EBSA
Notices
Grant of Individual Exemption Involving Chrysler LLC, Located in Auburn Hills, MI
[ 4/26/2010]
[ PDF]
FR Doc 2010-9607
[Federal Register: April 26, 2010 (Volume 75, Number 79)]
[Notices]
[Page 21668-21678]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26ap10-99]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2010-12; Exemption Application No. L-
11566]
Grant of Individual Exemption Involving Chrysler LLC, Located in
Auburn Hills, MI
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Grant of individual exemption.
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This document contains an individual exemption issued by the
Department of Labor (the Department) from certain prohibited
transaction restrictions of the Employee Retirement Income Security Act
of 1974 (the Act or ERISA). The transactions involve the New Chrysler
VEBA Plan and its associated UAW Retiree Medical Benefits Trust (the
VEBA Trust) (collectively the VEBA).\1\
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\1\ Because the New Chrysler VEBA Plan will not be qualified
under section 401 of the Internal Revenue Code of 1986, as amended,
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.
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DATES: Effective Date: This exemption is effective as of June 10, 2009.
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: On October 5, 2009, the Department published
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 the Act (the Notice, or
proposed exemption).\2\ The proposed exemption was requested in an
application filed by New Chrysler, the successor to the assets of
Chrysler LLC, pursuant to section 408(a) of the Act 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 Department
to issue exemptions of the type requested to the Secretary of Labor.
Accordingly, this final exemption is being issued solely by the
Department.
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\2\ See Notice of Proposed Individual Exemption Involving
Chrysler LLC, Located in Auburn Hills, MI, 74 FR 51182 (October 5,
2009).
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Background
On March 30, 2008, Chrysler LLC and the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America
(the UAW), along with respective class representatives (Class Counsel)
of plaintiff class members in UAW v. Chrysler LLC (the English Case)
entered into a Settlement Agreement (the English Settlement Agreement)
providing, among other things, that Chrysler LLC transfer
responsibility and funding for retiree health care benefits to a
voluntary employees' beneficiary association (a VEBA).\3\ The English
Case had been brought to contest Chrysler LLC's asserted right to
unilaterally modify the retiree health benefits under the Chrysler
Health Care Program for Hourly Employees. Under the English Settlement
Agreement, Chrysler LLC's obligation to provide post-retirement medical
benefits to the ``Class'' and ``Covered Group'' would be terminated,
and instead, Chrysler LLC would transfer certain assets to the VEBA
Trust to provide the Class and Covered Group with post-retirement
medical benefits under the New Chrysler VEBA Plan.\4\
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\3\ See, International Union, United Automobile, Aerospace and
Agricultural Implement Workers of America, et al. v. Chrysler, LLC,
Civ. Act. No. 2:07-cv-14310 (E.D. Mich, complaint filed October 11,
2007).
\4\ The New Chrysler VEBA Plan provides retiree medical benefits
to members of the ``Class'' and the ``Covered Group'' as defined in
the Settlement Agreement and in Section VI. of this exemption.
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As a result of deteriorating economic conditions and a growing
liquidity crisis, on April 30, 2009, Chrysler LLC and 26 of its
domestic direct and indirect subsidiaries filed a bankruptcy action
under chapter 11 of Title 11 of the United States Code (the Bankruptcy
Code) with the Bankruptcy Court and announced a plan for a partnership
with Italian automaker Fiat S.p.A. (Fiat).\5\ On June 10, 2009,
Chrysler LLC completed the sale under Section 363 of the Bankruptcy
Code (a Section 363 Sale) of substantially all of its assets to an
entity called New Carco Acquisition LLC (later renamed Chrysler Group
LLC, and hereinafter referred to as ``New Chrysler''), a Delaware
limited liability company formed by Fiat North America LLC, a
subsidiary of Fiat.\6\ As discussed in greater detail in the proposed
exemption, Fiat will initially own a minority 20% stake of New Chrysler
with the option of acquiring additional equity if certain milestones
are met.
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\5\ In light of the Bankruptcy Proceeding, the English
Settlement Agreement is of no further force or effect.
\6\ In re Chrysler LLC, et al., Case No. 09B 50002 (Document
3073), slip op. (Bankr. S.D.N.Y. May 31, 2009).
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Through the Bankruptcy proceeding, New Chrysler acquired certain
core assets from Chrysler LLC in exchange for the assumption of certain
liabilities of Chrysler LLC and a cash payment to Chrysler LLC pursuant
to the Master Transaction Agreement, dated as of April 30, 2009 as
subsequently amended (collectively with other ancillary and supporting
documents, the ``MTA''). Following the Bankruptcy proceeding and the
sale of the assets from Chrysler LLC to New Chrysler, initial ownership
of New Chrysler will be broken into two classes of membership
interests, Class A (800,000 interests) and Class B (200,000 interests).
Fiat will initially own the 200,000 Class B membership interests,
representing 20% of the voting and economic interest of New Chrysler;
the United States Treasury Department (the Treasury Department) will
own 98,461 Class A membership interests; the Canadian Government will
together own 24,615 Class A membership interests, and the VEBA Trust
will own 676,924 Class A membership interests (the Class A membership
interests initially owned by the Trust are referred to herein as the
``Shares''), in each case, subject to the applicable terms and
conditions described below. In addition, after the Sale, New Chrysler
became the new legal entity, Chrysler Group LLC.
The assets in the Section 363 Sale were sold free and clear of
liens, claims,
[[Page 21669]]
interests, and encumbrances. In addition, the claims of Chrysler LLC's
unsecured creditors were not assumed by New Chrysler through the
Bankruptcy proceeding unless expressly provided for pursuant to the
MTA. Among the claims that were not assumed by New Chrysler, was the
obligation owed by Chrysler LLC to provide retiree medical benefits
pursuant to the Memorandum of Understanding Post-Retirement Medical
Care, dated October 12, 2007, between Chrysler LLC and the UAW and the
Memorandum of Understanding of Post-Retirement Medical Care, dated
April 29, 2009, between Chrysler LLC and the UAW (together, the
``MOUs''), as well as the English Settlement Agreement.
The UAW asserted during the Bankruptcy proceeding, and New Chrysler
denied, that New Chrysler was bound by the MOUs as a successor to
Chrysler LLC and that it was, therefore, responsible for providing the
retiree medical benefits contemplated. After engaging in a series of
negotiations, New Chrysler and the UAW agreed to enter into an
additional settlement agreement that was presented to the Bankruptcy
Court for approval once notice was provided to affected parties.
Pursuant to the UAW Retiree Settlement Agreement dated June 10, 2009,
between Chrysler Group LLC and the UAW (the Modified Settlement
Agreement), New Chrysler agreed to provide retiree medical benefits to
a defined group of current UAW retirees who were formerly employed by
Chrysler LLC as well as a defined group of current active employees
(once retired) of New Chrysler who are covered under a collective
bargaining agreement between New Chrysler and the UAW (collectively,
the Covered Group).
Ultimately, the Modified Settlement Agreement was approved by the
Bankruptcy Court and the initial steps towards implementing the
transactions that were at the heart of this exemption began to occur as
contemplated. Specifically, upon the ``Implementation Date,'' the
retiree medical benefit obligations to the Covered Group became fixed
and such obligations were transferred to the New Chrysler VEBA Plan and
the VEBA Trust. The VEBA Trust was established and maintained by an
independent committee (the Committee). Moreover, the Modified
Settlement Agreement provided that the New Chrysler VEBA Plan was to be
funded exclusively through the VEBA Trust. Accordingly, the VEBA Trust
would be solely responsible for the payment of post-retirement medical
benefits to members of the Class and Covered Group on and after January
1, 2010.
