connection 

with the Plans’ release of claims against 

KKDC. 

Furthermore, the Department has 

decided to propose exemptive relief for 

the Plans’ acquisition of the Warrants 

from KKDC through the Settlement 

Fund because the Warrants are not 

‘‘qualifying employer securities’’ and the 

statutory exemption under section 

408(e) of the Act would not be available. 

Finally, the Department is providing 

exemptive relief with respect to the 

Plans’ holding of the Warrants in the 

Settlement Fund to the extent such 

holding violated the provisions of 

sections 406(a)(2) and 407(a) of the Act. 

Conversely, the Plans’ holding of the 

Common Stock in the Settlement Fund 

does not appear to violate these 

provisions. Therefore, exemptive relief 

is limited to the Plans’ holding of the 

Warrants. 

Absent relief, the Applicants state that 

the Plans’ participation in the 

Settlement Fund would have to be 

reversed. This reversal would likely 

result in the Plans’ losing the economic 

benefit of the significant appreciation in 

the value of the settlement proceeds 

after their sale. Furthermore, the 

Applicants represent, that based on IFS’ 

conclusions, it would not be practical 

for the Plans to pursue separate 

litigation in this matter. The Applicants 

conclude that absent exemptive relief, 

the Plans would risk losing out on their 

share of the Settlement Fund or having 

a potential separate settlement 

diminished by the costs of pursuing 

separate litigation. 

Settlement Fund Consideration 

Received by the Plans 

18. The 1,833,828 shares of the 

Common Stock that were held in the 

Settlement Fund were sold after the 

January 16, 2007 deadline, 

approximately in February 2007. 

Pursuant to the terms of the Settlement 

Agreement, Class Lead Counsel had ‘‘the 

rights to take any measure they 

deem[ed] appropriate to protect the 

overall value of the Krispy Kreme 

Settlement Stock prior to distribution to 

Authorized Claimants.’’ This included 

the right to sell the Common Stock. 

Based on representations from Class 

Lead Counsel, the Applicants represent 

that all of the Common Stock in the 

Settlement Fund was sold on the New 

York Stock Exchange at prices higher 

than the Measurement Price of $9.77 per 

share. The cash proceeds from the sale 

of the Common Stock was deposited 

with the cash portion of the Settlement 

Fund. This amount earned interest 

while the claims process was in effect. 

Then, each claimant was entitled to 

receive a portion of the cash amount 

(reflecting both the cash and the 

Common Stock portions of the 

Settlement Fund) in accordance with 

the Plan of Allocation. 

The Applicants represent that the 

Plans were entitled to receive 

approximately 8,675 shares of the 

1,833,828 shares of the Common Stock. 

Following the sale of the Common 

Stock, the Plans received a total of 

$262,097.94 from the Settlement Fund. 

This amount included unclaimed cash 

proceeds in addition to proceeds from 

the sale of Common Stock. Of the total 

amount, $101,634.42 was attributable to 

the Savings Plan and $160,463.52 was 

attributable to the KSOP. 

With respect to the Warrants, the 

Applicants state that 4,296,523 Warrants 

were distributed to the Settlement Fund 

on February 4, 2009. Of the 20,324 

Warrants allocated to the Plans, 12,443 

Warrants were allocated to the KSOP 

and 7,881 Warrants were allocated to 

the Savings Plan. Although the Plans 

had acquired and held the Warrants 

through the Settlement Fund, the 

Applicants believed they could reduce 

the likelihood of a prohibited 

transaction if the Settlement Fund 

distributed cash instead of the Warrants 

to the Plans. Therefore, IFS requested 

Class Lead Counsel sell the 20,324 

Warrants and distribute the cash 

proceeds to the Plans. 

Therefore, Gilardi & Co. (Gilardi), the 

Claims Administrator for the Settlement 

Fund, agreed to sell the Plans’ Warrants 

at the direction of Class Lead Counsel. 

The Claims Administrator sold the 

Warrants allocated to the Plans on 

September 16, 2009 for a total price of 

$1,300.09, or an average price of 

$0.0639 per Warrant. The Applicants 

represent that the sale was executed on 

the OTC Bulletin Board at the best 

available market price. After deducting 

fees and commissions of $41.79, Gilardi 

distributed $770.37 in cash to the KSOP 

and $487.93 to the Savings Plan, or total 

net proceeds of $1,258.30 on September 

29, 2009. 

In addition, the Settlement Fund 

made several small distributions to the 

Plans (i.e., $5,920.66) to the KSOP and 

$3,750.03 to the Savings Plan) related to 

certain unclaimed funds. 

After taking into account the Common 

Stock, cash proceeds, unclaimed funds 

distribution and the Warrants, the Plans 

received aggregate proceeds from the 

Settlement Fund of $273,026.93. Of this 

amount, the KSOP received $105,872.38 

and the Savings Plan received 

$167,154.55 from the Settlement Fund. 

Summary 

19. In summary, it is represented that 

the transactions satisfied the statutory 

criteria for an exemption under section 

408(a) of the Act because: 

(a) The receipt and holding of cash, 

the Common Stock and the Warrants 


srobinson on DSKHWCL6B1PROD with NOTICES
14090 Federal Register / Vol. 76, No. 50 / Tuesday, March 15, 2011 / Notices 

12Pursuant to 29 CFR 2510.3–2(d), the IRA is not 

within the jurisdiction of Title I of the Employee 

Retirement Income Security Act of 1974 (the Act). 

However, there is jurisdiction under Title II of the 

Act pursuant to section 4975 of the Code. 

occurred in connection with a genuine 

controversy involving the Plans were 

parties. 

(b) An independent fiduciary retained 

on behalf of the Plans to determine 

whether or not the Plans should file 

claims against KKDC pursuant the 

Settlement Agreement and accept cash, 

Common Stock and Warrants — 

(1) Had no relationship to, or interest 

in, any of the parties involved in the 

Securities Litigation that might affect 

the exercise of such person’s judgment 

as a fiduciary; 

(2) Acknowledged, in writing, that it 

was a fiduciary for the Plans with 

respect to the settlement of the 

Securities Litigation; and 

(3) Determined that an all cash 

settlement was either not feasible or was 

less beneficial to the participants and 

beneficiaries of the Plans than accepting 

all or part of the settlement in non-cash 

assets. 

(4) Thoroughly reviewed and 

determined whether it would be in the 

best interests of the Plans and their 

participants and beneficiaries to engage 

in the covered transactions. 

(5) Determined whether the decision 

by the Plans’ fiduciaries to cause the 

Plans not to opt out of the Securities 

Litigation was more beneficial to the 

Plans than having the Plans file a 

separate lawsuit against KKDC. 

(c) The terms of the Settlement 

Agreement, including the scope of the 

release of claims, the amount of cash 

and the value of any non-cash assets 

received by the Plans, and the amount 

of any attorney’s fee award or any other 

sums to be paid from the recovery were 

reasonable in light of the Plans’ 

likelihood of receiving full recovery, the 

risks and costs of litigation, and the 

value of claims foregone. 

(d) The terms and conditions of the 

transactions were no less favorable to 

the Plans than comparable arm’s length 

terms and conditions that would have 

been agreed to by unrelated parties 

under similar circumstances. 

(e) The transactions were not part of 

an agreement, arrangement, or 

understanding designed to benefit a 

party in interest. 

(f) All terms of the Settlement 

Agreement were specifically described 

in a written document approved by the 

District Court. 

(g) Non-cash assets, which included 

the Common Stock and the Warrants 

received by the Plans from KKDC under 

the Settlement Agreement, were 

specifically described in the Settlement 

Agreement and valued as determined in 

accordance with a court-approved 

objective methodology; 

(h) The Plans did not pay any fees or 

commissions in connection with the 

receipt or holding of the Common Stock 

and the Warrants. 

(i) KKDC maintains, or causes to be 

maintained, for a period of six years 

records as are necessary to enable 

persons, such as duly authorized 

employees, agents or representatives of 

the Department, fiduciaries of the Plans, 

participants and beneficiaries of the 

Plans, or any employer whose 

employees are covered by the Plans, to 

determine whether the conditions of 

this exemption have been met. 

Notice to Interested Parties 

Notice of the proposed exemption 

will be given to interested persons 

within 10 days of the publication of the 

notice of proposed exemption in the 

Federal Register. The notice will be 

given to interested persons by first class 

mail or personal delivery. 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(b)(2). The 

supplemental statement will inform 

interested persons of their right to 

comment on and/or to request a hearing 

with respect to the pending exemption. 

Written comments and hearing requests 

are due within 40 days of the 

publication of the notice of proposed 

exemption in the Federal Register. 

FOR FURTHER INFORMATION CONTACT: Mr. 

Anh-Viet Ly of the Department at (202) 

693–8648. (This is not a toll-free 

number.) 

