SECOND STAGE ESOP TRANSACTIONS

Transcription

1 SECOND STAGE ESOP TRANSACTIONS PRESENTED BY DAVID BURDETTE, PRAIRIE CAPITAL ADVISORS JAMES URBACH, ESQ., URBACH LAW GROUP JAY VAN HEYDE, ESQ., DEAN MEAD 1

2 INTRODUCTION OF PANEL DAVID P. BURDETTE, V.P. PRAIRIE CAPITAL ADVISORS, INC NORTHSIDE PARKWAY BUILDING 200 SUITE 675 ATLANTA, GEORGIA JAMES R. URBACH, ESQ. URBACH LAW GROUP 1625 FELCH AVENUE JACKSONVILLE, FLORIDA JAY VAN HEYDE, ESQ. DEAN MEAD 800 NORTH MAGNOLIA AVENUE SUITE 1500 ORLANDO, FLORIDA

3 INTRODUCTION OF THE TOPIC SETTING THE STAGE TOPIC ASSUMES THE ESOP PREVIOUSLY COMPLETED AT LEAST ONE PURCHASE AND SALE TRANSACTION ESOP HAS EXISTED AT LEAST SEVERAL YEARS INITIAL ESOP LOAN MAY OR MAY NOT REMAIN UNPAID ESOP MIGHT BE MINORITY OWNER OR OWN A MAJORITY, BUT NOT 100% IF MINORITY ESOP, OWNER MAY HAVE ONLY SOLD MINORITY, THUS KEEPING CONTROL, OR COMPANY MIGHT NOT HAVE BEEN ABLE TO HANDLE THE FULL DEBT LOAD 3

4 INTRODUCTION OF THE TOPIC TYPICAL REASONS FOR SECOND STAGE TRANSACTION RETIREMENT OF FOUNDER DEATH OR DISABILITY OF FOUNDER PART OF A PROCESS (CREEPING TO 100%) MATURE ESOP IN NEED OF SHARES SHAREHOLDER REDEMPTION AND RESALE OF SHARES TO ESOP MOVING FROM MINORITY TO MAJORITY MOVING FROM MAJORITY TO 100% 4

5 INTRODUCTION OF THE TOPIC DEFINING THE PROBLEM CHANGES IN ESOP OWNERSHIP PERCENTAGE CAN DICTATE CHANGE IN CONTROL OF TRUSTEE AND BOARD OF DIRECTORS THE ROLE OF THE SELLER MAY NEED TO BE REDUCED DOL MAY BE TAKING AN EVEN CLOSER LOOK WHEN CONTROL PURCHASED 5

6 INTRODUCTION OF THE TOPIC SIGNIFICANT TRANSACTION DEBT COULD CAUSE LARGE PER SHARE PRICE DROP, IMPACTING DISTRIBUTIONS AND DIVERSIFICATION EXERCISING CONTROL WHEN MAJORITY OWNERSHIP ACQUIRED 6

7 WHAT IS CONTROL PRICING? ESOPs ARE REQUIRED UNDER SECTION 4975(e)(7) OF THE INTERNAL REVENUE CODE TO BE DESIGNED TO INVEST PRIMARILY IN EMPLOYER SECURITIES. SECTION 4975(d)(13) OF THE INTERNAL REVENUE CODE AND SECTION 408(e) OF ERISA PROVIDE THAT AN ESOP MAY NOT PURCHASE EMPLOYER SECURITIES FOR MORE THAN ADEQUATE CONSIDERATION (I.E., THE FAIR MARKET VALUE OF THE EMPLOYER SECURITIES AS DETERMINED IN GOOD FAITH BY THE ESOP TRUSTEE OR THE NAMED ERISA FIDUCIARY). THE PROPOSED REGULATIONS AND THE OFFICIAL POSITION BY THE EMPLOYEE BENEFITS SECURITY ADMINISTRATION (EBSA), WHICH IS THE ARM OF THE DEPARTMENT OF LABOR WITH OVERSIGHT ON ESOPs, IS THAT WHEN AN ESOP PAYS FULL FAIR MARKET VALUE FOR THE ACQUISITION OF EMPLOYER SECURITIES THAT DOES NOT INCLUDE A DISCOUNT FOR LACK OF CONTROL, IT HAS PAID A CONTROL PREMIUM. 7

