EBSA
Notices
Notice of Proposed Individual Exemption Involving Ford Motor Company, Located in Detroit, MI
[ 12/8/2009]
[ PDF]
FR Doc E9-29223
[Federal Register: December 8, 2009 (Volume 74, Number 234)]
[Notices]
[Page 64716-64733]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08de09-60]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application No. L-11575]
Notice of Proposed Individual Exemption Involving Ford Motor
Company, Located in Detroit, MI
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Notice of proposed individual exemption.
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This document contains a notice of pendency (the Notice) before the
Department of Labor (the Department) of a proposed individual exemption
from certain prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (the Act or ERISA). The
transactions involve the UAW Ford Retirees Medical Benefits Plan (the
Ford VEBA Plan) and its funding vehicle, the UAW Retiree Medical
Benefits Trust (the VEBA Trust), (collectively the VEBA).\1\ The
proposed exemption, if granted, would affect the VEBA, and its
participants and beneficiaries.
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\1\ Because the Ford VEBA Plan will not be qualified under
section 401 of the Internal Revenue Code of 1986, as amended (the
Code), there is no jurisdiction under Title II of the Act pursuant
to section 4975 of the Code. However, there is jurisdiction under
Title I of the Act.
DATES: Effective Date: If granted, this proposed exemption will be
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effective as of December 31, 2009.
DATES: Written comments and requests for a public hearing on the
proposed exemption should be submitted to the Department within 40 days
from the date of publication of this Federal Register Notice.
ADDRESSES: All written comments and requests for a public hearing
concerning the proposed exemption should be sent to the Office of
Exemption Determinations, Employee Benefits Security Administration,
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Washington DC 20210, Attention: Application No. L-11575. Interested
persons are also invited to submit comments and/or hearing requests to
EBSA via e-mail or FAX. Any such comments or requests should be sent
either by e-mail to: ford@dol.gov, or by FAX to (202) 219-0204 by the
end of the scheduled comment period. The application for exemption and
the comments received will be available for public inspection in the
Public Disclosure Room of the Employee Benefits Security
Administration, U.S. Department of Labor, Room N-1513, 200 Constitution
Avenue, NW., Washington, DC 20210. Comments and hearing requests will
also be available online at http://www.regulations.gov and http://
www.dol.gov/ebsa, at no charge. 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.
FOR FURTHER INFORMATION CONTACT: Warren Blinder, Office of Exemption
Determinations, Employee Benefits Security Administration, U.S.
Department of Labor, telephone (202) 693-8553. (This is not a toll-free
number).
SUPPLEMENTARY INFORMATION: This document contains a notice of proposed
individual exemption from the restrictions of sections 406(a)(1)(A),
406(a)(1)(B), 406(a)(1)(D), 406(a)(1)(E), 406(a)(2), 406(b)(1),
406(b)(2), and 407(a) of ERISA. The proposed exemption has been
requested in an application filed by the Ford Motor Company (Ford or
the Applicant) pursuant to section 408(a) of ERISA and in accordance
with the procedures set forth in 29 CFR 2570, Subpart B (55 FR 32836,
August 10, 1990). Effective December 31, 1978, section 102 of
Reorganization Plan No. 4 of 1978, (43 FR 47713, October 17, 1978)
transferred the authority of the Secretary of the Treasury to issue
exemptions of the type requested to the Secretary of Labor.
Accordingly, this proposed exemption is being issued solely by the
Department.
[[Page 64717]]
Summary of Facts and Representations \2\
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\2\ The Summary of Facts and Representations is based on the
Applicant's representations and does not reflect the views of the
Department.
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1. The Applicant
Ford and its subsidiaries have been engaged primarily in worldwide
automotive production and marketing operations. Ford designs,
manufactures, and markets vehicles worldwide, with its largest
operating presence in North America. Ford maintains its headquarters in
Dearborn, Michigan. As of December 31, 2008, Ford had approximately
71,000 active employees in the United States, of whom approximately
42,000 are represented by the UAW and other unions. Approximately
285,000 retirees and dependents in the U.S. receive retiree health
benefits from Ford, and of this total, approximately 196,000 are hourly
retirees and spouses, surviving spouses, and eligible dependents. As of
December 31, 2008, Ford had total assets on its consolidated balance
sheet of $218 billion.
2. Other Parties in Interest in the Covered Transactions
In addition to the Applicant, the parties in interest involved in
the covered transactions described herein are (1) the committee that
manages the VEBA Trust and is the administrator and a named fiduciary
of the Ford VEBA Plan (the Committee), (2) an independent fiduciary to
be engaged by the Committee to manage employer securities held by the
VEBA Trust (the Independent Fiduciary), (3) the trustee of the VEBA
Trust, State Street Bank and Trust Company (the Trustee), and (4) the
Ford-UAW Holdings LLC (described below). The role of each of these
parties is described in detail below.
3. Background
Ford historically has provided retiree medical benefits to former
UAW represented employees under the Hospital-Surgical-Medical-Drug-
Dental-Vision Program (the Ford Retiree Health Plan). On February 13,
2006, Ford and the International Union, United Automobile, Aerospace
and Agricultural Implement Workers of America (the UAW) and a class of
retirees entered into a Settlement Agreement in the case of UAW v. Ford
Motor Co., No. 05-74730, 2006 WL 1984363 (E.D. Mich. July 13, 2006),
aff'd sub nom. UAW v. Gen. Motors Corp., 497 F.3d 615 (6th Cir. 2007)
(consolidated appeal) (the Hardwick I Settlement Agreement). The case
was brought to contest whether Ford has the right to unilaterally
modify hourly retiree welfare benefits for hourly retirees who had been
represented by the UAW.
Under the terms of the Hardwick I Settlement Agreement, a new
health benefit plan was established to mitigate costs shifted to the
affected retirees. The benefits provided under the new plan were to be
paid from a voluntary employees' beneficiary association (the
Mitigation VEBA) controlled by a committee independent of Ford (the
Mitigation VEBA Committee). The Mitigation VEBA was to be funded by
Ford through cash and other payments, and by contributions from active
Ford employees through wage deferrals and the diversion of cost-of-
living adjustments. The Hardwick I Settlement Agreement was to remain
in effect until at least September 14, 2011, after which either Ford or
the UAW could terminate the agreement and reassert its original
position regarding Ford's ability to unilaterally terminate retiree
health care benefits.
Despite entering into the Hardwick I Settlement Agreement, Ford's
retiree health care funding obligations continued to present a
significant impact on the Company's financial condition, which had been
exacerbated by recent global economic conditions. In addition, many of
Ford's competitors enjoyed a sizeable competitive advantage due to the
fact that they lacked the legacy expenses attributable to retiree
health benefits. For these reasons, in 2007 Ford announced its
intention to terminate retiree health care coverage for UAW represented
employees and retirees and its plan to terminate the Hardwick I
Settlement Agreement, in 2011. The UAW again contested Ford's
unilateral right to alter retiree health benefits, asserting that such
benefits were vested and could not be modified without consent.
Consequently, throughout October and November 2007, the parties
attempted to resolve the impasse through prolonged negotiations.
Ultimately, Ford and the UAW agreed to a permanent restructuring of
post-retirement medical benefits and the parties executed a Memorandum
of Understanding on November 3, 2007 (the MOU), under which benefits
would be funded through a new independent voluntary employees'
beneficiary association, the VEBA Trust. The UAW and counsel to the
class of plaintiffs (Class Counsel) in Hardwick I believed that the
retiree health benefits of the classes of plaintiffs would have greater
security if funded by the VEBA Trust, because it would be independent
of Ford. According to the Applicant, this belief was based on an
extensive study of Ford financial data, provided by Ford, which led to
the conclusion that in the event of a Ford bankruptcy, the assets in
the VEBA would have greater security.
Under the MOU, the Ford VEBA Plan and the VEBA Trust would assume
responsibility for post-retirement medical benefits commencing in 2010.
In exchange, Ford would deposit or remit $13.2 billion in assets (on a
present value basis, as of December 31, 2007) to the VEBA Trust. In
outlining benefits for retirees and the terms of Ford's payment
obligations, the MOU generally followed the pattern set by GM and
Chrysler in their bargaining with the UAW.\3\
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\3\ Under the terms of the MOU, UAW-represented employees hired
after November 19, 2007 were no longer eligible for retiree health
benefit coverage under Ford's retiree medical health plan or under
the Ford VEBA Plan funded by the VEBA Trust.
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Despite the parties agreeing to the MOU, on November 9, 2007, the
UAW and a class of retirees (the 2007 Class) filed suit against Ford in
the United States District Court for the Eastern District of Michigan
(the District Court) challenging Ford's unilateral right to alter
retiree health benefits and asserting that such benefits were vested.
See Int'l Union, UAW, et al. v. Ford Motor Company, Civil Action No.
07-14845, 2008 WL 4104329 (E.D. Mich. Aug. 29, 2008).
Following another round of negotiations, Ford and the UAW agreed to
a proposed settlement (the 2008 Settlement Agreement). See Ford Motor
Co., 2008 WL 4104329. The negotiations included a comprehensive
analysis and evaluation of the parties' claims and defenses and of the
impact of rising health care costs on Ford's financial condition. The
agreement followed a pattern similar to settlement agreements reached
between the UAW and GM and Chrysler, respectively.\4\
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\4\ See UAW v. Gen. Motors Corp., No. 07-CV-14074-DT, 2008 WL
2968408 (E.D. Mich. July 31, 2008); UAW v. Chrysler, No. 07-CV-
14310, 2008 WL 2980046 (E.D. Mich. July 31, 2008).
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Pursuant to the Department's request, Ford, the UAW and Class
Counsel agreed to amend the proposed form of the trust agreement for
the VEBA Trust (the Trust Agreement) to clarify that the Committee,
which manages the VEBA Trust and is the administrator and a named
fiduciary of the Ford VEBA Plan, would be guided by the principle that
the Ford VEBA Plan should provide substantial health benefits for the
duration of the lives of all participants and beneficiaries when
determining the design of health benefits. After a
[[Page 64718]]
fairness hearing, the 2008 Settlement Agreement was approved by the
District Court on August 29, 2008 as fair, reasonable, and adequate.
See Ford Motor Co., 2008 WL 4104329.
The 2008 Settlement Agreement was intended to permanently resolve
the parties' disputes and satisfy and replace the prior Hardwick I
Settlement Agreement. Under the 2008 Settlement Agreement, based on the
framework of the MOU, Ford's obligations for providing post-retirement
medical benefits to the 2007 Class and a group of Ford active employees
eligible for retiree benefits (the 2007 Covered Group) would be
terminated and the Ford VEBA Plan would be established and maintained
by the Committee. The Ford VEBA Plan would be funded by the VEBA Trust,
which would be responsible for the payment of post-retirement medical
benefits to members of the 2007 Class and the 2007 Covered Group. Under
the terms of the 2008 Settlement Agreement, coverage and operations for
the Ford VEBA Plan would commence on the day following the
``Implementation Date,'' or January 1, 2010. Ford also agreed to
transfer assets to the VEBA Trust on behalf of the Ford VEBA Plan with
an estimated worth of $13.2 billion, based on a present value as of
December 31, 2007.
As the economic environment continued to deteriorate in late 2008,
Ford decided to take further action to remain competitive with other
automobile manufacturers and to be able to operate profitably. Ford's
principal domestic competitors (GM and Chrysler) were being required,
under the terms of government-funded bridge loans, to reduce their
public unsecured debt obligations by two-thirds, to reduce by one-half
the cash expense associated with their retiree health care VEBA trusts,
and to achieve parity in labor costs with the U.S. operations of non-
domestic automobile makers. Notably, GM and Chrysler were required to
make payments to their employer-specific accounts in the VEBA Trust in
at least 50% employer stock. Consequently, Ford and the UAW amended
their 2007 collective bargaining agreement to allow Ford to reduce its
labor costs. The amendment was ratified by the UAW's membership and
became effective on March 16, 2009. On July 23, 2009, Ford, the UAW,
and Class Counsel entered into an agreement to amend the 2008
Settlement Agreement (the Amendment Agreement) by providing, inter
alia, that Ford may use Ford common stock (Ford Common Stock) to pay up
to approximately 50% of certain future obligations to the VEBA Trust on
behalf of the Ford VEBA Plan. The Amendment Agreement does not reduce
the present value of the assets to be provided to the VEBA Trust under
the 2008 Settlement Agreement, but instead altered the form and timing
of Ford's obligation to the VEBA Trust in a manner that facilitates
efforts to restructure Ford's debt and substantially reduce the risk
that Ford will default on its obligations to the VEBA Trust.
The revised settlement agreement (the 2009 Settlement Agreement)
took effect on November 9, 2009, upon the District Court's issuance of
an ``Order and Final Judgment'' granting approval to the Amendment
Agreement (the Order and Final Judgment), including approval of the
amendment to the Trust Agreement (the Trust Agreement Amendment) and
certification of the class under the modified class definition.\5\ The
2009 Settlement Agreement, inter alia, updates the definition of the
``Class'' under the 2008 Settlement Agreement to include individuals
who have retired since the 2008 Settlement Agreement or their spouses
and dependents (the Class) and are eligible to receive health care
benefits under the Ford VEBA Plan.\6\ The 2009 Settlement Agreement
also similarly expands the members included in the definition of the
2007 Covered Group (the Covered Group).\7\
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\5\ See Int'l Union, UAW, et al. v. Ford Motor Company, Civil
Action No. 07-14845, (E.D. Mich. Nov. 9, 2009) (Doc. 71,
Order and Final J.).