William W. Etherington IRA (the IRA) 

Located in Park City, Utah 

[Application No. D–11632] 

Proposed Exemption 

Based on the facts and representations 

set forth in the application, the 

Department is considering granting an 

exemption under the authority of 

section 4975(c)(2) of the Code and in 

accordance with the procedures set 

forth in 29 CFR part 2570, subpart B (55 

FR 32836, 32847 August 10, 1990). If the 

exemption is granted, the sanctions 

resulting from the application of section 

4975 of the Code, by reason of section 

4975(c)(1)(A) through (E) of the Code, 

shall not apply to the sale (the Sale) by 

the IRA to William W. Etherington and 

his wife, Paula D. Etherington (the 

Applicants), disqualified persons with 

respect to the IRA,12 of the IRA’s 80% 

interest (the Interest) in certain 

residential real property (the Property); 

provided that: 

(a) The terms and conditions of the 

Sale are at least as favorable to the IRA 

as those obtainable in an arm’s length 

transaction with an unrelated party; 

(b) The Sale is a one-time transaction 

for cash; 

(c) As consideration, the IRA receives 

the fair market value of the Interest as 

determined by a qualified, independent 

appraiser, in an updated appraisal on 

the date of Sale; and 

(d) The IRA pays no real estate 

commissions, costs, fees, or other 

expenses with respect to the Sale. 

Summary of Facts and Representations 

Background 

1. The Applicants reside in Park City, 

Utah. From 1994 through February, 

2010, Mr. Etherington owned and 

managed a construction company, 

Northland Excavation LLC, which was 

forced to close as the result of a deep 

and lengthy downturn in the local 

building market. In addition, Mrs. 

Etherington has owned her own retail 

business, ‘‘Changing Hands,’’ a 

consignment store specializing in the 

sale of used clothing, since 1992. 

According to the Applicants, the recent 

adverse economic conditions have also 

forced her business into decline and it 

is winding up its operations. 

2. Mr. Etherington is also a retired 

commercial airlines pilot, who ended 

work with Delta Airlines (Delta) on 

December 1, 2004 with full retirement 

benefits. At the time of his retirement, 

Mr. Etherington opted to receive 50% of 

his pension benefit in a lump sum 

payment, which was invested in an 

individual retirement account held with 

Fidelity Investments and held a 

portfolio comprised of an assortment of 

long term investments. Delta 

subsequently terminated its retirement 

plan as a result of its bankruptcy and 

the remainder of Mr. Etherington’s 

pension was turned over to the Pension 

Benefit Guaranty Corporation (PBGC) on 

December 31, 2006. On May 7, 2010, the 

PBGC issued a final benefit 

determination letter to Mr. Etherington, 

which states that the remainder of his 

monthly pension benefit is equal to 

zero. 

3. The IRA was established on May 

12, 2009 at Millenium Trust Company, 

LLC (Millenium), located in Oak Brook, 

Illinois, in the name of William W. 

Etherington. As of December 11, 2010, 

the IRA held assets worth $961,880.17. 

According to the Applicants, the IRA 


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13At 62 years of age, Mr. Etherington is currently 

eligible to receive distributions from the IRA 

without incurring an early distribution penalty 

under section 72(t) of the Code. 

14With respect to the co-investment arrangement 

between the Applicants and the IRA, the 

Department notes that if an IRA fiduciary, such as 

Mr. Etherington, causes his IRA to enter into a 

transaction where, by the terms or nature of the 

transaction, a conflict of interest between the IRA 

and the IRA fiduciary (or persons in which the IRA 

fiduciary has an interest) exists or will arise in the 

future, that transaction would violate section 

4975(c)(1)(D) or (E) of the Code. Moreover, the IRA 

fiduciary must not rely upon and cannot be 

otherwise dependent upon the participation of the 

IRA in order for the IRA fiduciary (or persons in 

which the fiduciary has an interest) to undertake or 

to continue his share of the investment. 

Furthermore, even if at its inception the transaction 

does not involve a violation of the Code, if a 

divergence of interests develops between the IRA 

and the IRA fiduciary (or persons in which the 

fiduciary has an interest), such fiduciary must take 

steps to eliminate the conflict of interest in order 

to avoid engaging in a prohibited transaction. See 

ERISA Advisory Opinion Letter 2000–10A (July 27, 

2000). The Department is not proposing relief for 

any violations that may have arisen in connection 

with this co-investment arrangement. 

15Additionally, $79.97 was spent on painting 

supplies, of which $63.98 was paid by the IRA and 

$15.99 was paid by the Applicants. 

16Section 4975(d)(2) of the Code and section 

54.4975–6 of the United States Treasury 

Regulations provide exemptive relief from the 

prohibitions described in sections 4975(c)(1)(C) and 

(D) of the Code for any contract, or reasonable 

arrangement, made with a disqualified person for 

services that are necessary for the establishment or 

operation of the plan, if no more than reasonable 

compensation is paid for such services. No relief is 

proposed herein for either the selection of Mrs. 

Hanby’s husband or the provision of his painting 

services. 

was established for the sole purpose of 

purchasing the Property, located at 67– 

324 Kaiea Place, Waialua, Hawaii. The 

Property is legally described as ‘‘Lot 717, 

Kamananui, Wailua, Honolulu County, 

Oahu, Hawaii, LC App. 1089, Maps 7, 

19, and 29.’’ The Property is situated on 

an ocean front lot consisting of 7,699 

total square feet with a residential 

building comprised of a gross living area 

of 1,250 square feet. The residence is a 

single-level house built in 1985 

containing three bedrooms and two 

baths and a large deck off the back door 

overlooking the beach. The Property is 

not located in close proximity to other 

real property owned by the Applicants. 

4. The Applicants represent that the 

goal of the IRA’s investment in the 

Property was twofold. First, the 

Applicants desired to make a long-term 

investment for appreciation and cash 

flow by capitalizing on the recent 

downturn in the Hawaiian real estate 

market. Second, the Applicants planned 

to take ownership of the Property 

through a series of distributions from 

the IRA.13 In this regard, the purchase 

was structured by the Applicants as a 

co-investment between themselves and 

the IRA, as tenants in common.14 The 

Applicants explain that at a future date, 

they would begin taking 10% annual 

distributions of the Interest over a 10 

year period, whereupon at the end of 

the 10 year period they would own the 

Property outright. At such point, 

according to the Applicants, they 

planned to either sell the Property or 

occupy it as their residence. 

5. Accordingly, after setting up the 

IRA, Mr. Etherington transferred 

$940,000 from his tax-qualified 

retirement account held with Fidelity to 

the IRA. The Applicants also set aside 

additional cash in the amount of 

$234,000 from their personal accounts 

in order to purchase a collective 20% 

share of the Property to be held in their 

personal capacities. 

6. On June 8, 2009, Mr. Etherington 

caused the IRA to purchase the 

Property, as a tenant in common, with 

his wife and himself, in an all-cash 

purchase from unrelated parties, Juergen 

and Hilde Jenss, as Trustees of the Jenss 

Family Trust. The total price paid for 

the Property was $1,174,138.50, 

including closing costs. The IRA 

purchased 80% of the Property for a 

total cash payment of $939,300.23 

($936,000 attributable to the Interest and 

$3,300.23 attributable to closing costs). 

Additionally, the Applicants purchased 

20% of the Property in their individual 

capacities, for a total cash payment of 

$234,838.27, or $117,419.14 each 

($234,000 attributable to their 20% 

ownership interest and $838.27 

attributable to closing costs). The 

Property has not been subject to any 

loans or other encumbrances. 

Management of the Property 

7. The Applicants note that, since its 

purchase, the Property has been 

managed by two unrelated individuals, 

Vicky Hanby and Greg McCaul. It is 

attested by the Applicants that neither 

of these individuals were disqualified 

persons with respect to the IRA prior to 

their management of the Property. 

8. Mrs. Hanby, the owner and 

operator of Homes Hawaii Realty LLC, 

a real estate agency and property 

management company, was contracted 

with to provide management services to 

the Property. As the property manager, 

Mrs. Hanby was responsible for 

managing the Property as a long-term 

rental residence. In this regard, her 

responsibilities included finding 

renters, paying bills, remitting rental 

receipts, and scheduling repairs and 

maintenance. The Applicants explain 

that income and expenses were received 

and/or paid out of a general 

bookkeeping account which allocated 

the amounts to either party in 

accordance with its ownership 

percentage of the Property. 

9. Prior to renting out the Property, 

Mrs. Hanby arranged for the Property to 

be repainted in order to prepare it for its 

initial tenants. In this regard, Mr. 

Etherington contracted with Mrs. 

Hanby’s husband, Rick Hanby, for the 

painting of the interior of the house. The 

Applicants state that Mrs. Hanby asked 

her husband to submit a verbal bid to 

paint the walls of the house, and based 

on the bid of $300, the Applicants 

accepted because they believed that Mr. 

Hanby’s bid was the lowest that they 

would receive. In this regard, the IRA 

paid $240 and the Applicants paid $60 

to compensate Mr. Hanby for his 

services.15

10. At the time that the contract was 

entered into, Mr. Hanby was a 

disqualified person with respect to the 

IRA pursuant to section 4975(e)(2)(F) of 

the Code, because he was the husband 

of the Property’s manager, Mrs. Hanby. 