Under the Modified Settlement Agreement, New Chrysler became
obligated to contribute to the VEBA Trust, on behalf of the New
Chrysler VEBA Plan, (1) the Shares, which represent sixty-seven and
sixty-nine one-hundredths percent (67.69%) of the fully diluted
ownership of New Chrysler as of the consummation of the Section 363
Sale; and (2) a note issued by New Chrysler with a principal amount of
$4,587,000,000 and an implicit interest rate of nine percent (9%) (the
Note), payable in fixed annual installments pursuant to the following
schedule:
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1........................... Payment of $315 July 15, 2010.
million.
2........................... Payment of $300 July 15, 2011.
million.
3........................... Payment of $400 July 15, 2012.
million.
4........................... Payment of $600 July 15, 2013.
million.
5........................... Payment of $650 July 15, 2014.
million.
6........................... Payment of $650 July 15, 2015.
million.
7........................... Payment of $650 July 15, 2016.
million.
8........................... Payment of $650 July 15, 2017.
million.
9........................... Payment of $823.8 July 15, 2018.
million.
10.......................... Payment of $823.8 July 15, 2019.
million.
11.......................... Payment of $823.8 July 15, 2020.
million.
12.......................... Payment of $823.8 July 15, 2021.
million.
13.......................... Payment of $823.8 July 15, 2022.
million.
14.......................... Final Payment of July 15, 2023.
$827.1 million.
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The Shares and the Note (together, the ``New Chrysler Securities'')
were contributed to the VEBA Trust on June 10, 2009, which was the
closing date of the Section 363 Sale. In addition, New Chrysler was
obligated, under the Modified Settlement Agreement, to cause the assets
held under a pre-existing internal Chrysler LLC VEBA (the Internal
VEBA), attributable to the UAW retirees covered under the Modified
Settlement Agreement and valued at $1,589,500,000 as of March 31, 2009,
to be transferred to the VEBA Trust within 10 days after January 1,
2010.
Written Comments
The Department invited all interested persons to submit written
comments and/or requests for a public hearing with respect to the
Notice on or before November 19, 2009. Due to the failure by the
Applicant to notify a small number of interested persons of the Notice,
the Department extended the comment period until December 23, 2009.
During the comment period, the Department received ninety-two (92)
telephone inquiries and forty (40) written comments from interested
persons on the proposed exemption. Of the written comments received,
the majority were submitted by participants in the New Chrysler VEBA
Plan. In addition, counsel for the Committee and the Independent
Fiduciary submitted comments. The Department received no hearing
requests during the comment period.
Several of the written comments and callers supported the adoption
of the exemption. In this regard, the UAW, along with Class Counsel,
reviewed New Chrysler's application for exemption and expressed support
for the application and stated their belief that the transactions which
are the subject of the exemption are in the best interest of the New
Chrysler Plan's participants and beneficiaries. Furthermore, the
Department received written comments from the Committee and the
Independent Fiduciary which supported the exemption and requested
certain modifications and/or clarifications regarding the exemption.
Following is a discussion of the aforementioned comments, including
the responses made by the Department to address the issues raised
therein.
Participant Comments
The telephone inquiries received by the Department from
participants in the New Chrysler VEBA Plan related to the commenters'
difficulty in understanding the Notice or the effect of the exemption
on the commenters' benefits, including
[[Page 21670]]
the general concern that the Modified Settlement Agreement is too
advantageous to New Chrysler and would not ensure that benefit levels
for participants will remain affordable.
With respect to the written comments submitted by interested
persons, the majority of commenters neither supported nor opposed the
exemption but instead raised other concerns that are beyond the scope
of this exemption. Many such comments related to the perceived unfair
treatment of retirees within the UAW and Chrysler LLC; a lack of
participation afforded to retirees in the process of approving the
settlements between Chrysler LLC and the UAW; concerns about the rising
costs of healthcare; and the perceived government favoritism of the car
companies at retirees' expense.
Several written comments and callers supported the adoption of the
exemption. In addition, New Chrysler submitted a comment in support of
the application and confirmed that New Chrysler effectuated the asset
transfers to the VEBA Trust in accordance with the terms of the
Modified Settlement Agreement. Specifically, New Chrysler represented
that, pursuant to the Modified Settlement Agreement and under the terms
of the Asset and Equivalent Transfer Agreement between New Chrysler and
the UAW dated January 1, 2010, New Chrysler transferred $1.97 billion
in cash and marketable securities to the VEBA Trust on January 1,
2010.\7\
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\7\ Assets held under the Internal VEBA plus the earnings
thereon. These assets are in addition to the Shares and Note issued
by Chrysler, which were contributed on June 10, 2009.
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The Committee's Comment
The Committee submitted a written comment that was supportive of
the proposed exemption, and suggests certain modifications to the
operative language of the proposed exemption and the Summary of Facts
and Representations (the ``Representations,'' and individually, a
``Representation''). The Committee's comment letter also relates to the
respective roles of the Independent Fiduciary and any investment banks
retained by the Independent Fiduciary with respect to the Securities
held by the VEBA Trust.
A. Modifications to Summary of Facts and Representations
1. Number of Investment Banks. As illustrated in the right column
on page 51187 of the proposed exemption, the Representations state that
the VEBA Trust will have three separate retiree accounts (the Separate
Retiree Accounts) designed to segregate payments attributable to New
Chrysler, General Motors (GM), and Ford Motor Company (Ford), pursuant
to the terms of each company's settlement agreement with the UAW and
each respective class. As described in the middle column of page 51190
of the proposed exemption, the Committee represented that, in the event
that a single Independent Fiduciary represents two or more Separate
Retiree Accounts:
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.
In its initial discussions with the Department, the Committee made
the argument that the arrangement for retention of separate investment
banks would minimize the likelihood of an immediate transactional
conflict inherent wherein one Independent Fiduciary managing more than
one Separate Retiree Account would be immediately confronted by the
need to dispose of the securities of each company.
The Committee has retained Brock Securities LLC (Brock) as the
Independent Fiduciary with respect to the Securities, and has currently
retained separate independent fiduciaries with respect to the GM and
Ford Separate Retiree Accounts. As noted, however, it is conceivable
that at some future date any or all three Independent Fiduciary
engagements may be consolidated and the foregoing conditions would then
come into play. In such event, the Committee argues that the
requirement for different investment banks for each Separate Retiree
Account would not be in the interest of the New Chrysler VEBA Plan and
would not advance the goal of reducing potential fiduciary conflicts.
The Committee contends that the need to retain multiple investment
banks should be at the discretion of the Independent Fiduciary and the
investment banks themselves, or that such requirement should be limited
to investment banks performing a traditional underwriting role and
being paid on a transactional basis, not those retained for ongoing
valuation or investment consulting services.\8\
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\8\ The Committee suggests that an investment bank performing
valuation or investment consulting and advisory services will often
be paid a flat or asset-based fee, while an investment bank
performing underwriting and brokerage services will be paid a
transaction-based fee as a percentage of the overall sale.
Additionally, the Committee notes that it is not anticipated that
the Independent Fiduciary likely would retain a separate consulting
and advisory firm for day-to-day advice (unless appropriate).