\6\ The expanded definition of Class can be found on page 3 of
the 2009 Settlement Agreement.
\7\ The expanded definition of Covered Group can be found on
pages 4-5 of the 2009 Settlement Agreement. Notably, this definition
includes certain Ford Active Employees who had attained seniority on
or prior to November 19, 2007, and who retire on or after August 15,
2009.
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4. The Ford VEBA Plan and VEBA Trust
Under the 2009 Settlement Agreement, the UAW Ford Retirees
Employees' Beneficiary Association (the Ford EBA), acting through the
Committee, will establish and maintain the Ford VEBA Plan, subject to
ERISA, for the purpose of providing retiree health benefits to the
Class and the Covered Group on and after the day following the
Implementation Date, which will be December 31, 2009. Until then, Ford
will continue to provide retiree health care benefits to the Class and
the Covered Group at the same levels and scope as agreed to in the
Hardwick I Settlement Agreement. On the day following the
Implementation Date and continuing thereafter, decisions about benefit
levels are to be made by the Committee, which will have sole
responsibility to determine the scope and level of retiree health
benefits available to the Class and the Covered Group under the Ford
VEBA Plan.
The Committee is not obligated to design the Ford VEBA Plan to
assure that the assets in the VEBA Trust are sufficient to provide
benefits to all potential participants and beneficiaries in the Ford
VEBA Plan in all future years. Instead, the Committee's long-term
objective in designing the Ford VEBA Plan, absent countervailing
circumstances, is to provide ``meaningful health benefits'' to all
participants and beneficiaries in the Ford VEBA Plan.\8\
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\8\ See Section 10.2(a) of the Trust Agreement.
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Acting through the Committee, the VEBA Trust was established on
October 16, 2008, by the Ford EBA, along with the UAW Chrysler Retirees
Employee's Beneficiary Association and the UAW GM Retirees Employees'
Beneficiary Association.\9\ The 2009 Settlement Agreement provides that
the VEBA Trust will be responsible for the payment of post-retirement
medical benefits under the Ford VEBA Plan to members of the Class and
the Covered Group the day following the Implementation Date. The VEBA
Trust intends to be qualified under section 501(c)(9) of the Code, as
amended, and comply as applicable with the Labor-Management Relations
Act of 1947, as amended, 29 U.S.C. 186, and will be subject to ERISA.
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\9\ The VEBA Trust consists of three separate employees'
beneficiary associations, each of which has a membership of the
applicable Ford, GM, and Chrysler retirees who may become eligible
to participate in each separate employee welfare benefit plan
established on behalf of the members of each respective eligible
group.
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The VEBA Trust is structured to have three separate retiree
accounts, designed to segregate payments from each of Ford, GM, and
Chrysler, pursuant to the terms of each company's settlement agreement
with the UAW and the respective class. The purpose of each separate
retiree account is to serve as a segregated, dedicated account to be
used for the sole purpose of funding benefits provided under each
related new plan and defraying the reasonable expenses of each plan.
Each retiree account will also have a separate sub-account maintained
to hold any Employer Security \10\ and any proceeds from the
disposition of any such security. Assets from one separate retiree
account may not offset the liabilities or defray the expenses
attributable to another separate account. The VEBA Trust was
[[Page 64719]]
structured as a single trust with separate retiree accounts to allow
for the pooled investment of assets credited to each of the separate
retiree accounts and to provide economies of scale to the Committee in
providing services for each of the plans. Unless the Committee decides
to establish segregated investment vehicles for specific separate
retiree accounts, the assets of the separate retiree accounts, other
than any employer security sub-account, will be invested on a pooled
basis within the VEBA Trust.
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\10\ The Trust Agreement, as amended, defines an ``Employer
Security'' as any obligation, note, warrant, bond, debenture, stock,
or other security within the meaning of section 407(d)(1) of ERISA
that is acquired or held by the VEBA Trust (or arising from any such
security through conversion).
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Ford is obligated to make certain payments to the VEBA Trust which
will be credited to Ford's separate retiree account under the VEBA
Trust (the Ford Separate Retiree Account). The Ford Separate Retiree
Account will accept the deposits, contributions, and remittances of, or
attributable to, Ford's payments and will pay benefits under the Ford
VEBA Plan, as described below. Any Employer Security contributed by
Ford to the VEBA Trust will be held in a separate sub-account (the Ford
Employer Security Sub-Account).
5. The Committee of the VEBA Trust
The Committee acts as the manager, plan administrator and named
fiduciary with respect to the Ford VEBA Plan, and it appoints the
Trustee, the Independent Fiduciary (as defined herein) and all
investment managers of the VEBA Trust's assets. The Committee may also
retain independent professional service providers that it deems
necessary and appropriate to administer the Ford VEBA Plan.
The Committee is comprised of eleven individuals, consisting of two
groups: six Independent Members and five UAW Members. The initial
Independent Members were approved by the District Court in the 2008
Settlement and the UAW Members were appointed by the UAW. The Committee
will function completely independently of Ford, which has no power of
appointment of the Committee's members. No member of the Committee may
be a current or former officer, director or employee of Ford, GM, or
Chrysler, except that a retiree who was represented by the UAW in his
or her employment with either Ford, GM, or Chrysler, or an employee of
any such company who is on leave from the company and is represented by
the UAW, may be a UAW Member. None of the Independent Members nor any
family members, employers or partners of an Independent Member may have
any financial or institutional relationship with either Ford, GM, or
Chrysler, if such relationship could reasonably be expected to impair
such Independent Member's exercise of independent judgment. Any member
of the Committee who is an employee of the UAW or a local union will
serve without compensation from the Ford VEBA Plan. Other members of
the Committee will be compensated for their services as provided in the
Trust Agreement.
The UAW Members serve at the discretion of the UAW and may be
removed or replaced, and a successor designated, at any time by written
notice by the UAW International President to the Committee. Independent
Members serve for a term of three years, except two of the initial
Independent Members will have initial terms of two years each, and two
other initial Independent Members will have initial terms of one year
each. An Independent Member may serve more than one term and will serve
on the Committee until his or her death, incapacity to serve,
resignation, removal, or expiration of his or her term. An Independent
Member may be removed or replaced, and a successor designated, at any
time by an affirmative vote of nine of the other members of the
Committee. In the event of a vacancy in the group of Independent
Members, whether by expiration of a term, resignation, removal,
incapacity, or death, a successor Independent Member will be elected by
the affirmative vote of nine members. If a successor Independent Member
is not appointed within a reasonable time after a vacancy, an
arbitrator may be appointed, upon application of any member, to appoint
a successor Independent Member to the Committee.
A majority of the members of the Committee then in office shall
constitute a quorum for the purpose of transacting any business;
provided that at least one Independent Member and one UAW Member are
present. Each Member of the Committee present at the meeting shall have
one vote. Generally, for any Committee action to take effect, such
action must be approved by majority vote of the entire Committee,
provided that at least one Independent Member and one UAW Member cast a
vote with the majority. In the event of a vacancy in a class of
members, the majority of the remaining members of the class may cast
the vote of the vacant member. Notwithstanding the foregoing, any
change in benefits must receive the affirmative vote of nine or more
members.
The Committee will select a chair (the Chair) from among its
members. The term of the Chair will continue until he or she ceases to
be a member, resigns as Chair or is replaced as Chair with another
member by majority vote among the remaining members.
6. Ford's Role and Transition Issues
Ford represents that it will not be a fiduciary with respect to the
VEBA Trust or the Ford VEBA Plan, and will have no role in the
governance of the VEBA Trust. As noted above, Ford will not have the
ability to appoint any member to the Committee, and the Committee is
not authorized to act for Ford and is not an agent or representative of
Ford for any purpose.
Ford has agreed pursuant to the 2009 Settlement Agreement to
cooperate with the UAW and the Committee to undertake reasonable
actions as requested to assist the Committee in the transition of
responsibility for administration of retiree health benefits by the
Committee for the VEBA Trust and the Ford VEBA Plan. Such cooperation
may include assisting the Committee in education efforts and
communications with respect to members of the Class and the Covered
Group so that they understand the terms of the VEBA Trust and the Ford
VEBA Plan, the transition of benefit coverage, the claims process, and
other administrative changes undertaken by the Committee. At the
Committee's request, Ford has also agreed to furnish information to the
Committee as reasonably necessary to permit the Committee to
effectively administer the VEBA Trust and the Ford VEBA Plan, including
data maintained by Ford to the extent permitted by law. Any payments
made by Ford for this purpose will not reduce Ford's payment
obligations to the VEBA Trust on behalf of the Ford VEBA Plan under the
2009 Settlement Agreement.
If requested by the Committee, and subject to reimbursement for
reasonable costs, Ford will continue to perform eligibility
determinations for the Ford VEBA Plan for a reasonable period of time,
not to exceed 90 days after the Implementation Date, in order to allow
the Committee to establish and test an eligibility database. Ford will
also assist the Committee in transitioning benefit provider contracts
to the Ford VEBA Plan.
To the extent permitted by law, Ford will cooperate with the
Committee to allow retiree participants in the Ford VEBA Plan to have
required contributions voluntarily withheld on a monthly basis from
pension benefits from Ford's pension plan covering members of the Class
and the Covered Group (the Ford-UAW Retirement Plan) and to the extent
reasonably practical, forwarded to the VEBA Trust to be credited to the
Ford Separate Retiree
[[Page 64720]]
Account of the VEBA Trust (the Contribution Withholding). A participant
may elect or withdraw consent for such pension withholdings at any time
by providing 45 days written notice to the Ford-UAW Retirement Plan
administrator or such shorter period as may be required by law.
Ford will also cooperate with the Committee to make provision for
incorporating the VEBA Trust payment of the ``special benefit'' of
$76.20 related to Medicare Part B premiums into the monthly Ford
pension checks for eligible retirees and surviving spouses
participating in the Ford VEBA Plan (the Part B Payment).
The Ford VEBA Plan will be responsible for the payment of
reasonable costs associated with Ford's administration of payment of
the Contribution Withholding and the Part B Payment. The Applicant
asserts that, to the extent that these payments are prohibited
transactions, the statutory exemption for the provision of services
provided by section 408(b)(2) of ERISA provides relief from the
prohibited transaction restrictions of section 406(a) of ERISA.
ERISA section 408(b)(2) provides relief for the ``[c]ontracting or
making reasonable arrangements with a party in interest for office
space, or legal, accounting or other services necessary for the
establishment or operation of the plan, if no more than reasonable
compensation is paid therefor.'' Under the Department's regulations, a
service is necessary for the establishment or operation of a plan if
the service is ``appropriate and helpful to the plan obtaining the
service in carrying out the purposes for which the plan is established
or maintained.'' 29 CFR 2550.408(b)(2).
According to the Applicant, the Contribution Withholding is helpful
to the Ford VEBA Plan as it reduces expenses associated with processing
participant contributions and investigating delinquent contributions.
This service is also helpful to participants as it assures that
contributions are received timely, without the need to mail a check
monthly to the Ford VEBA Plan, which thereby will assure continuation
of health care coverage under the Ford VEBA Plan for these
participants. Accordingly, the Contribution Withholding is appropriate
and helpful to the Ford VEBA Plan in carrying out its purpose because
it reduces expenses and aids in making sure participants receive
benefits without interruption.
With respect to the Part B Payment, the Applicant states that it is
appropriate and helpful to the Ford VEBA Plan as it allows the Ford
VEBA Plan to take advantage of an existing administrative process that
incorporates a defined, monthly payment to participants into pension
checks that participants are already receiving. This obviates the need
for the Ford VEBA Plan to develop its own administrative process for
this purpose and undertake the expense of mailing monthly checks to all
participants. Accordingly, the Part B Payment reduces expenses of the
Ford VEBA Plan, which helps conserve the amount of resources available
to provide benefits.
Furthermore, the Applicant represents that the costs of the
Contribution Withholding and the Part B Payment have not yet been
determined. However, the Committee will be subject to ERISA's fiduciary
responsibility rules when determining the cost structure, and the 2009
Settlement Agreement states that both services will only be provided to
the extent permitted by law, and a cost that is not reasonable would
not permitted by law.
In the Department's view, relief under section 408(b)(2) would be
available for these services provided the conditions of that exemption
are satisfied. Ultimately, it is the responsibility of the Committee to
determine whether the services provided by Ford satisfy all of the
conditions set forth in the statutory exemption and pertinent
regulations.
7. Payments to the Ford VEBA Plan
As described in more detail below, on or following the
Implementation Date under the 2009 Settlement Agreement, Ford, the
Mitigation VEBA Committee, or the trustee of the Mitigation VEBA, as
applicable, are required, under the terms of the 2009 Settlement
Agreement, to make, on behalf of the Ford VEBA Plan, the following
deposits or remittances: (a) Ford shall transfer to the VEBA Trust the
balance in the temporary asset account created under the 2008
Settlement Agreement (the TAA) as of the date of transfer or, at Ford's
discretion, cash in lieu of some or all of the investments in the TAA;
(b) Ford shall transfer to the VEBA Trust two notes issued by Ford (New
Note A and New Note B, and collectively, the New Notes) in an aggregate
principal amount of $13.2 billion, warrants to acquire 362,391,305
shares of Ford Common Stock at a strike price of $9.20 per share (the
Warrants), and any shares of Ford Common Stock transferred by Ford in
settlement of its first payment obligation under New Note B (Payment
Shares); (c) Ford shall direct the trustee of the Existing Internal
VEBA (as defined below) to transfer to the VEBA Trust all assets in the
Existing Internal VEBA or cash in an amount equal to the Existing
Internal VEBA balance on the date of transfer; and (d) the Mitigation
VEBA Committee, or the trustee of the Mitigation VEBA, as directed by
the District Court's Order and Final Judgment, is required to transfer
all assets and liabilities of the Mitigation VEBA to the VEBA Trust.
