Notice of Proposed Individual Exemption Involving Chrysler LLC, Located in Auburn Hills, MI, 51182-51195 [E9-23849]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 74, Number 191 (Monday, October 5, 2009)]
[Notices]
[Pages 51182-51195]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-23849]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. L-11566]


Notice of Proposed Individual Exemption Involving Chrysler LLC, 
Located in Auburn Hills, MI

AGENCY: Employee Benefits Security Administration, U.S. Department of 
Labor.

ACTION: Notice of proposed individual exemption.

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    This document contains a notice of pendency before the Department 
of Labor (the Department) of a proposed individual exemption from 
certain prohibited transaction restrictions of the Employee Retirement 
Income Security Act of 1974 (the Act or ERISA). The transactions 
involve the UAW Chrysler Retiree Medical Benefits Plan (the New 
Chrysler VEBA Plan) and its associated UAW Retiree Medical Benefits 
Trust (the VEBA Trust) (collectively the VEBA).\1\ The proposed 
exemption, if granted, would affect the VEBA, its participants and 
beneficiaries.
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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, 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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    Effective Date: If granted, this proposed exemption will be 
effective as of June 10, 2009.

DATES: Written comments and requests for a public hearing on the 
proposed exemption should be submitted to the Department within 45 days 
from the date of publication of this Federal Register Notice.

ADDRESSES: All written comments and requests for a public hearing 
concerning the proposed exemption should be sent to the Office of 
Exemption

[[Page 51183]]

Determinations, Employee Benefits Security Administration, Room N-5700, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington DC 
20210, Attention: Application No. L-11566. Interested persons are also 
invited to submit comments and/or hearing requests to EBSA via e-mail 
or FAX. Any such comments or requests should be sent either by e-mail 
to: chrysler@dol.gov, or by FAX to (202) 219-0204 by the end of the 
scheduled comment period. The application for exemption and the 
comments received will be available for public inspection in the Public 
Documents 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: Brian J. Buyniski or Warren Blinder, 
Office of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor, telephone (202) 693-8566. 
(This is not a toll-free number).

SUPPLEMENTARY INFORMATION: This document contains a notice of proposed 
individual exemption from the restrictions of sections 406(a)(1)(A), 
406(a)(1)(B), 406(a)(1)(D), 406(a)(1)(E), 406(a)(2), 406(b)(1), 
406(b)(2), and 407(a) of ERISA. The proposed exemption has been 
requested in an application filed by New Chrysler pursuant to section 
408(a) of ERISA and in accordance with the procedures set forth in 29 
CFR 2570, Subpart B (55 FR 32836, August 10, 1990). Effective December 
31, 1978, section 102 of Reorganization Plan No. 4 of 1978, (43 FR 
47713, October 17, 1978) transferred the authority of the Secretary of 
the Treasury to issue exemptions of the type requested to the Secretary 
of Labor. Accordingly, this proposed exemption is being issued solely 
by the Department.

Summary of Facts and Representations\2\
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    \2\ The Summary of Facts and Representations is based on the 
Applicant's representations and does not reflect the views of the 
Department.
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The Applicant