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The Committee points out that, as a threshold matter, the term
``investment bank'' or ``investment banker'' is not a precise term, but
refers to a range of services including investment valuation,
investment consulting and advice, and brokerage or underwriting
performed under the authority and supervision of one or more regulators
(including, but not limited to the Federal Reserve and/or the
Securities and Exchange Commission). The Committee maintains that
typically, though not necessarily, an investment bank engaged to
provide a regular valuation will not be the same as an investment bank
engaged to assist the Independent Fiduciary in connection with a large
private sale or an initial public offering, and even in the latter
event, different investment banks may be employed for different markets
(public versus private, international versus domestic, institutional
versus retail).
The Committee suggests that, particularly in the case of an
investment bank engaged only to provide valuation or investment advice,
the Independent Fiduciary may conclude that there is no potential
conflict in retaining a single investment bank with respect to two or
more Separate Retiree Accounts. Furthermore, the Committee believes
that retaining a single investment bank may in fact provide potential
benefits in the form of experience, cost savings, and communication.
According to the Committee, Chrysler, Ford, and GM are at vastly
different stages of marketability, are competing for capital in
different markets (including public versus private), and are not
competing against each other so much as they are part of a huge global
automobile market with many other competitors.\9\ The Committee notes
that a conflict could arise in the unlikely event that the Independent
Fiduciary proposes to sell large blocks of stock of two or more car
companies in the same market at the exact same time. In that case, the
Committee suggests that the Independent Fiduciary would probably
(though not necessarily) engage separate investment bankers at that
time to underwrite the sales. Furthermore, the Committee contends that
it would maintain safeguards to mitigate the risk
[[Page 21671]]
of conflicts. For example, the Committee notes that it would still
appoint a conflicts monitor and perform its own monitoring of the
Independent Fiduciary, and it would continue to raise any questions
about potential conflicts.
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\9\ According to the Committee, the most likely reason that an
investment bank would propose going to market under this scenario is
if the overall market itself is booming, such that there is ample
appetite for the securities. In the event that a plan needs
liquidity in a falling market, the Committee is more likely to
explore other options, including reducing benefits or seeking
alternative sources of capital such as through borrowing.
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Accordingly, the Committee proposes that, in the middle column on
page 51190 of the proposed exemption, the aforementioned Representation
should be revised, to replace the text, as follows:
In the event that a single Independent Fiduciary is retained to
represent two or more plan Accounts, and it proposes to sell
Securities from two or more such Accounts at the same time, a
separate investment bank (if any) will be retained for each Account
with respect to the marketing or underwriting of the Securities. For
this purpose, an investment bank will be considered as having been
retained to market or underwrite securities if it is compensated on
the success of the offering and/or as a percentage of the offering
or sales proceeds. The foregoing does not preclude the engagement of
a single investment bank to provide valuation services or long-term
investment consulting on behalf of two or more plan Accounts,
provided that (1) the fees of the investment bank are not contingent
upon the success or size of an offering or sale, and (2) for each
plan Account, the investment bank's recommendations are made solely
with the goal of maximizing the returns for such Account.
In addition, the Committee explains that there may be some
confusion as to whether two different Independent Fiduciaries may
retain the same investment bank. The Committee states that there should
be no limitations on the number of investment banks that the
Independent Fiduciary must retain other than general fiduciary
principles. According to the Committee, although it is unlikely that an
Independent Fiduciary would consider, or that an investment bank would
accept, an engagement that might involve marketing securities of two
different companies in the same market at the same time, it would not
be unusual, for instance, to retain the same investment bank to make a
private offering of securities in the domestic market and a public
offering of different securities in a foreign market, where such
investment bank is best qualified to do so.
Accordingly, the Committee suggests that, on page 51190 of the
proposed exemption, the representation be modified to contain the
following:
To the extent that two Accounts are represented by different
Independent Fiduciaries, nothing herein shall prohibit the
Independent Fiduciaries from retaining the same investment bank with
respect to the Accounts which they manage if they determine that it
is in the interest of their respective Accounts to do so.
The Committee also requests that the Department clarify that, in
all circumstances, the restrictions applicable to investment banks
would not apply in the event that the Independent Fiduciary elects to
participate in a broader offering of Securities by New Chrysler and
such offering is underwritten by an investment bank selected by New
Chrysler (see, e.g., Section 3.1(h) of the Registration Rights
Agreement), rather than by the Independent Fiduciary.
The Department concurs with the Committee that, in the event that
one Independent Fiduciary represents two or more (Separate Retiree)
Accounts, and it proposes to sell Securities from two or more such
Separate Retiree Accounts at the same time, then a separate investment
bank (if any) will be retained for each Separate Retiree Account with
respect to the marketing or underwriting of the Securities.
Notwithstanding the above, nothing in the final exemption would
preclude the Independent Fiduciary of two or more Separate Retiree
Accounts from retaining the same investment banker to provide valuation
services or long-term investment consulting on behalf of two or more of
such Separate Retiree Accounts.\10\ Furthermore, with respect to the
Committee's suggestion that, to the extent that two Separate Retiree
Accounts are represented by different Independent Fiduciaries, nothing
herein shall prohibit the Independent Fiduciaries from retaining the
same investment bank with respect to the Separate Retiree Accounts
which they manage if they determine that it is in the interest of their
respective Separate Retiree Accounts to do so, the Department is of the
view that a separate investment bank (if any) must be retained to
represent each such Separate Retiree Account with respect to the
marketing or underwriting of the Securities.
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\10\ In reaching the Department's conclusion, it is our
understanding, based on the Committee's representations, that the
fees paid to a single investment bank to provide valuation services
or long-term investment consulting on behalf of two or more Separate
Retiree Accounts will not be contingent upon the success or size of
an offering or sale, and for each Separate Retiree Account, the
investment bank's recommendations are made solely with the goal of
maximizing the returns for such Account.
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Lastly, the Department concurs with the Committee that the
restrictions applicable to investment banks would not apply in the
event that the Independent Fiduciary elects to participate in a broader
offering of Securities by New Chrysler and such offering is
underwritten by an investment bank selected by New Chrysler (see, e.g.,
Section 3.1(h) of the Registration Rights Agreement), rather than by
the Independent Fiduciary. In the Department's view, the likelihood of
conflicts is lower than in a situation where an offering of New
Chrysler Securities is underwritten by an investment bank retained to
sell the securities of one or more of the other Separate Retiree
Accounts, because the interests of the New Chrysler VEBA Plan appear to
align more closely with the interests of New Chrysler in the marketing
and selling of the underwritten securities. Therefore, subject to the
limitations above, the Department concurs with the Committee's
requested clarifications.
2. Reporting Deviations From an Investment Bank's Recommendations.
If a single Independent Fiduciary is retained with respect to more than
one Separate Retiree Account, in the middle column on page 51190 of the
proposed exemption, the preamble provides that the Independent
Fiduciary shall report each instance in which it proposes to
``deviate'' from a ``recommendation'' of the investment bank. The
Committee initially represented to the Department that such arrangement
would help to minimize the likelihood of a conflict inherent in
retaining one Independent Fiduciary to manage the securities of more
than one Separate Retiree Account.
However, the Committee now proffers that this requirement may not
be practical, in light of information gained during the process of
interviewing and selecting the Independent Fiduciaries in connection
with the Ford, GM, and Chrysler exemption applications. The Committee
notes that, typically, an investment bank will not ``recommend'' a
single, specific course of action, but through a dialogue with the
Independent Fiduciary will present, discuss, modify and refine various
options and scenarios that the Independent Fiduciary ultimately will
use in making its decisions as a fiduciary. Thus, the Committee argues
that it would not be feasible for the Independent Fiduciary to report
back to the Committee when it proposes to deviate from a specific
recommendation, given that interactions between the Independent
Fiduciary and an investment bank generally lack a single, identifiable
``recommendation'' (either orally or in writing) that the Independent
Fiduciary does or does not intend to follow.