8. The TAA and the LLC
Ford created the TAA under the 2008 Settlement Agreement to serve
as tangible evidence of the availability of Ford assets equal to Ford's
obligation to the Ford VEBA Plan. The assets in the TAA, and the
investment thereof, are controlled exclusively by Ford and include all
investment gains/losses thereon from January 1, 2008, through the date
the assets are transferred to the VEBA Trust.
In addition, Ford established Ford-UAW Holdings LLC, a wholly-owned
LLC, to hold the assets in the TAA and certain other assets required to
be contributed under the 2008 Settlement Agreement, namely (a) a
convertible note, issued in April 2008 and due January 1, 2013, with an
aggregate principal amount of $3.3 billion bearing 5.75% interest per
annum payable semi-annually (the Convertible Note), and (b) a term
note, issued in April 2008 and due January 1, 2018 with a principal
amount of $3.0 billion bearing 9.50% interest per annum payable semi-
annually (the Term Note).
In late 2008, and under the authority granted to it in the 2008
Settlement Agreement, Ford caused the LLC to pay to it $2.282 billion,
the value of the assets in the TAA as of December 31, 2008, in exchange
for a note with a principal amount of $2.282 billion issued by Ford to
the LLC (the TAA Note). The TAA Note has an interest rate of 9% per
annum and a maturity date of December 31, 2009. In addition, Ford will
repay to the LLC a ``true-up amount,'' calculated according to a
formula provided in the note, to reflect a hypothetical investment
return on the TAA assets. Since December 31, 2008, Ford has deposited
into the TAA $529.1 million representing interest payments on the
Convertible Note and Term Note and payments due under the 2008
Settlement Agreement (Base Amount Payments).\11\ Ford is also required
under the 2008 Settlement Agreement to transfer, as the Committee may
request, up to $20 million from the TAA to the VEBA Trust to cover
expenses that will
[[Page 64721]]
be incurred by the VEBA Trust in anticipation of the Ford VEBA Plan
assuming responsibility for payment of benefits for the Class or
Covered Group until the Implementation Date. As of July 31, 2009, the
cash balance in the TAA was $581.2 million.
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\11\ Ford is obligated to make annual ``Base Amount Payments''
of $52.3 million for 15 years to the VEBA Trust under the 2008
Settlement Agreement.
---------------------------------------------------------------------------
As soon as practicable after November 30, 2009 (the Exchange Date),
the Convertible Note, the Term Note and the TAA Note will be cancelled
and returned to Ford in exchange for Ford's issuance of the New Notes
and Warrants to the LLC, and Ford's obligation to make future Base
Amount Payments will terminate.
9. New Notes
As described above, under the 2009 Settlement Agreement, the Term
Note and Convertible Note, along with the TAA Note and the right to
future Base Amount Payments, will be exchanged for the New Notes and
Warrants (described in more detail below). The aggregate principal
amount of the New Notes and the amortization thereof represents the
equivalent value of (a) the principal amounts of and interest payments
on the Term Note, the Convertible Note and the TAA Note; (b) any unpaid
Base Amount Payments; and (c) an additional $25 million per year during
the period 2009 through 2018, which is intended to cover transaction
costs the Ford VEBA Plan incurs in selling any shares of Ford Common
Stock delivered pursuant to Ford's exercise of the stock settlement
option under New Note B.\12\
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\12\ Each of New Note A and New Note B represents approximately
50% of Ford's overall funding obligation under the 2008 Settlement
Agreement.
---------------------------------------------------------------------------
Unless Ford elects to prepay the amounts due under the New Note,
the payment schedule under the New Notes will be as set forth below:
------------------------------------------------------------------------
Payment of note A Payment of note B
Payment date (million) (million)
------------------------------------------------------------------------
December 31, 2009................. $1,268.47 $609.95
June 30, 2010..................... 290 609.95
June 30, 2011..................... 290 609.95
June 30, 2012..................... 679 654
June 30, 2013..................... 679 654
June 30, 2014..................... 679 654
June 30, 2015..................... 679 654
June 30, 2016..................... 679 654
June 30, 2017..................... 679 654
June 30, 2018..................... 679 654
June 30, 2019..................... 26 26
June 30, 2020..................... 26 26
June 30, 2021..................... 26 26
June 30, 2022..................... 26 26
------------------------------------------------------------------------
a. Key Terms of New Note A
New Note A is a $6,705,470,000 amortizing guaranteed secured note
maturing June 30, 2022. It does not bear interest except in the event
of a default in a scheduled payment. Payments are to be made in cash,
in annual installments from 2009 through 2022. The initial payment of
approximately $1.2 billion, due December 31, 2009, is significantly
larger than the subsequent payments, in order to provide the VEBA Trust
with funds from which to operate and pay benefits under the Ford VEBA
Plan.
New Note A is designated as Primary Second Lien Debt and Second
Priority Additional Debt in accordance with, and subject to, the terms
of a certain Credit Agreement dated December 15, 2006 with JPMorgan
Chase Bank (the 2006 Credit Agreement).\13\ As such, up to
approximately $1.5 billion of the principal payments made under New
Note A, and any interest from overdue principal payments, are secured
on a second lien basis with the collateral pledged under the 2006
Credit Agreement. Upon satisfaction of certain conditions, this second
lien security interest is partially reduced in 2017 and terminated
fully in 2018. New Note A is also guaranteed, subject to certain
conditions. It will be endorsed with an unconditional guaranty of
payment issued by certain direct and indirect wholly-owned Ford
subsidiaries (the Subsidiary Guarantors).\14\
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\13\ It is anticipated that the LLC, as holder of the New Notes
(upon their issuance), will enter into an Intercreditor Agreement
that will set forth certain priority provisions between the LLC and
other second lien lenders.
\14\ The Applicant represents that the Ford VEBA Plan will pay
no fees to the Subsidiary Guarantors in return for their guaranty of
the New Notes. Therefore, the Applicant asserts that although the
guarantees are a prohibited extension of credit between the Ford
VEBA Plan and parties in interest, such guarantees are covered by
the class exemption granting relief for an interest free loan
between a plan and a party in interest. PTE 80-26, as amended (71 FR
17917 (April 7, 2006)) (Interest-Free Loans). In the Department's
view, relief under PTE 80-26 would be available for the guarantees
provided the conditions of that exemption are satisfied.
---------------------------------------------------------------------------
New Note A is transferable, subject to limited restrictions. It may
not be reoffered, sold, assigned, transferred, pledged, encumbered or
otherwise disposed of by the holder except (a) to the VEBA Trust
pursuant to the 2009 Settlement Agreement, (b) to Ford or a subsidiary
thereof, (c) pursuant to a Ford registration statement that has become
effective under the Securities Act of 1933, as amended, (the Securities
Act) or (d) pursuant to an exemption from registration provided by Rule
144 under the Securities Act or any other available exemption from the
registration requirements of the Securities Act.
However, the VEBA Trust may assign or transfer all or any portion
of New Note A provided that (a) the amount of the assignment or
transfer must at least be in an initial principal amount of
$250,000,000, or if in excess thereof in an initial principal amount of
a multiple of $100,000,000; (b) the assignment or transfer is not in
violation of applicable law; (c) Ford and its Subsidiary Guarantors
receive a written agreement from the assignee or transferee to
undertake the representations, warranties and covenants of the holder
included in the Securities Exchange Agreement; and (d) sufficient
notice and evidence of compliance with the transfer or assignment
conditions is given to Ford.\15\
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\15\ See Section 5 of the Securities Exchange Agreement.
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b. Key Terms of New Note B
New Note B is a $6,511,850,000 amortizing guaranteed secured note
maturing June 30, 2022. It does not bear
[[Page 64722]]
interest except in the event of a default in a scheduled payment. The
initial principal amount is to be repaid according to the agreed-upon
schedule of fourteen annual payments set forth above with an initial
payment date on December 31, 2009.
New Note B is also designated as Primary Second Lien Debt and
Second Priority Additional Debt in accordance with, and subject to, the
terms of the 2006 Credit Agreement. As such, up to approximately $1.5
billion of the principal payments made under New Note B, and any
interest from overdue principal payments, are secured on a second lien
basis with the collateral pledged under the 2006 Credit Agreement. Upon
the satisfaction of certain conditions, this second lien security
interest is partially reduced in 2017 and terminated in its entirety
2018. Additionally, New Note B is guaranteed in accordance with
substantially identical terms as are described above for New Note
A.\16\
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\16\ See Footnote 14 regarding the applicability of PTE 80-26.
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On each New Note B payment date, subject to satisfaction of all of
the Stock Settlement Conditions (described below), Ford has the option
to settle any or all of the amount due with respect to New Note B with
Ford Common Stock designated as ``Payment Shares'' of equal value,
determined based on the volume-weighted average selling price per share
of Ford Common Stock for the 30 trading-day period ending on the second
business day prior to the relevant payment date. Such Payment Shares
will be subject to certain registration rights and transfer
restrictions, as described herein.
Ford's option to settle any or all portion of the amounts due with
respect to New Note B by delivering Payment Shares is subject in each
instance to the satisfaction of the following Stock Settlement
Conditions on the applicable payment date:
1. No event of default has occurred under Ford's outstanding
public debt securities, bank credit facilities, or notes or other
securities issued to the VEBA Trust, and Ford has paid all amounts
due on or prior to such payment date on New Note A and New Note B
(in cash, or through the exercise of the stock payment option with
respect to any payment or portion thereof or the deferral of any
payment or portion thereof as described below, as applicable);
2. No bankruptcy or insolvency proceeding has been commenced by
or against Ford;
3. Ford has made no assignment for benefit of creditors or
admission of general inability to pay debts;
4. Ford Common Stock is listed on the New York Stock Exchange
(NYSE) or other national securities exchange on the payment date,
and the NYSE (or such other securities exchange) has not commenced
or provided notice of the commencement of any delisting proceedings
or inquiries on or prior to the payment date;
5. No judgment in excess of a specified amount has remained
unsatisfied and unstayed for more than 30 days;
6. No ``termination event'' (as defined by ERISA) has occurred
with respect to either of Ford's two major U.S. defined benefit
pension plans;
7. Ford has received no audit opinion containing a going concern
explanatory paragraph for the fiscal year immediately preceding the
applicable payment date; and
8. The price per share of Ford Common Stock is greater than
$1.00 (subject to customary anti-dilution adjustments).
Furthermore, if on any payment date under New Note B, conditions
1., 2., 3., 5., and 6. are met, then, subject to certain limitations,
Ford would generally have the right to defer such payment by paying it
in up to five equal annual installments beginning with the next
scheduled payment date, with interest accruing at 9% beginning on the
date such payment was originally due and continuing through the date
such payment is made. Thus, Ford may make such payment (or installment
thereof) in common stock on any deferred installment date if all the
conditions for payment in common stock have been met on such date.
c. Department's Concerns Regarding New Note B
The Department raised the issue of Ford's discretion under New Note
B with Ford, the UAW, and Class Counsel and received the unanimous
response that the terms would not unduly disadvantage participants or
beneficiaries of the VEBA Trust. The Applicant asserted that, although
the Payment Shares will initially be unregistered, the VEBA Trust will
likely be able to sell the shares with minimal delay, thus the
difference in price between the unregistered Payment Shares and
publicly traded Ford Common Stock would be negligible.\17\ Furthermore,
under the terms of New Note A, the VEBA Trust will receive an
additional payment in each year intended to compensate the VEBA Trust
for any transaction costs of selling Payment Shares and any short term
risk due to stock price volatility.
---------------------------------------------------------------------------
\17\ Section 5.01 of the Securityholder and Registration Rights
Agreement by and among Ford and Ford-UAW Holdings LLC, effective as
of November 9, 2009 (the Securityholder and Registration Rights
Agreement), obligates Ford to establish a shelf registration as soon
as possible following the delivery of the New Notes. Since Ford is a
well-known seasoned issuer for purposes of the Securities Exchange
Act, the shelf registration should be effective immediately upon
filing, allowing the VEBA Trust to sell shares immediately following
their receipt. In addition, the VEBA Trust has certain other
piggyback registration rights, rights under Rule 144 and 144A, and
block sales rights as well, subject to various restrictions designed
to protect Ford from dilution of its stock at a time when its stock
price is already low.
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In addition, the Applicant, the UAW, and Class Counsel maintained
that, although Ford would have the unilateral option to defer its
payment obligations under New Note B, there would be sufficient
conditions present to prevent such option from being abused.
Furthermore, according to the UAW and Class Counsel, the terms of the
settlement agreement(s) were heavily negotiated by all parties to the
transactions, and the formula selected to calculate the amount of
Payment Shares payable on a payment date under New Note B provides
protection for the VEBA Trust from short-term aberrant trading
movements and is a fairly standard method of measuring the value of a
stock-settled convertible instrument trading in the marketplace.\18\
---------------------------------------------------------------------------
\18\ See pages 1-2 of ``UAW Response to Department of Labor
Questions on New Note B: Statement in Support of Prohibited
Transaction Exemption Application of Ford Motor Company,'' submitted
July 24, 2009.
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The Department takes note of the fact that the 2009 Settlement
Agreement was negotiated by the responsible parties, including the UAW
and Class Counsel, who believed that it represented the best
alternative that could be achieved under difficult circumstances.