8 WHAT IS CONTROL PRICING? DOL POSITION ON EXERCISE OF CONTROL THE DEPARTMENT OF LABOR S POSITION IS THAT WHEN AN ESOP PURCHASES CONTROL, IT MUST GAIN ACTUAL CONTROL WITHIN A REASONABLE PERIOD OF TIME 8

9 WHAT IS CONTROL PRICING? TYPICAL CONTROL POSITION BEFORE SECOND STAGE TRANSACTIONS ESOP PURCHASES LESS THAN 50% FMV IS DISCOUNTED FOR LACK OF CONTROL SELLER(S) NORMALLY ARE THE CONTROLLING MANAGEMENT OF THE COMPANY SELLER(S) NORMALLY CONTINUE TO COMPRISE THE BOARD OF DIRECTORS THE SELLER(S) OFTEN TIMES WILL ACT AS TRUSTEE(S) OF THE ESOP TO SAVE FEES 9

10 WHAT IS CONTROL PRICING? TRUSTEE CONSIDERATIONS IN A CHANGE OF CONTROL TRANSACTION DOL HAS A NATIONAL PROJECT EXAMINING LEVERAGED ESOPs A SELLER WHO ALSO ACTS AS THE TRUSTEE CAN BE SAID TO BE INHERENTLY CONFLICTED NEGATES THE REASONABLE BUSINESS JUDGMENT STANDARD SHIELD AND INVITES SCRUTINY 10

11 WHAT IS CONTROL PRICING? CHANGES TO BOARD OF DIRECTORS IN A CHANGE OF CONTROL TRANSACTION ONCE THE ESOP PURCHASES CONTROL, THE ESOP NEEDS TO EXERCISE ACTUAL CONTROL WITHIN A REASONABLE PERIOD BOARD OF DIRECTORS NEEDS TO BE COMPRISED OF A MAJORITY OF INDEPENDENT PERSONS (TIME PERIOD?) CONSIDER INDEPENDENT OUTSIDE AND INSIDE DIRECTORS 11

12 WHAT IS CONTROL PRICING? CHANGES TO TRUSTEE ROLE AFTER A CHANGE OF CONTROL TRANSACTION EMPLOYEE OWNERS AS MAJORITY POST TRANSACTION WILL EXPECT MORE CORPORATE INDEPENDENCE WHO IS QUALIFIED TO FULFILL THE DUTIES OF TRUSTEE? ABLE TO ASSERT CONTROL OVER THE BOARD OF DIRECTORS INCREASED COMMUNICATION NEEDS 12

13 WHAT IS CONTROL PRICING? ROLE OF DIRECTED TRUSTEE FOLLOWING CHANGE OF CONTROL TRANSACTION NORMALLY ARISES IN SITUATION WHERE SENIOR MANAGEMENT WANTS TO CONTROL BOARD MEMBERSHIP TRADEOFF IN INCREASING THE POOL WHO HAVE LIABILITY UNDER ERISA DIRECTED TRUSTEE ALWAYS REMAINS INDEPENDENT FOR APPROVAL OF STOCK PRICING 13

14 WHAT IS CONTROL PRICING? EXERCISING CONTROL THROUGH FINANCING DOCUMENTS AFTER CHANGE OF CONTROL TRANSACTION CONSIDER TYPICAL BOARD/PEG (PRIVATE EQUITY GROUP) CONTROL PROVISIONS IN SECURITY AGREEMENT REQUIRE BOARD POSITIONS WHILE SELLER NOTES OUTSTANDING LIMIT CORPORATE DISTRIBUTIONS, SALARIES, BENEFITS, ETC. WHILE SELLER NOTES OUTSTANDING 14

15 VALUATION ISSUES IN A SECOND STAGE TRANSACTION CAN A CONTROL PREMIUM BE PAID IF AN ESOP IS TAKEN FROM A MINORITY TO MAJORITY OWNERSHIP POSITION (I.E., FROM 30% TO 100%)? DOES IT MATTER IF MINORITY DISCOUNT WAS USED IN THE FIRST TRANSACTION (30%) DO THE REMAINING OWNERS/SHARES (THE 70%) GET A CONTROL PRICE IN THE SECOND STAGE? IS A CONTROL PREMIUM GREATER THAN A FULL, PRO RATA AMOUNT PER SHARE? HOW DOES A VALUATION ANALYST JUSTIFY A CONTROL PREMIUM? 15

