Notice of Proposed Individual Exemption Involving Kaiser Aluminum Corporation and Its Subsidiaries (Together, Kaiser) Located in Foothill Ranch, CA, 62615-62624 [E6-17921]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 71, Number 207 (Thursday, October 26, 2006)]
[Notices]
[Pages 62615-62624]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-17921]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. L-11348]


Notice of Proposed Individual Exemption Involving Kaiser Aluminum 
Corporation and Its Subsidiaries (Together, Kaiser) Located in Foothill 
Ranch, CA

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 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).\1\ If granted, the 
proposed exemption would permit, effective July 6, 2006, (1) the

[[Page 62616]]

acquisition by the VEBA for Retirees of Kaiser Aluminum (the Hourly 
VEBA) and by the Kaiser Aluminum Salaried Retirees VEBA (the Salaried 
VEBA; together, the VEBAs) of certain publicly traded common stock 
issued by Kaiser (the Stock or the Shares), through an in-kind 
contribution to the VEBAs by Kaiser of such Stock, for the purpose of 
prefunding VEBA welfare benefits; (2) the holding by the VEBAs of such 
Stock acquired pursuant to the contribution; and (3) the management of 
the Shares, including their voting and disposition, by an independent 
fiduciary (the Independent Fiduciary) designated to represent the 
interests of each VEBA with respect to the transactions. The proposed 
exemption, if granted, would affect the VEBAs and their participants 
and beneficiaries.
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    \1\ Because the VEBAs are not 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.

EFFECTIVE DATE: If granted, this proposed exemption will be effective 
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as of July 6, 2006.

DATES: Written comments and requests for a public hearing on the 
proposed exemption should be submitted to the Department by November 
21, 2006.

ADDRESS: All written comments and requests for a public hearing 
concerning the proposed exemption should be sent to the Office of 
Exemptions Determinations, Employee Benefits Security Administration, 
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue, NW., 
Washington, DC 20210, Attention: Application No. D-11348. 
Alternatively, interested persons are invited to submit comments or 
hearing requests to the Department by e-mail to 
chuksorji.blessed@dol.gov or by facsimile at (202) 219-0204.
    The application pertaining to the proposed 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.

FOR FURTHER INFORMATION CONTACT: Ms. Blessed Chuksorji, Office of 
Exemption Determinations, Employee Benefits Security Administration, 
U.S. Department of Labor, telephone (202) 693-8567. (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)(E), 
406(a)(2), 406(b)(1), 406(b)(2) and 407(a) of the Act. The proposed 
exemption has been requested in an application filed by Kaiser pursuant 
to section 408(a) of the Act, and in accordance with the procedures set 
forth in 29 CFR part 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.

Summary of Facts and Representations

The Applicant

    1. Kaiser is a U.S. manufacturer and distributor of fabricated 
aluminum products. Kaiser's fabricated products business, which 
operates 11 facilities, is a leading producer of rolled, extruded, 
drawn and forged aluminum products, serving market segments with a 
variety of transportation and industrial end uses. Kaiser has 
approximately 2,300 employees in the United States, of which 
approximately 1,134 are represented by the (USW) \2\ and other unions 
(collectively, the Unions). As of June 30, 2006, Kaiser had total 
assets of $1,579,900,000. Kaiser maintains its headquarters in Foothill 
Ranch, California.
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    \2\ The USW is the result of a merger that took effect April 12, 
2005, between the Paper, Allied-Industrial, Chemical and Energy 
Workers International Union, AFL-CLC (PACE) and the United 
Steelworkers of America AFL-CIO-CLC (USWA). The resulting union is 
known as the USW.
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The Bankruptcy Proceedings and Kaiser's Negotiations

    2. On February 12, 2002, Kaiser and certain affiliates filed 
voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy 
Code (the Bankruptcy Code). Additional affiliates filed for similar 
relief on March 15, 2002 and its remaining domestic affiliates filed on 
January 14, 2003. The Chapter 11 cases were consolidated for procedural 
purposes only, and were administered jointly in the United States 
District Court for the District of Delaware (the Bankruptcy Court). On 
July 6, 2006, Kaiser emerged from bankruptcy.\3\
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    \3\ Following its emergence from bankruptcy, Kaiser retains a 
49% interest in Anglesey, a United Kingdom corporation that owns and 
operates an aluminum smelter in Holyhead, Wales.
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    3. Kaiser explains that its ability to emerge from bankruptcy was 
dependent on the achievement of a number of interrelated agreements 
among its creditors, lenders, interested government agencies, and 
employees. Kaiser indicates that the negotiation of modifications to 
the collective bargaining agreements with the Unions was important to 
its successful reorganization. A key issue in these negotiations was 
the extent to which Kaiser could restructure retiree benefit 
obligations in order to emerge as a viable entity. As a result, Kaiser 
began negotiations with the International Association of Machinists and 
Aerospace Workers (IAM), the United Automobile, Aerospace and 
Agricultural Implement Workers of America (UAW), the International 
Chemical Workers Union Council--United Food & Commercial Workers 
(ICWU), PACE, the USW (collectively, Unions) and a committee of five 
former Kaiser executives (the Salaried Committee) appointed pursuant to 
the Bankruptcy Code as authorized representatives of current and future 
salaried retirees.
    These series of negotiations culminated in agreements to terminate 
existing retiree welfare arrangements and establish the VEBAs described 
herein. Kaiser, the Unions, and the respective VEBA Committees 
recognized that terminating the existing retiree welfare arrangements 
and establishing the VEBAs was the only viable alternative for funding 
future welfare benefits for current and certain future retirees. 
Therefore, all legacy retiree welfare benefit obligations were 
discharged as of May 31, 2004, in connection with the Bankruptcy Court 
order issued on June 1, 2004.

The Hourly VEBA

    4. Pursuant to the Hourly Settlement Agreement, Kaiser and the 
Unions created the Board of Trustees of the Hourly VEBA (the Hourly 
Board) \4\ to implement new retiree medical arrangements through the 
establishment of the Hourly Trust, which in turn funds benefits 
provided under the Hourly Plan. Together, the Hourly Trust and the 
Hourly Plan comprise the Hourly VEBA,\5\ which was established as of 
June 1, 2004 through a series of court orders. National City Bank, 
located in Pittsburgh, Pennsylvania, serves as the Hourly VEBA's 
trustee (the Hourly Trustee).
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    \4\ Kaiser explains that the Hourly Board was established 
pursuant to the Hourly Settlement Agreement and consists of four 
individuals, two appointed by Kaiser and two appointed by the USW. 
The members serve until death, incapacity, resignation or removal by 
unanimous vote of the remaining members as set forth in the Hourly 
Trust Agreement, Section 9.3. In addition, both Kaiser and the USW 
have the power to remove and replace the Hourly Board members it 
appoints at any time.
    \5\ Kaiser represents that the Hourly VEBA was negotiated to 
provide medical benefits for current and future retirees who had 
worked under union-negotiated collective bargaining agreements and 
who previously had been entitled to medical coverage under plans 
maintained by Kaiser that were terminated during the bankruptcy 
proceedings.