    Prior to filing for bankruptcy protection under chapter 11 of Title 
11 of the United States Code (the Bankruptcy Code) on April 30, 2009, 
Chrysler LLC (Chrysler LLC), a Delaware limited liability company, was 
an American automobile manufacturer headquartered in Auburn Hills, 
Michigan, first organized as Chrysler Corporation in 1925. Chrysler LLC 
manufactured, assembled, and sold cars, trucks, and related automotive 
parts and accessories primarily in the United States, Canada, and 
Mexico. It supplied passenger cars, SUVs, sports tourers, minivans, and 
pickups. The company also purchased and distributed passenger cars 
manufactured by Mitsubishi Motor Manufacturing of America. Prior to 
filing for bankruptcy protection, Chrysler LLC employed approximately 
55,000 hourly and salaried employees worldwide, about 70% of whom were 
based in the United States. As of the date of the exemption application 
filing, Chrysler LLC had 32 manufacturing and assembly facilities, 23 
of which (or 69% of the vehicle production) are located in the United 
States, and 24 parts depots, 20 of which are in this country. 
Chrysler's business interests touched all 50 states, as well as Canada, 
Mexico, Europe and Asia. Chrysler LLC has an expansive dealer network, 
with over 3,200 dealerships in the United States selling Chrysler cars 
and trucks (or 60% of the global dealer network). Seventy-two percent 
of Chrysler LLC's sales were in the United States, and it purchased 78% 
of its parts and materials from U.S.-based suppliers. For the twelve 
months ended December 31, 2008, Chrysler LLC recorded revenue of more 
than $48.5 billion and had assets of approximately $39.3 billion and 
liabilities totaling $55.2 billion. During the same period, Chrysler 
LLC had a net loss of approximately $16.8 billion.
    From 1998 to 2007, Chrysler and its subsidiaries were part of the 
German based DaimlerChrysler AG (now Daimler AG). Under 
DaimlerChrysler, the company was named ``DaimlerChrysler Motors Company 
LLC'', with its U.S. operations generally referred to as the ``Chrysler 
Group''. On May 14, 2007, DaimlerChrysler announced the sale of 80.1% 
of Chrysler Group to American private equity firm Cerberus Capital 
Management, L.P., with Daimler continuing to hold a 19.9% stake. The 
deal was finalized on August 3, 2007, and upon completion of the sale, 
the company was renamed Chrysler LLC. On April 27, 2009, Daimler AG 
signed a binding agreement to give up its 19.9% remaining stake in 
Chrysler LLC to Cerberus Capital Management and pay as much as $600 
million into the automaker's pension fund.
    On May 31, 2009, in the course of the bankruptcy proceeding (the 
Bankruptcy Proceeding), the United States Bankruptcy Court for the 
Southern District of New York (the Bankruptcy Court) issued an opinion 
granting Chrysler LLC's motion for authority to sell, pursuant to 
section 363 of the Bankruptcy Code, substantially all of its assets to 
an entity called New Chrysler (New Chrysler).\3\ New Chrysler is a 
Delaware limited liability company formed by Fiat North America LLC, a 
subsidiary of Fiat S.p.A (Fiat). New Chrysler expects to remain 
headquartered in Auburn Hills, Michigan, and expects to employ most of 
Chrysler's approximately 55,000 hourly and salaried employees 
worldwide, 70% or 38,500 of whom were based in the United States and 
still manufactures, assembles, and sells cars, trucks, and related 
automotive parts and accessories in the United States, Europe, Canada, 
and Mexico. Pursuant to the UAW Retiree Settlement Agreement between 
New Chrysler and the UAW (the Settlement Agreement), the UAW Chrysler 
Retiree Medical Benefits Plan (the New Chrysler VEBA Plan) will be 
established to provide retiree medical benefits to certain Chrysler-UAW 
represented employees and retirees, and their spouses and 
dependents.\4\
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    \3\ In re Chrysler LLC, et al., No. 09B 50002 (Document 3073), 
slip op. (Bankr. S.D.N.Y. May 31, 2009).
    \4\ Specifically, the New Chrysler VEBA Plan will provide 
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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Background

    Throughout much of 2007, Chrysler LLC and the UAW engaged in 
extended discussions concerning the impact of rising health care costs 
on Chrysler LLC's financial condition. During these discussions, 
Chrysler LLC asserted that it had the right to unilaterally modify the 
retiree health benefits under the Chrysler Health Care Program for 
Hourly Employees and that, if no agreement was reached to address the 
economic burden of its retiree health obligation, Chrysler LLC would do 
so unilaterally. The UAW disagreed with Chrysler LLC's position and 
asserted that retiree benefits were vested and that Chrysler LLC did 
not have the right to modify them unilaterally. In 2007, the UAW along 
with respective class representatives of plaintiff class members in UAW 
v. Chrysler LLC (the ``English'' Case) filed a lawsuit challenging 
Chrysler LLC's position and sought a permanent injunction prohibiting 
such termination or modification. After an extensive review by the UAW 
and Class Counsel (Class Counsel) of Chrysler LLC's ability to continue 
providing retiree health care benefits, the parties entered into a 
Settlement Agreement (English Settlement Agreement) on March 30, 2008, 
providing, among other things,