16 WHAT IS PRICE PROTECTION? A TECHNIQUE THAT CONTRACTUALLY PROTECTS SELECT PARTICIPANTS AND BENEFICIARIES FROM THE IMPACT OF TRANSACTION DEBT ON FUTURE STOCK VALUATIONS PRICE DROP AND PRICE PROTECTION CREATE A CONFLICT LONG TERM EMPLOYEES NEED NO PROTECTION LONG TERM EMPLOYEES MIGHT PREFER NEAR TERM DISTRIBUTEES BEING PAID LESS (KEEP THE CASH IN THE COMPANY) NEAR TERM DISTRIBUTEES ARGUE THEY SHOULD NOT BE IMPACTED BY NEW DEBT 16

17 WHAT IS PRICE PROTECTION? IS PRICE PROTECTION A SECOND CLASS OF STOCK FOR S-CORPORATION? NO-SEE PLR IRS RULED FLOOR PRICE PROTECTION WHICH GUARANTEED SOME, BUT NOT ALL, PARTICIPANTS A MINIMUM PURCHASE PRICE DID NOT CREATE SECOND CLASS OF STOCK TREASURY REGULATION (l) PROVIDES THAT ALL SHARES MUST HAVE IDENTICAL RIGHTS TO DISTRIBUTION AND LIQUIDATION PROCEEDS 17

18 WHAT IS PRICE PROTECTION? REGULATIONS ALLOW CERTAIN ARRANGEMENTS TO BE DISREGARDED LOOKING AT THE IDENTICAL ISSUES: REDEMPTION AGREEMENTS NOT ENTERED INTO FOR PRINCIPAL PURPOSE OF CIRCUMVENTING SINGLE CLASS OF STOCK RULE AND DON T PROVIDE A PRICE SIGNIFICANTLY DIFFERENT FROM FMV AGREEMENTS TO REDEEM STOCK AT TIME OF DEATH, DIVORCE, DISABILITY OR TERMINATION OF EMPLOYMENT IRS HANGING ITS HAT ON PREVIOUS ITEM 18

19 WHAT IS PRICE PROTECTION? PLR STATES THAT ALTHOUGH REGULATION SPECIFIES DEATH, DIVORCE, DISABILITY OR TERMINATION OF EMPLOYMENT, OTHER TYPES OF BONA FIDE ARRANGEMENTS TO REDEEM STOCK MAY BE DISREGARDED BY THE IRS PLR MIGHT SUPPORT PRICE PROTECTION WHEN AGE 55/10 YEARS OF SERVICE DIVERSIFICATION IS APPLICABLE TECHNICALLY, A PLR IS ONLY BINDING ON IRS WITH RESPECT TO PARTY TO WHOM WRITTEN 19

20 WHAT IS PRICE PROTECTION? WHO SHOULD RECEIVE PRICE PROTECTION? MOST COMMON DISTRIBUTEES TO RECEIVE PROTECTION: RETIREES BENEFICIARIES FOLLOWING PARTICIPANT S DEATH DISABLED PARTICIPANT PARTICIPANTS ALREADY IN PAY STATUS AGE 55/10 YEARS OF SERVICE DIVERSIFICATION 20

21 WHAT IS PRICE PROTECTION? LEAST LIKELY DISTRIBUTEES TO RECEIVE PROTECTION: POST TRANSACTION TERMINATIONS HOLDERS OF STAGE TWO STOCK SHARES HOLDERS OF STAGE ONE SHARES ALLOCATED POST SECOND STAGE TRANSACTION NEED TO LOOK AT ESOP TERMINATION/DISTRIBUTION POLICY WHAT IF COMPANY CASHES OUT/SEGREGATES, BUT STILL DELAYS THE DISTRIBUTION? 21

22 WHAT IS PRICE PROTECTION? WHAT SHARES RECEIVE PROTECTION? GENERALLY, ONLY FIRST STAGE SHARES ARE PROTECTED SHOULD ONLY FIRST STAGE SHARES PREVIOUSLY RELEASED/ALLOCATED BE PROTECTED OR ALL FIRST STAGE SHARES? SECOND STAGE SHARES ARE NEW/EXTRA BENEFIT NOT TOUCHED BY THE HIGHER PRE-TRANSACTION PRICE PARTICIPANTS DID NOT HAVE EXPECTATION OF HIGHER PRICE ON THESE SHARES PROTECTION HERE IS VERY RARE 22