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[[Page 62617]]

    The Hourly VEBA is sponsored by the Hourly Board. The Hourly Board 
is also the Hourly VEBA's named fiduciary and plan administrator. In 
this regard, the Hourly Board determines the benefits to be provided 
under the Hourly Plan, including, without limitation, which 
participants are eligible to receive benefits, in what form, and in 
what amount, and the contributions (if any) that the participants are 
required to make to help defray the cost of their coverage. In 
addition, the Hourly Board may retain independent professional service 
providers that it deems necessary and appropriate to administer the 
Hourly VEBA. The Hourly Board receives no compensation from the Hourly 
VEBA. Kaiser's obligation to contribute to the Hourly VEBA will 
terminate in 2012. As of July 31, 2006, the Hourly VEBA had 7,120 
participants. Also, as of July 31, 2006, the Hourly VEBA had assets of 
$102,338,684.35.

The Salaried VEBA

    5. In January 2004, Kaiser and the Salaried Committee \6\ reached 
and entered into the Salaried Settlement Agreement, which provided for 
the creation of the Salaried VEBA. The Salaried Committee chose to form 
a separate VEBA for the benefit of eligible salaried retirees in order 
for them to receive partial recompense from Kaiser for the termination 
of their retiree benefits, rather than to participate in a single VEBA 
with the Unions. The Salaried VEBA is comprised of a trust, the 
Salaried Trust, and a plan, the Salaried Plan. The Salaried Trust is 
the funding vehicle for the Salaried Plan and together, these form the 
Salaried VEBA.
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    \6\ The Salaried Committee was dissolved effective July 6, 2006. 
Its members consisted of five former executives of Kaiser who served 
without compensation.
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    On May 31, 2004, the Salaried Trust was formed under a Trust 
Agreement entered into between the Salaried Board, consisting of three 
salaried retired employees of Kaiser and Union Bank of California, 
N.A., the Salaried Trustee. On this same date, the Salaried Board 
adopted the Salaried Plan. The Salaried Trust was formed to hold and 
distribute trust fund assets in the form of retiree benefits to 
eligible salaried retirees of Kaiser and their spouses and dependents. 
The Salaried Plan was formed for the purpose of providing retiree 
benefits. The Salaried Board is the named fiduciary for the Salaried 
VEBA. Kaiser states that the Salaried VEBA is intended to qualify as a 
medical reimbursement plan within the meaning of section 105 of the 
Code and an employee welfare benefit plan within the meaning of section 
of 3(1) of the Act. The Salaried Board is both the sponsor and 
administrator of the Salaried VEBA. Kaiser is obligated to make certain 
cash contributions to the Salaried Trust and to pay a certain portion 
of the Salaried VEBA's administrative costs.\7\
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    \7\ Under the Salaried Settlement Agreement, Kaiser states it is 
obligated to reimburse one-half of the Salaried VEBA's 
administrative expenses, not to exceed $36,250.
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    The Salaried Trustee receives all cash contributions on behalf of 
the Salaried Trust. In turn, the Salaried Trustee, at the direction of 
the Salaried Board, invests the proceeds, disburses funds to cover the 
creation and administrative costs of both the Salaried Trust and the 
Salaried Plan, and disburses funds to pay benefits, if and when the 
benefits are distributed under the Salaried Plan. Kaiser explains that 
the Salaried Board has engaged a professional employee benefits plan 
administrator to carry out a majority of the tasks associated with the 
day-to-day administration of the Salaried Plan.
    As of December 31, 2005, the Salaried VEBA had 4,117 participants. 
As of August 23, 2006, the Salaried VEBA had $77,901,362.49 in assets.

Funding Arrangements for the VEBAs

    6. Under the terms of the Hourly Settlement Agreement and the 
Salaried Settlement Agreement, Kaiser agreed to fund the Hourly Trust 
and the Salaried Trust, which would, in turn, fund benefits provided by 
the Hourly Plan and the Salaried Plan through (a) in-kind contributions 
of Stock, (b) cash contributions in fixed amounts, and (c) profit 
sharing pool contributions.
    (a)(1) Contribution of Stock to the Hourly VEBA. On July 7, 2006, 
Kaiser issued 8,809,000 shares of its common stock to the Hourly 
Trust.\8\ This Stock contribution represented 44% of Kaiser's fully 
diluted common equity. The Shares contributed to the Hourly Trust are 
subject to provisions in the Stock Transfer Restriction Agreement and 
the Registration Rights Agreement, each of which is discussed below.
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    \8\ The Hourly VEBA was entitled to receive 11,439,900 Shares 
(representing a 57.2% ownership interest in Kaiser) but sold, 
pursuant to procedures approved by the Bankruptcy Court, rights to 
2,630,000 of such Shares to unrelated third parties in pre-emergence 
sales. For purposes of the percentage limitations contained in the 
Stock Transfer Restriction Agreement described below, and unless 
Kaiser later agrees otherwise or the IRS rules that these pre-
emergence sales do not count as sales on or after the Effective Date 
for purposes of preserving net operating loss carryovers, the pre-
emergence sales are treated as if they occurred on or after the 
Effective Date.
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    The Stock Transfer Restriction Agreement, which was executed by and 
between Kaiser and the Hourly Trustee and assented to and acknowledged 
by the Hourly Independent Fiduciary, provides that, during the ten-year 
period commencing on the Effective Date (i.e., July 6, 2006), the 
Hourly Trustee is prohibited from disposing of any of the Shares, 
unless at the time of the disposition, the number of Shares to be 
included in the transfer, together with all such Shares included in 
other transfers by the Hourly Trust that have occurred during the 12 
months preceding the transfer, is not more than 15% of the total number 
of Shares received by the Hourly Trust pursuant to the Plan of 
Reorganization (except, at the outset, larger amounts of Shares may be 
permitted to be sold in specified transactions). However, Kaiser's 
Board of Directors may, but is not required to, allow dispositions by 
the Hourly Trustee that would otherwise violate this restriction.
    The principal purpose of the Stock Transfer Restriction Agreement 
is to assure that Kaiser's net operating loss carryovers (the NOLs) 
will continue to be available to Kaiser without limitation following 
its emergence from bankruptcy. The NOLs will enable Kaiser to operate 
without an excessive tax burden for a number of years.\9\ In order to 
preserve the full value of the NOLs, Kaiser must not undergo another 
change of ownership following the Effective Date while the NOLs are 
still available for use by Kaiser.
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    \9\ In the Disclosure Statement related to Kaiser's Plan of 
Reorganization, the present value of the estimated tax savings from 
the NOLs was estimated at approximately $65 million to $85 million.
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    The Registration Rights Agreement, which was executed by and 
between Kaiser and the Hourly Trustee and assented to and acknowledged 
by the Independent Fiduciary for the Hourly VEBA (the Hourly 
Independent Fiduciary) on the Effective Date, provides generally that, 
during the period commencing on July 6, 2006 and ending March 31, 2007, 
the Hourly Trustee may request (and shall request if the Hourly 
Independent Fiduciary directs) that Kaiser effect a registration under 
the Securities Exchange Act of 1933 to permit the resale of a portion 
of the Shares held by the Hourly Trustee in an underwritten public 
offering meeting specified requirements and that, at any time following 
March 31, 2007, the Hourly Trustee may request (and shall request if 
the Hourly Independent Fiduciary directs) that Kaiser effect a 
registration to permit the