Thus, Mr. Etherington’s entering into 

the service arrangement with, and the 

rendering of painting services by, Mr. 

Hanby constituted a prohibited 

transaction in violation of sections 

4975(c)(1)(C) and (D) of the Code. 

However, it appears that the 

arrangement with Mr. Hanby may be 

covered under the statutory exemption 

found in section 4975(d)(2) of the 

Code.16

11. In July 2009, the Property was 

rented out on an annual basis to Major 

Ian Schneller and his family. Major 

Schneller is a United States military 

officer who was stationed in Hawaii at 

the time. The Applicants represent that 

the Schnellers are unrelated parties with 

respect to the IRA. During the period 

that the Property was leased to the 

Schnellers, it earned approximately 

$41,933.30 in gross receipts, from which 

it paid out $23,295.00 in expenses, 

resulting in $18,638.30 of net income. 

12. The Applicants state that in 

August 2010, Major Schneller was 

unexpectedly transferred to California 

and was not able to renew the lease, 

thus leaving the Property with a 

vacancy. Shortly thereafter, Mrs. Hanby 

announced to the Applicants that it 

could require several months to find 

new, suitable long-term tenants willing 

to pay similar rental fees to those that 

the Schnellers had paid ($3,700 per 

month). Thus, the Applicants explain, 

the Property was converted to a shortterm rental property. Furthermore, the 

Applicants note that because Mrs. 

Hanby would not manage the Property 

as a short-term vacation rental, she was 

replaced as the Property’s manager by 

Mr. McCaul. 


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13. The Applicants relate that Mr. 

McCaul is a self-employed business 

owner with several other properties in 

the near vicinity of the Property under 

his management. According to the 

Applicants, Mr. McCaul assumed full 

responsibility for advertising, 

reservations, collections and 

remittances of payments, and 

maintenance of the Property, including 

contracting with third party companies 

for its cleaning in between rentals. 

Specifically, in order to prepare the 

Property for its first vacation rental, at 

the end of July, 2010, Mr. McCaul 

purchased several items of furniture 

from the Schnellers in order to furnish 

the Property for its short-term rental 

clients. 

14. The Applicants state that, due to 

the complication of apportioning the 

proceeds between the IRA and Mr. and 

Mrs. Etherington in proportion to their 

respective ownership interests, 

recordkeeping responsibilities for the 

Property are shared between Mr. 

McCaul and Mr. Etherington. In this 

regard, the Applicants explain that Mr. 

McCaul collects the rental proceeds and 

pays for some of the maintenance out of 

said proceeds, remitting a statement of 

income and expenses to Mr. Etherington 

and a rental income check to the IRA’s 

administrator, Millenium Trust, to be 

deposited in the IRA. The Applicants 

also note that they are required by U.S. 

tax law to maintain records related to 

their personal income tax return on a 

Schedule E regarding the 20% portion 

of the Property owned in their personal 

capacities. 

15. Commencing on August 7, 2010, 

the Property was rented to short-term 

rental clients. The Applicants state that 

since its conversion to a daily vacation 

rental, the Property has had an inseason occupancy rate, including 

bookings through the end of February, 

2011, of approximately 90% at its full 

nightly rate of $249. In addition, the 

Applicants point out that the Property 

has had an off-season occupancy rate of 

approximately 80%, with an adjustment 

in the rental rate to accommodate the 

slack in demand. As such, the 

Applicants explain that the Property 

generates more income as a vacation 

rental than it would under a long-term 

lease. 

16. The Applicants represent that 

during the period of time that they and 

the IRA have owned the Property it has 

earned a profit. As illustrated by the 

Property’s Statement of Profit and Loss 

for the period beginning on July 1, 2009 

and continuing through December 31, 

2010 (the Statement), the Applicants’ 

and the IRA’s shares of income were 

$13,188.61 and $52,474.44, respectively. 

In addition, their respective shares of 

expenses were $6,980.48 and 

$27,921.92, paid for items such as taxes, 

licensing fees, insurance, bank fees, 

cleaning costs, landscaping, pest 

control, property management fees, 

utilities, and costs associated with 

repairs and maintenance. Thus, the 

Applicants and the IRA received 

$6,208.13 and $24,552.52, respectively, 

in net income during the time period 

from July 1, 2009 through December 31, 

2010. Therefore, the IRA’s net 

acquisition and holding costs with 

respect to the Property equal 

$914,747.71 for this time period. 

17. The Applicants represent that, 

since the purchase of the Property, 

neither they nor any other disqualified 

person has stayed at the Property or 

used it for any reason. Further, the 

Applicants state that neither they nor 

any family members own any other 

property in the State of Hawaii. 

However, since his retirement, Mr. 

Etherington has been visiting Hawaii 

approximately once every six weeks for 

recreational purposes and to perform 

various management tasks and light 

maintenance with regard to the 

Property, but he has not stayed at the 

Property. Mr. Etherington explains that 

on these occasions, he visually inspects 

the Property to assess its condition and 

periodically performs light lawn 

cleanup and landscaping maintenance. 

He also meets in person with Mr. 

McCaul to discuss his inspections and 

other issues concerning the Property. 

However, Mr. Etherington states that he 

has no input regarding Mr. McCaul’s 

selection of, or interaction with, any of 

the Property’s rental clients. Moreover, 

Mr. Etherington represents that he has 

not received any form of compensation 

for any services provided to the 

Property. 

The Requested Relief 

18. The Applicants have requested an 

administrative exemption from the 

Department in order to allow them to 

purchase the Interest from the IRA in 

their personal capacities. The Sale 

would be a one-time cash transaction for 

no less than the fair market value of the 

Interest, as determined by a qualified, 

independent appraiser in an appraisal 

that would be updated on the date of the 

Sale. Further, the terms of the Sale 

would be at least as favorable to the IRA 

as those obtainable in an arm’s length 

transaction with an unrelated party, and 

the IRA would pay no real estate 

commissions, costs, or other expenses in 

connection with the Sale. 

Rationale for the Sale 

19. The Applicants state that, due to 

a medical condition suffered by Mrs. 

Etherington, it is necessary that they 

take full ownership of the Property now 

rather than wait to receive the Interest 

in future payouts from the IRA. The 

Applicants observe that Mrs. 

Etherington’s medical condition causes 

her to have an acute sensitivity to 

temperature extremes and limited 

mobility, both conditions which can be 

treated by relocating to the Property. In 

this regard, the Applicants note that 

they have received advice from a doctor 

currently treating Mrs. Etherington, 

which recommends temperature 

moderation as well as sunlight therapy 

as an ideal treatment. Because the 

Property is a single-level structure 

located in a more temperate climate 

than Park City, Utah, the Applicants 

believe that it is a more suitable 

residence for Mrs. Etherington. 

20. The Applicants also assert that the 

recession has made the Property an 

unsuitable investment because it is not 

appreciating in value as they had 

anticipated. According to the 

Applicants, the purchase of the Property 

was made during a perceived downturn 

in the Hawaiian real estate market, in 

the hopes of earning significant longterm appreciation and cash flow. 

Nevertheless, the Applicants point out 

that the condition of the real estate 

market has clouded any anticipation of 

future appreciation. Thus, they explain 

that would like to reinvest the IRA in 

stocks, bonds, and other liquid 

investments in order to take advantage 

of greater potential appreciation in 

value. 

21. Furthermore, the Applicants assert 

that the recent loss of Mr. Etherington’s 

pension with Delta and the winding up 

of Mr. and Mrs. Etherington’s respective 

businesses have left them with no 

current cash flow, thereby making the 

need for liquid investments extremely 

critical. As described above, on May 7, 

2010, the PBGC issued a final benefit 

determination letter to Mr. Etherington 

informing him that he would not be 

receiving the remainder of his monthly 

pension benefit with Delta. At the same 

time, the Applicants note that their 

respective businesses have closed or are 

in the process of winding down. In fact, 

Mr. Etherington states that his only 

source of income going forward will be 

derived from Social Security. 

Necessity To Sell Current Residence 

22. The Applicants state that they 

wish to purchase and occupy the 

Property as their primary residence. 

However, the Applicants explain that, 


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17The cash and cash equivalents are attributable 

to the IRA’s share of rental receipts received on the 

Property, plus interest. 

18 GRM, or ‘‘gross rent multiplier,’’ is the ratio of 

the monthly (or annual) rent divided into the 

selling price, and is useful for valuations of rental 

houses and simple commercial properties when 

used as a supplement to other more well developed 

methods. If several similar properties have sold in 

the market recently, then the GRM can be computed 

for those and applied to the anticipated monthly 

rent for the subject property. 

in order to do so, they need to sell their 

current residence to gain the financial 

resources to make such purchase. The 

Applicants’ current residence carries no 

debt and as of October 31, 2010 was 

listed for sale at $895,000. In the event 

that insufficient funds are received from 

the sale of their current residence, Mr. 