10. Other Important Terms Common to the New Notes
Ford may prepay in cash either or both of the New Notes in whole or
in part. For prepayments in whole, the payment on each Payment Date
shall equal the corresponding amounts set forth as a schedule to the
applicable New Note. In the event of any partial prepayment, future
payments shall be determined, subject to the VEBA Trust's review and
confirmation, on a basis that provides the economically equivalent
present value and duration to the VEBA Trust using a discount rate of
9% per annum.
Furthermore, each payment under the New Notes will be deemed a
payment of principal. Any payment not made, in addition to any default
implications, earns interest at an annual rate of 9% per annum, plus a
default premium of 2% per annum from the due date to the date of
payment.
11. Warrants
Ford will issue Warrants to acquire 362,391,305 shares of Ford
Common Stock at a strike price of $9.20 per share. The Warrants expire
on January 1, 2013.
[[Page 64723]]
The exercise price and terms of the Warrants are similar to the
conversion price and the conversion rights in the Convertible Note
provided under the 2008 Settlement Agreement, and are intended to
preserve to the Ford VEBA Plan the option value embedded in the
Convertible Note by allowing the Ford VEBA Plan to benefit from any
appreciation of Ford's common stock above the exercise price to the
same extent it would have under the Convertible Note. The exercise
price of the Warrants is subject to adjustment according to the terms
of the Warrant Agreement, including as the result of share split, share
combination, certain dividends or distributions and certain tender
offers.
The Warrants are subject to a restriction on transfer, in that they
may not be reoffered, sold, assigned, transferred, pledged, encumbered,
or otherwise disposed of by a Warrantholder except (a) in compliance
with applicable transfer restrictions, if any, set forth in Section 2.2
of the Securityholder and Registration Rights Agreement, and (b)(i) to
Ford or a subsidiary thereof, (ii) pursuant to a Ford registration
statement that has become effective under the Securities Act, or (iii)
pursuant to an exemption from the registration requirements of the
Securities Act, including Rule 144 under the Securities Act.
Shares of Ford Common Stock received by the Ford VEBA Plan upon
exercise of all or a portion of the Warrants are also subject to
restrictions on resale under the Securityholder and Registration Rights
Agreement as described further below. In addition, the shares may not
be reoffered, sold, assigned, transferred, pledged, encumbered, or
otherwise disposed of except (a) prior to October 1, 2012 if the
closing sale price of the common stock was greater than 120% of the
then current exercise price for at least 20 trading days in the 30
consecutive trading days ending on the last trading day of the
preceding calendar quarter or (b)(i) to Ford or its subsidiary, (ii)
pursuant to a Ford registration statement that has become effective
under the Securities Act, or (iii) pursuant to an exemption from the
registration requirements of the Securities Act, including Rule 144
under the Securities Act. Any shares of common stock as to which the
transfer restrictions have expired may be freely sold without limits.
In addition, Warrantholders will not be entitled by virtue of
holding Warrants to vote, consent, receive dividends, or exercise any
right whatsoever of a Ford stockholder unless such Warrantholders
become holders of record of the underlying shares of Ford common stock.
12. Rights and Restrictions Under the Securityholder and Registration
Rights Agreement
Under the 2009 Settlement Agreement, the Payment Shares, Warrants,
and Ford Common Stock issued as a result of the exercise of Warrants,
as well as any Ford Common Stock sold in connection with any hedging
transaction undertaken by the Ford VEBA Plan, have certain registration
rights and are subject to customary limitations and restrictions on
transfer, that are described below.
a. Registration Rights
Under the Securityholder and Registration Rights Agreement, the
VEBA Trust is limited to two shelf takedown or demand registrations per
year, and certain piggyback registration rights, including limitations
on the aggregate sale of shares per quarter and year of 250 million
shares and 500 million shares respectively. Additionally, the VEBA
Trust is subject to certain restrictions with respect to Rule 144 and
144A sales and block sales of Ford Common Stock, that are designed to
minimize dilution or disruption to the voting power, of Ford Common
Stock.
b. Indemnification Rights and Obligations
In addition, under the Securityholder and Registration Rights
Agreement, the VEBA Trust, on behalf of the Ford VEBA Plan, and Ford
may be required to indemnify the other party for certain losses related
to an offering of any shares of Ford Common Stock that are issued or
issuable, as the case may be, upon settlement of New Note B or exercise
of the Warrants (Registrable Instruments). In general, Ford has agreed
to indemnify the VEBA Trust, on behalf of the Ford VEBA Plan, to the
extent it is a holder of any such Securities for all losses arising out
of or caused by any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or offering
document, subject to the terms and conditions of the agreement.
Similarly, the VEBA Trust, on behalf of the Ford VEBA Plan, as a holder
of the Securities, has agreed to indemnify and hold Ford harmless for
any losses arising out of or caused by an untrue statement or omission
included or omitted in any registration statement or offering document
based on information furnished in writing by the VEBA Trust.
The VEBA Trust, on behalf of the Ford VEBA Plan, may also be
subject to a repayment obligation under the Securityholder and
Registration Rights Agreement in the event that the Independent
Fiduciary determines to withdraw any Registrable Instruments from any
``Shelf Offering'' or ``Demand Offering'' after having delivered notice
to Ford of its intent to effect an offering of all or part of the
Registrable Instruments. Among other requirements, the VEBA Trust must
reimburse Ford for all reasonable out-of-pocket fees and expenses
incurred in the preparation, filing and processing of the withdrawn
registration in order for the withdrawn request not to be deemed an
offering and counted against the offering limits provided in such
agreement.
The Applicant has requested exemptive relief from section
406(a)(1)(D) of ERISA for these indemnification and reimbursement
obligations to the extent that the Ford VEBA Plan is a holder of the
relevant Securities and the payment obligations are triggered.
Alternatively, the Applicant asserts that Ford's performance of its
contractual obligations under the Securityholder and Registration
Rights Agreement may be a ``service'' rendered to the VEBA Trust, and
that the reimbursement of certain costs is ``reasonable compensation''
for such service, such that the statutory exemption of section
408(b)(2) of ERISA applies to exempt any such reimbursement from the
prohibitions under section 406(a)(1) of ERISA, and the performance of
such service from the prohibitions under section 406(a)(1)(C) of ERISA.
The Department is not proposing any relief in connection with the
Ford VEBA Plan's obligation to (a) indemnify and hold Ford harmless for
losses arising out of or caused by an untrue statement or omission in
any registration statement or offering document based on information
furnished in writing by the VEBA Trust, or (b) reimburse Ford in the
event that the Independent Fiduciary determines to withdraw any
Registrable Instruments from a ``Shelf Offering'' or ``Demand
Offering'' after having delivered notice to Ford of its intent to
effect such an offering.
It appears to the Department that the only representation that the
VEBA Trust could make to Ford for purposes of a registration statement
or offering document is that it holds the Registrable Instruments free
and clear from any liens.\19\ Thus, it seems unlikely that the
[[Page 64724]]
Ford VEBA Plan will have to indemnify Ford pursuant to this obligation.
ERISA section 408(b)(2) may provide relief for reasonable amounts paid
to Ford if the Independent Fiduciary withdraws any Registrable
Instruments from an offering after it has announced its intentions to
effect such offering and Ford has incurred costs as a result of the
Independent Fiduciary's decision. Ultimately it would be the
responsibility of the Committee to determine whether the services
provided by Ford satisfy all of the conditions set forth in the
statutory exemption and pertinent regulations.
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\19\ In discussions with the Department, the Applicant was hard-
pressed to point out any factual situations that would trigger the
VEBA Trust's indemnification and reimbursement obligations to Ford.
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c. Right of Ford To Purchase Securities
Ford also retains the right, under the Securityholder and
Registration Rights Agreement, to make an offer to purchase certain
Securities that the VEBA Trust intends to transfer to third parties. If
at any time the Independent Fiduciary proposes to transfer any
Warrants, Payment Shares or shares of Ford Common Stock received upon
the exercise of all or a portion of the Warrants, subject to certain
exceptions, Ford will have an option for ten days, after receiving
notice of such intended sale, to offer to purchase all or any portion
of the Securities proposed to be transferred (the ``Right of First
Offer''). After receiving Ford's offer, the VEBA Trust will have ten
days to accept the offer. If the VEBA Trust does not accept Ford's
offer, it may transfer such Securities, subject to the other terms of
the Securityholder and Registration Rights Agreement, to a purchaser on
terms and conditions that are not less favorable to the VEBA Trust (and
no more favorable to the purchaser) than those outlined in Ford's
offer, provided that the transfer is completed within one hundred
twenty (120) days after notice was provided to Ford.
d. Hedging
The Applicant represents that hedging is generally permitted only
on Payment Shares received by the VEBA Trust prior to such hedging and
with respect to no more than 25% of the Payment Shares deliverable by
Ford on the next succeeding payment date, subject to satisfaction of
the Stock Settlement Conditions, in a manner consistent with the then-
existing registration rights agreement and sales and time limitations.
13. Existing Internal VEBA
The Existing Internal VEBA is the subaccount of the Ford-UAW
Benefits Trust that is maintained by Ford as a source of funding for
retiree health care expenses. As of December 31, 2008, the Existing
Internal VEBA had an estimated asset value of approximately $2.7
billion.
Until the Existing Internal VEBA is transferred to the VEBA Trust,
the assets will continue to be invested in a manner consistent with its
investment policy, as may be amended from time to time. Within 10
business days after the Implementation Date, Ford will direct the
trustee of the Existing Internal VEBA to transfer to the VEBA Trust all
assets in the Existing Internal VEBA or cash in an amount equal to the
Existing Internal VEBA balance on the date of the transfer. As
described further below, the Existing Internal VEBA will retain an
amount equal to the Existing Internal VEBA's share of expenses (to the
extent permitted by ERISA) subject to reconciliation with actual
expenses incurred.
14. Mitigation VEBA
The Mitigation VEBA was created in connection with the 2008
Settlement Agreement. Ford submitted an initial application for an
individual prohibited transaction exemption relating to the Mitigation
VEBA on November 27, 2007.\20\ The Mitigation VEBA is intended to be a
source of ``mitigation'' payments to Ford UAW retirees to lessen the
impact of the new cost-sharing provisions implemented under the 2008
Settlement Agreement. As of December 31, 2008, the Mitigation VEBA had
an estimated asset value of $54.4 million. Until the assets and
liabilities of the Mitigation VEBA are transferred to the VEBA Trust
for the benefit of the Ford VEBA Plan, its value will be affected by
certain additional contributions, investment returns and mitigation
expenses and payments. The balance of the Mitigation VEBA is to be
transferred to the VEBA Trust within 15 days after the Implementation
Date. After transfer of the assets, the Mitigation VEBA will be
terminated.
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\20\ The Mitigation VEBA is the subject of Prohibited
Transaction Exemption 2009-28, 74 FR 49038 (September 25, 2009),
which provided relief for certain cash advances and ``true ups''
between Ford and the Mitigation VEBA related to administration of
such VEBA.
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15. Covered Transactions
Generally, the Applicant seeks exemptive relief for three sets of
transactions. The first set of transactions involves the acquisition,
holding, and disposition of the employer securities described above by
the Ford VEBA Plan. The second set relates to the exercise by Ford or
the Ford VEBA Plan of certain rights and obligations pursuant to the
Securityholder and Registration Rights Agreement. Finally, the third
set of transactions involves those transactions between Ford and the
Ford VEBA Plan that may occur as a result of the transition of
responsibility to provide benefits from Ford to the Ford VEBA Plan
under the 2009 Settlement Agreement, such as possible extensions of
credit, reimbursement of expenses, or the mistaken deposits of assets
into the Ford VEBA Plan.
With respect to the three sets of transactions described above, the
Applicant states that the transactions provide the only feasible method
of funding health care benefits for retirees and their beneficiaries
while preserving the financial health of Ford. The UAW and Class
Counsel have joined in supporting this request for exemptive relief
described fully herein.
a. Acquisition, Holding, and Disposition of Ford Securities
(1) LLC Interests, New Note A, New Note B and the Warrants
The Applicant requests exemptive relief from sections 406(a)(1)(E),
406(a)(2), and 407(a) of ERISA for the acquisition and holding by the
Ford VEBA Plan of the LLC Interests. Additionally, because New Note A,
New Note B and the Warrants will be held by the LLC at the time the LLC
Interests are transferred, the Applicant also requests relief for the
indirect acquisition and holding of the New Notes and Warrants by the
Ford VEBA Plan. Alternatively, if Ford determines not to transfer the
LLC Interests to the VEBA Trust and instead elects to transfer the New
Notes and the Warrants directly, the Applicant requests relief from
sections 406(a)(1)(E), 406(a)(2), and 407(a) for the direct acquisition
and holding of such Securities by the Ford VEBA Plan.
Section 406(a)(1)(E) prohibits a fiduciary from causing a plan to
engage in a transaction, if he knows or should know that such
transaction constitutes the direct or indirect acquisition, on behalf
of a plan, of any employer security in violation of section 407(a).
Section 406(a)(2) prohibits a fiduciary who has authority or discretion
to control or manage the assets of a plan from permitting the plan to
hold any employer security if he knows or should know that holding such
security violates section 407(a).
Section 407(a)(1) states that a plan may not acquire or hold any
``employer security'' that is not a ``qualifying
[[Page 64725]]
employer security.'' Section 407(a)(2) states that a plan may not
acquire any qualifying employer security (or ``qualifying employer real
property'') if immediately after such acquisition the aggregate fair
market value of employer securities (and ``employer real property'')
held by the plan exceeds 10 percent of the fair market value of the
assets of the plan.