[[Page 62618]]

resale of the Shares held by the Hourly Trust on a continuous basis.
    (a)(2) Contribution of Stock to the Salaried VEBA. On July 6, 2006, 
Kaiser issued 999,867 shares of its common stock to the Salaried 
Trust.\10\ This Stock contribution represented slightly less than 5% of 
Kaiser's fully diluted common equity.
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    \10\ The Salaried VEBA was entitled to receive 1,940,000 Shares 
(representing a 9.7% ownership interest in Kaiser) but sold, 
pursuant to procedures approved by the Bankruptcy Court, rights to 
940,233 of such Shares to unrelated third parties in pre-emergence 
sales.
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    (b) Cash Contributions. After an initial one-time contribution to 
the Trusts of $1.2 million in cash in June 2004 and continuing until 
its emergence from bankruptcy, Kaiser contributed cash to the Trusts at 
the rate of $1.9 million per month, with the initial and monthly cash 
contributions to the Trusts aggregating $48.7 million as of the 
Effective Date. These cash contributions were credited against $36 
million in cash due to the Trusts on the Effective Date and will be 
credited against the first approximately $12.7 million of variable cash 
contributions that Kaiser is obligated to make to the Trusts from the 
profit sharing pool described below.
    Of the $48.7 million of cash contributions made to the Trusts prior 
to the Effective Date, $41.0 million was contributed to the Hourly 
Trust and $7.7 million was contributed to the Salaried Trust. In 
addition, Kaiser made a one-time contribution to the Hourly Trust of $1 
million in cash on March 31, 2005; such cash contribution has not been 
and will not be credited against any of Kaiser's obligations to 
contribute additional cash to the Hourly Trust. Any variable cash 
contributions from the profit sharing pool described below will be made 
85.5% to the Hourly Trust and 14.5% to the Salaried Trust.
    (c) Profit Sharing Pool. Following the Effective Date, Kaiser 
established a profit sharing pool (the Pool) and, subject to the $12.7 
million credit described above, is required to distribute the Pool, if 
any, for a fiscal year on the earlier of 120 days following the end of 
the fiscal year or 15 days after Kaiser files the Annual Report on Form 
10-K for the fiscal year with the SEC (or, if no such report is 
required to be filed, within 15 days of the delivery of the independent 
auditor's opinion of Kaiser's annual financial statements for the 
fiscal year). The Pool, if any, for a fiscal year will be 10% of the 
first $20 million of adjusted pre-tax profit, plus 20% of adjusted pre-
tax profit in excess of $20 million, provided that the Pool will not 
exceed $20 million and the Pool will be limited (with no carryover to 
future years) to the extent that the Pool would cause Kaiser's 
liquidity to be less than $50 million. As indicated above, the Pool, if 
any, will be distributed 85.5% to the Hourly Trust and 14.5% to the 
Salaried Trust.

The Stock Valuation

    7. Based on a valuation analysis performed by Lazard Frer[egrave]s 
& Co., LLC (Lazard), an independent financial adviser and an investment 
banker located in New York, New York, Kaiser's reorganized value (the 
Reorganized Value) was estimated to be approximately $395 million to 
$470 million, with a midpoint of approximately $430 million as of 
September 30, 2005.
    The Reorganized Value consisted of the theoretical enterprise value 
of Kaiser, plus excess cash and other non-operating cash flows and 
assets. Lazard estimated the Reorganized Value as of September 30, 
2005, under the assumption that the Reorganized Value would not change 
materially through the assumed Effective Date of December 31, 2005.
    The imputed reorganized equity value (the Equity Value) of Kaiser, 
which took into account estimated debt balances and other obligations 
as of the assumed Effective Date, was estimated to range from 
approximately $340 million to $415 million, with a midpoint of 
approximately $380 million. Based on the imputed range on this 
Effective Date, the Equity Value per share of the Stock was estimated 
to be approximately $17.00 to $20.75, with a midpoint of approximately 
$19.00.
    Thus, the estimated Equity Value of the 11,439,900 Shares of Kaiser 
common stock that were originally to be contributed to the Hourly VEBA 
before the pre-emergence sales had an estimated value of between $194.5 
million and $237.4 million, with a midpoint of $217.4 million. With 
respect to the Salaried VEBA, the 1,940,000 Shares of Kaiser common 
stock that were originally to be contributed to such VEBA before the 
pre-emergence sales had an estimated value of between $33 million and 
$40.3 million, with a midpoint of $36.9 million.
    In preparing its estimate of the Reorganized Value of Kaiser, 
Lazard: (a) Reviewed historical financial information concerning 
Kaiser; (b) reviewed internal financial and operating data regarding 
Kaiser and financial projections relating to Kaiser's business and 
prospects; and (c) met with certain members of the senior management of 
Kaiser to discuss Kaiser's operations and future prospects. Although 
Lazard conducted a review and analysis of Kaiser's businesses, 
operating assets and liabilities, and business plans, Lazard assumed 
and relied on the accuracy and completeness of the information 
furnished to it by Kaiser and by other firms retained by Kaiser as well 
as publicly-available information.
    In preparing its valuation analysis of Kaiser, Lazard analyzed the 
enterprise values of public companies that it deemed to be generally 
comparable to the operating businesses of Kaiser. In addition, Lazard 
utilized a discounted cash flow approach in which it computed the 
present value of Kaiser's free cash flows and terminal value. Further, 
Lazard analyzed the financial terms of certain acquisitions of 
companies that it believed were comparable to the operating businesses 
of Kaiser.