[[Page 51184]]

that Chrysler LLC transfer responsibility and funding for retiree 
health care benefits to a voluntary employee benefits association.\5\
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    \5\ In 2007 and 2009, Chrysler LLC agreed to provide certain 
retiree medical benefits specified in certain memoranda of 
understanding between Chrysler, the UAW and the class 
representatives. Chrysler LLC and the UAW, along with respective 
class representatives of plaintiff class members in UAW v. Chrysler, 
LLC, Civ. Act. No. 2:07-cv-14310 (E.D. Mich, complaint filed October 
11, 2007) (the ``English'' Case) entered into a separate settlement 
agreement in 2007, which provided for Chrysler LLC to make certain 
deposits and remittances to the UAW Retiree Medical Benefits Trust 
for the provision of retiree medical benefits.
    In light of the Bankruptcy Proceeding, the settlement in the 
English case is of no further effect. Although not a party to the 
Bankruptcy Proceeding or the Modified Settlement Agreement described 
in this exemption application, the firm of Stember, Feinstein, Doyle 
& Payne, LLC, as Class Counsel in the English case, was engaged to 
render an opinion on the fairness, from a financial point of view, 
of the consideration to be received by Chrysler LLC in connection 
with the sale of assets to New Chrysler (the Sale), and also to 
review the Modified Settlement Agreement described in this exemption 
application. Class Counsel concurs that it is fair, reasonable and 
in the best interest of the former class members, and supports the 
request by New Chrysler for an individual exemption request.
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    The English Settlement Agreement provided that on the later of 
January 1, 2010, or final court approval of the Settlement Agreement, 
Chrysler LLC would continue to provide retiree medical benefits for 
class members, known as the ``Covered Group'', under the old Chrysler 
Plan and would transfer certain assets to the VEBA Trust to provide the 
Class and Covered Group with post-retirement medical benefits. The 
English Settlement Agreement modified existing retiree medical benefits 
and Chrysler LLC was obligated to provide benefits until January 1, 
2010, and then funding of the benefits would be shifted to the VEBA 
Trust. Under the English Settlement Agreement, Chrysler LLC's 
obligation to provide post-retirement medical benefits to the Class and 
Covered Group would be terminated. The Trust would be established and 
maintained not by Chrysler LLC, but by an employees' beneficiary 
association consisting of the population described in the English 
Settlement Agreement and administered by an independent committee 
(``Committee''). A Plan, to be funded exclusively through 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.
    In September of 2008, a sharp downturn in sales significantly 
affected Chrysler LLC. Soon thereafter, Chrysler LLC focused its 
attention on acquiring a merger partner, but talks were put on hold 
while the company sought government funds to prevent bankruptcy. In 
December of 2008, Chrysler LLC received a $4 billion loan from the 
United States Treasury Department to fund their operations through the 
liquidity crunch. At the same time that Chrysler LLC was pursuing 
government assistance, it continued its efforts to secure a strategic 
partner that could assist it in achieving its long-term viability 
goals. Pursuant to the terms of the loan, Chrysler LLC was required to 
submit a plan showing that it was able to achieve and sustain long-term 
viability, energy efficiency, rationalization of costs and 
competitiveness in the U.S. marketplace, which would indicate Chrysler 
LLC's ability to repay the financing.
    These long-term production goals led Chrysler LLC to announce that 
they were going to form a global alliance with Fiat S.p.A. On January 
20, 2009, Fiat and Chrysler LLC announced that they had a non-binding 
term sheet to form a global alliance. Under the terms of the potential 
agreement, Fiat could take a 35% stake in Chrysler LLC and gain access 
to its North American dealer network in exchange for providing Chrysler 
LLC with the platform to build smaller, more fuel-efficient vehicles in 
the US and reciprocal access to Fiat's global distribution network. 
Fiat is an Italian automobile manufacturer, engine manufacturer, and 
financial and industrial group based in Turin. As of 2009, Fiat is the 
world's 6th largest carmaker as well as Italy's largest carmaker.