Etherington has stated that he will use 

proceeds received from (a) the sale of 

certain of his taxable savings accounts 

or other non-IRA investments, (b) the 

sale of machinery owned by his now 

defunct excavation company, currently 

on the market for $119,000, (c) the sale 

of the Kamas, Utah business property, 

currently owned by BRE, LLC, of which 

Mr. Etherington is a one-third owner/ 

member (and upon which he carries a 

mortgage of $368,649), and/or (d) a 

distribution of funds from his Fidelity 

IRA. 

Appropriateness of Proposed 

Transaction 

23. The Applicants maintain that the 

Sale will benefit the IRA because it will 

allow the IRA to invest in a more 

diversified portfolio with a greater 

chance of appreciation. As noted in 

Representation 3, Mr. Etherington’s 

December 11, 2010 financial statement 

from Millenium revealed that the IRA 

held total assets of $961,880.17, of 

which the Property constituted 

approximately 98% or $939,300.23. The 

statement also showed that the 

remaining 2% of the fair market value 

of the IRA’s assets, or $22,579.94, was 

invested in cash and cash equivalents.17

24. As stated above, after completing 

the Sale, Mr. Etherington plans to 

reinvest the IRA’s proceeds from the 

Sale in other investments that are more 

liquid. The Applicants admit that based 

on current economic conditions, the 

original purchase of the Property by the 

IRA for purposes of taking advantage of 

depressed real estate prices may have 

been premature. Given the condition of 

the real estate market, the Applicants 

suggest that a broad array of stocks and 

bonds will have higher returns than the 

Property, partly because such 

investments will not have the additional 

recurring expenses such as real estate 

taxes, property management fees, 

insurance costs, and various 

maintenance outlays. 

25. Moreover, the Applicants explain 

that the Sale would be in the interest of 

the IRA because no real estate 

commissions or other fees would be 

payable by the IRA, nor would the IRA 

incur any expenses. According to the 

Applicants, a sale of the Property to an 

independent third party would 

necessitate that the IRA pay its share of 

the real estate commission, which 

would be nearly $60,000. The 

Applicants represent that the payment 

of such a fee would create a net loss to 

the IRA of approximately $28,000, or 

3% of the IRA’s initial investment. 

Alternatively, the Applicants point out 

that the Sale would yield the IRA a net 

profit of $32,000, comprised of $12,000 

attributable to the Property’s 

appreciation and $20,000 attributable to 

the Property’s income, for a return of 

3.4% on its initial investment. 

26. The Applicants state that they 

have not contemplated selling the 

Interest to an unrelated third party or 

subdividing the Property. In addition to 

avoiding fees and commissions, they 

contend that, under current market 

conditions, the Sale could take place 

sooner and at a higher price than a sale 

to a third party. In this regard, the 

Applicants note that no real estate in a 

similar category as the Property has sold 

in the last year due to poor market 

conditions. Furthermore, based on the 

Property’s 2011 Real Property 

Assessment Notice from the State of 

Hawaii for the tax year July 1, 2011 to 

June 30, 2012 (the Assessment), 

provided by the Applicants, the 

Property’s assessed value decreased by 

approximately 15% in the last year, 

from $1,170,900 (its most recent 

purchase price) to $993,200. Thus, the 

Applicants suggest that a sale of the 

Property to a third party would require 

more time on the market, and thus sell 

at a significant discount in price due to 

the declining price of residential real 

estate. 

The Appraisal 

27. The Applicants retained Mary 

Mau, of Second Opinion Hawaii, Inc., 

located in Honolulu, Hawaii, to conduct 

an appraisal of the Property. Ms. Mau is 

licensed in the State of Hawaii as a 

certified residential appraiser. Ms. Mau 

conducted an appraisal of the Property 

on February 10, 2010, and issued an 

appraisal report on the same date (the 

Appraisal). In the Appraisal, Ms. Mau 

certified that she is independent of the 

Applicants and does not have an 

interest in the Property. In a December 

7, 2010 letter (the Letter) to the 

Department supplementing the 

Appraisal, Ms. Mau represents that her 

appraisal firm received less than one 

percent of its gross income, on a 2009 

fiscal year basis, from the Applicants, 

inclusive of income received for the 

Appraisal. Furthermore, in the Letter, 

Ms. Mau indicates that she understands 

the Appraisal will be used for the 

purpose of obtaining an administrative 

exemption from the Department for the 

Sale, that she is unaware of any special 

benefit that the Applicants may derive 

from the Property, and that a follow-up 

appraisal will be needed on the date of 

the Sale. 

28. In conducting the Appraisal, Ms. 

Mau considered the Sales Comparison 

Approach and the Cost Approach to 

valuation. According to the Appraisal, 

the Income Approach was not used to 

value the Property, as the typical 

property valued under the Income 

Approach is owner-occupied, there 

were insufficient sales of rental 

properties to compute a reliable GRM,18

and investors do not typically purchase 

residential properties for investment 

purposes due to its less than desired 

return on the investment. 

29. The Sales Comparison Approach 

and the Cost Approach yielded values of 

$1,185,000 and $1,189,825, respectively. 

Ms. Mau determined that the greatest 

reliance should be placed upon the 

Sales Comparison approach, because 

sales of similar properties are the best 

indicator of the current opinion of value 

for the Property. The Appraisal states 

that, with recent sales displaying overall 

similarities and making market reaction 

adjustments for the physical and other 

differences, an appraiser used the Sales 

Comparison Approach can arrive at an 

estimated value for the subject property. 

On the other hand, the Cost Approach 

is most effective in determining values 

for properties with newer 

improvements, where estimating 

physical depreciation is more precise 

than with older improvements. While 

the Cost Approach was not relied upon, 

the Appraisal indicates that it 

nevertheless was significant in that it 

supported the final opinion of value. 

30. Accordingly, Ms. Mau determined 

the value of the Property, as of February 

10, 2010, to be $1,185,000. Thus, 

according the Applicants, the value of 

the Interest is approximately $948,000 

($1,185,000 × 80%). The appraised 

value represents an appreciation of 

$15,000 over the original purchase price 

since the time of purchase, $12,000 of 

which is allocable to the Interest. Ms. 

Mau will update the Appraisal on the 

date of the Sale. 


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19The Department, herein, is not providing relief 

from the general fiduciary provisions of the Act or 

the Code with regard to the acquisition and holding 

of the Property by the Plan. 

Summary 

31. The Applicants represent that the 

proposed transaction will satisfy the 

statutory criteria for an exemption 

under section 4975(c)(2) of the Code 

because: 

(a) The terms and conditions of the 

Sale will be at least as favorable to the 

IRA as those obtainable in an arm’s 

length transaction with an unrelated 

party; 

(b) The Sale will be a one-time 

transaction for cash; 

(c) The IRA will receive the fair 

market value of the Interest as 

determined by a qualified, independent 

appraiser in an updated appraisal on the 

date of Sale; and 

(d) The IRA will pay no real estate 

commissions, costs, fees, or other 

expenses with respect to the Sale. 

Notice to Interested Persons 

Because the Applicants are the sole 

persons with respect to the IRA who 

have an interest in the proposed 

transaction, it has been determined that 

there is no need to distribute the notice 

of proposed exemption (the Notice) to 

interested persons. Therefore, comments 

and requests for a hearing are due thirty 

(30) days after publication of the Notice 

in the Federal Register. 

FOR FURTHER INFORMATION CONTACT: Mr. 

Warren Blinder of the Department at 

(202) 693–8553. (This is not a toll-free 

number.) 

H–E–B Brand Savings and Retirement 

Plan (the Plan) and H.E. Butt Grocery 

Company (the Company) (Together, the 

Applicants) 

Located in San Antonio, Texas 

[Application No. D–11642] 

Proposed Exemption 

The Department is considering 

granting an exemption under the 

authority of section 408(a) of the Act 

and section 4975(c)(2) of the Code and 

in accordance with the procedures set 

forth in 29 CFR part 2570, subpart B (55 

FR 32836, 32847, August 10, 1990). 

If the proposed exemption is granted 

the restrictions of section 406(a), section 

406(b)(1), and section 406(b)(2) of the 

Act and the sanctions resulting from the 

application of 4975 of the Code by 

reason of section 4975(c)(1)(A) through 

(E) of the Code shall not apply to the 

sale of real property (the Property) by 

the Plan to the Company, a party in 

interest with respect to the Plan; 

provided the following conditions are 

satisfied: 

(a) The sale of the Property is a onetime transaction for cash; 

(b) The Plan will receive from the 

proceeds of the sale of the Property a 

sales price in the amount of $2,762,566, 

plus an amount equal to $432,618 (the 

total of all real estate taxes and expenses 

incurred by the Plan as a result of 

holding the Property from the date the 

Plan purchased the Property through 

December 31, 2009), plus an additional 

amount equal to the total of all real 

estate taxes and expenses from January 

1, 2010, to the date of the sale of the 

Property to the Company; 

(c) The terms and conditions of the 

sale are at least as favorable to the Plan 

as those obtainable in an arm’s length 

transaction with an unrelated party; 

(d) The Plan pays no fees, 

commissions, or other expenses in 

connection with the sale of the Property 

to the Company; and 

(e) Prior to entering into the subject 

transaction, the trustees of the Plan (the 

Trustees) determine that the sale of the 

Property is feasible, protective of, and in 

the interest of the Plan and its 

participants and beneficiaries. 