Section 407(d)(5) of ERISA defines a ``qualifying employer
security'' as an employer security that is either (i) stock, (ii) a
marketable obligation (as defined by section 407(e) of ERISA), or (iii)
an interest in certain publicly traded partnerships. Furthermore, a
``marketable obligation'' is defined, in part, under section 407(e) of
ERISA as a ``bond, debenture, note, or certificate, or other evidence
of indebtedness'' if immediate following the acquisition of such
obligation, not more than 25% of the aggregate amount of obligations
issued in such issue and outstanding at the time of acquisition is held
by the plan; and at least 50% of the aggregate amount of such
obligations in such issue is held by persons independent of the issuer.
Lastly, section 407(e) of ERISA requires that immediately following the
acquisition of the obligation by the plan, not more than 25% of the
assets of the plan are invested in obligations of the employer or an
affiliate of the employer.
According to the Applicant, each of the LLC Interests, the New
Notes and the Warrants represent a ``security'' under section 3(20) of
ERISA. The Applicant contends that, at the time of the VEBA Trust's
acquisition of the LLC Interests, the LLC Interests will be ``employer
securities'' under section 407(d)(1) of ERISA because immediately prior
to the transfer, the LLC is a wholly-owned subsidiary and an affiliate
of Ford.\21\ However, after the acquisition has been completed, the LLC
will cease being an affiliate of Ford, and the LLC Interests will no
longer be ``employer securities'' with respect to the VEBA Trust.\22\
Further, the Applicant notes that the LLC Interests cannot be
``qualifying employer securities'' at the time they are transferred,
because they do not constitute stock, marketable obligations, or
interests in a publicly traded partnership, for purposes of section
407(d)(5) of ERISA.
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\21\ Section 407(d)(7) defines the term ``affiliate'' for
purposes of identifying employer securities. It provides, in part,
that:
``[A] corporation is an affiliate of an employer if it is a
member of any controlled group of corporations (as defined in
section 1563(a) of the Internal Revenue Code of 1986, except that
`applicable percentage' shall be substituted for `80 percent'
whenever the latter percentage appears in such section) of which the
employer who maintains the plan is a member. For purposes of the
preceding sentence, the term `applicable percentage' means 50
percent. * * * ''
\22\ See DOL Opinion Letter 2003-14A (October 8, 2003)
(securities ceased being ``employer securities'' immediately
following the completion of an exchange of securities in which
affiliate status of the issuing company was terminated).
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In addition, the New Notes will not be ``qualifying employer
securities'' as defined under ERISA section 407(d)(5) at the time of
their direct or indirect acquisition by the VEBA Trust, because neither
New Note is a marketable obligation. In this regard, upon the direct or
indirect transfer to the VEBA Trust, it is expected that the VEBA Trust
will hold 100% of each New Note issued and outstanding in violation of
section 407(a). Thus, neither of the New Notes will constitute a
``qualifying employer security'' at the time they are acquired by the
VEBA Trust.
Moreover, noting the Department's position in Advisory Opinion
Letter 94-31A, the Applicant contends that the Warrants are not
qualifying employer securities, because they are neither stock nor
marketable obligations under section 407(d)(5) of ERISA.\23\
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\23\ See DOL Advisory Opinion Letter 94-31A n.4 (September 9,
1994) (``In the Department's view, warrants to purchase employer
securities generally would not constitute `qualifying employer
securities' under section 407(d)(5) of ERISA since they are neither
stock nor marketable obligations.'').
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Moreover, the Applicants note that even if the LLC Interests, the
Warrants, and the New Notes are considered qualifying employer
securities, the aggregate fair market value of employer securities held
by the Ford VEBA Plan will exceed the 10 percent limitation in section
407(a)(2) of ERISA.
Furthermore, the Department is proposing exemptive relief from
section 406(a)(1)(A), 406(b)(1), and 406(b)(2) in the event that the
Securities, including the LLC Interests, are disposed of in a
transaction with a party in interest.
(2) Ford Common Stock
The Applicant requests relief from the provisions of sections
406(a)(1)(E), 406(a)(2) and 407(a) of ERISA for the Ford VEBA Plan's
acquisition or holding of Payment Shares or any Ford Common Stock
acquired pursuant to the exercise of all or a portion of the Warrants,
as the aggregate fair market value of qualifying employer securities
held by the VEBA Trust may exceed the 10 percent limitation in section
407(a)(2) of ERISA (as described above), resulting in a violation of
sections 406(a)(1)(E) and 406(a)(2) of ERISA.
The Applicant asserts that, depending on numerous factors at the
time of receipt of Payment Shares or upon the exercise or all or any
portion of the Warrants, such as the price of the Ford Common Stock,
the investment performance of the Ford VEBA Plan's assets, and the
number of claims filed under the Ford VEBA Plan, Ford employer
securities held by the VEBA Trust may exceed 10 percent of the fair
market value of the assets of the Ford VEBA Plan.
In addition, the Applicant is concerned that Ford Common Stock may
cease to be ``qualifying employer securities'' as defined under ERISA
section 407(d)(5) at one or more times over the life of Note B, because
such stock may exceed the limitation described in section 407(f)(1) of
ERISA. Section 407(f)(1) of ERISA provides that an employer security
constitutes a qualifying employer security only if ``(A) no more than
25% of the aggregate amount of stock of the same class issued and
outstanding at the time of acquisition is held by the plan, and (B) at
least 50% of the aggregate amount referred to in subparagraph (A) is
held by persons independent of the issuer.'' According to the
Applicant, the VEBA Trust, through a combination of holdings of Ford
Common Stock, Ford's payment of Ford Common Stock in satisfaction of
its obligations under New Note B, and the exercise of the Warrants, may
hold more than 25% of the outstanding common shares of Ford. If so,
Ford Common Stock held by the VEBA Trust would no longer satisfy the
requirements of section 407(f)(1). The Applicant therefore seeks
exemptive relief for the VEBA Trust's acquisition and holding of Ford
Common Stock acquired through the receipt of Payment Shares or upon the
exercise of all or a portion of the Warrants, to the extent such shares
cease to be qualifying employer securities at one or more times over
the life of New Note B.
The Applicant also expressed concern that the Department may take
the view that the Payment Shares and shares received upon exercise of
the Warrants constitute a separate class of stock due to the transfer
restrictions applicable to them. As a result, Ford requests relief from
section 407(a) of ERISA for each tranche of stock in the transaction.
Furthermore, the Department is proposing relief from section
406(a)(1)(A), 406(b)(1), and 406(b)(2) of ERISA in the event that the
Ford Common Stock is disposed of in a transaction with a party in
interest.
(3) Extensions of Credit
The Applicant seeks relief from sections 406(a)(1)(B) and 406(b)(1)
for the Ford VEBA Plan's direct or indirect acquisition of the New
Notes, and with
[[Page 64726]]
respect to Ford's deferral option under New Note B. Section
406(a)(1)(B) prohibits a fiduciary from causing a plan to engage in a
transaction if he knows or should know that such transaction
constitutes a direct or indirect lending of money or other extension of
credit between a plan and a party in interest.
The New Notes constitute an extension of credit between the Ford
VEBA Plan and Ford, a party in interest. In addition, if Ford has
satisfied certain of the conditions necessary for the settlement of New
Note B in Payment Shares (see Key Terms of New Note B, supra.), then
Ford may also have the right under New Note B to defer such payment and
instead pay it over five years, with 9% interest. If Ford is in
compliance with all of the settlement conditions, Ford may have the
right to pay such deferred payment in Payment Shares, and if Ford has
only satisfied certain of the settlement conditions, Ford must
contribute cash. Because the deferred contribution can be paid in five
equal annual installments, the deferral of a payment is tantamount to
an extension of credit from the Ford VEBA Plan to Ford in the amount of
the deferred payment.
(4) Ford's Deposits and Remittances
The Applicant also seeks relief for Ford's deposits to the Ford
VEBA Plan, and for the sale of Ford Common Stock to the Ford VEBA Plan
pursuant to the Independent Fiduciary's exercise of the Warrants, in
the event that any such contribution is deemed to be a ``sale or
exchange'' of property between a plan and a party in interest in
violation of section 406(a)(1)(A) of ERISA. The Applicant believes that
Ford's contribution to the Ford VEBA Plan of the Securities could be
deemed to reduce an obligation that Ford would otherwise have to the
participants and beneficiaries of the Ford VEBA Plan.\24\ In addition,
because the Independent Fiduciary's exercise of the Warrants on behalf
of the Ford VEBA Plan would take the form of a ``sale'' of property
(i.e., Ford Common Stock) to a plan from a party in interest in
violation of section 406(a)(1)(A), the Applicant seeks relief for this
transaction.
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\24\ In Commissioner v. Keystone Consolidated Industries, 508 US
152 (1993), the Supreme Court held that an employer's contribution
of property in satisfaction of the plan's funding obligation was a
``sale or exchange'' for purposes of 4975(c)(1)(A) of the Code, 26
USC 4975(c)(1)(A). Moreover, the Department has held that an in-kind
contribution to a plan constitutes a prohibited transaction if the
contribution reduces an obligation of a plan sponsor or employer to
make a cash contribution to the plan. See Interpretive Bulletin 94-
3, 29 CFR 2509.94-3(c).
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b. Exercise of Certain Rights and Obligations Pursuant to the
Securityholder and Registration Rights Agreement
(1) Right of First Offer or Self Tender
The Applicant seeks relief from section 406(a)(1)(A) for the
purchase of certain Securities pursuant to Ford's ``Right of First
Offer'' under the Securityholder and Registration Rights Agreement.
Under the agreement, Ford may purchase certain Securities, including
Payment Shares or Warrants, that the VEBA Trust intends to transfer to
third parties in accordance with the Right of First Offer or a Ford
self-tender. Section 406(a)(1)(A) of ERISA prohibits a fiduciary from
causing a plan to engage in a transaction if he knows or should know
that such transaction constitutes a direct or indirect sale or
exchange, or leasing, of any property between the plan and a party in
interest, except as provided in section 408 of ERISA.
Section 408(e) of ERISA provides, in part, that the prohibitions of
sections 406 and 407 shall not apply to the sale by a plan of
``qualifying employer securities'' if such sale is (A) for adequate
consideration and (B) no commission is charged with respect thereto.
The Applicant states that section 408(e) of ERISA may be
inapplicable to the sale of Ford Common Stock by the VEBA Trust to Ford
pursuant to its Right of First Offer, because, as described above, the
shares of Ford Common Stock to be sold to Ford may be deemed not to
constitute ``qualifying employer securities'' at the time of such sale
by the VEBA Trust. In addition, the Applicant notes that section 408(e)
of ERISA will not provide relief from the prohibitions under section
406 of ERISA for the sale of Warrants pursuant to Ford's Right of First
Offer, because the Applicant does not believe the Warrants constitute
``qualifying employer securities.''
c. Transition Payments and Mistaken Deposits
(1) Mispayment of Benefits and Reimbursements
Prior to the Implementation Date, Ford and the Existing Internal
VEBA will bear responsibility for the payment of benefits under the
Ford Retiree Health Plan to members of the Covered Class and the
Covered Group who ultimately will be covered by the Ford VEBA Plan. The
Ford VEBA Plan will have sole responsibility and be the exclusive
source of funds for the payment of retiree medical benefits to the
Class and Covered Group, with respect to benefit claims incurred after
the Implementation Date.
Under certain circumstances related to the transition, Ford, the
Ford Retiree Health Plan, and the Ford VEBA Plan may extend credit or
transfer plan assets to each other in order to pay benefit claims that
are the legal responsibility of one of the other aforementioned parties
(such other party, the Responsible Party). The Applicant asserts that
mispayments and reimbursements are likely to occur in the normal course
of operation due to the administrative realities of health care
payments and the shifting of plan responsibilities between multiple
plans in a short period of time.
The following is an example of a transaction that would require
relief under the requested exemption. A member of the Covered Group
receives medical care on December 28, 2009, thereby incurring a claim
under the Ford Retiree Health Plan. However, in April of 2010, the
claim is presented to and paid by the Ford VEBA Plan. The Ford VEBA
Plan would be reimbursed by the Ford Retiree Health Plan.
In such event, the Responsible Party will reimburse the payor for
such benefits, plus interest. The Applicant contends that payment by an
entity of benefits for claims incurred after benefit responsibility has
been transferred to the Responsible Party constitutes an extension of
credit between such entity and the Responsible Party that is prohibited
under section 406(a)(1)(B). Payment by the Responsible Party to such
entity as reimbursement for these paid claims constitutes a transfer of
plan assets to a party in interest that is prohibited under
406(a)(1)(D).
(2) True-Ups for TAA Expense Accruals
The Applicant seeks relief from sections 406(a)(1)(B) and
406(a)(1)(D) for the payment arrangement established under Section 12.D
of the 2009 Settlement Agreement relating to the accrual and subsequent
true-up of expenses associated with the TAA through the date of
transfer of the TAA assets. The 2009 Settlement Agreement provides that
the TAA or Ford, as applicable, will accrue and retain an amount
representing pre-transfer TAA expenses. After payment of the actual
expenses, the accrual and actual expenses will be reconciled. If there
has been an underaccrual, the VEBA Trust is obligated to return the
amount of the underaccrual to the TAA or Ford, as applicable. If there
has been an overaccrual, the TAA or Ford, as applicable, will transfer
the amount of
[[Page 64727]]
the overaccrual to the VEBA Trust. Since the TAA is currently held by
the LLC and it is anticipated that Ford will transfer its entire
interest in the LLC to the VEBA Trust on the Implementation Date, it is
expected that any overaccrual or underaccrual of pre-transfer expenses
relating to the TAA will be paid to and from Ford.