Administrative Exemptive Relief

    8. Accordingly, Kaiser requests an administrative exemption from 
the Department with respect to: (1) The past contribution and the 
acquisition by the VEBAs of the Shares; (2) the holding by the VEBAs of 
such Shares acquired pursuant to the contributions; and (3) the 
management of the Shares by an Independent Fiduciary. Kaiser explains 
that the contribution of the Shares to the Hourly and Salaried Trusts 
would violate sections 406(a)(1)(E), 406(a)(2), and 407(a) of the Act.
    Section 406(a)(1)(E) of the Act provides that a fiduciary with 
respect to a plan shall not cause the plan to engage in a transaction 
if he knows or should know that such transaction constitutes a direct 
or indirect ``acquisition, on behalf of the plan, of any employer 
security * * * in violation of Section 407(a).'' Section 406(a)(2) of 
the Act prohibits a fiduciary who has authority or discretionary 
control of plan assets to permit 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) of the Act states that a plan may not acquire 
or hold any employer security which is not a qualifying employer 
security. Section 407(a)(2) of the Act states that a plan may not 
acquire any qualifying employer security, if immediately after such 
acquisition the aggregate fair market value of the employer securities 
held by the plan exceeds 10% of the fair market value of the assets of 
the plan. Section 407(d)(5) of the Act defines the term ``qualifying 
employer security'' to mean an employer security which is a stock, a 
marketable obligation, or an interest in certain publicly traded 
partnerships. After December 17, 1987,

[[Page 62619]]

in the case of a plan, other than an eligible individual account plan, 
an employer security will be considered a qualifying employer security 
only if such employer security satisfies the requirements of section 
407(f)(1) of the Act. Section 407(f)(1) of the Act states that stock 
satisfies the requirements of this paragraph if, immediately following 
the acquisition of such stock no more than 25% of the aggregate amount 
of the same class issued and outstanding at the time of acquisition is 
held by the plan, and at least 50% of the aggregate amount of such 
stock is held by persons independent of the issuer.
    In this regard, Kaiser represents that the Stock held by the Trusts 
would not comply with the requirements of section 407(f)(1) of the Act, 
because at least 50% of the Shares would not be held by persons 
``independent of Kaiser,'' and, in the case of the Hourly Trust, more 
than 25% of the Shares issued and outstanding would be held by the 
Hourly Trust immediately after their acquisition. In addition, even if 
the Shares constituted qualifying employer securities as provided in 
section 407(d)(5) of the Act, Kaiser states that the contribution of 
the Shares would cause each of the Trusts to exceed the 10% assets 
limitation under section 407(a)(2) of the Act.
    If granted, the exemption would be effective as of July 6, 2006.

Rationale for Exemptive Relief

    9. Without an administrative exemption, Kaiser states that it would 
have contributed the maximum number of Shares allowable under sections 
406 and 407 of the Act to the VEBAs, which in turn could retain the 
Shares for the purpose of providing retiree welfare benefits. Kaiser 
explains that because of the 10% asset limitation imposed by section 
407(a)(2), it is likely that very few Shares would be contributed to 
the Trusts. In this event, Kaiser represents that it would have been 
necessary to develop a new agreement or an alternative means of 
utilizing the Shares for the exclusive benefit of participants and 
beneficiaries of the Trusts. As a result, Kaiser explains that this 
would have unwound the Agreements already reached with the Unions, the 
Hourly Board and the Salaried Committee. Kaiser represents that the 
chain of events that this would set into effect would have jeopardized 
Kaiser's ability to reorganize and would have rendered Kaiser unable to 
make any contributions to fund health benefits for its retirees.
    Lastly, Kaiser states that the Trustees would have had no choice 
but to amend the Trusts to provide for a distribution of Shares to the 
beneficiaries of both Trusts. Kaiser notes that this would be extremely 
difficult to accomplish in the case of the uncertain number of future 
retirees whose eligibility for future benefits depends upon the length 
of credited service with Kaiser at the time they eventually retire or 
terminate their employment. Furthermore, Kaiser states that if the 
Shares were distributed in kind, each covered retiree would have 
received a relatively small number of Shares, which would be fully 
taxable upon receipt. Kaiser explains that retirees would likely sell 
at least some of the Shares upon receipt to cover their tax liability. 
If this occurred, Kaiser indicates that the resultant selling pressure 
would likely adversely affect the market, so that the sale price for 
the Shares would be less than their economic value. Finally, Kaiser 
explains that individual retirees would not be able to manage the 
Shares and replicate for themselves the benefits provided for under the 
terms of the VEBAs.\11\
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    \11\ The Department expresses no opinion on the application of 
ERISA's prohibited transaction restrictions to the alternate uses of 
the Shares as described above.
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Independent Fiduciary for the Hourly VEBA

    10. (a) Duties and Responsibilities. Pursuant to the Plan of 
Reorganization, on October 6, 2005, the Hourly Board entered into the 
Hourly Independent Fiduciary Agreement with IFS of Washington, DC, to 
serve as the Hourly VEBA's Independent Fiduciary. (The Department's 
views on the duties of the Independent Fiduciary are presented in 
Representation 12). IFS is a wholly owned Delaware corporation with no 
subsidiaries or affiliates. IFS engages in structuring and monitoring 
pension and welfare fund investment programs and fiduciary decision-
making on behalf of such funds. IFS represents that it is independent 
from Kaiser, the USW, the Hourly Board and the Hourly Trustee. Prior to 
its retention by the Hourly Board to serve as the Hourly Independent 
Fiduciary, IFS states that it had no previous relationship with Kaiser 
or any of its benefit plans or with any of the other parties who will 
have fiduciary responsibilities to the Hourly Plan in connection with 
the transactions described herein. IFS is engaged, and has been in the 
past engaged, to provide investment consulting services to employee 
benefit plans covering members of one or more of the Unions. However, 
IFS states that none of these engagements has or had any relationship 
to the covered transactions.
    Under the terms of the Hourly Independent Fiduciary Agreement, IFS' 
duties with respect to the Stock contribution include or have included: 
(a) Conducting a due diligence review of the transactions for which 
exemptive relief has been requested; (b) negotiating additional or 
different terms on behalf of the Hourly VEBA, as appropriate, in 
connection with Kaiser's application for exemptive relief; (c) 
determining whether the Hourly VEBA should participate in the 
transactions; (d) furnishing the Department a statement outlining such 
determinations and the rationale; (e) effecting the transactions by 
directing National City Bank, the institutional trustee, to accept and 
maintain the Shares on behalf of the Hourly VEBA in accordance with the 
relevant terms of the Plan of Reorganization, issued by the Bankruptcy 
Court; (f) arranging for periodic valuations of the Shares that have 
been contributed to the Hourly VEBA, including the selection and 
retention of (i) the valuation firm to perform such services, or (ii) 
upon IFS' advice to the Hourly Trustees, a financial advisory firm 
(which may be the same firm as the valuation firm) to evaluate the 
merits of a merger, acquisition, or tender offer affecting the value of 
such Shares; (g) directing the Hourly Trustee to demand that Kaiser 
prepare and file with the SEC a ``shelf'' registration statement 
covering the resale of the Shares or to permit the Hourly VEBA to sell 
the Shares without registration pursuant to Rule 144 under the 1933 
Securities Act or otherwise; and (h) managing the Shares that have been 
contributed to the Hourly VEBA, including the authority to direct the 
Hourly Trustee as to the voting of the Shares and as to the effecting 
of any purchase, sale, exchange, or liquidation of the Shares.
    (b) Views about the Transactions. IFS believes that the 
transactions were in the best interests of the Hourly VEBA's 
participants and beneficiaries and protective of their interests 
because a retiree welfare plan that is funded primarily with company 
stock is preferable to a plan that is unfunded and preferable to no 
plan at all. IFS states its determination on whether to acquire the 
Shares was consistent with its fiduciary obligations since management 
of the Shares would be in its sole discretion.
    Since being hired as the Hourly Independent Fiduciary, IFS states 
that it has been instrumental in several changes in the terms of the 
Plan and the VEBA Trust that protect the interest of the Hourly Plan's 
participants. Among these are clarifications to the Registration Rights 
Agreement regarding the circumstances under which Kaiser