Summary of Facts and Representations 

1. The Plan is a defined contribution 

plan incorporating a qualified cash or 

deferred arrangement. The Plan had 

approximately 20,454 active 

participants, as of December 31, 2009. 

As of December 31, 2009, the Plan had 

total assets with a fair market value of 

$1,262,547,711. 

2. The Company has sponsored the 

Plan since 1956. The Company is a 

Texas corporation engaged primarily in 

the retail grocery business in Texas. The 

following entities which are affiliated 

with the Company have also adopted 

the Plan: (a) H.E. Butt Grocery 

Company, LP; (b) HEBCO Partners, Ltd.; 

(c) Parkway Distributors, Inc.; (d) 

Parkway Transport, Ltd.; (e) C.C. Butt 

Grocery Company; and (f) HiTech 

Commercial Services, Inc. It is 

represented that Parkway Distributors, 

Inc. and Parkway Transport, Ltd. are 

engaged in the business of intrastate and 

interstate trucking. 

3. The Property which is the subject 

of this proposed exemption is located at 

the intersection of Mystic Park Drive 

and Guilbeau Road in San Antonio, 

Texas. The Property consists of 5.822 

acres of undeveloped real property. The 

current fair market value of the Property 

constitutes .0003 percent (.0003%) of 

the total assets of the Plan. 

The Plan owns the subject Property 

which is adjacent to a shopping center, 

owned by the Company. A portion of 

the shopping center is currently 

occupied by a grocery store which is 

operated by the Company. 

Throughout the Plan’s existence, the 

Trustees for the Plan have consisted of 

a group of Company officers and 

employees. The Plan purchased the 

Property in 1986 from Ray Ellison 

Industries, Inc., an unrelated third 

party, for $1,077,736.25. The transaction 

was effectuated by William J. Horvath, 

trustee for the Plan. The Plan has not 

been able to locate an outside appraisal 

of the Property that was done at the time 

of the initial purchase. The acquisition 

of the Property by the Plan was a cash 

transaction. It is represented that no 

lender was involved. 

The Property is deed restricted for 55 

years against use of the Property for 

grocery, fuel, and pharmacy product 

sales. These deed restrictions were 

applied to a total of 85 acres 

surrounding the Company’s adjacent 

parcel (7.385 acres) when such adjacent 

parcel was purchased on November 27, 

1985. It is represented that when in 

1986 the Plan purchased the Property, it 

was subject to these restrictions in the 

deed and that such deed restrictions 

were reflected in the purchase price of 

the Property paid by the Plan.19

The Plan purchased the Property with 

the intent of developing a small 

shopping center. It is represented that 

the market shifted to the north, and the 

interest level diminished. No buildings 

were ever constructed on the Property. 

The Property has not been leased since 

its acquisition by the Plan. It is 

represented that the only costs incurred 

by the Plan through the Plan’s holding 

of the Property have been the real estate 

taxes (described, below, in paragraph 

number 7) and the incidental costs of 

mowing the Property of approximately 

$500 per year. 

It is represented that access to the 

Property from Mystic Park Drive is via 

a single, concrete curb cut at the 

northeast corner of the Property paid for 

by the Company. In addition, the 

Company paid for the construction of a 

concrete paved driveway that extends 

along the north and west boundary of 

the Property and across the adjacent 

parcel owned by the Company to 

Guilbeau Road. 

It is represented in the appraisal of 

the Property, described below, that the 

primary user of the concrete driveway 

on the Property is the Company for 

delivery of merchandise to the adjacent 

parcel owned by the Company. While 

the Company acknowledges that it has 

in the past and is currently using the 

concrete driveway for east access 


srobinson on DSKHWCL6B1PROD with NOTICES
Federal Register / Vol. 76, No. 50 / Tuesday, March 15, 2011 / Notices 14095 

20 In the Department’s view the $2,762,566 

amount is intended to reimburse the Plan for the 

original cost of the Property, plus a reasonable rate 

of return over the period of time during which the 

Plan held the Property. This amount also includes 

the compensation for the past and current uses of 

the Property by the Company, including the 

Company’s use of the concrete driveway across the 

Property, and the Company’s use of a portion of the 

Property for parking. 

delivery of merchandise, the Company 

notes that from the adjacent parcel it 

also has south access for the delivery of 

merchandise. The Company further 

maintains that the concrete driveway 

serves as an improvement (thereby 

increasing the market value) of both the 

Property and the Company’s adjacent 

tract. 

In addition, the Company represents 

that it has used an additional portion of 

the Property (approximately .25 acres) 

for parking. The Company represents 

that it paid for the paving of this portion 

of the Property in 1986 and maintains 

the parking lot at its cost. 

It is represented that the purchase 

price to be paid by the Company to the 

Plan for the Property includes 

compensation for the past and current 

uses of such Property by the Company, 

including the Company’s use of the 

concrete driveway across the Property, 

and Company’s use of a portion of the 

Property for parking. 

To the extent that the past and current 

uses of the Plan’s Property by the 

Company are prohibited transactions, 

the Department, herein, is not proposing 

relief for such uses. Further, the 

Company has represented that within 

sixty (60) days of the date of the 

publication in the Federal Register of 

the grant of this proposed exemption, it 

will file FORM 5330 with the Internal 

Revenue Service (IRS), and pay to the 

IRS any applicable excise tax, which is 

deemed to be due and owing with 

regard to the past and current uses of 

the Plan’s Property by the Company, 

including the Company’s use of the 

concrete driveway across the Property, 

and Company’s use of a portion of the 

Property for parking. 

4. The Company desires to purchase 

the Property, as it owns the adjacent 

parcel which is improved by a shopping 

center, including a Company-owned 

grocery store. In this regard, the 

Company would like to control the 

Property for a future parking area and 

for the possible expansion of its grocery 

store. Although there are no immediate 

plans for utilizing the Property other 

than for parking, it is represented that 

the Company often acquires adjacent 

land for future needs. As an employer 

any of whose employees are covered by 

the Plan, the Company is a party in 

interest with respect to the Plan, 

pursuant to section 3(14)(C) of the Act. 

Accordingly, the sale of the Property by 

the Plan to the Company would 

constitute a prohibited transaction 

within the meaning of section 

406(a)(1)(A), 406(a)(1)(D) and 

4975(c)(1)(A), and 4975(c)(1)(D) of the 

Code. The subject transaction may also 

constitute a prohibited transaction 

within the meaning of sections 406(b)(1) 

and 406(b)(2) of the Act and 

4975(c)(1)(E) of the Code, involving 

fiduciary conflicts of interest. 

5. It is represented that several 

attempts have been made to sell the 

Property. The Property has been listed 

with local real estate brokers who have 

marketed the Property both for sale and 

for lease. The Property is currently 

offered for sale at a sales price of 

$887,000. It is represented that there has 

been no interest in the Property from 

qualified third party purchasers. Based 

on the lack of interest, the Trustees of 

the Plan have determined that further 

attempts to sell or lease the Property 

would result in delay and additional 

expenses to the Plan which could be 

avoided by effecting the proposed 

transaction. Further, the Trustees do not 

believe it likely that any prospective 

third party purchaser would be willing 

to pay more for the Property than the 

value ($420,000) as reflected in the 

appraisal, discussed more fully, below, 

in paragraph number 8. 

Accordingly, the Trustees have 

determined that it would be in the 

interest of the Plan and its participants 

and beneficiaries to sell the Property to 

the Company for the following reasons: 

(i) The sale price is substantially higher 

than the fair market value of the 

Property; and (ii) the Trustees have 

concluded that alternative investments 

would be preferable for the Plan. 

Further, it is represented that in the 

current real estate market, there are not 

many retail investors seeking vacant 

land in the San Antonio area. In this 

regard, it is represented that an 

operating retailer, such as the Company, 

would be willing to pay more for the 

Property than a residential developer or 

a speculative retail developer. It is the 

view of the Company that the proposed 

sales price would subsume any 

assemblage premium over the fair 

market value of the Property which 

would reasonably be attributed to the 

Company as a result of owning an 

improved parcel of real estate that is 

adjacent to the Property. 

6. It is represented that the proposed 

transaction is feasible in that the sale of 

the Property by the Plan to the Company 

will be a one-time cash transaction. 

7. It is represented that the proposed 

transaction is in the interest of the Plan 

in that the Plan will receive from the 

proceeds of the sale of the Property a 

purchase price in the amount of 

$2,762,566,20 plus an amount equal to 

$432,618 (the total of all real estate taxes 

and expenses incurred by the Plan as a 

result of holding the Property from the 

date the Plan purchased the Property 

through December 31, 2009), plus an 

additional amount equal to the total of 

all real estate taxes and expenses from 

January 1, 2010, to the date of the sale 

of the Property to the Company. 