23 WHAT IS PRICE PROTECTION? HOW LONG SHOULD PRICE PROTECTION LAST? GENERALLY, A MODEST TIME PERIOD, LIKE TWO TO FOUR YEARS IN THEORY, NO MORE THAN LENGTH OF TIME ESTIMATED FOR POST-TRANSACTION PRICE TO RECOVER TO PRE- TRANSACTION PRICE ENTERPRISE GROWTH RATE, PLUS SIZE AND TERM OF ACQUISITION DEBT ARE FACTORS SHOULD FACTORS INCLUDE OFFSETTING VALUE OF NEW (SECOND STAGE) SHARES BEING ALLOCATED? THEORY IS PRICE DROP IS OFFSET BY NEW SHARES/VALUE THAT THE PARTICIPANT WAS NOT COUNTING ON 23

24 WHAT IS PRICE PROTECTION? HOW MUCH IS THE COMPANY WILLING AND ABLE TO SPEND? COMPANY ALSO HAS TO PAY THE ACQUISITION DEBT USE OF CASH FOR PRICE PROTECTION FURTHER DIMINISHES VALUE 24

25 MECHANICALLY, HOW IS PRICE PROTECTION COMPUTED? PRICE PROTECTION GUARANTEES A MINIMUM VALUE FOR ELIGIBLE ESOP PARTICIPANTS THIS GUARANTEED MINIMUM VALUE IS A PREMIUM OVER ANY UNPROTECTED SHARE VALUE IN OTHER WORDS, THERE ARE TWO VALUES THERE ARE A NUMBER OF MECHANISMS THAT CAN BE EMPLOYED TO ACCOUNT FOR PRICE PROTECTION FIXED VS. VARIABLE IGNORE THE SECOND-STAGE TRANSACTION DEBT 25

26 MECHANICALLY, HOW IS PRICE PROTECTION COMPUTED? NO MATTER WHICH PRICE PROTECTION MECHANISM IS UTILIZED, THE VALUATION ANALYST WILL CONDUCT USUAL VALUATION PROCESS TO CONCLUDE ENTERPRISE VALUE: INCOME APPROACH (DISCOUNTED CASH FLOW METHOD) MARKET APPROACH (GUIDELINE PUBLIC COMPANY AND/OR TRANSACTION METHODS) ONCE ENTERPRISE VALUE IS CONCLUDED, THE ANALYST MAY ESTIMATE THE DILUTIVE IMPACT OF THE PRICE PROTECTION 26

27 MECHANICALLY, HOW IS PRICE PROTECTION COMPUTED? THINK ABOUT IT THIS WAY: THERE IS ONLY 1 PIE AND HOW THIS PIE IS DIVIDED DEPENDS ON THE ADMINISTRATION OF THE ESOP IF A GROUP OF PARTICIPANTS IS PROTECTED, THAT MEANS THAT ANOTHER GROUP IS UNPROTECTED AND PAYS A PRICE THE DILUTIVE IMPACT OF THE PROTECTION CAN BE ACCOUNTED FOR IN THE ANNUAL VALUATION 27

28 MECHANICALLY, HOW IS PRICE PROTECTION COMPUTED Example of The Cost of Price Protection Pre- Post- Transaction Transaction Forecast Tra TTY 12/30/13 12/31/13 12/31/14 12/31/15 12/31/16 Pre-Transaction Price / Share at December 30, 2013 $ Post-Transaction Price / Share at December 31, 2013 $50.00 $60.00 $70.00 $80.00 Fixed Price Protection $ $ $ $ Cost of Price Protection / Share $40.00 $30.00 $ Total Cost of Price Protection $450, ) Assumes 5,000 share are repurchased/protected over 3 years 28

29 MECHANICALLY, HOW IS PRICE PROTECTION COMPUTED? VARIABLE VS. FIXED PRICE PROTECTION VARIABLE: SHARES ARE PROTECTED BY THE GREATER OF (1) THE APPRAISED FAIR MARKET VALUE AS OF THE VALUATION DATE OR (2) THE FAIR MARKET VALUE OF THE SHARES DISREGARDING THE SECOND-STAGE TRANSACTION DEBT FIXED: SHARES ARE PROTECTED BY THE GREATER OF (1) THE APPRAISED FAIR MARKET VALUE AS OF THE VALUATION DATE OR (2) A SET/FIXED PRICE 29