Moreover, the Committee contends that some investment banker
recommendations are unlikely ever to
[[Page 21672]]
raise conflict issues. For instance, the Committee notes that an
investment bank may recommend that the VEBA Trust sell stock of New
Chrysler in the market on a particular day, but the Independent
Fiduciary determines that it would be more convenient to wait 24 hours.
According to the Committee, it is questionable whether the Independent
Fiduciary's decision constitutes a deviation. Similarly, the Committee
notes that an investment bank may develop a preliminary valuation of
certain New Chrysler Securities of $xx, and after thorough
consideration, the Independent Fiduciary may determine that such
securities are actually worth $yy. In such event, the Committee
suggests that the Independent Fiduciary's valuation might be viewed as
a ``deviation'' from the initial recommendation but is unlikely to
raise any conflict vis-[agrave]-vis any Securities held by the VEBA
Trust.
The Committee is also concerned that the requirement for the
Committee to review the reported deviations will cause the Committee to
interpose itself between the two parties before such parties have
reached a consensus. In this event, the Committee explains that it may
have an implied obligation to substitute its judgment for that of the
Independent Fiduciary.
The Department concurs with the Committee's comment that their
initial representation that the Independent Fiduciary would report any
deviations from the recommendation of the investment bank raises
operational issues. Nevertheless, the Department notes that the
Independent Fiduciary and the Committee are not relieved from their
fiduciary duties under the Act in carrying out their respective
responsibilities. There may be circumstances where the Independent
Fiduciary has a responsibility under the Act to inform the conflicts
monitor or the Committee of a deviation from the investment bank's
recommendations, and the Committee, as part of its oversight
responsibility, may need to take appropriate action based on such
disclosure. Subject to the caveat above, the Department takes note of
these clarifications and updates to the Summary of Facts and
Representations of the proposed exemption.
B. Requests for Confirmation
1. Conditions Applicable in the Event That the Committee Appoints a
Single Independent Fiduciary. The Committee's comment requested
confirmation that certain terms and conditions described in the
Representations, in the middle column on page 51190, and incorporated
into Sections II(b)(i) through (iii) on page 51192 of the proposed
exemption, would apply only if and to the extent that the same
Independent Fiduciary is appointed to represent two or more Separate
Retiree Accounts.
Sections II(b)(i) through (iii) of the proposed exemption provide
that the Committee will take certain steps to mitigate potential
conflicts of interest, including the appointment of a conflicts
monitor, the adoption of procedures to facilitate prompt replacement of
the Independent Fiduciary due to a conflict of interest, the adoption
of a written policy by the Independent Fiduciary regarding conflicts,
and the periodic reporting of actual or potential conflicts.
Additionally, in the middle column on page 51190 of the proposed
exemption, the Representations provide that a separate investment bank
will be retained with respect to each Separate Retiree Account, and in
the event that the Independent Fiduciary deviates from the ``initial
recommendations'' of an investment bank, ``it would find it necessary
to explain why it deviated from a recommendation.''
The Department concurs with the Committee, that the terms and
conditions described above will apply only if and to the extent that
the same Independent Fiduciary is appointed to represent two or more
Separate Retiree Accounts. Notwithstanding the above, nothing in the
final exemption would preclude the Committee from adopting procedures
similar to those described in Sections II(b)(i) through (iii) of the
proposed exemption in furtherance of its oversight responsibilities.
However, the Department believes that the requirement that the
Independent Fiduciary retain separate investment banks with respect to
each Separate Retiree Account, subject to the limitations described
above, applies regardless of how many Separate Retiree Accounts are
represented by the same Independent Fiduciary.
2. Investment Bank's Acknowledgement that the VEBA Trust is its
Ultimate Client. On page 51193 of the proposed exemption, Section II(e)
provides that ``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.'' In
assisting the Department in formulating the conditions of the proposed
exemption, the Committee represented to the Department that such
acknowledgement would be helpful in the event that the Committee is
forced to replace the Independent Fiduciary (such as in the event of an
irreconcilable conflict). The Committee reasoned that this requirement
would ensure that, in the event the Independent Fiduciary was replaced,
the investment banker would continue to represent the plan and work
with the replacement Independent Fiduciary.
After conducting interviews and consulting with numerous parties in
its search for an independent fiduciary to manage the Securities
received by the New Chrysler VEBA Plan, the Committee has raised
concerns regarding such condition. The Committee has requested that the
Department confirm that this condition will not cause the investment
bank to become a fiduciary or otherwise obligate the investment bank or
the Independent Fiduciary to provide to the Committee any of the
investment bank's work product except upon request, nor will it
obligate the Committee to request or review any such work product. The
Committee contends that the Independent Fiduciary is both a named
fiduciary and an investment manager, thus it should be free within the
parameters of its contract to determine what information it shares with
the Committee.
The Department confirms that the requirement that the investment
banker acknowledge that its ultimate client is the New Chrysler VEBA
Plan will not, by itself, make the investment banker a fiduciary of the
New Chrysler VEBA Plan. Rather, whether an investment banker referred
to in Section II of the proposed exemption becomes a fiduciary as a
result of its provision of services depends on whether it meets the
definition of a ``fiduciary'' as set forth in section 3(21) of the Act
and the regulations promulgated thereunder.
3. Obligation of the Committee to Review the Investment Banker
Reports. As described in the middle column on page 51190 of the
proposed exemption, the Representations describe several safeguards
that are provided to reduce the risk of conflict in the event that a
single independent fiduciary is retained with respect to more than one
Separate Retiree Account. Specifically, in assisting the Department to
formulate these procedures, the Committee had suggested that a
``conflicts monitor'' would develop a process for identifying potential
conflicts. As a result, the Department added Section II(b)(i)(2) of the
proposed exemption, which provides that a conflicts monitor appointed
by the Committee ``regularly review the * * * investment banker reports
* * * to identify the presence of factors that could lead to a
conflict.''
After conducting interviews with candidates for the Independent
[[Page 21673]]
Fiduciary position, the Committee has raised a concern regarding the
conflicts monitor's duties. The Committee has requested confirmation
that Section II(b)(i)(2) does not independently impose any obligation
on the Committee to provide (or request) ``investment banker reports''
as a matter of course (i.e., beyond the Act's general fiduciary
requirements). In its comment letter, the Committee notes that it may
be appropriate for the conflicts monitor or the Committee (or any
subcommittee with delegated authority) to review investment banker
reports when provided to them by the Independent Fiduciary, or to
request such reports under certain circumstances. However, the
Committee maintains that such reports may contain information that is
confidential or proprietary, or preliminary, or simply irrelevant to
its responsibilities. Furthermore, according to the Committee, it is
not clear what constitutes a ``report,'' with the result that informal
notes and/or emails may fall under the definition.
The Department concurs with the Committee that Section II(b)(i)(2)
of the proposed exemption does not independently impose an affirmative
obligation on the Committee to provide (or request) ``investment banker
reports'' as a matter of course beyond the Act's general fiduciary
requirements.