Since Ford is a party in interest to the Ford VEBA Plan, the
transfer of an amount of assets of the Ford VEBA Plan from the VEBA
Trust to Ford for any underaccrual constitutes the use of plan assets
by or for the benefit of a party in interest in violation of section
406(a)(1)(D) of ERISA. Similarly, Ford's overaccrual and retention of
cash after the Implementation Date constitutes the use of plan assets
by or for the benefit of a party in interest. Moreover, the overaccrual
or underaccrual and subsequent reimbursement payment between Ford and
the VEBA Trust constitutes a prohibited extension of credit between the
plan and a party in interest in violation of section 406(a)(1)(B) of
ERISA.
Similarly, Section 12.B of the 2009 Settlement Agreement provides
that within 10 business days after the Implementation Date, Ford will
direct the trustee of the Existing Internal VEBA to transfer to the
VEBA Trust all assets in the Existing Internal VEBA or cash in an
amount equal to the Existing Internal VEBA balance on the date of the
transfer. The agreement provides that an amount for trust expenses (to
the extent permitted by ERISA) through the date of transfer will be
accrued and retained within the Existing Internal VEBA to pay the
expenses. Subsequently, a reconciliation of the accruals and the actual
expenses will be performed. Any overaccrual of expenses will be paid to
the VEBA Trust on behalf of the Ford VEBA Plan. The VEBA Trust will
return any underaccrual to the Existing Internal VEBA.
(3) Mistaken Payments or Deposits
The Applicant likewise seeks relief from section 406(a)(1)(D) of
ERISA for return of mistaken payments to the Ford VEBA Plan, with
interest.
Under the last paragraph of Section 12 of the 2009 Settlement
Agreement, any deposit made to the Ford VEBA Plan by mistake will be
returned (with earnings) within 30 days of notice to the Committee of
the mistake, to the extent permitted by law. The Applicant is concerned
that this could be viewed as involving a prohibited transfer of plan
assets to a party in interest. Accordingly, the Applicant requests
exemptive relief for this transaction.
16. Conditions Related to the Transfer of Ford Securities to the Ford
VEBA Plan: The Independent Fiduciary
Pursuant to the Trust Agreement, the Committee will appoint an
independent fiduciary to manage the Ford Employer Security Sub-Account
(the Independent Fiduciary). The Independent Fiduciary will be a
``named fiduciary'' and ``investment manager'' as both terms are
defined in ERISA, with complete discretion regarding the holding,
ongoing management, and disposition of any Ford security (i.e., the
Ford Common Stock, New Notes, Warrants, Payment Shares, and LLC
Interests) acquired and held by the Ford VEBA Plan.
The Independent Fiduciary does not have discretion with respect to
certain other aspects of the Securities. First, because the Ford VEBA
Plan will acquire the Securities by virtue of the 2009 Settlement
Agreement, the Independent Fiduciary has no discretion regarding the
acquisition of the Securities. Additionally, under the Securityholder
and Registration Rights Agreement, the Ford Common Stock held by the
VEBA Trust must be voted in the same proportion as votes cast by other
stockholders generally, and must always be voted in favor of any
amendments to Ford's governing documents proposed in order to
facilitate the transactions contemplated by the Securityholder and
Registration Rights Agreement. Therefore, the Independent Fiduciary
will have no responsibility for the voting of the Ford Common Stock.
The Independent Fiduciary must be independent of and unrelated to
Ford, the UAW and the Committee.\25\ However, the fiduciary will be
deemed not to be independent of and unrelated to Ford, the UAW, the
Committee, and their affiliates if (1) such fiduciary directly or
indirectly controls, is controlled by, or is under common control with
Ford, the UAW, the Committee or their affiliates, (2) such fiduciary
directly or indirectly receives any compensation or other consideration
from Ford, the UAW or any Committee member in his or her individual
capacity in connection with any transaction described in this exemption
(except that an Independent Fiduciary may receive compensation from the
Committee or the Ford VEBA Plan for services provided to the Ford VEBA
Plan in connection with the transactions discussed herein if the amount
or payment of such compensation is not contingent upon or in any way
affected by the Independent Fiduciary's ultimate decision), or (3) the
annual gross revenue received by the fiduciary, in any fiscal year of
its engagement, from any of: Ford, the UAW or a member of the Committee
in his or her individual capacity, exceeds 3% of the Independent
Fiduciary's annual gross revenue from all sources (for federal income
tax purposes) for its prior tax year.\26\
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\25\ The Department notes that candidates for the position of
Independent Fiduciary to the Ford VEBA Plan may be affiliated with
entities that provide services to Ford, GM, Chrysler, or their
affiliates. It is the responsibility of the Committee to determine
whether such affiliations are likely to affect the judgment of the
candidate in performing its services as an Independent Fiduciary.
\26\ The Department notes that the preceding conditions are not
exclusive, and that other circumstances may develop which cause the
Independent Fiduciary to be deemed not to be independent of and
unrelated to Ford, the UAW, the Committee, and their affiliates.
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The Independent Fiduciary may be removed by the Committee on 30
days written notice only for cause.\27\ The
[[Page 64728]]
removal will be effective as specified in the written notice, provided
that the Independent Fiduciary has been given notice of the appointment
of a successor Independent Fiduciary. No successor will be appointed in
the event the Ford VEBA Plan ceases to hold any employer security. In
the event that the Ford VEBA Plan subsequently acquires or holds an
employer security and no appointment of a successor Independent
Fiduciary has been made, any court of competent jurisdiction may, upon
application by the retiring Independent Fiduciary, appoint a successor
after such notice to the Committee and the retiring Independent
Fiduciary.
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\27\ Cause is defined in the Independent Fiduciary Agreement as:
(i) Any disqualifying event described in ERISA section 411; (ii)
determination by any court, arbitrator or government regulatory body
that the Independent Fiduciary has violated any civil or criminal
law (including, but not limited to, securities, antitrust or ERISA)
in connection with the performance of its responsibilities to the
VEBA Trust (for purposes of avoidance of doubt in connection with
this and the subsequent subparagraph, a ``determination'' shall mean
any written judgment, order or decree; court-approved settlement;
arbitration award; or enforcement action of a government regulatory
body or SRO, in the form of a written sanction, claim, demand or
opinion, whether or not appealable); (iii) determination by any
court, arbitrator or government regulatory body that the Independent
Fiduciary has materially breached the terms of its engagement,
whether or not appealable; (iv) any action by the Independent
Fiduciary that results in imposition of a civil or criminal
sanction, any prohibited transaction excise tax, or any civil
judgment or award of damages, on the VEBA Trust, the Committee, the
trustee, or their respective employees, officers directors or owners
(whether or not subject to indemnity by the Independent Fiduciary,
an insurer, or any other person); (v) termination, resignation, or
death of the Independent Fiduciary principal or officer assigned to
serve as the relationship principal with respect to the VEBA Trust,
or the inability of such person to perform his or her duties for a
continuous period of more than 30 days; (vi) any change of ownership
of the Independent Fiduciary that constitutes an ``assignment'' of
the Independent Fiduciary's contract with the VEBA Trust, within the
meaning of the Investment Advisers Act; (vii) failure of the
Independent Fiduciary to qualify as an ``investment manager'' within
the meaning of ERISA section 3(38); (viii) any change in the
clientele, business or ownership of the Independent Fiduciary that
results in an actual conflict of interest; (ix) failure of the
Independent Fiduciary to take into account the legitimate needs of
the VEBA Trust for liquidity to pay benefits; (x) violation of any
conditions imposed on the Independent Fiduciary under the terms of
the prohibited transaction exemption issued by the Department; (xi)
any other action or inaction of the Independent Fiduciary that the
Committee determines to be a material breach of the Independent
Fiduciary's agreement or any law, or is likely to result in an
irreconcilable conflict; or (xii) any circumstance that leads the
Committee to reasonably conclude that the termination of the
Independent Fiduciary and replacement by a successor Independent
Fiduciary is in the financial interest of the VEBA Trust, provided
that the Committee documents the reasons for the termination.
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The Committee delegated to a subcommittee (i.e., three Committee
members) the responsibility to retain an Independent Fiduciary on
behalf of the Ford VEBA Plan. The subcommittee initially determined to
proceed with the assumption that the interests of each plan whose
assets are held by the VEBA Trust would be best served by seeking to
retain a single qualified Independent Fiduciary to represent all three
plans (providing health benefits, respectively, to retirees of
Chrysler, GM, and Ford). However, the subcommittee recognizes the
possibility that engaging multiple Independent Fiduciaries may turn out
to be the better option.
The subcommittee intends, as part of the interview process for
potential candidates for the Independent Fiduciary appointment, to
question the candidates on the nature and likelihood of potential
conflicts of interest, the appropriate means of monitoring and
communicating actual or potential conflicts, including whether the
candidates currently have formal conflict monitoring procedures, and
mechanisms for dealing with actual or potential conflicts as they are
identified. After reviewing the candidates' qualifications, capacity to
represent all three plans, willingness to do so, and other relevant
factors, in consultation with counsel, the subcommittee anticipates
making a final determination as to whether to hire one Independent
Fiduciary or multiple Independent Fiduciaries.
The subcommittee will work with the Independent Fiduciary
candidate(s) to develop procedures to identify, minimize and address
conflicts of interest as they arise. Specifically, in the event that a
single Independent Fiduciary is appointed, the subcommittee will engage
a ``conflicts monitor'' to (a) develop a process for identifying
potential conflicts, (b) to regularly review the Independent Fiduciary
reports, investment banker reports, and public information regarding
the companies, to identify the presence of factors that could lead to a
conflict, and (c) further question the Independent Fiduciary when
appropriate.
Additionally, the subcommittee will be prepared to replace the
Independent Fiduciary in the event of an actual and irreconcilable
conflict of interest.
Finally, the subcommittee will require the Independent Fiduciary to
adopt a written policy regarding conflicts of interest. Such policy
will require that, as part of the Independent Fiduciary's periodic
reporting to the Committee, the Independent Fiduciary includes a
discussion of actual or potential conflicts identified by the
Independent Fiduciary and options for avoiding or resolving the
conflict.
A separate investment bank will be retained with respect to each of
the three plans comprising the VEBA Trust. The investment bank's
initial recommendations will be made solely with the goal of maximizing
the returns for the single plan that owns the securities for which the
investment bank is responsible. If the Independent Fiduciary deviates
from such initial recommendations, it would find it necessary to
explain why it deviated from a recommendation, and such a deviation may
provide a basis for the Committee or its designee to flag possible
conflicts of interest in advance. Any contract between the Independent
Fiduciary and an investment banker will include an acknowledgement by
the investment banker that the investment banker's ultimate client is
an ERISA plan.
The Independent Fiduciary will comply with the following additional
conditions. The Independent Fiduciary will authorize the Trustee of the
Ford VEBA Plan to dispose of Ford Common Stock (including any Payment
Shares or shares of Ford Common Stock acquired pursuant to exercise of
the Warrants), the New Notes, or exercise the Warrants, only after the
Independent Fiduciary determines, at the time of the transaction, that
the transaction is feasible, in the interest of the Ford VEBA Plan, and
protective of the participants and beneficiaries of the Ford VEBA Plan.
The Independent Fiduciary will negotiate and approve on behalf of
the Ford VEBA Plan any transactions between the Ford VEBA Plan and any
party in interest involving the Securities that may be necessary in
connection with the subject transactions (including but not limited to
the registration of Payment Shares, Ford Common Stock received upon
exercise of the Warrants, or any Securities contributed to the Ford
VEBA Plan).
The Independent Fiduciary will discharge its duties consistent with
the terms of the Ford VEBA Plan, the Trust Agreement, the Independent
Fiduciary's agreement, and any other documents governing the
Securities, such as the Securityholder and Registration Rights
Agreement, and any successors to those agreements.
The Ford VEBA Plan may not incur any fees, costs or other charges
(other than described in the Trust Agreement and the 2009 Settlement
Agreement) as a result of the transactions exempted herein.
The terms of any transaction exempted herein must be no less
favorable to the Ford VEBA Plan than the terms negotiated at arms'
length under similar circumstances between unrelated parties.
17. Conditions Related to Mispayments of Benefit Claims and
Reimbursements
Given the rapidity of the shifts in responsibility from the Ford
Retiree Health Plan to the Ford VEBA Plan, a review of mispayments of
benefit claims may not be undertaken until at some point following the
Implementation Date. The conditions for reimbursements of mispayments
require the following procedure for audit and reconciling payments.
The Committee and an independent third party administrator of the
Ford VEBA Plan will review benefit payments paid during the transition
period and determine the dollar amount of any mispayments made, subject
to the review and approval of the VEBA Trust's independent auditor. The
results of this review will be made available to Ford.
Ford and the applicable third party administrator of the medical
benefits plan maintained by Ford to provide benefits to eligible active
hourly employees of Ford and its participating subsidiaries (the Ford
Active Health Plan) will perform similar reviews with respect to the
amount of mispayments made. Ford will provide the results of the
reviews to the Committee.