8. The Property was appraised by 

Richard L. Dugger (Mr. Dugger), MAI, 

CRE and David H. Thomas III (Mr. 

Thomas) of Dugger, Canaday, Grafe, Inc. 

in San Antonio, Texas. After personally 

inspecting the property, Mr. Dugger and 

Mr. Thomas determined that the fair 

market value of the Property based on 

market comparables is $420,000, as of 

May 17, 2010. 

By letter dated November 3, 2010, Mr. 

Dugger indicated that the assemblage 

premium with reference to the Property 

is 10 percent (10%) to 20 percent (20%) 

above the market value for such 

Property. As referenced in his May 2010 

report prepared for the Plan, Mr. Dugger 

appraised the fair market value of the 

5.822 acres of the Property at $1.65 per 

square foot or $420,000. Therefore, 

according to Mr. Dugger the assemblage 

premium for the Property is $1.82 to 

$1.98 per square foot or $462,000 

(rounded) to $502,000 (rounded). 

Both Mr. Dugger and Mr. Thomas are 

independent in that they have no 

present or prospective interest in or bias 

with respect to the Property that is the 

subject of the appraisal. Further, both 

Mr. Dugger and Mr. Thomas have no 

personal interest with respect to the 

parties involved. It is represented that 

the fees received by the appraisal firm 

of Dugger, Canaday, Grafe, Inc. from the 

Company and its affiliates comprise less 

than one percent (1%) of the total fees 

collected by Dugger, Canaday, Grafe, 

Inc. over the past twelve (12) months. It 

is further represented that Dugger, 

Canaday, Grafe, Inc. has collected no 

fees from the Plan during such time. 

Both Mr. Dugger and Mr. Thomas are 

qualified as State certified general real 

estate appraisers. Further, Mr. Dugger 

has been engaged in independent fee 

appraising since 1969, has earned the 

designations of MAI, and CRE, and has 

completed the requirements of the 

continuing education program of the 

Appraisal Institute. 

9. In summary, the Applicants 

represent that the subject transaction 

satisfies the statutory criteria of section 


srobinson on DSKHWCL6B1PROD with NOTICES
14096 Federal Register / Vol. 76, No. 50 / Tuesday, March 15, 2011 / Notices 

21To the extent that the independent auditor 

raises issues with respect to the payments, the 

Trustees have an obligation to address them in a 

manner consistent with their fiduciary 

responsibilities pursuant to section 404 of the Act. 

408(a) of the Act and section 4975(c)(2) 

of the Code because: 

(a) The sale of the Property will be a 

one-time transaction for cash; 

(b) The Plan will receive from the 

proceeds of the sale of the Property a 

sales price in the amount of $2,762,566, 

plus an amount equal to $432,618 (the 

total of all real estate taxes and expenses 

incurred by the Plan as a result of 

holding the Property from the date the 

Plan purchased the Property through 

December 31, 2009), plus an additional 

amount equal to the total of all real 

estate taxes and expenses from January 

1, 2010, to the date of the sale of the 

Property to the Company; 

(c) The terms and conditions of the 

sale will be at least as favorable to the 

Plan as those obtainable in an arm’s 

length transaction with an unrelated 

party; 

(d) The Play will pay no fees, 

commissions, or other expenses in 

connection with the sale of the Property 

to the Company; and 

(e) Before entering into the proposed 

transaction, the Trustees must 

determine that the sale of the Property 

is feasible, protective of, and in the 

interest of the Plan and its participants 

and beneficiaries. 

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 

having accounts under the Plan, 

including but not limited to active 

employees of the Company and of 

affiliates of the Company that have 

adopted the Plan, former employees, 

beneficiaries of deceased employees, 

and alternate payees. 

It is represented that all interested 

persons will be notified of the 

publication of the Notice by first class 

mail within fifteen (15) days of 

publication of the Notice in the Federal 

Register. 

All first class mailings will contain a 

copy of the Notice, as it appears in the 

Federal Register on the date of 

publication, plus a copy of the 

supplemental statement, as required, 

pursuant to 29 CFR 2570.43(b)(2), which 

will advise all interested persons, of 

their right to comment and to request a 

hearing. 

All written comments and/or requests 

for a hearing must be received by the 

Department from interested persons 

within 45 days of the publication of this 

proposed exemption in the Federal 

Register. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Angelena C. Le Blanc of the Department, 

telephone (202) 693–8540. (This is not 

a toll-free number.) 

The International Union of Painters 

and Allied Trades Finishing Trades 

Institute (the Plan or the Applicant) 

Located in Hanover, Maryland 

[Application No. L–11625] 

Proposed Exemption 

The Department of Labor (the 

Department) is considering granting an 

exemption under the authority of 

section 408(a) of the Act in accordance 

with procedures set forth in 29 CFR part 

2570, subpart B (55 FR 32836, 32847, 

August 10, 1990). If the proposed 

exemption is granted, the restrictions of 

sections 406(a)(1)(A), (C) and (D), 

406(b)(1), and 406(b)(2) of the Act shall 

not apply to the payment for lodging 

and meals by the Plan to the 

International Union of Painters and 

Allied Trades, AFL–CIO (the Union), a 

party in interest with respect to the 

Plan, in a residence hall (the Residence 

Hall) owned by the Union through its 

wholly-owned entity IUPAT Building 

Corporation LLC (the Building 

Corporation), provided that the 

following conditions are satisfied: 

(a) An independent, qualified 

fiduciary (the I/F), acting on behalf of 

the Plan, determines prior to entering 

into the transaction that the transaction 

is feasible, in the interest of, and 

protective of the Plan and the 

participants and beneficiaries of the 

Plan; 

(b) Before the Plan enters into the 

proposed transaction, the I/F reviews 

the transaction, ensures that the terms of 

the transaction are at least as favorable 

to the Plan as an arm’s length 

transaction with an unrelated party, and 

determines whether or not to approve 

the transaction, in accordance with the 

fiduciary provisions of the Act; 

(c) The I/F monitors compliance with 

the terms and conditions of this 

proposed exemption, as described 

herein, and ensures that such terms and 

conditions are at all times satisfied; 

(d) The I/F monitors compliance with 

the terms of the written agreement (the 

Agreement) between the Plan and the 

Union, and takes any and all steps 

necessary to ensure that the Plan is 

protected, including, but not limited to, 

agreeing to extend the Agreement on an 

annual basis or exercising his authority 

to terminate the Agreement on 30 days’ 

written notice; 

(e) The payments by the Plan for the 

lodging at the Residence Hall and for 

the meals provided under the 

Agreement and under the terms of any 

subsequent extension of the Agreement 

are at no time greater than their fair 

market value, as determined by the I/F; 

(f) The subject transaction is on terms 

and at all times remains on terms that 

are at least as favorable to the Plan as 

those that would have been negotiated 

under similar circumstances at arm’slength with an unrelated third party; 

(g) The Applicant’s independent 

auditor will perform an annual audit for 

the Plan to verify whether the Plan paid 

the proper amounts with respect to the 

subject transaction. In this regard, the 

written audit report for each year must 

identify, as applicable, any errors or 

irregularities relating to such payments, 

any internal control weaknesses that 

must be addressed under generally 

accepted auditing standards, and any 

recordkeeping matters that would 

impede the auditor from properly 

auditing such payments. To the extent 

there are any discrepancies as to the 

foregoing matters, the independent 

auditor will promptly communicate 

them to the Board of Trustees of the 

Plan (the Trustees), who will, in turn, 

promptly notify the I/F about such 

discrepancies.21

(h) The transaction is appropriate and 

helpful in carrying out the purposes for 

which the Plan is established or 

maintained; 

(i) The Trustees maintain, or cause to 

be maintained within the United States 

for a period of six (6) years in a manner 

that is convenient and accessible for 

audit and examination, such records as 

are necessary to enable the persons 

described, below, in paragraph (j)(1) of 

this proposed exemption to determine 

whether the conditions of this proposed 

exemption have been met; except that— 

(1) If the records necessary to enable 

the persons described, below, in 

paragraph (j)(1) of this proposed 

exemption to determine whether the 

conditions of this proposed exemption 

have been met are lost or destroyed, due 

to circumstances beyond the control of 

the Trustees, then a separate prohibited 

transaction will not be considered to 

have occurred solely on the basis of the 

unavailability of those records; and 

(2) No party in interest, other than the 

Trustees, shall be subject to the civil 

penalty that may be assessed under 

section 502(i) of the Act, or to the taxes 

imposed by section 4975(a) and (b) of 

the Code, if the records are not 

maintained, or are not available for 

examination as required by paragraph (i) 

of this proposed exemption; and 


srobinson on DSKHWCL6B1PROD with NOTICES
Federal Register / Vol. 76, No. 50 / Tuesday, March 15, 2011 / Notices 14097 

22The Department is expressing no opinion 

herein as to whether the leasing of the training 

facilities to the Plan is exempt under PTE 78–6. 