The Independent Fiduciary's Comment
The Independent Fiduciary, Brock, submitted a written comment that
was supportive of the proposed exemption, and suggests certain
modifications to the operative language of the proposed exemption and
the Representations. Brock's comment relates to the effects of a
potential corporate transaction involving New Chrysler, including a
change in corporate structure of the company and the VEBA Trust's
potential acquisition of additional employer securities pursuant to
future corporate reorganizations and other ministerial changes to
certain definitions in Section VI of the proposed exemption. In
addition, Brock suggests certain revisions to the Representations meant
to correct or clarify information presented in the proposed exemption.
A. Clarifications to the Operative Language
1. Change in New Chrysler's Corporate Structure. As described in
the Representations, in the far right column on page 51184 of the
proposed exemption, New Chrysler is a Delaware limited liability
company that was formed by Fiat North America LLC, a subsidiary of
Fiat, in order to receive the assets of Chrysler LLC, generally free
and clear from all liens in connection with the Section 363 Sale. Brock
notes that, in the event of consolidation, merger, sale, conveyance or
public offering of New Chrysler, the company may no longer take the
form of a Delaware limited liability company. Therefore, Brock suggests
that Section VI(i), on page 51195 of the proposed exemption, should be
amended to read in its entirety as follows:
The term ``New Chrysler'' shall mean a Delaware Limited
Liability Company formed by Fiat North America LLC, a subsidiary of
Fiat S.p.A., a manufacturer of automobiles and automotive parts in
Turin, Italy, and its successors and assigns. New Chrysler is the
Company that acquired certain assets and liabilities from Chrysler
LLC pursuant to the Section 363 Sale.
The Department concurs with Brock that in the event of a
consolidation, merger, sale, conveyance or public offering of New
Chrysler, the company may no longer take the form of a Delaware limited
liability company. Accordingly, the Department has made changes to the
Definitions in Section VI(j) of the final exemption to clarify that the
term ``New Chrysler'' includes such entity's successors and assigns in
the event of a reorganization, restructuring, recapitalization, merger,
or similar corporate transaction.
2. Effect of Corporate Transaction. Section I(a), on page 51192 of
the proposed exemption, provides exemptive relief for the acquisition,
holding, and disposition by the New Chrysler VEBA Plan and the VEBA
Trust of the Shares and the Note transferred by New Chrysler and
deposited in the Chrysler Employer Security Sub-Account of the Chrysler
Separate Retiree Account of the VEBA Trust.
Brock notes that, in the event of a consolidation, merger, sale or
conveyance of New Chrysler, its corporate form may be reclassified and
its equity interests may no longer fall under the current definition of
``Shares'' provided in Section VI(k) of the proposed exemption. In such
event, the VEBA Trust may no longer hold ``Shares,'' as defined by the
proposed exemption. Furthermore, Brock notes that, pursuant to the
Shareholders Agreement by and Among Fiat North America LLC, the U.S.
Department of the Treasury, the VEBA Trust, 7169931 Canada Inc.
(Canada), and the VEBA Holdcos Signatory Thereto (the Shareholders
Rights Agreement), Brock, as the Independent Fiduciary, will have
limited input in the terms and execution of any corporate transaction.
Therefore, in order to continue to provide exemptive relief, Brock
suggests that the definition of Shares should be modified to take into
account the effect of a future change in New Chrysler's corporate form.
Accordingly, Brock requests that Section VI(k) of the proposed
exemption be amended in its entirety to read as follows:
The term ``Shares'' means the membership interests issued by New
Chrysler, including any membership interest, partnership interest,
shares of stock or other equity resulting from an adjustment,
substitution, conversion, or other modification of New Chrysler
Shares in connection with a reorganization, restructuring,
recapitalization, merger, or similar corporate transaction, provided
that each holder of Shares is treated in an identical manner.
In response to the above referenced comment, the Department
confirms that the proposed exemption provides exemptive relief for
other equity acquired as a result of an adjustment, substitution,
conversion, or other modification of Shares in connection with a
restructuring, recapitalization, merger or similar corporate
transaction involving New Chrysler. Accordingly, the Department has
revised the definition of ``Shares'' in Section VI(o) of the final
exemption, and takes note of the foregoing clarifications and updates
to the Representations.
3. Conforming Relief Requested. Brock requests that, to the extent
the final exemptive relief granted to the Ford or GM separate retiree
accounts is equally applicable to the facts and circumstances covered
by the proposed exemption for New Chrysler, any such relief be granted
with respect to the exemption for New Chrysler as well.
The Department concurs with Brock's request to conform the
exemptive relief granted to Ford or GM to the extent that such relief
is equally applicable to the facts and circumstances covered by the
proposed exemption for New Chrysler.
B. Modifications to Summary of Facts and Representations
1. Dates of Call Option Exercise Period. In the middle column on
page 51186 of the proposed exemption, the Representations describe
certain mechanisms for the VEBA Trust to sell the Shares to other
parties prior to New Chrysler becoming a publicly traded company. The
Representations provide that, in accordance with the Call Option
Agreement, dated as of June 10, 2009, by and among Fiat, the VEBA
Trust, Canada, and the Treasury Department (the Call Option Agreement),
Fiat has the option to purchase from the VEBA Trust up to 40% of the
VEBA Trust's equity interests in New Chrysler, between July 1, 2012 and
June 1, 2016.
[[Page 21674]]
Brock suggests that, on page 51186 of the proposed exemption,
``June 1, 2016'' should be corrected to read ``June 30, 2016'', which
is the date set forth in the definition of ``Call Option Exercise
Period'' in the Call Option Agreement. The Department acknowledges the
fact that the ``Call Option Exercise Period'' means that period
beginning on July 1, 2012 and ending on June 30, 2016. As such, the
Department takes note of the foregoing clarifications and updates to
the Representations.
2. Description of Equity Repurchase Rights. The Representations, in
the left column on page 51187 of the proposed exemption, provide that,
in reference to the Treasury Department's repurchase right (a
Repurchase Right) under the Equity Recapture Agreement, dated June 10,
2009 between the VEBA Trust and the Treasury Department (the Equity
Recapture Agreement), ``This right expires upon the earlier of its
exercise and the VEBA Trust's surrender of all remaining New Chrysler
interests held by the VEBA Trust to the Treasury Department.''
However, Brock notes that, under Section III.B of the Equity
Recapture Agreement, it is Fiat's Call Option, not the Treasury
Department's, that expires ``upon the earlier of the exercise of the
Repurchase Right and the surrender to the Holder of all remaining VEBA
Interests held by VEBA Holdco or VEBA, as applicable.'' To clarify the
rights of the parties under the Equity Recapture Agreement, Brock
proposes that the sentence from page 51187 of the proposed exemption
quoted above, and the sentence preceding it, be amended to read as
follows:
In addition, the Treasury Department has the right, at any time,
to purchase all outstanding Shares held by the VEBA Trust for an
amount equal to the Threshold Amount less the amount of any proceeds
already received by the VEBA Trust in respect of any of the Shares
(the ``Repurchase Right''). The Repurchase Right terminates
following any payment on the December 31, 2018 interim settlement
date, as described below, under the Equity Recapture Agreement, or
upon the payment of the Threshold Amount Excess, if earlier. In
addition, the Equity Recapture Agreement provides that the Fiat Call
Option expires upon the earlier of the exercise of the Repurchase
Right and the VEBA Trust's surrender of all remaining New Chrysler
interests held by the VEBA Trust to the Treasury Department.
3. Voting of Shares by the Independent Fiduciary. On page 51189 of
the proposed exemption, in the middle column, the Representations
provide the following:
Additionally, under the Shareholder Rights Agreement, the New
Chrysler VEBA Plan must vote its Membership Interest in New Chrysler
in accordance with the recommendations of the independent directors
of New Chrysler, in proportion to those recommendations. Therefore,
the Independent Fiduciary will have no responsibility for the voting
of the Membership Interests.