30 MECHANICALLY, HOW IS PRICE PROTECTION COMPUTED? LET S OBSERVE A SIMPLIFIED EXAMPLE: Variable Price Protection (Using Nice Round Numbers) all figures in thousands Pre- Transaction Transaction Forecast Unprotected Shares 12/30/ /31/ /31/ /31/ /31/2016 Market Value of Invested Capital $100,000.0 $100,000.0 $105,000.0 $110,000.0 $115,000.0 Less: Existing Interest-Bearing Debt (10,000.0) (10,000.0) (8,000.0) (6,000.0) (4,000.0) Less: Second-Stage Transaction Debt 0.0 (50,000.0) (45,000.0) (40,000.0) (35,000.0) Indicated Fair Market Value of Equity 90, , , , ,000.0 Less: Cost of Price Protection (10,000.0) (9,000.0) (8,000.0) (7,000.0) Indicated FMV of Equity 30, , , ,000.0 Fully-Dilutive Outstanding Shares 10, , , ,000.0 Unprotected Price / Share $3.00 $4.30 $5.60 $6.90 Post- Price Protected Shares Market Value of Invested Capital $100,000.0 $100,000.0 $105,000.0 $110,000.0 $115,000.0 Less: Existing Interest-Bearing Debt (10,000.0) (10,000.0) (8,000.0) (6,000.0) (4,000.0) Less: Second-Stage Transaction Debt Indicated Fair Market Value of Equity 90, , , , ,000.0 Indicated FMV of Equity 90, , , ,000.0 Fully-Dilutive Outstanding Shares 10, , , ,000.0 Protected Price / Share $9.00 $9.70 $10.40 $11.10 Delta / Share $6.00 $5.40 $4.80 $

31 MECHANICALLY, HOW IS PRICE PROTECTION COMPUTED? NOW A REAL-LIFE EXAMPLE THE BACKGROUND FACTS. THE BOARD OF XYZ HAS BEEN ADVISED BY THE TRUSTEE THAT IT HAS DETERMINED THE VALUE OF THE COMPANY STOCK HELD BY THE TRUST WILL BE REDUCED BY THE ESOP s SECOND STAGE TRANSACTION DEBT AND THAT IT WOULD BE IN THE BEST INTEREST OF, AND FAIR TO, THE PROTECTED CLASS OF XYZ ESOP PARTICIPANTS FOR THE COMPANY TO PROVIDE A FORM OF PRICE PROTECTION, WITH RESPECT TO THE SHARES OF COMPANY STOCK ALLOCATED PRIOR TO THE DATE OF THE SECOND STAGE ESOP PURCHASE (THE "PROTECTED SHARES"), TO PARTICIPANTS WHO DIE, BECOME DISABLED" (AS DEFINED IN THE ESOP), RETIRE AT NRA OR ERA, OR MAKE A "DIVERSIFICATION ELECTION" AS A "QUALIFIED PARTICIPANT. 31

32 MECHANICALLY, HOW IS PRICE PROTECTION COMPUTED? THE NEGOTIATED SOLUTION. THE PRICE PROTECTION PERIOD SHALL BEGIN ON DECEMBER 31, 2012 AND SHALL TERMINATE ON THE EARLIER OF DECEMBER 31, 2015 OR THE DATE ON WHICH THE PER SHARE FAIR MARKET VALUE OF XYZ COMPANY STOCK, AS DETERMINED BY THE TRUSTEE TAKING INTO ACCOUNT THE ESOP DEBT, EQUALS OR EXCEEDS $43.00 (THE "PRICE PROTECTION PERIOD"); AND BE IT FURTHER THAT THE PRICE PROTECTION FEATURE SHALL BE "INCENTIVE-BASED" SO THAT THE PROTECTED SHARES REFLECT INCREASES AND DECREASES IN THE FAIR MARKET VALUE OF XYZ COMPANY STOCK ATTRIBUTABLE TO THE COMPANY'S ACTUAL FINANCIAL PERFORMANCE WITHOUT REGARD TO THE ESOP SECOND STAGE TRANSACTION DEBT. 32