(j)(1) Except as provided, below, in 

paragraph (j)(2) of this proposed 

exemption and notwithstanding any 

provisions of sections (a)(2) and (b) of 

section 504 of the Act, the records 

referred to in paragraph (i) of this 

proposed exemption are 

unconditionally available at their 

customary location for examination 

during normal business hours by: 

(A) Any duly authorized employee or 

representative of the Department, the 

Internal Revenue Service, or any other 

applicable Federal or State regulatory 

agency; 

(B) Any fiduciary of the Plan, or any 

duly authorized representative of such 

fiduciary; 

(C) Any contributing employer to the 

Plan and any employee organization 

whose members are covered by the Plan, 

or any duly authorized employee or 

representative of these entities; or 

(D) Any participant or beneficiary of 

the Plan, or any duly authorized 

representative of such participant or 

beneficiary. 

(2) None of the persons described, 

above, in paragraph (j)(1)(B)–(D) of this 

proposed exemption are authorized to 

examine trade secrets or commercial or 

financial information that is privileged 

or confidential. 

Summary of Facts and Representations 

1. The International Union of Painters 

and Allied Trades Finishing Trades 

Institute (the Plan) is an innovative 

training program which is governed by 

a board of trustees (the Trustees) 

consisting of members of the Applicant 

and its signatory employers. At the 

International Training Center (the 

Training Center) operated by the Plan, 

trainees receive continued education 

and training, including, but not limited 

to, skill enhancement and health and 

safety training. 

2. The Plan is a Taft-Hartley and 

ERISA plan funded by contributions 

received from employers throughout the 

United States based on the hours 

worked by employees in collective 

bargaining units throughout the country. 

The Plan represents a workforce of over 

110,000 working men and women in the 

United States and Canada whose 

members work in the finishing trades as 

painters, drywall finishers, glaziers, 

glass workers, floor covering installers, 

sign makers, display workers, 

convention and show decorators, and in 

many other occupations. 

3. At the Training Center, instructors 

learn new innovative training 

techniques in the finishing industry. 

Upon return to their respective local 

apprenticeship training centers, these 

instructors (the Trainees) can then 

provide journey-worker upgrade and 

apprentice training, enabling those 

journey-workers and apprentices to 

progress to the highest wage levels in 

their industry. The Trainees are all 

participants in the Plan. 

4. The International Union of Painters 

and Allied Trades, AFL–CIO (the 

Union), through its wholly-owned entity 

IUPAT Building Corporation LLC (the 

Building Corporation), owns the 

Training Center and other buildings at 

its Hanover, Maryland campus. The 

Building Corporation leases training 

space to the Plan. The Applicant 

represents that the leasing of the 

training facility to the Plan is covered by 

Prohibited Transaction Exemption 78–6 

(PTE 78–6, 43 FR 23024, May 30, 1978). 

In this regard, the Applicant represents 

that the leasing has satisfied and will 

continue to satisfy all the conditions 

contained in PTE 78–6.22 The Applicant 

further represents that the leasing of the 

training facilities is not prohibited 

under section 406(b) of the Act, as any 

decisions made with respect to the 

Plan’s leasing of the facilities are made 

by the Plan’s Board of Trustees, which 

is separate from the Union’s Board of 

Directors. To the extent that any 

individual trustee sits on both Boards, 

those individuals recuse themselves 

from and abstain from any vote by the 

Plan’s Board when decisions are being 

made by the Plan regarding leasing the 

training facilities from the Union. 

5. One of the challenges that has 

arisen during the past few years is that 

the Trainees, most of whom fly to the 

Training Center, must reside off-campus 

at area hotels and, therefore, require 

transportation each day to and from the 

Training Center. The Plan represents 

that it incurs significant costs in 

housing Trainees at off-campus hotels, 

providing transportation and supplying 

meals. As a result, the Applicant wishes 

to begin paying for lodging at a 

residence hall (the Residence Hall) 

which is currently under construction. 

The Residence Hall, which is being built 

at the Hanover, Maryland campus, will 

be owned by the Building Corporation. 

6. An independent, qualified 

fiduciary has been retained by the Plan 

and has conducted a study regarding the 

proposed transaction. The independent 

fiduciary is John Ward, of Washington, 

DC. Mr. Ward is a solo practitioner and 

former partner at Dow Lohnes & 

Albertson, PLC. He has focused his 

professional energies on tax and ERISA 

matters faced by labor unions and their 

associated benefit funds. The Applicant 

represents that Mr. Ward is, therefore, 

highly qualified to ascertain whether the 

proposed transaction would benefit the 

Plan. The Applicant represents that Mr. 

Ward has never previously worked 

directly for either the Applicant or the 

Union, and that the Plan is paying for 

his services. 

7. Mr. Ward’s study has found that the 

average cost of lodging at five area 

hotels, including the Embassy Suites, is 

$159 per night. This assumes that the 

Applicant enters into an agreement for 

a minimum of four thousand roomnights per year, and does not include 

the cost of transportation to or from the 

Training Center or the cost of meals 

other than breakfast. The Union 

proposes charging the Plan $156 per 

night per Trainee for a room, an amount 

which is less than the average market 

rate. The Union further proposes 

charging the Plan $48.25 per Trainee for 

lunch, dinner and snacks during the 

day. This amount is based upon the 

Federal government meals and 

incidentals per diem reimbursement 

rate for the Baltimore County, Maryland 

area (currently $61.00), minus $12.75 to 

account for the cost of breakfast and 

incidental expenses that was included 

in the average cost of lodging 

calculation. The Union has provided the 

Applicant with a proposal from P&P 

Catering, Inc., showing that the actual 

cost of providing meals to the Trainees 

would otherwise be $86.10 per Trainee 

per day. The Applicant represents that 

it will therefore be paying less than fair 

market value for the cost of the 

Trainees’ meals. Thus, based on these 

rates, the Union proposes charging the 

Plan $204.25 per Trainee per day for 

lodging, meals and snacks during the 

day. 

8. The Plan will realize further 

savings in terms of transportation costs, 

as it currently pays approximately $2 

per day per Trainee for transportation 

between each Trainee’s 

accommodations and the Training 

Center. Taking this into account along 

with the below-market room rates and 

the discounted meals charged at 

government reimbursement rates, the 

Plan will benefit from the cost savings. 

The Applicant estimates that its annual 

savings on lodging alone would be 

approximately $12,000. The Union has 

represented that it will not be making a 

profit from charging the Applicant for 

lodging and meals. The Applicant 

represents that, in addition, if the 

Trainees are lodged at the Residence 

Hall on the same campus as the 

Training Center, they will have offhours access to the Training Center’s 

facilities and equipment, which will 

help develop a sense of unity and will 


srobinson on DSKHWCL6B1PROD with NOTICES
14098 Federal Register / Vol. 76, No. 50 / Tuesday, March 15, 2011 / Notices 

enhance the time for interaction 

between Trainees and trainer, all of 

which support the Applicant’s core 

mission. 

9. In his analysis, Mr. Ward reaches 

the conclusion that: (1) the proposed 

combined rate per night of $204.25 

($156.00 for lodging and $48.25 for meal 

service) which the Union proposes to 

charge the Plan for each Trainee 

receiving training at the Training Center 

is both appropriate and in the best 

interests of the Plan’s participants and 

beneficiaries; and (2) the terms on 

which the Union proposes to offer 

lodging and meal service to Trainees at 

the Residence Hall are more favorable to 

the Plan and its participants and 

beneficiaries than the terms of any 

similar package would—or could—be 

offered to the Plan by a combination of 

one of the comparable local lodging 

facilities that he investigated and by any 

restaurant or combination of restaurants 

located within five miles of the Training 

Center. 

10. As part of his engagement as an 

independent fiduciary, Mr. Ward will 

monitor the transaction on an annual 

basis to ensure that the transaction 

continues to comply with the 

requirements for the exemption 

proposed herein. 

11. The subject transaction will be 

entered into pursuant to a written 

agreement (the Agreement) between the 

Union and the Plan. The Agreement is 

intended to serve as an annual 

agreement between the Plan and the 

Union. However, each party shall have 

the right to withdraw from the 

Agreement by furnishing the other party 

with written notice 30 days prior to 

withdrawing. Either party may 

withdraw for any reason without further 

obligations to the other party. However, 

if the Plan has prepaid for the use of 

rooms at the Residence Hall for dates 

that fall after the effective date of 

withdrawal, the Union shall reimburse 

the Plan any monies paid for such use. 

12. Peter Novak, a certified public 

accountant with Novak Francella LLP, 

an independent auditor in Philadelphia, 

PA, that is paid by the Applicant, has 

certified that, upon reviewing the 

estimated cost of renting rooms at the 

Residence Hall, the Applicant has 

sufficient income to pay for the 

proposed transaction on an on-going 

basis. The Department notes on the 

financial statements provided by Mr. 