Interest on any reimbursed mispayment will accrue from the date of
the mispayment to the date of the reimbursement. Interest will be
determined using the applicable published ``Official British Banker's
Association Six Month London
[[Page 64729]]
Interbank Offered Rate (LIBOR) 11:00 a.m. GMT `fixing' as reported on
Bloomberg page `BBAM' '' (the published six month LIBOR rate).\28\
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\28\ LIBOR is calculated by Thomson Reuters and published by the
British Bankers' Association after 11:00 a.m. (and generally around
11:45 a.m.) each day (London time). It is a trimmed average of
inter-bank deposit rates offered by designated contributor banks,
for maturities ranging from overnight to one year. The rates are a
benchmark rather than a tradable rate, the actual rate at which
banks will lend to one another continues to vary throughout the day.
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Any dispute as to the amount, timing, or other feature of the
mispayment and/or reimbursement shall be settled in accordance with the
dispute resolution procedure found in Section 26B of the 2009
Settlement Agreement (the Dispute Resolution Procedure), which reads in
pertinent part:
(i) The aggrieved party shall provide the party alleged to have
violated this Settlement Agreement (Dispute Party) with written
notice of such dispute, which shall include a description of the
alleged violation and identification of the Section(s) of the
Settlement Agreement allegedly violated. Such notice shall be
provided so that it is received by the Dispute Party no later than
180 calendar days from the date of the alleged violation or the date
on which the aggrieved party knew or should have known of the facts
that give rise to the alleged violation, whichever is later, but in
no event longer than 3 years from the date of the alleged violation;
and (ii) If the Dispute Party fails to respond within 21 calendar
days from its receipt of the notice, the aggrieved party may seek
recourse to the District Court; provided however, that the aggrieved
party waives all claims related to a particular dispute against the
Dispute Party if the aggrieved party fails to bring the dispute
before the District Court within 180 calendar days from the date of
sending the notice. All the time periods in Section 26 of the 2009
Settlement Agreement may be extended by agreement of the parties to
the particular dispute.
18. Conditions Related to TAA True-Ups and Expense Accruals
Due to the nature of the expenses charged by the entity in
connection with the management of the assets in the TAA, the parties
may not have accurate measures of the TAA's expenses at the time of
transfer of the TAA to the VEBA Trust. As a result, the conditions for
expense accruals and true-ups require the following procedure for audit
and reconciling payments.
Ford and the Committee will cooperate in the calculation and review
of the amounts of expense accruals related to the TAA, and the amount
of any overaccrual shall be made subject to the review of an
independent auditor selected by Ford and the amount of any underaccrual
shall be made subject to the review of the VEBA Trust's independent
auditor.
A claim by Ford for an underaccrual must be made to the Committee
within the Verification Time Period, which is defined as follows in
Section VII(y) of the proposed exemption:
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 VEBA Trust) 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 VEBA Trust) and ending 180
calendar days thereafter.
Accordingly, any claim regarding an underaccrual of expenses
attributable to the TAA must be made within 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 VEBA
Trust) and ending 180 calendar days thereafter.
Interest on any true-up payment will accrue from the date of
transfer of the assets in the TAA (or the LLC containing the assets in
the TAA), until the date of payment of such true-up amount. Interest
will be determined using the published six month LIBOR rate described
above.
Any dispute as to the amount, timing or other feature of the true-
up payment will be settled through the Dispute Resolution Procedure
described above.
19. Conditions Related to Mistaken Payments
In the case of a mistaken deposit to the Ford VEBA Plan, Ford shall
make a claim to the Committee regarding the particular deposit or
transfer made in error or made in an amount greater than that to which
the Ford VEBA Plan was entitled. The claim must be made within the
Verification Time Period, which is described above.
Accordingly, any claim regarding a mistake with respect to transfer
of the LLC Interests, the New Notes, or the Warrants must be made
within 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 VEBA Trust) and ending 90 calendar
days thereafter. Any claim respecting a payment made under the New
Notes must be made within the period beginning on the date of the
payment and ending 90 calendar days thereafter. Additionally, a claim
with respect to the TAA must be made within 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 VEBA
Trust) and ending 180 calendar days thereafter.
Interest on any mistaken deposit will accrue from the date of the
mistaken deposit or transfer to the date of the repayment. Interest
will be determined using the published six month LIBOR rate, described
above. In the event of a dispute regarding the amount, timing or other
feature of the mistaken deposit, the Dispute Resolution Procedure
described above shall apply.
20. Statutory Findings
The Applicant makes the following statements regarding the
Department's required findings under section 408(a) of ERISA that the
exemption is administratively feasible, in the interests of the Ford
VEBA Plan and of its participants and beneficiaries, and protective of
the rights of participants and beneficiaries of the Ford VEBA Plan.
The exemption transactions are administratively feasible because
they are relatively simple and straight-forward, easy to monitor, and
involve the management of the Securities by the Independent Fiduciary.
The exemption transactions are in the interest of the Ford VEBA
Plan and of its participants and beneficiaries and protective of their
rights because they constitute the only feasible mechanism to ensure
that assets are dedicated to, and held in the Ford VEBA Plan solely for
use as retiree health care benefits (and reasonable related expenses).
In the absence of administrative relief, it is doubtful that Ford could
provide alternate assets of equivalent economic value. Furthermore, the
final terms of the 2009 Settlement Agreement, including the
Securityholder and Registration Rights Agreement, and the terms of the
New Notes, were thoroughly negotiated by a cadre of advisers
representing the UAW and Class Counsel, each of whom has endorsed the
subject transactions and fully supports the attendant proposal. As the
Applicant contends, the process approving the settlement was rigorous
and adversarial, and it ensures that the Class and the Covered Group
receive the best possible terms under the circumstances.
As is contended by the Committee, the rights of participants and
beneficiaries of the Ford VEBA Plan are
[[Page 64730]]
protected by an independent committee, and their rights with respect to
any Ford employer security are protected by the Independent Fiduciary,
both of which will be subject to ERISA's general fiduciary obligations
under section 404. The Independent Fiduciary will have the ability to
dispose of the New Notes as it determines it to be in the best
interests, and protective of the rights, of the Ford VEBA Plan and its
participants and beneficiaries, so long as such sales are consistent
with (1) the reasonable, agreed-to transfer restrictions imposed on
those Securities; and (2) the registration rights provisions of those
Securities.
Notice to Interested Persons
Notice of the proposed exemption will be provided to all interested
persons in the manner agreed upon by the Applicant and the Department
within 10 days of the date of publication of the notice of pendency in
the Federal Register. 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 (where
appropriate), with respect to the pending exemption. Written comments
and hearing requests are due within 40 days of the publication of the
proposed exemption in the Federal Register.
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 ERISA does not relieve a fiduciary or other
party in interest from certain other provisions of ERISA, including any
prohibited transaction provisions to which the exemption does not apply
and the general fiduciary responsibility provisions of section 404 of
ERISA, 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 ERISA;
(2) Before an exemption may be granted under section 408(a) of
ERISA, 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 exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of ERISA, including
statutory or administrative exemptions and transitional rules.
Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemption, if granted, will be subject to the
express condition that the material facts and representations contained
in the application are true and complete, and that the application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department is considering granting the requested
exemption under the authority of section 408(a) of the Act and in
accordance with the procedures set forth in 29 CFR part 2570, subpart B
(55 FR 32836, 32847, August 10, 1990), as follows:
Section I. Covered Transactions
(a) If the exemption is granted, the restrictions of sections
406(a)(1)(A), 406(a)(1)(B), 406(a)(1)(E), 406(a)(2), 406(b)(1),
406(b)(2) and 407(a) of ERISA shall not apply, effective December 31,
2009, to:
(1) The acquisition by the UAW Ford Retirees Medical Benefits Plan
(the Ford VEBA Plan) and its funding vehicle, the UAW Retiree Medical
Benefits Trust (the VEBA Trust) of: (i) The LLC Interests; (ii) New
Note A; (iii) New Note B (together with New Note A, the New Notes); and
(iv) Warrants to acquire 362,391,305 shares of Ford Common Stock at a
strike price of $9.20 per share, expiring on January 1, 2013,
transferred by Ford and deposited in the Ford Employer Security Sub-
Account of the Ford Separate Retiree Account of the VEBA Trust.
(2) The acquisition by the Ford VEBA Plan of shares of Ford Common
Stock pursuant to Ford's right to settle its payment obligations under
New Note B in shares of Ford Common Stock (i.e., Payment Shares),
consistent with the 2009 Settlement Agreement;
(3) The acquisition by the Ford VEBA Plan of shares of Ford Common
Stock, pursuant to the Independent Fiduciary's exercise of all or a pro
rata portion of the Warrants, consistent with the 2009 Settlement
Agreement;
(4) The holding by the Ford VEBA Plan of the aforementioned
Securities in the Ford Employer Security Sub-Account of the Ford
Separate Retiree Account of the VEBA Trust, consistent with the 2009
Settlement Agreement;
(5) The deferred payment of any amounts due under New Note B by
Ford pursuant to the terms thereunder; and
(6) The disposition of the Securities by the Independent Fiduciary.
(b) If the exemption is granted, the restrictions of sections
406(a)(1)(A), 406(b)(1), and 406(b)(2) of ERISA shall not apply,
effective December 31, 2009, to the sale of Ford Common Stock held by
the Ford VEBA Plan to Ford in accordance with the Right of First Offer
or a Ford self-tender under the Securityholder and Registration Rights
Agreement.
(c) If the exemption is granted, the restrictions of sections
406(a)(1)(B), 406(a)(1)(D), 406(b)(1), and 406(b)(2) of ERISA shall not
apply, effective December 31, 2009, to:
(1) The extension of credit or transfer of assets by Ford, the Ford
Retiree Health Plan, or the Ford VEBA Plan in payment of a benefit
claim that was the responsibility and legal obligation, under the terms
of the applicable plan documents, of one of the other parties listed in
this paragraph;
(2) The reimbursement by Ford, the Ford Retiree Health Plan, or the
Ford VEBA Plan, of a benefit claim that was paid by another party
listed in this paragraph, which was not legally responsible for the
payment of such claim, plus interest;
(3) The retention of an amount by Ford until payment to the Ford
VEBA Plan resulting from an overaccrual of pre-transfer expenses
attributable to the TAA or the retention of an amount by the Ford VEBA
Plan until payment to Ford resulting from an underaccrual of pre-
transfer expense attributable to the TAA; and
(4) The Ford VEBA Plan's payment to Ford of an amount equal to any
underaccrual by Ford of pre-transfer expenses attributable to the TAA
or the payment by Ford to the Ford VEBA Plan of an amount equal to any
overaccrual by Ford of pre-transfer expenses attributable to the TAA.
(d) If the exemption is granted, the restrictions of sections
406(a)(1)(B), 406(a)(1)(D), 406(b)(1), and 406(b)(2) of ERISA shall not
apply, effective December 31, 2009, to the return to Ford of assets
deposited or transferred to the Ford VEBA Plan by mistake, plus
interest.
Section II. Conditions Applicable to Section I(a) and I(b)
(a) The Committee appoints a qualified Independent Fiduciary to act
on behalf of the Ford VEBA Plan for all purposes related to the
transfer of the
[[Page 64731]]
Securities to the Ford VEBA Plan for the duration of the Ford VEBA
Plan's holding of the Securities. Such Independent Fiduciary will have
sole discretionary responsibility relating to the holding, ongoing
management and disposition of the Securities, except for the voting of
the Ford Common Stock. The Independent Fiduciary has determined or will
determine, before taking any actions regarding the Securities, that
each such action or transaction is in the interest of the Ford VEBA
Plan.
(b) In the event that the same Independent Fiduciary is appointed
to represent the interests of one or more of the other plans comprising
the VEBA Trust (i.e., the UAW Chrysler Retiree Medical Benefits Plan
and/or the UAW General Motors Company Retiree Medical Benefits Plan)
with respect to employer securities deposited into the VEBA Trust, the
Committee takes the following steps to identify, monitor and address
any conflict of interest that may arise with respect to the Independent
Fiduciary's performance of its responsibilities:
(1) The Committee appoints a ``conflicts monitor'' to: (i) Develop
a process for identifying potential conflicts; (ii) regularly review
the Independent Fiduciary reports, investment banker reports, and
public information regarding the companies, to identify the presence of
factors that could lead to a conflict; and (iii) further question the
Independent Fiduciary when appropriate.
(2) The Committee adopts procedures to facilitate prompt
replacement of the Independent Fiduciary if the Committee in its sole
discretion determines such replacement is necessary due to a conflict
of interest.
(3) The Committee requires the Independent Fiduciary to adopt a
written policy regarding conflicts of interest. Such policy shall
require that, as part of the Independent Fiduciary's periodic reporting
to the Committee, the Independent Fiduciary includes a discussion of
actual or potential conflicts identified by the Independent Fiduciary
and options for avoiding or resolving the conflicts.
(c) The Independent Fiduciary authorizes the trustee of the Ford
VEBA Plan to dispose of the Ford Common Stock (including any Payment
Shares or any shares of Ford Common Stock acquired pursuant to exercise
of the Warrants), the LLC Interests, the New Notes, or exercise the
Warrants, only after the Independent Fiduciary determines, at the time
of the transaction, that the transaction is feasible, in the interest
of the Ford VEBA Plan, and protective of the participants and
beneficiaries of the Ford VEBA Plan.
(d) The Independent Fiduciary negotiates and approves on behalf of
the Ford VEBA Plan any transactions between the Ford VEBA Plan and any
party in interest involving the Securities that may be necessary in
connection with the subject transactions (including but not limited to
the registration of the Securities contributed to the Ford VEBA Plan).
