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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.
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \15\ See Section 5 of the Securities Exchange Agreement.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \16\ See Footnote 14 regarding the applicability of PTE 80-26.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.'').
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    (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