Novak that the Plan currently has assets 

in excess of $13 million. Mr. Novak 

represents that the annual audit will 

ensure that there are no discrepancies in 

the amounts being paid by the 

Applicant to the Union. 

13. In summary, the Applicant 

represents that the proposed transaction 

meets the statutory criteria for an 

exemption under section 408(a) of the 

Act because: (a) An independent, 

qualified fiduciary, Mr. Ward, acting on 

behalf of the Plan, has determined prior 

to entering into the proposed 

transaction that the transaction is 

administratively feasible, in the interest 

of, and protective of the Plan and the 

participants and beneficiaries of the 

Plan; 

(b) Mr. Ward has reviewed the 

transaction to ensure that its terms are 

at least as favorable to the Plan as an 

arm’s-length transaction with an 

unrelated party, and has determined to 

approve the transaction, in accordance 

with the fiduciary provisions of the Act; 

(c) Mr. Ward will monitor compliance 

with the terms and conditions of this 

proposed exemption, as described 

herein, and ensure that such terms and 

conditions are at all times satisfied; 

(d) Throughout the duration of the 

subject transaction, Mr. Ward will 

monitor compliance with the terms of 

the written agreement (the Agreement) 

pursuant to which the transaction is 

entered into, and take any and all steps 

necessary to ensure that the Plan is 

protected, including, but not limited to, 

agreeing to extend the Agreement on an 

annual basis or exercising his authority 

to terminate the Agreement on 30 days’ 

written notice; 

(e) The payments paid by the Plan for 

lodging and meals under the terms of 

the Agreement and under the terms of 

any subsequent extension of the 

Agreement will at no time be greater 

than the fair market value of the lodging 

and meals, as determined by the 

independent fiduciary; 

(f) Under the provisions of the 

Agreement, the transaction is on terms 

and at all times remains on terms that 

are at least as favorable to the Plan as 

those that would have been negotiated 

under similar circumstances at arm’slength with an unrelated third party; 

(g) The Applicant’s independent 

auditor will perform an annual audit for 

the Plan to verify whether the Plan paid 

the proper amounts with respect to the 

subject transaction. In this regard, the 

written audit report for each year will 

identify, as applicable, any errors or 

irregularities relating to such payments, 

any internal control weaknesses that 

must be addressed under generally 

accepted auditing standards, and any 

recordkeeping matters that would 

impede the auditor from properly 

auditing such payments. To the extent 

there are any discrepancies as to the 

foregoing matters, the independent 

auditor will promptly communicate 

them to the Board of Trustees of the 

Plan (the Trustees), who will, in turn, 

promptly notify the independent, 

qualified fiduciary about such 

discrepancies; 

(h) The transaction is appropriate and 

helpful in carrying out the purposes for 

which the Plan is established or 

maintained; and 

(i) The Trustees will maintain, or 

cause to be maintained within the 

United States for a period of six (6) 

years in a manner that is convenient and 

accessible for audit and examination, 

such records as are necessary to 

determine whether the conditions of 

this proposed exemption have been met. 

FOR FURTHER INFORMATION CONTACT: Gary 

H. Lefkowitz of the Department, 

telephone (202) 693–8546 (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 


srobinson on DSKHWCL6B1PROD with NOTICES
Federal Register / Vol. 76, No. 50 / Tuesday, March 15, 2011 / Notices 14099 

(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 9th day of 

March 2011. 

Ivan Strasfeld, 

Director of Exemption Determinations, 

Employee Benefits Security Administration, 

U.S. Department of Labor. 

[FR Doc. 2011–5911 Filed 3–14–11; 8:45 am] 

BILLING CODE 4510–29–P 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

[Application Number D–11638] 

Withdrawal of the Notice of Proposed 

Exemption Involving Owens & Minor, 

Inc. (the Applicant), Located in 

Mechanicsville, VA 

In the December 16, 2010 issue of the 

Federal Register, at 75 FR 78772, the 

Department of Labor published a notice 

of proposed exemption from the 

prohibited transaction restrictions of the 

Employee Retirement Income Security 

Act of 1974, as amended, and from 

certain taxes imposed by the Internal 

Revenue Code of 1986. The notice of 

proposed exemption, if granted, would 

have permitted the sale of certain shares 

in a hedge fund by the Owens & Minor, 

Inc. Pension Plan to the applicant. 

By e-mail dated February 8, 2011, the 

applicant requested that the application 

for exemption be withdrawn. 

Accordingly, the notice of proposed 

exemption is hereby withdrawn. 

Signed at Washington, DC, this 9th day of 

March 2011. 

Ivan L. Strasfeld, 

Director, Office of Exemption Determinations, 

Employee Benefits Security Administration. 

[FR Doc. 2011–5913 Filed 3–14–11; 8:45 am] 

BILLING CODE 4510–29–P 

DEPARTMENT OF LABOR 

Employment and Training 

Administration 

[TA–W–73,441A] 

Quad Tech, Inc., Sussex, WI; Notice of 

Affirmative Determination Regarding 

Application for Reconsideration 

By application dated February 7, 

2011, a worker requested administrative 

reconsideration of the negative 

determination regarding workers’ 

eligibility to apply for Trade Adjustment 

Assistance (TAA) applicable to workers 

and former workers of Quad Tech, Inc., 

Sussex, Wisconsin (TA–W–73,441A) 

(subject firm). The determination was 

issued on January 4, 2011. The 

Department’s Notice of Determination 

was published in the Federal Register 

on January 26, 2011 (76 FR 4729). The 

workers are engaged in activities related 

to the production of magazines and 

catalogs. Specifically, the workers of the 

subject firm provide steel stackers and 

equipment for printers to affiliated 

locations. 

The negative determination was based 

on the Department’s findings that, with 

regards to workers covered by TA–W– 

73,441A, Quad Graphics did not shift to 

or acquire from a foreign country the 

production of articles like or directly 

competitive with those produced by the 

subject workers; that there were no 

increased imports of articles like or 

directly competitive with those 

produced by the subject firm during the 

relevant period; and that the workers are 

not adversely-affected secondary 

workers. 

In the request for reconsideration, the 

petitioner alleged that ‘‘work here 

decreased from work being sent 

elsewhere (India)’’ and ‘‘shift from our 

firm to India with silo work.’’ 

The Department has carefully 

reviewed the request for reconsideration 

and the existing record, and has 

determined that the Department will 

conduct further investigation to 

determine if the petitioning workers 

meet the eligibility requirements of the 

Trade Act of 1974, as amended. 

Conclusion 

After careful review of the 

application, I conclude that the claim is 

of sufficient weight to justify 

reconsideration of the U.S. Department 

of Labor’s prior decision. The 

application is, therefore, granted. 

Signed at Washington, DC, this 17th day of 

February 2011. 

Del Min Amy Chen, 

Certifying Officer, Office of Trade Adjustment 

Assistance. 

[FR Doc. 2011–5932 Filed 3–14–11; 8:45 am] 

BILLING CODE 4510–FN–P 

DEPARTMENT OF LABOR 

Employment and Training 

Administration 

Proposed Collection of Information for 

an Evaluation of the Young Parents 

Demonstration Project (YPDP); 

Comment Request 

AGENCY: Employment and Training 

Administration (ETA), Labor. 

ACTION: Notice. 

SUMMARY: The Department of Labor, as 

part of its continuing effort to reduce 

paperwork and respondent burden, 

conducts a pre-clearance consultation 

program to provide the general public 

and Federal agencies with an 

opportunity to comment on proposed 

and/or continuing collections of 

information in accordance with the 

Paperwork Reduction Act of 1995 (PRA) 

[44 U.S.C. 3505(c)(2)(A)]. The program 

helps to ensure that requested data can 

be provided in the desired format, 

reporting burden (time and financial 

resources) is minimized, collection 

instruments are clearly understood, and 

the impact of the collection 

requirements on respondents can be 

properly assessed. 

The proposed information collection 

is for an evaluation of the YPDP. The 

YPDP is sponsored by ETA to test 

innovative strategies that can improve 

the skills and education of young 

parents and, ultimately their 

employment and earnings. 

DATES: Written comments must be 

submitted to the office listed in the 

addressee’s section below on or before 

May 16, 2011. 

ADDRESSES: A copy of this proposed 

information collection request may be 

obtained by contacting Savi Swick at 

202–693–3382 (this is not a toll-free 

number) or e-mail: swick.savi@dol.gov. 

Comments are to be submitted to 

Department of Labor/Employment and 

Training Administration, Attn: Savi 

Swick, 200 Constitution Avenue, NW., 

(Room N–5641) Washington, DC 20210). 

Written comments may be transmitted 

by facsimile to 202–693–2766 (this is 

not a toll-free number) or e-mailed to 

swick.savi@dol.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The proposed information collection 

is for an evaluation of the YPDP. The 

YPDP is sponsored by ETA to test 

innovative strategies that can improve 

the skills and education of young 

parents and, ultimately their 

employment and earnings. 


srobinson on DSKHWCL6B1PROD with NOTICES