[[Page 62620]]

would be required to accede to IFS' demand for an underwritten 
offering, and amendments to the Summary Plan Description and the VEBA 
Trust Agreement to clarify that the Plan's benefit obligation would be 
conditioned on available cash and that no fiduciary or other person 
would be required to liquidate any plan asset to generate cash. In IFS' 
view, both of these changes would reduce the likelihood that the Shares 
would be liquidated at an inopportune time in terms of price or market 
effect. In addition, IFS states that it sought and obtained approval 
from the Hourly Board to hire professionals that might be needed in the 
execution of IFS' responsibilities. Finally, IFS anticipates that it 
would implement a program to liquidate the Hourly Plan's holdings of 
the Shares over time to generate cash for the payment of benefits under 
the Hourly Plan and to diversify the Hourly Plan's investment assets.
    (c) Pricing of the Hourly VEBA's Shares. IFS retained an 
independent corporate valuator, Empire Valuation Consultants (Empire), 
to advise IFS in valuing the Shares that were to be contributed. In 
this regard, Empire analyzed Lazard's estimate and on April 12, 2006, 
completed a preliminary analysis of Kaiser's financial information in 
light of the current and projected economic and industry climates, 
using the discounted cash flow method and the guideline company method, 
to reach an estimate of the fair market value of Kaiser (and thereby of 
the Shares that were to be contributed to the Hourly VEBA). This 
preliminary analysis was updated in a valuation report prepared by 
Empire on August 18, 2006 \12\ to reflect the fair market value of the 
Stock owned by the Hourly VEBA. The Hourly VEBA received its 8,809,000 
Shares as of July 7, 2006. Empire placed the fair market value of such 
Stock at $36.50 per Share as of July 7, 2006. The update also took into 
account the restrictions on marketability under the Stock Transfer 
Restriction Agreement and other benefits or detriments placed on the 
Hourly VEBA's Shares. In the interim, the market-driven sales of pre-
emergence Shares described above provided a benchmark for assessing the 
value of the Shares to which the Hourly VEBA was eventually entitled on 
July 7, 2006.
---------------------------------------------------------------------------

    \12\ Kaiser represents that the Stock was not listed on the 
Effective Date. Kaiser explains that the Stock did not begin to 
trade until the next day, July 7, 2006.
---------------------------------------------------------------------------

    IFS, with its advisers, continued to monitor Kaiser's financial 
status to determine whether additional steps were needed to value the 
Shares as of the Effective Date. Thus, on July 7, 2006, the Stock was 
listed on the NASDAQ exchange at an opening value of $45.00 per 
share.\13\ At such time as IFS concludes that a sufficient market 
exists for the Shares, it is anticipated that the NASDAQ trading price 
will constitute a helpful reference point for determining the fair 
market value of the Shares held by the Hourly VEBA. However, while the 
Hourly VEBA continues to hold Shares constituting a large proportion of 
the Stock, IFS may determine to apply a control premium, blockage 
discount, marketability or liquidity discount (owing to the 
restrictions in the Stock Transfer Restriction Agreement) or other 
appropriate adjustments to the NASDAQ trading price of the Shares.
---------------------------------------------------------------------------

    \13\ On July 7, 2006, the last reported sales price for the 
Kaiser common stock on the NASDAQ Global Market was $42.20.
---------------------------------------------------------------------------

    (c) Views on the Stock Transfer Restriction Agreement and the 
Registration Rights Agreement. IFS explains that although the Stock 
Transfer Restriction Agreement and the Registration Rights Agreement 
circumscribe its discretion, the limitations imposed therein are 
designed to help assure an orderly market for the Shares and to prevent 
the loss of Kaiser's NOLs. IFS explains that preserving these tax 
credits would ease the tax burden on Kaiser thereby enhancing Kaiser's 
ability to meet its cash obligations, including its obligations to the 
Hourly Plan, and enhancing the value of Kaiser whose Shares the Hourly 
Plan would own.
    Concerning the Stock Transfer Restriction Agreement, IFS explains 
that, generally, during the ten-year period commencing on the Effective 
Date, the Hourly VEBA is prohibited from disposing of the Shares unless 
at the time of disposition, the number of such Shares to be included in 
the transfer, together with all such Shares included in other transfers 
that occurred during the 12 months preceding the transfer, is not more 
than 15% of the total number of Shares received by the Hourly Trust. 
Notwithstanding this general rule, however, IFS notes that the Hourly 
VEBA may sell as much as 30% of its Shares in the first year after the 
Effective Date, as long as it does not sell more than 45% of its Shares 
during the three-year period beginning on such Effective Date.\14\
---------------------------------------------------------------------------

    \14\ IFS represents that the Hourly VEBA may sell more than 15% 
in any year if the Kaiser Board consents.
---------------------------------------------------------------------------

    IFS acknowledges that the maximum restriction period of ten years, 
pursuant to the Stock Transfer Restriction Agreement, is a long 
duration. However, IFS explains that the overall restriction scheme is 
on par with other previously granted individual exemptions and is less 
restrictive in some respects, due to the sales permitted.\15\ For 
example, after the first few years, IFS notes that the Hourly VEBA 
would have had a substantial opportunity to sell the Stock on the open 
market. If prudent to do so, IFS further explains that the Hourly VEBA 
may sell 100% of its Stock in just over six years. More significantly, 
IFS points out that the NOLs will be forfeited if, in any rolling 
three-year period, a change of ownership occurs with respect to 50% or 
more of Kaiser's Stock.
---------------------------------------------------------------------------

    \15\ For instance, IFS cites Navistar International 
Transportation Corporation (PTE 93-69, 58 FR 51105 (September 30, 
1993)) where the Navistar plan could sell no shares at all for five 
years. Additionally, IFS states that in Wheeling-Pittsburgh Steel 
Corporation (PTE 2005-04, 70 FR 5703 (February 2, 2005)) the plan 
could sell no shares for two years, although the company consented 
to a sale near the end of the restriction period. In both cases, IFS 
explains that the plans after the first few years had to have 
essentially the same number of shares that initially had been 
contributed to their plans.
---------------------------------------------------------------------------