Brock notes that Section 2.4 of the Shareholders Rights Agreement
provides that the VEBA Trust will vote its interests in New Chrysler in
accordance with the recommendations of the independent directors, but
subject to certain exceptions with respect to major decisions set forth
in the Amended and Restated Limited Liability Company Operating
Agreement of Chrysler Group LLC, dated and effective as of June 10,
2009 (the New Chrysler Operating Agreement). Brock points out that
Section 10.7 of the New Chrysler Operating Agreement provides that if
Fiat owns more than 50% of the membership interests of New Chrysler,
the Board of Directors shall not take certain major decisions without
the prior written consent of each non-Fiat member affected thereby, if
such non-Fiat member would be adversely affected by such major decision
disproportionately to Fiat. According to Brock, non-Fiat members would
include the VEBA Trust.
As such, Brock recommends that the language from page 51189 of the
proposed exemption quoted above, beginning with ``Therefore, the
Independent Fiduciary* * *'' be replaced with the following, to reflect
the exception with respect to major decisions:
Therefore, the Independent Fiduciary will have no responsibility
for the voting of the membership interests; provided, however, that
with respect to certain major decisions, as discussed in Section
10.7 of the Operating Agreement, under certain circumstances New
Chrysler will not take such major decisions without the prior
written consent of non-Fiat holders once Fiat owns more than 50% of
the membership interests in New Chrysler.
Brock also notes that in two instances in the proposed exemption,
``membership interests'' is capitalized and should be made lower case.
The Department takes note of the foregoing clarifications and updates
to the Representations.
4. Fiat's Right of Appointment of Directors. The Representations on
page 51190 of the proposed exemption, in the right column, provide that
``Fiat will have the right to appoint four (4) directors once it
obtains an aggregate ownership interest of thirty-five percent (35%) or
more in New Chrysler and the Final Director will resign once Fiat
obtains the right to appoint a fourth director.'' Brock notes that,
according to Section 5.3 of the New Chrysler Operating Agreement,
``[f]or so long as Fiat remains a Member and the Fiat Group has a Total
Interest exceeding fifty percent (50%), Fiat shall have the right to
designate up to five Directors to the Board of Directors to serve as
Directors.'' Accordingly, Brock recommends adding a more complete
description of Fiat's rights under Section 5.3 of the New Chrysler
Operating Agreement by inserting, after the sentence from the proposed
exemption reproduced above, the following:
Furthermore, Fiat will have the right to appoint five (5)
directors once it obtains an aggregate ownership interest of fifty
percent (50%) or more in New Chrysler, and the remaining director
appointed by the Treasury Department who is not an independent
director will resign once Fiat obtains the right to appoint a fifth
director.
The Department takes note of the foregoing clarifications and
updates to the Representations.
The Department has carefully considered the issues expressed by the
commenters in their written comments, including the issues raised by
the individuals who had telephoned the Department. After consideration
of the commenters' concerns and documentation provided, the Department
does not believe that any material factual issues have been raised
which would require the convening of a public hearing. Further, after
giving full consideration to the entire record, including the comments,
the Department has determined to grant the exemption, subject to the
modifications and clarifications described herein.
For a complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption that was published in the Federal
Register on October 5, 2009 at 74 FR 51182. For further information
regarding the comments and other matters discussed herein, interested
persons are encouraged to obtain copies of the exemption application
file (Exemption Application No. L-11566) the Department is maintaining
in this case. The complete application file, as well as all
supplemental submissions received by the Department, are made available
for public inspection in the Public Disclosure Room of the Employee
Benefits Security Administration, Room N-1513, US Department of Labor,
200 Constitution Avenue, NW., Washington, DC 20210. The written
comments may also be viewed online at http://
[[Page 21675]]
www.regulations.gov, at Docket ID Number: EBSA-2009-0025.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act does not relieve a fiduciary or other
party in interest from certain other provisions of the Act, including
any prohibited transaction provisions to which the exemption does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which, among other things, require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act;
(2) In accordance with section 408(a) of the Act, the Department
makes the following determinations:
(a) The exemption is administratively feasible;
(b) The exemption is in the interests of the New Chrysler VEBA Plan
and of its participants and beneficiaries; and
(c) The exemption is protective of the rights of participants and
beneficiaries participating in the New Chrysler VEBA Plan; and
(3) The exemption is supplemental to, and not in derogation of, any
other provisions of the Act, 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.
Accordingly, the following exemption is granted 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).
Section I. Covered Transactions
(a) The restrictions of sections 406(a)(1)(A), (B), and (E),
406(a)(2), 406(b)(1) and (2), and 407(a) of the Act shall not apply,
effective June 10, 2009, to:
(1) The acquisition by the UAW Chrysler Retiree Medical Benefits
Plan (New Chrysler VEBA Plan) and its associated UAW Retiree Medical
Benefits Trust (the VEBA Trust) of 676,924 New Chrysler Shares (the
Shares) and a note issued by New Chrysler with a principal amount of
$4,587,000,000 and an implicit interest rate of nine percent (9%) (the
Note) transferred by New Chrysler and deposited in the Chrysler
Employer Security Sub-Account of the Chrysler Separate Retiree Account
of the VEBA Trust;
(2) The holding of the Shares and the Note by the New Chrysler VEBA
Plan in the Chrysler Employer Security Sub-Account of the Chrysler
Separate Retiree Account of the VEBA Trust;
(3) The disposition of the Shares and the Note; and
(4) The sale by the New Chrysler VEBA Plan to Fiat S.p.A (Fiat) of
Shares pursuant to the exercise by Fiat of the Call Option Agreement
and/or the First Offer Right described in the New Chrysler Operating
Agreement;
(b) The restrictions of sections 406(a)(1)(B), 406(a)(1)(D),
406(b)(1) and 406(b)(2) of the Act shall not apply, effective June 10,
2009, to:
(1) The payment by New Chrysler, the Existing Internal VEBA, the
New Chrysler VEBA Plan, or any affiliate of New Chrysler, 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; and
(2) The reimbursement by New Chrysler, the Existing Internal VEBA,
the New Chrysler VEBA Plan, or any affiliate of New Chrysler, 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.
(c) The restrictions of sections 406(a)(1)(B), 406(a)(1)(D),
406(b)(1) and 406(b)(2) of the Act shall not apply, effective June 10,
2009, to the return to New Chrysler of assets deposited or transferred
to the New Chrysler VEBA Plan by mistake, plus interest.
Section II. Conditions Applicable to Section I(a)
(a) The Committee appoints a qualified Independent Fiduciary to act
on behalf of the New Chrysler VEBA Plan for all purposes related to the
transfer of the Shares and Note to the Plan for the duration of the
Plan's holding of the Shares and Note, except for the voting of the
Shares. Such Independent Fiduciary will have sole discretionary
responsibility relating to the holding, disposition and ongoing
management of the Shares and the Note. The Independent Fiduciary will
determine, before taking any of the actions regarding the Shares and
the Note, that each such action or transaction is in the interest of
the New Chrysler 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 General Motors Retiree Medical Benefits
Plan and/or the UAW Ford Retiree Medical Benefits Plan) with respect to
employer securities deposited into the 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:
(i) The Committee appoints a ``conflicts monitor'' to: (1) Develop
a process for identifying potential conflicts; (2) 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 (3) further question the
Independent Fiduciary when appropriate.