33 MECHANICALLY, HOW IS PRICE PROTECTION COMPUTED? Example of This Price Protection all figures in thousands Price Protection 12/31/2012 Appraised Fair Market Value of Equity (After ESOP Transaction Debt) $44,240.0 Add: ESOP Transaction Debt 18,830.7 Adjusted Equity Value 63,070.7 Divided by: Fully-Dilutive Shares Outstanding 1,060.5 Adjusted Price / Share $59.47 Unadjusted Price / Share $41.72 Price Protection / Share $

34 MECHANICALLY, HOW IS PRICE PROTECTION PAID? THE PREFERRED METHOD TRUSTEE AND COMPANY EXECUTE SPECIAL REDEMPTION AGREEMENT PROTECTED CLASS ARE THIRD PARTY BENEFICIARIES OF AGREEMENT PLAN DOCUMENT AND DISTRIBUTION POLICY REVISED TO COORDINATE SHARES ARE MOMENTARILY DISTRIBUTED AND THEN REDEEMED AT PROTECTED PRICE SHARES MAY BE RE-CONTRIBUTED, CANCELLED OR MOVED TO TREASURY SHARES 34

35 MECHANICALLY, HOW IS PRICE PROTECTION PAID? PARTICIPANT MAY ROLLOVER THE REDEMPTION PROCEEDS TO AN IRA CODE SECTION 402(c)(6)-MAY ROLLOVER THE DISTRIBUTED PROPERTY OR THE PROCEEDS FROM THE SALE OF PROPERTY RECEIVED IN THE DISTRIBUTION ROLLOVER CAN BE ALL OR ANY PORTION OF THE REDEMPTION PROCEEDS DISTRIBUTION TOTALLY IN EMPLOYER SECURITIES HAVE NO INCOME TAX WITHHOLDING REQUIREMENT SEE TREAS REG (c)-1, Q&A 11 AND 12 FOR SPECIAL WITHHOLDING RULES INVOLVING EMPLOYER SECURITIES 35

36 MECHANICALLY, HOW IS PRICE PROTECTION PAID? ANOTHER METHOD--NOT AS GOOD A RESULT/ERISA PROBLEMS ESOP DISTRIBUTES CASH EQUAL TO TRUE FMV OF STOCK. THIS PORTION MAY BE ROLLED OVER COMPANY PAYS THE DIFFERENCE BETWEEN PRICE PROTECTION PRICE AND TRUE FMV COMPANY PAYMENT CANNOT BE ROLLED OVER TO AN IRA--IT IS NOT SALES PROCEEDS OF PLAN ASSETS DISTRIBUTED ERISA PROBLEM-ISN T COMPANY PAYMENT A NON-QUALIFIED PLAN OF DEFERRED COMPENSATION? ERISA 403(a) TRUST REQUIREMENT VIOLATION UNLESS TOP HAT RULE APPLIES ERISA 401(a) EXCEPTION PROBABLY WILL NOT APPLY--WOULD NOT QUALIFY AS AN UNFUNDED PLAN FOR THE PURPOSE OF PROVIDING DEFERRED COMPENSATION FOR A SELECT GROUP OF MANAGEMENT OR HCEs 36

37 MECHANICALLY, HOW IS PRICE PROTECTION PAID? A METHOD THAT JUST DOES NOT WORK COMPANY CONTRIBUTES ENTIRE PRICE PROTECTED AMOUNT INTO ESOP AND THAT AMOUNT IS SPECIALLY ALLOCATED AND DISTRIBUTED TO PROTECTED FORMER PARTICIPANT VIOLATES THE REQUIRED ALLOCATION RULES- EVERYONE WOULD HAVE TO GET A PORTION OF CONTRIBUTION CANNOT MAKE A DEDUCTIBLE CONTRIBUTION AND SPECIALLY ALLOCATE TO A PROTECTED PARTICIPANT ONLY 37

38 WHO ARE THE PARTIES TO PRICE PROTECTION NEGOTIATIONS? BOARD OF DIRECTORS HAVE FIDUCIARY DUTY TO ALL SHAREHOLDERS ESOP TRUSTEE HAS FIDUCIARY DUTY TO ALL PARTICIPANTS AND BENEFICIARIES ERISA STANDARD TO NOT OVERPAY BALANCE FAIRNESS TO TERMINATING PARTICIPANTS (PROTECTION RECEIVERS) AGAINST ONGOING PARTICIPANTS (EFFECTIVELY, THE PROTECTION PAYORS) 38