    With respect to the Registration Rights Agreement, IFS explains 
that between July 6, 2006 and March 31, 2007, it may direct the Hourly 
Trustee to demand that Kaiser effect a registration to permit the sale 
of a portion of the Shares held by the Hourly VEBA. At any time after 
March 31, 2007, IFS states it may direct the Hourly VEBA Trustee to 
demand that Kaiser effect a shelf registration, to permit the sale of 
shares on a continuous basis. IFS further represents that all expenses 
associated with effecting a demand or shelf registration, including 
piggy-back rights, will be borne by Kaiser.\16\
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    \16\ The Department notes that a shelf registration is a 
registration of a new issue, which can be prepared up to two years 
in advance, so that the issue can be offered as soon as funds are 
needed or market conditions are available.
    Piggy-back rights are the rights of an investor to register and 
sell his/her unregistered stock in the event that the company 
conducts an offering.
---------------------------------------------------------------------------

    IFS states that the terms of the Registration Rights Agreement are 
comparable to the terms found in previously granted exemptions. For 
example, IFS explains that the Hourly VEBA will not need to wait five 
years before making a demand registration for an underwritten offering. 
In addition, IFS states that the Hourly VEBA will not have 
responsibility for the costs of effecting a demand registration. IFS 
further represents that the Hourly VEBA may demand a shelf registration 
(after the first year) that will allow it to market the Stock as 
rapidly as possible under the Stock Transfer Restriction Agreement. 
Under these circumstances, Kaiser will be responsible for paying

[[Page 62621]]

registration expenses, while the Hourly VEBA will be responsible for 
paying underwriting commissions and other selling fees.
    Finally, IFS states that the Hourly VEBA may participate on a 
piggy-back basis if Kaiser proposes to file a registration statement, 
whether or not for its own account. IFS explains that if the 
marketability of Kaiser's offering is affected, the number of Hourly 
VEBA shares that may be included is generally limited.

Independent Fiduciary for the Salaried VEBA

    11. (a) Duties and Responsibilities. Pursuant to the Plan of 
Reorganization, on September 6, 2005, the Salaried Board for the 
Salaried VEBA entered into an agreement (the Salaried Independent 
Fiduciary Agreement) with FCI of Washington, DC to serve as the 
Salaried VEBA's Independent Fiduciary. The Salaried Board determined 
that it was appropriate and desirable to retain the services of FCI to 
exercise the Salaried Trust's responsibilities and control over all 
matters concerning the Shares including, without limitation, control 
over the acquisition, holding, management and disposition of the 
Shares.
    FCI, a Delaware corporation, explains that it is a pension 
consultant and investment adviser registered under the Investment 
Advisers Act of 1940. FCI primarily acts as an investment manager and 
independent fiduciary for employee benefit plans covered by the Act. 
FCI states that it is independent from Kaiser, the USW, the Salaried 
Board and the Salaried Trustee. FCI is wholly owned by eight of its 
employees and has no affiliates or subsidiaries. FCI explains that 
prior to its engagement by the Salaried Board, FCI had no previous 
relationship with Kaiser or any of its benefit plans or with any of the 
other parties who will have fiduciary responsibility to the Salaried 
VEBA in connection with the proposed exemptive relief from the 
Department.
    Pursuant to the Salaried Independent Fiduciary Agreement, FCI 
agreed to: (a) Represent the Salaried Trust in discussions with the DOL 
concerning administrative exemptive relief and any administrative 
requirements imposed by the Department as a condition for exemptive 
relief; (b) issue a determination of whether the Stock contribution 
would be in the best interest of the Salaried VEBA and its current and 
future participants and beneficiaries; (c) provide documentation to the 
Department or satisfaction of such other conditions as may be required 
in connection with obtaining the requested administrative relief; (d) 
manage the Shares on an ongoing basis subject to the terms and 
conditions of the Salaried Trust Agreement, the Salaried Independent 
Fiduciary Agreement, and the Department's administrative relief; (e) 
determine, in its sole discretion, whether and when to sell the Shares, 
and in what amounts, and upon such terms and conditions that would be 
in the best interests of the Salaried Plan and its current and future 
participants and beneficiaries, but subject to the restrictions 
contained in the Certificate of Incorporation; \17\ and (f) vote the 
Shares in person or by proxy in such manner as the Independent 
Fiduciary deems to be in the best interests of the Salaried Plan and 
its current and future participants and beneficiaries on all matters 
brought before the holders of Kaiser common stock for a vote.
---------------------------------------------------------------------------

    \17\ The Salaried VEBA, like all Kaiser shareholders, will be 
prohibited from selling directly to a 5% shareholder (or one who 
would become a 5% shareholder as a result of the sale) unless Kaiser 
consents to the sale. This restriction, which is contained in the 
Certificate of Incorporation, is intended to preserve Kaiser's NOLs.
---------------------------------------------------------------------------