(ii) 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.
(iii) 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 conflict.
(c) The Independent Fiduciary authorizes the Trustee of the New
Chrysler VEBA Plan to dispose of the Shares and the Note only after the
Independent Fiduciary determines, at the time of the transaction, that
the transaction is feasible, in the interest of the New Chrysler VEBA
Plan, and protective of the participants and beneficiaries of the Plan.
(d) The Independent Fiduciary negotiates and approves on behalf of
the New Chrysler VEBA Plan any transactions between the New Chrysler
VEBA Plan and any party in interest involving the Shares or the Note
that may be necessary in connection with the subject transactions
(including but not limited to the registration of the securities
contributed to the New Chrysler 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 New Chrysler VEBA Plan, the Trust Agreement, the
Independent
[[Page 21676]]
Fiduciary Agreement, and any other documents governing the employer
securities, such as the registration rights agreement.
(g) The New Chrysler VEBA Plan incurs no fees, costs or other
charges (other than described in the VEBA Trust Agreement and the
Modified Settlement Agreement) as a result of the transactions exempted
herein.
(h) The terms of any transaction exempted herein are no less
favorable to the New Chrysler VEBA Plan than the terms negotiated at
arms' length under similar circumstances between unrelated parties.
Section III. Conditions Applicable to Section I(b)
(a) The Committee and the New Chrysler 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 VEBA Trust's independent auditor. The results of this
review will be made available to New Chrysler.
(b) New Chrysler and their respective plans' third party
administrator(s) will review the benefits paid during the transition
period and determine the dollar amount of mispayments made, subject to
the review of the respective plans' 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 OPEB discount
rate.\11\
---------------------------------------------------------------------------
\11\ OPEB means Other Post-Employment Benefits, and typically
includes retiree healthcare benefits, life insurance, tuition
assistance, day care, legal services and the like. The OPEB discount
rate is a rate used to discount projected future OPEB benefits
payment cash flows to determine the present value of the OPEB
obligation.
---------------------------------------------------------------------------
(e) If there is a dispute as to the amount of a reimbursement
requested, the parties will enter into an alternative dispute
resolution procedure as defined in section VI.(b) of this exemption.
Section IV. Conditions Applicable to Section I(c)
(a) New Chrysler 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 New Chrysler VEBA Plan was entitled.
(b) The claim is made within the Verification Time Period, as
defined in Section VI(s) of this exemption.
(c) Interest on any mistaken deposit or transfer will accrue from
the date of the mistaken payment to the date of the repayment.
(d) Interest will be determined using the applicable OPEB discount
rate.
(e) If there is a dispute as to the amount of a mistaken payment,
the parties will enter into an alternative dispute resolution procedure
as defined in Section VI(b) of this exemption.
Section V. Conditions Applicable to Section I(a),(b),(c)
(a) The Committee and the Independent Fiduciary maintain for a
period of six (6) years from the date the Note or any Shares are
transferred to the New Chrysler VEBA Plan the records necessary to
enable the persons described in paragraph (b) below to determine
whether conditions of this exemption have been met, except 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 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 the Act, 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) New Chrysler or any duly authorized representative of New
Chrysler; and
(D) Fiat or any duly authorized representative of Fiat; and
(E) the Independent Fiduciary or any duly authorized representative
of the Independent Fiduciary;
(F) the Committee or any duly authorized representative of the
Committee; and
(G) any participant or beneficiary of the New Chrysler VEBA Plan,
or any duly authorized representative of such participant or
beneficiary.
(c) None of the persons described above in paragraphs (b)(B), (E)-
(G) shall be authorized to examine trade secrets of New Chrysler, or
commercial or financial information which is privileged or
confidential, and should New Chrysler refuse to disclose information on
the basis that such information is exempt from disclosure, New Chrysler
shall, by the close of the thirtieth (30th) day following the request,
provide a written notice advising that person of the reasons for the
refusal and that the Department may request such information.
Section VI. 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, or partner, employee or relative (as defined in section 3(15)
of the Act) of such other person; or (3) Any corporation, partnership
or other entity of which such other 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 term ``Alternative Dispute Resolution Procedure'' shall
mean, notwithstanding anything in Section 23 of the Modified Settlement
Agreement to the contrary, the following process for the resolution of
any dispute or controversy arising under Section 5 of the Modified
Settlement Agreement for the reimbursement of benefit claims or in
Section 9 of the Modified Settlement Agreement for the mistaken
deposits. Such disputes shall be resolved in the following manner:
(i) While the parties agree that each of the disputes with respect
to mistaken deposits and reimbursement of benefit claims referred to in
the Settlement Agreement may be submitted to arbitration, they first
shall endeavor to resolve the dispute through the following procedures:
(1) the aggrieved party shall provide the other party with written
notice of such dispute;
(2) the written notice shall include a description of the alleged
violation and identify the Section(s) of the Settlement Agreement
allegedly violated;
(3) the party receiving the notice shall respond in writing within
21 calendar days of receipt of notice; and
(4) within 21 calendar days of that response the parties shall meet
in an effort to resolve the dispute.
All the time periods in this definition may be extended by
agreement of the parties to the particular dispute.
(ii) Should the parties be unable to resolve the dispute within 30
calendar days from the date of the meeting set forth in this
definition, either party may send written demand to the other party
that the issue be resolved by arbitration.
[[Page 21677]]
The failure to demand arbitration within 60 calendar days from the date
of the meeting as set forth in this definition shall waive any right to
such arbitration over the issue, absent mutual written agreement to the
contrary by the parties. If a party fails to make a timely demand for
arbitration pursuant to this definition, such party may not pursue the
dispute in court, and the dispute will be resolved on the basis of the
position taken by the opposing or answering party.
(iii) In the event that New Chrysler, the UAW, or the Committee
proceed to arbitration in accordance with this definition, that dispute
shall be submitted to an arbitrator (the Arbitrator) who will not have
the authority to modify or amend the Modified Settlement Agreement, but
only to apply the Modified Settlement Agreement, as written, to
particular factual situations based on a preponderance of the evidence.
The Arbitrator shall not have the authority to award punitive or
exemplary damages. Interest shall be paid on any delayed payments as a
result of the arbitration process. The interest will be calculated
daily at a rate equal to the OPEB Discount Rate for each day that
amounts remain outstanding. Such arbitration shall take place in Auburn
Hills, Michigan unless otherwise agreed upon in writing by the parties.
Any award shall be in writing and issued within 30 days from the close
of the hearing, unless the parties otherwise agree. The award shall be
final, conclusive and binding on New Chrysler, the UAW, and the
Committee. The award may be reduced to judgment in any appropriate
court having jurisdiction in accordance with the provisions of the
applicable law.
(iv) In the event that a dispute arising under this definition is
taken to arbitration, the Arbitrator shall be the arbitrator/umpire
used by New Chrysler and the UAW for disputes arising under the then-
applicable New Chrysler-UAW National Agreement; provided that, if
within 15 days of receipt of the written arbitration demand referred to
in (ii) above, the parties agree in writing that the dispute requires
an arbitrator with actuarial expertise, then the Arbitrator shall be a
person with actuarial expertise upon whom the parties mutually agree in
writing, but failing such mutual agreement with 30 days of receipt of
the written arbitration demand referred to in (ii) above, the
arbitrator/umpire used by New Chrysler and the UAW for disputes arising
under then-applicable Chrysler-UAW National Agreement shall select a
person with actuarial expertise to serve as the Arbitrator.