(e) Any contract between the Independent Fiduciary and an
investment banker includes an acknowledgement by the investment banker
that the investment banker's ultimate client is an ERISA plan.
(f) The Independent Fiduciary discharges its duties consistent with
the terms of the Ford VEBA Plan, the Trust Agreement, the Independent
Fiduciary Agreement, and any other documents governing the Securities,
such as the Registration Rights Agreement.
(g) The Ford VEBA Plan incurs no fees, costs or other charges
(other than described in the Trust Agreement, the 2009 Settlement
Agreement, and the Securityholder and Registration Rights Agreement) as
a result of the transactions exempted herein.
(h) The terms of any transaction exempted herein are no less
favorable to the Ford VEBA Plan than the terms negotiated at arms'
length under similar circumstances between unrelated parties.
Section III. Conditions Applicable to Section I(c)(1) and I(c)(2)
(a) The Committee and the Ford VEBA Plan's third party
administrator will review the benefits paid during the transition
period and determine the dollar amount of mispayments made, subject to
the review of the Ford VEBA Plan's independent auditor. The results of
this review will be made available to Ford.
(b) Ford and the applicable third party administrator of the Ford
Active Health Plan will review the benefits paid during the transition
period and determine the dollar amount of mispayments made, subject to
the review of the plan's independent auditor. The results of this
review will be made available to the Committee.
(c) Interest on any reimbursed mispayment will accrue from the date
of the mispayment to the date of the reimbursement.
(d) Interest will be determined using the applicable 6 month
published LIBOR rate.
(e) If there is a dispute as to the amount, timing or other feature
of a reimbursement payment, the parties will enter into the Dispute
Resolution Procedure found in Section 26B of the 2009 Settlement
Agreement and described further in Section VII(c) herein.
Section IV. Conditions Applicable to Section I(c)(3) and I(c)(4)
(a) Ford and the Committee will cooperate in the calculation and
review of the amounts of expense accruals related to the TAA, and the
amount of any overaccrual shall be made subject to the review of an
independent auditor selected by Ford and the amount of any underaccrual
shall be made subject to the review of the Ford VEBA Plan's independent
auditor.
(b) Ford must make a claim for any underaccrual to the Committee,
and the Committee must make a claim for any overaccrual to Ford, as
applicable, within the Verification Time Period, as defined in Section
VII(y).
(c) Interest on any true-up payment will accrue from the date of
transfer of the assets in the TAA (or the LLC containing the TAA) for
the amount in respect of the overaccrual or underaccrual, as
applicable, until the date of payment of such true-up amount.
(d) Interest will be determined using the published six month LIBOR
rate.
(e) If there is a dispute as to the amount, timing or other feature
of a true-up payment in respect of TAA expenses, the parties will enter
into the Dispute Resolution Procedure found in Section 26B of the 2009
Settlement Agreement and described further in Section VII(c) herein.
Section V. Conditions Applicable to Section I(d)
(a) Ford must make a claim to the Committee regarding the specific
deposit or transfer made in error or made in an amount greater than
that to which the Ford VEBA Plan was entitled.
(b) The claim is made within the Verification Time Period, as
defined in Section VII(y).
(c) Interest on any mistaken deposit or transfer will accrue from
the date of the mistaken deposit or transfer to the date of the
repayment.
(d) Interest will be determined using the published six month LIBOR
rate.
(e) If there is a dispute as to the amount, timing or other feature
of a mistaken payment, the parties will enter into the Dispute
Resolution Procedure found in Section 26B of the 2009 Settlement
Agreement and described further in Section VII(c) herein.
[[Page 64732]]
Section VI. Conditions Applicable to Section I
(a) The Committee and the Independent Fiduciary maintain for a
period of six years from the date (i) the Securities are transferred to
the Ford VEBA Plan, and (ii) the shares of Ford Common Stock are
acquired by the Ford VEBA Plan through the exercise of the Warrants or
Ford's delivery of Payment Shares in settlement of its payment
obligations under New Note B, the records necessary to enable the
persons described in paragraph (b) below to determine whether the
conditions of this exemption have been met, provided that (i) a
separate prohibited transaction will not be considered to have occurred
if, due to circumstances beyond the control of the Committee and/or the
Independent Fiduciary, the records are lost or destroyed prior to the
end of the six-year period, and (ii) no party in interest other than
the Committee or the Independent Fiduciary shall be subject to the
civil penalty that may be assessed under ERISA section 502(i) if the
records are not maintained, or are not available for examination as
required by paragraph (b) below; and
(b) Notwithstanding any provisions of subsections (a)(2) and (b) of
section 504 of ERISA, the records referred to in paragraph (a) above
shall be unconditionally available at their customary location during
normal business hours to:
(A) Any duly authorized employee or representative of the
Department or the Internal Revenue Service;
(B) the UAW or any duly authorized representative of the UAW;
(C) Ford or any duly authorized representative of Ford;
(D) the Independent Fiduciary or any duly authorized representative
of the Independent Fiduciary;
(E) the Committee or any duly authorized representative of the
Committee; and
(F) any participant or beneficiary of the Ford VEBA Plan or any
duly authorized representative of such participant or beneficiary.
Section VII. Definitions
(a) The term ``affiliate'' means: (1) Any person directly or
indirectly, through one or more intermediaries, controlling, controlled
by, or under common control with such other person; (2) any officer,
director, partner, or employee in any such person, or relative (as
defined in section 3(15) of ERISA) of any such person; or (3) any
corporation, partnership or other entity of which such person is an
officer, director or partner. (For purposes of this definition, the
term ``control'' means the power to exercise a controlling influence
over the management or policies of a person other than an individual).
(b) The ``Committee'' means the eleven individuals consisting of
six independent members and five UAW appointed members who will serve
as the plan administrator and named fiduciary of the Ford VEBA Plan.
(c) The term ``Dispute Resolution Procedure'' means the process
found in Section 26B of the 2009 Settlement Agreement to effectuate the
resolution of any dispute respecting the transactions described in
Sections I(c)(1), (c)(2), (c)(3), (c)(4), and (d) herein, and which
reads in pertinent part: (1) The aggrieved party shall provide the
party alleged to have violated the 2009 Settlement Agreement (Dispute
Party) with written notice of such dispute, which shall include a
description of the alleged violation and identification of the
Section(s) of the 2009 Settlement Agreement allegedly violated. Such
notice shall be provided so that it is received by the Dispute Party no
later than 180 calendar days from the date of the alleged violation or
the date on which the aggrieved party knew or should have known of the
facts that give rise to the alleged violation, whichever is later, but
in no event longer than 3 years from the date of the alleged violation;
and (2) If the Dispute Party fails to respond within 21 calendar days
from its receipt of the notice, the aggrieved party may seek recourse
to the District Court; provided however, that the aggrieved party
waives all claims related to a particular dispute against the Dispute
Party if the aggrieved party fails to bring the dispute before the
District Court within 180 calendar days from the date of sending the
notice. All the time periods in Section 26 of the 2009 Settlement
Agreement may be extended by agreement of the parties to the particular
dispute.
(d) The term ``Exchange Agreement'' means the Security Exchange
Agreement among Ford, the subsidiary guarantors listed in Schedule I
thereto and the LLC, effective as of November 9, 2009.
(e) The term ``Ford'' or the ``Applicant'' means Ford Motor
Company, located in Detroit MI, and its affiliates.
(f) The term ``Ford Active Health Plan'' means the medical benefits
plan maintained by Ford to provide benefits to eligible active hourly
employees of Ford and its participating subsidiaries.
(g) The term ``Ford Common Stock'' means the shares of common
stock, par value $0.01 per share, issued by Ford.
(h) The term ``Ford Employer Security Sub-Account of the Ford
Separate Retiree Account of the VEBA Trust'' means the sub-account
established in the Ford Separate Retiree Account of the VEBA Trust to
hold Securities on behalf of the Ford VEBA Plan.
(i) The term ``Ford Retiree Health Plan'' means the retiree medical
benefits plan maintained by Ford that provided benefits to, among
others, those who will be covered by the Ford VEBA Plan.
(j) The term ``Implementation Date'' means December 31, 2009.
(k) The term ``Independent Fiduciary'' means a fiduciary that is
(1) independent of and unrelated to Ford, the UAW, the Committee, and
their affiliates, and (2) appointed to act on behalf of the Ford VEBA
Plan with respect to the holding, management and disposition of the
Securities. In this regard, the fiduciary will be deemed not to be
independent of and unrelated to Ford, the UAW, the Committee, and their
affiliates if (1) such fiduciary directly or indirectly controls, is
controlled by, or is under common control with Ford, the UAW, the
Committee or their affiliates, (2) such fiduciary directly or
indirectly receives any compensation or other consideration from Ford,
the UAW or any Committee member in his or her individual capacity in
connection with any transaction contemplated in this exemption (except
that an Independent Fiduciary may receive compensation from the
Committee or the Ford VEBA Plan for services provided to the Ford VEBA
Plan in connection with the transactions discussed herein if the amount
or payment of such compensation is not contingent upon or in any way
affected by the independent fiduciary's ultimate decision), and (3) the
annual gross revenue received by the fiduciary, in any fiscal year,
from Ford, the UAW or a member of the Committee in his or her
individual capacity, exceeds 3% of the fiduciary's annual gross revenue
from all sources (for federal income tax purposes) for its prior tax
year.\29\
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\29\ The Department notes that the preceding conditions are not
exclusive, and that other circumstances may develop which cause the
Independent Fiduciary to be deemed not to be independent of and
unrelated to Ford, the UAW, the Committee, and their affiliates.
---------------------------------------------------------------------------
(l) The term ``LLC'' means the Ford-UAW Holdings LLC, established
by Ford as a wholly-owned LLC to hold the assets in the TAA and certain
other assets required to be contributed to the VEBA under the 2008
Settlement
[[Page 64733]]
Agreement, namely (1) a convertible note due January 1, 2013 with an
aggregate principal amount of $3.3 billion bearing 5.75% interest per
annum payable semi-annually (the Convertible Note), and (2) a term note
due January 1, 2018 with a principal amount of $3.0 billion bearing
9.50% interest per annum payable semi-annually (the Term Note).
(m) The term ``LLC Interests'' means Ford's wholly-owned interest
in the LLC.
(n) The term ``New Note A'' means the amortizing guaranteed secured
note maturing on June 30, 2022, in the principal amount of
$6,705,470,000, with payments to be made in cash, in annual
installments from 2009 through 2022, issued by Ford and referred to in
the Exchange Agreement.
(o) The term ``New Note B'' means the amortizing guaranteed secured
note maturing June 30, 2022, in the principal amount of $6,511,850,000,
with payments to be made in cash, Ford Common Stock, or a combination
thereof, in annual installments from 2009 through 2022, issued by Ford
and referred to in the Exchange Agreement.
(p) The term ``published six month LIBOR rate'' means the Official
British Banker's Association Six Month London Interbank Offered Rate
(LIBOR) 11:00am GMT ``fixing'' as reported on Bloomberg page
``BBAM''.\30\
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\30\ LIBOR is calculated by Thomson Reuters and published by the
British Bankers' Association after 11 a.m. (and generally around
11:45 a.m.) each day (London time). It is a trimmed average of
inter-bank deposit rates offered by designated contributor banks,
for maturities ranging from overnight to one year. The rates are a
benchmark rather than a tradable rate, the actual rate at which
banks will lend to one another continues to vary throughout the day.
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(q) The term ``Securities'' means (1) New Note A; (2) New Note B;
(3) the Warrants; (4) the LLC Interests, (5) any Payment Shares, and
(6) additional shares of Ford Common Stock acquired pursuant to the
Independent Fiduciary's exercise of the Warrants.
(r) The term ``Securityholder and Registration Rights Agreement''
means the Securityholder and Registration Rights Agreement by and among
Ford and Ford-UAW Holdings LLC, effective as of November 9, 2009.
(s) The term ``2008 Settlement Agreement'' means the settlement
agreement, effective as of August 29, 2008, entered into by Ford, the
UAW, and a class of retirees in the case of Int'l Union, UAW, et al. v.
Ford Motor Company, Civil Action No. 07-14845, 2008 WL 4104329 (E.D.
Mich. Aug. 29, 2008).
(t) The term ``2009 Settlement Agreement'' means the 2008
Settlement Agreement, as amended by an Amendment to such Settlement
Agreement dated July 23, 2009, effective as of November 9, 2009,
entered into by Ford, the UAW, and a class of retirees in the case of
Int'l Union, UAW, et al. v. Ford Motor Company, Civil Action No. 07-
14845, 2008 WL 4104329 (E.D. Mich. Aug. 29, 2008), Order and Final
Judgment Granted, Civil Action No. 07-14845, Doc. 71, (E.D.
Mich. Nov. 9, 2009).
(u) The term ``TAA'' means the temporary asset account established
by Ford under the 2008 Settlement Agreement to serve as tangible
evidence of the availability of Ford assets equal to Ford's obligation
to the Ford VEBA Plan.
(v) The term ``Trust Agreement'' means the trust agreement for the
VEBA Trust.
(w) The term ``UAW'' means the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America.
(x) The term ``VEBA'' means the Ford UAW Retirees Medical Benefits
Plan (the Ford VEBA Plan) and its associated UAW Retiree Medical
Benefits Trust (the VEBA Trust).
(y) 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.
(z) The term ``Warrants'' means warrants to acquire shares of Ford
Common Stock, par value $0.01 per share, issued by Ford.
Signed at Washington, DC, this 3rd day of December 2009.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. E9-29223 Filed 12-7-09; 8:45 am]
BILLING CODE 4510-29-P
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