    FCI states that it would represent the interests of the Salaried 
VEBA and its participants and beneficiaries for the duration of the 
administrative relief granted for acquiring and holding of the Stock 
and would take all necessary actions on behalf of the Plan in 
accordance with the terms of the Salaried Independent Fiduciary 
Agreement. FCI anticipates that the Salaried VEBA would implement a 
program to liquidate its holdings of the Shares over time with the 
objectives of generating cash for the payment of benefits under the 
Salaried VEBA and diversifying the Salaried VEBA's investment assets. 
Because the Shares would be freely tradable, FCI indicates that it 
would value the Shares at the market price. In the event the Shares are 
thinly-traded, FCI states that it would retain an independent firm to 
provide a valuation. Such valuations would then be based on either of 
three methodologies: (a) Comparable companies, (b) comparable 
transactions, or (c) discounted cash flow.
    (b) Views about the Transactions. FCI believes that the 
transactions would be in the best interests of the Salaried VEBA and 
protective of the participants and beneficiaries of such VEBA because a 
retiree welfare plan that is funded primarily with Kaiser Stock is 
preferable to a plan that is unfunded, and preferable to no plan at 
all. FCI notes that Kaiser and the Salaried Committee bargained at 
arm's length over the extent to which Kaiser would continue its pre-
bankruptcy retiree welfare programs and the nature of the post-
bankruptcy retiree welfare plans. Ultimately, FCI explains that the 
bargaining parties agreed that the pre-bankruptcy programs would be 
terminated and replaced with the Hourly VEBA and the Salaried VEBA. 
With respect to the Salaried VEBA, FCI further explains that Kaiser 
agreed to make certain cash contributions to the Salaried VEBA and to 
contribute a substantial number of Shares.
    In addition, FCI represents that the Plan of Reorganization 
provides for the hiring of an independent fiduciary for the purpose of 
determining whether to acquire the Shares, and assuming the independent 
fiduciary's decision is to acquire the Shares, to manage the Shares. 
FCI explains that it was hired by the Salaried Board to perform these 
fiduciary services and that its determination to acquire the Shares 
would be consistent with section 404 of the Act.
    FCI further represents that management of the Shares would be in 
its sole discretion, subject to the terms of the Salaried Trust, the 
Salaried Plan, the Salaried Independent Fiduciary Agreement, and the 
Certificate of Incorporation. FCI recognizes that while the Certificate 
of Incorporation limits its discretion, it explains that in its 
experience the limitations imposed by the Certificate of Incorporation 
are typical of the terms of similar transactions between unrelated 
parties acting at arm's length under similar circumstances to preserve 
the value of the NOLs of a company emerging from bankruptcy. Moreover, 
FCI states that preserving the NOLs would materially ease the tax 
burden on Kaiser following its emergence from bankruptcy, thereby 
enhancing Kaiser's ability to meet its cash contribution obligations, 
including its obligations to the Salaried VEBA. FCI explains this would 
enhance the value of Kaiser whose Shares the Salaried VEBA would then 
own.
    Finally, FCI represents that administrative relief from the 
prohibited transaction provisions of the Act is critical to the 
operation of the Salaried VEBA. If the relief sought is not granted, 
the consequences for the Salaried VEBA's participants and beneficiaries 
would likely be adverse, and would have required Kaiser to distribute 
the Shares directly to the Salaried Plan participants and 
beneficiaries, thereby frustrating the benefit objectives of the 
Salaried VEBA and forcing the participants and beneficiaries to face 
adverse tax consequences.
    (c) Pricing of the Salaried VEBA's Shares. FCI represents that the 
Shares received by the Salaried VEBA were

[[Page 62622]]

freely tradable when received on July 13, 2006, so no appraisal was 
necessary. The Salaried VEBA trustees were able to sell a sufficient 
amount of the Salaried VEBA's Shares during certain pre-emergence sales 
so the Salaried VEBA received less than 5 percent of the outstanding 
Stock and was therefore no longer subject to the NOL restrictions by 
the time the Stock was distributed. The Salaried VEBA received its 
999,867 Shares on July 13, 2006. Union Bank of California, the 
custodian for the Salaried VEBA, booked the Shares at a total value of 
$44,244,114.75 (or $44.25 per Share) on the NASDAQ. FCI states that it 
sold 10,000 Shares on the open market that day at an average price of 
$44.23 per Share.

Duties of the Independent Fiduciary

    12. The Department notes that the appointment of Independent 
Fiduciaries to represent the interests of the Hourly and Salaried VEBAs 
with respect to the covered transactions described in this exemption 
request is a material factor in its determination to propose exemptive 
relief. The Department believes that it would be helpful to provide 
general information regarding its views on the responsibilities of an 
independent fiduciary in connection with the in kind contribution of 
property to an employee benefit plan.
    As noted in the Department's Interpretive Bulletin, 29 CFR 2509.94-
3(d) (59 FR 66736, December 28, 1994), apart from consideration of the 
prohibited transaction provisions, plan fiduciaries must determine that 
acceptance of an in kind contribution is consistent with the general 
standards of fiduciary conduct under the Act. It is the view of the 
Department that acceptance of an in kind contribution is a fiduciary 
action subject to section 404 of the Act. In this regard, section 
404(a)(1)(A) and (B) of the Act requires that fiduciaries discharge 
their duties to a plan solely in the interests of the participants and 
beneficiaries, for the exclusive purpose of providing benefits to 
participants and beneficiaries and defraying reasonable administrative 
expenses, and with the care, skill, prudence, and diligence under the 
circumstances then prevailing that a prudent person acting in a like 
capacity and familiar with such matters would use in the conduct of an 
enterprise of a like character and with like aims. In addition, section 
404(a)(1)(C) of the Act requires that fiduciaries diversify plan 
investments so as to minimize the risk of large losses, unless under 
the circumstances it is clearly prudent not to do so. Accordingly, the 
fiduciaries of a plan must act ``prudently,'' ``solely in the 
interest'' of the plan's participants and beneficiaries, and with a 
view to the need to diversify plan assets when deciding whether to 
accept an in kind contribution. If accepting an in kind contribution is 
not ``prudent,'' or not ``solely in the interest'' of the participants 
and beneficiaries of the plan, the responsible fiduciaries of the plan 
would be liable for any losses resulting from such a breach of 
fiduciary responsibility, even if the contribution in kind does not 
constitute a prohibited transaction under section 406 of the Act.
    13. In summary, Kaiser represents that the transactions have 
satisfied or will satisfy the statutory criteria for an exemption under 
section 408(a) of the Act because:
    (a) An Independent Fiduciary has represented and will separately 
represent each VEBA and its participants and beneficiaries for all 
purposes with respect to the Shares and has determined or will 
determine that each such transaction is in the interests of the VEBA it 
represents.
    (b) The Independent Fiduciary for the Hourly VEBA has discharged or 
will discharge its duties consistent with the terms of the Hourly 
Trust, the Stock Transfer Restriction Agreement, the Certificate of 
Incorporation, the Registration Rights Agreement, the Hourly 
Independent Fiduciary Agreement, and successors to these documents.
    (c) The Independent Fiduciary for the Salaried VEBA has discharged 
or will discharge its duties consistent with the terms of the Salaried 
Trust, the Certificate of Incorporation, the Salaried Independent 
Fiduciary Agreement, and successors to these documents.
    (d) The Independent Fiduciaries have negotiated and approved or 
will negotiate and approve on behalf of their respective VEBAs any 
transactions between the VEBA and Kaiser involving the Shares that may 
be necessary in connection with the transactions (including but not 
limited to registration of the Shares contributed to the Hourly Trust).
    (e) The VEBAs have not incurred or will not incur any fees, costs 
or other charges (other than those described in the Hourly and Salaried 
Trusts, the Independent Fiduciary Agreements, the Hourly Settlement 
Agreement, and the Salaried Settlement Agreement) as a result of any of 
the transactions described herein.
    (f) The terms of the transactions have been and will be no less 
favorable to the VEBAs than terms negotiated at arm's length under 
similar circumstances between unrelated third parties.
    (g) The Hourly Board and the Salaried Board have maintained and 
will maintain for a period of six years from the date any Shares are 
contributed to the VEBAs, the records necessary to enable certain 
persons, such as the Salaried Board, VEBA participants, Kaiser or any 
authorized employee or representative of the Department, to see whether 
the conditions of this exemption have been met.