(v) New Chrysler, the UAW, and the Committee shall cooperate in
setting a hearing date for the arbitration as soon as possible
following selection of the Arbitrator.
(c) The term ''Class'' or ``Class Members'' shall mean all persons
who are: (i) New Chrysler-UAW Represented Employees who, as of October
29, 2007, were retired from Chrysler LLC with eligibility for Retiree
Medical Benefits under the Chrysler Plan, and their eligible spouses,
surviving spouses and dependents; (ii) surviving spouses and dependents
of any New Chrysler-UAW Represented Employees who attained seniority
and died on or prior to October 29, 2007 under circumstances where such
employee's surviving spouse and/or dependents are eligible to receive
Retiree Medical Benefits from New Chrysler and/or the Chrysler Plan;
(iii) former New Chrysler-UAW Represented Employees or UAW-represented
employees who, as of October 29, 2007, were retired from any previously
sold, closed, divested or spun-off Chrysler LLC business unit with
eligibility to receive Retiree Medical Benefits from Chrysler LLC and/
or the Chrysler Plan by virtue of any agreement(s) between Chrysler LLC
and the UAW, and their eligible spouses, surviving spouses, and
dependents; and (iv) surviving spouses and dependents of any former New
Chrysler LLC-UAW Represented Employee or UAW-represented employee of a
previously sold, closed, divested or spun-off Chrysler LLC business
unit, who attained seniority and died on or prior to October 29, 2007
under circumstances where such employee's surviving spouse and/or
dependents are eligible to receive Retiree Medical Benefits from
Chrysler LLC and/or the Chrysler Plan.
(d) The term ``Committee'' shall mean 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 New
Chrysler VEBA Plan.
(e) The term ``Covered Group'' shall mean: (i) All New Chrysler
Active Employees who had attained seniority as of September 14, 2007,
and who retire after October 29, 2007 under the Chrysler LLC-UAW
National Agreements, or any other agreement(s) between Chrysler LLC and
the UAW or New Chrysler and the UAW, and who upon retirement are
eligible for Retiree Medical Benefits under the Chrysler Plan or the
New Chrysler VEBA Plan, as applicable, and their eligible spouses,
surviving spouses and dependents; (ii) all former New Chrysler-UAW
Represented Employees and all UAW-represented employees who, as of
October 29, 2007, remained employed in a previously sold, closed,
divested, or spun-off Chrysler LLC business unit, and upon retirement
are eligible for Retiree Medical Benefits from Chrysler LLC and/or the
Chrysler Plan or the New Chrysler VEBA Plan by virtue of any other
agreement(s) between Chrysler LLC and the UAW or New Chrysler and the
UAW, and their eligible spouses, surviving spouses and dependents; and
(iii) all eligible surviving spouses and dependents of New Chrysler
Active Employees, or of former New Chrysler-UAW Represented Employees
or UAW-represented employees identified in (ii) above, who attained
seniority on or prior to September 14, 2007 and die after October 29,
2007 but prior to retirement under circumstances where such employee's
surviving spouse and/or dependents are eligible for Retiree Medical
Benefits from Chrysler LLC and/or the Chrysler Plan or the New Chrysler
VEBA Plan, as applicable.
(f) The term ``Existing Internal VEBA'' shall mean the Chrysler
VEBA Trust between Chrysler and State Street Bank and Trust Company,
which has been maintained by New Chrysler as of June 10, 2009.
(g) The term ``Implementation Date'' shall mean the later of
January 1, 2010 or (ii) the ``Final Effective Date,'' as defined in the
Modified Settlement Agreement.
(h) The term ``Independent Fiduciary'' means a fiduciary that is
(i) independent of and unrelated to Chrysler LLC, New Chrysler, the
UAW, the Committee, and their affiliates, and (ii) appointed to act on
behalf of the New Chrysler VEBA Plan with respect to the holding,
management and disposition of the Shares and the Note. In this regard,
the fiduciary will not be deemed to be independent of and unrelated to
Chrysler LLC, New Chrysler, the UAW, the Committee, and their
affiliates if (1) such fiduciary directly or indirectly controls, is
controlled by, or is under common control with Chrysler LLC, New
Chrysler, the UAW, the Committee or their affiliates, (2) such
fiduciary directly or indirectly receives any compensation or other
consideration from Chrysler LLC, New Chrysler, 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 New
Chrysler VEBA Plan for services provided to the New Chrysler
[[Page 21678]]
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 Chrysler LLC, New Chrysler, 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.
(i) The term ``Modified Settlement Agreement'' means the UAW
Retiree Settlement Agreement between Chrysler LLC and the UAW dated
June 10, 2009.
(j) The term ``New Chrysler'' shall mean a Delaware Limited
Liability Company formed by Fiat North America LLC, a subsidiary of
Fiat S.p.A., a manufacturer of automobiles and automotive parts in
Turin, Italy, and its successors and assigns in the event of a
reorganization, restructuring, recapitalization, merger, or similar
corporate transaction. New Chrysler is the Company that acquired
certain assets and liabilities from Chrysler LLC pursuant to the
Section 363 Sale.
(k) The term ``New Chrysler VEBA Plan'' refers to the newly created
retiree medical employee welfare benefit plan. The plan is an employee
welfare benefit plan established and maintained by the Committee, and
shall provide retiree medical benefits to the Class and the Covered
Group established pursuant to the Modified Settlement Agreement.
(l) The term ``Note'' shall mean a note issued by New Chrysler with
a principal amount of $4,587 billion and an implicit interest rate of
nine (9%) payable in fixed annual installments pursuant to the
Indenture Agreement. Payments, consisting of accrued and unpaid
interest and amortized principal shall be due on July 15 of each year,
commencing July 15, 2010 and ending on July 15, 2023.
(m) The term ``Registration Rights Agreement'' means the Equity
Registration Rights Agreement by and among New Chrysler, the Treasury
Department, Canada, the VEBA Trust and Chrysler LLC, entered into on
June 10, 2009.
(n) The term ``Section 363 Sale'' means a sale under section 363 of
Title 11 of the U.S. Code, by which on June 10, 2009, New Chrysler
succeeded to certain assets and liabilities of Chrysler LLC.
(o) The term ``Shares'' means the membership interests issued by
New Chrysler, including any membership interests, partnership
interests, shares of stock, or other equity acquired pursuant to an
adjustment, substitution, conversion, or other modification of Shares
in connection with a reorganization, restructuring, recapitalization,
merger or similar corporate transaction involving New Chrysler,
provided that each holder of Shares is treated in an identical manner.
(p) The term ``Treasury Department'' shall mean the United States
Department of the Treasury.
(q) The term ``UAW'' means the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America.
(r) The term ``VEBA'' means the New Chrysler VEBA Plan and its
associated UAW Retiree Medical Benefits Trust (the VEBA Trust).
(s) The term ``Verification Time Period'' means: (i) With respect
to all Shares, the period beginning on the date of publication of the
final exemption in the Federal Register and ending 60 calendar days
thereafter; (ii) with respect to each payment pursuant to the Note, the
period beginning on the date of the payment and ending 90 calendar days
thereafter; and (iii) with respect to the UAW-Related Account of the
Existing Internal VEBA, 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 UAW-Related Account to the New Chrysler VEBA
Plan) and ending 180 calendar days thereafter.
Signed at Washington, DC, this 21st day of April, 2010.
Ivan Strasfeld,
Director of Exemption, Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. 2010-9607 Filed 4-23-10; 8:45 am]
BILLING CODE 4510-29-P
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