Notice to Interested Persons

    Notice of the proposed exemption will be provided to all interested 
persons by first class mail within 8 days of approval by the 
Department. Such notice will include a copy of the notice of proposed 
exemption, as well as a supplemental statement or ``Summary Notice,'' 
as required pursuant to 29 CFR 2570.43(b)(2), which shall inform 
interested persons of their right to comment on the proposed exemption 
and/or to request a hearing. Comments and hearing requests with respect 
to the notice of proposed exemption are due within 29 days of the date 
of approval of the notice of pendency by the Department.

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 or disqualified person 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 require, among other 
things, a fiduciary to discharge his or her 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) The proposed exemption, if granted, will not extend to 
transactions prohibited under section 406(b)(3) of the Act;
    (3) Before an exemption can be granted under section 408(a) of the 
Act, the Department must find that the exemption is administratively 
feasible, in the interest of the plan and of its participants and 
beneficiaries and protective of the rights of participants and 
beneficiaries of the plan; and
    (4) The proposed exemption, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act, including 
statutory or administrative exemptions. Furthermore, the fact that a 
transaction

[[Page 62623]]

is subject to an administrative or statutory exemption is not 
dispositive of whether the transaction is in fact a prohibited 
transaction.

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments and/
or requests for a public hearing on the pending exemption to the 
address above, within the time frame set forth above, after the 
approval of this notice of pendency. All comments and hearing requests 
will be made a part of the record. Comments and hearing requests should 
state the reasons for the writer's interest in the proposed exemption. 
Comments and hearing requests received will also be available for 
public inspection with the referenced application at the address set 
forth above.

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, August 10, 1990), as follows:

Section I. Covered Transactions

    If the exemption is granted, the restrictions of sections 
406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 407(a) of the Act 
shall not apply, effective July 6, 2006, to: (1) the acquisition by the 
VEBA for Retirees of Kaiser Aluminum (the Hourly VEBA) and by the 
Kaiser Aluminum Salaried Retirees VEBA (the Salaried VEBA; together, 
the VEBAs) of certain publicly traded common stock issued by Kaiser 
(the Stock or the Shares), through an in-kind contribution to the VEBAs 
by Kaiser of such Stock, for the purpose of prefunding VEBA welfare 
benefits; (2) the holding by the VEBAs of such Stock acquired pursuant 
to the contributions; and (3) the management of the Shares, including 
their voting and disposition, by an independent fiduciary (the 
Independent Fiduciary) designated to represent the interests of each 
VEBA with respect to the transactions.

Section II. Conditions

    This proposed exemption is conditioned upon adherence to the 
material facts and representations described herein and upon 
satisfaction of the following conditions:
    (a) An Independent Fiduciary has been appointed to separately 
represent each VEBA and its participants and beneficiaries for all 
purposes related to the contributions for the duration of each VEBA's 
holding of the Shares and will have sole responsibility relating to the 
acquisition, holding, disposition, ongoing management, and voting of 
the Stock. The Independent Fiduciary has determined or will determine, 
before taking any actions regarding the Shares, that each such action 
or transaction is in the interests of the VEBA it represents.
    (b) The Independent Fiduciary for the Hourly VEBA has discharged or 
will discharge its duties consistent with the terms of the Hourly Trust 
Agreement, the Stock Transfer Restriction Agreement, the Certificate of 
Incorporation, the Registration Rights Agreement, the Hourly 
Independent Fiduciary Agreement, and successors to these documents.
    (c) The Independent Fiduciary for the Salaried VEBA has discharged 
or will discharge its duties consistent with the terms of the Trust 
Agreement between the Salaried Board of Trustees (the Salaried Board) 
and the Salaried Trustee (the Salaried Trust Agreement), the 
Certificate of Incorporation, the Salaried Independent Fiduciary 
Agreement, and successors to these documents.
    (d) The Independent Fiduciaries have negotiated and approved or 
will negotiate and approve on behalf of their respective VEBAs any 
transactions between the VEBA and Kaiser involving the Shares that may 
be necessary in connection with the subject transactions (including, 
but not limited to, registration of the Shares contributed to the 
Hourly Trust), as well as the ongoing management and voting of such 
Shares.
    (e) The Independent Fiduciary has authorized or will authorize the 
Trustee of the respective VEBA to accept or dispose of the Shares only 
after such Independent Fiduciary determines, at the time of each 
transaction, that such transaction is feasible, in the interest of the 
Hourly or Salaried VEBA, and protective of the participants and 
beneficiaries of such VEBAs.
    (f) The VEBAs have incurred or will incur no fees, costs or other 
charges (other than those described in the Hourly and Salaried Trusts, 
the Independent Fiduciary Agreements, the Hourly Settlement Agreement, 
and the Salaried Settlement Agreement) as a result of any of the 
transactions described herein.
    (g) The terms of any transactions between the VEBAs and Kaiser have 
been or will be no less favorable to the VEBAs than terms negotiated at 
arm's length under similar circumstances between unrelated third 
parties.
    (h) The Board of Trustees of the Hourly VEBA (the Hourly Board) and 
the Board of Trustees of the Salaried Board have maintained or will 
maintain for a period of six years from the date any Shares are 
contributed to the VEBAs, any and all records necessary to enable the 
persons described in paragraph (i) below to determine whether 
conditions of this exemption have been met, except that (1) a 
prohibited transaction will not be considered to have occurred if, due 
to circumstances beyond the control of the Hourly Board and the 
Salaried Board, the records are lost or destroyed prior to the end of 
the six-year period, and (2) no party in interest other than the Hourly 
Board and the Salaried Board shall be subject to the civil penalty that 
may be assessed under section 502(i) of the Act if the records are not 
maintained, or are not available for examination as required by 
paragraph (i) below.
    (i)(1) Except as provided in section (2) of this paragraph and not 
withstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to in paragraph (h) above have 
been or shall be unconditionally available at their customary location 
during normal business hours by:
    (A) Any duly authorized employee or representative of the 
Department;
    (B) The United Steel, Paper and Forestry, Rubber, Manufacturing, 
Energy, Allied Industrial and Service Workers International Union (the 
USW) or any duly authorized representative of the USW, and other unions 
or their duly authorized representatives, as to the Hourly VEBA only;
    (C) The Salaried Board or any duly authorized representative of the 
Salaried Board, as to the Salaried VEBA only;
    (D) Kaiser or any duly authorized representative of Kaiser; and
    (E) Any participant or beneficiary of the VEBAs, or any duly 
authorized representative of such participant or beneficiary, as to the 
VEBA in which such participant or beneficiary participates.
    (2) None of the persons described above in subparagraph (1)(B), 
(C), or (E) of this paragraph (i) has been or shall be authorized to 
examine the trade secrets of Kaiser, or commercial or financial 
information that is privileged or confidential.

Section III. Definitions

    For purposes of this proposed exemption, the term--
    (a)