Bankruptcy

    In light of deteriorating market conditions and a growing liquidity 
crisis that would make it impossible for Chrysler LLC to continue 
operations, 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'') on April 30, 2009 with 
the Bankruptcy Court and announced a plan for a partnership with 
Italian automaker Fiat.\6\ As noted previously, the Bankruptcy Court 
approved a sale under Section 363 of Title 11 of the U.S. Code by which 
New Chrysler succeeded to certain assets and liabilities of Chrysler 
LLC (``Section 363 Sale''). The Bankruptcy Court also approved the 
Modified Settlement Agreement. The section 363 Sale closed, and the 
Modified Settlement Agreement was executed, on June 10, 2009. The 
assets in the Section 363 Sale were sold free and clear of liens, 
claims, interests, and encumbrances.
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    \6\ In connection with the Bankruptcy Proceeding, Chrysler LLC's 
non-U.S. direct and indirect subsidiaries have not sought relief 
under chapter 11 of the Bankruptcy Code or any other insolvency 
laws. Chrysler LLC's Mexican, Canadian and other international 
operations are also not part of any bankruptcy filing.
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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'').
    Pursuant to the MTA, Chrysler LLC transferred substantially all of 
its operating assets to New Chrysler, and in exchange for those assets, 
New Chrysler assumed certain liabilities of Chrysler LLC and paid 
Chrysler LLC $2 billion in cash. New Chrysler is jointly owned by Fiat, 
the US Treasury, the Governments of Canada and Ontario (the Canadian 
Government) and the VEBA Trust. The transaction is expected to 
strengthen New Chrysler's viability for the long term with access to 
Fiat's existing technology, including competitive platforms, 
powertrain, and vehicles to be produced at New Chrysler's manufacturing 
sites. The transaction is also expected to allow Fiat and New Chrysler 
to each take advantage of the other's distribution networks in key 
growth markets and to optimize fully their respective manufacturing 
footprint and global supplier base.
    Pursuant to the Plan of Reorganization, New Chrysler, a Delaware 
limited liability company, was formed by Fiat North America, LLC, as an 
alliance entity \7\ for the acquisition of the assets from Chrysler LLC 
generally free and clear of claims of Chrysler LLC's creditors.\8\ Upon 
the closing of the sale, the government entities will hold 12.31% (The 
U.S. Treasury will hold 9.85% and the Canadian Government will hold 
2.46%), the New Chrysler VEBA Plan will hold 67.69%, and Fiat will hold 
20% of the total value of shares (the Shares). Upon reaching certain 
milestones, fully explained later in this exemption, Fiat's interest 
will increase to 35%, with the right to acquire an additional 16% by 
buying certain shares of New Chrysler. Fiat will not be able to get 
control of New Chrysler until the outstanding debts to

[[Page 51185]]

the U.S. Treasury and Canada are paid in full. After the Sale, New 
Chrysler became the new legal entity, Chrysler Group LLC. The claims of 
Chrysler LLC's unsecured creditors were not assumed by New Chrysler 
through the Bankruptcy Proceeding unless expressly provided for in 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 and the UAW and the 
Memorandum of Understanding Post-Retirement Medical Care, dated April 
29, 2009, between Chrysler and the UAW (together, the ``MOUs''), as 
well as the English Settlement Agreement reached in UAW v. Chrysler, 
LLC, Civ. Act. No. 2:07-cv-14310 (E.D. Mich. complaint filed October 
11, 2007).
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    \7\ None of the debtor's equity holders received an interest in 
New Chrysler.
    \8\ See In Re Chrysler LLC, et. al., Case No. 09B 50002 
(Document 3073), slip op.(Bankr.S.D.N.Y. May 31, 2009)), the order 
authorizing the sale of substantially all of the debtor's assets 
free and clear of all liens, claims, interests, and encumbrances.
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    New Chrysler represents that the Bankruptcy Proceeding and related 
Sale are critical to the survival of the business previously conducted 
by Chrysler LLC. New Chrysler's emergence from bankruptcy was dependent 
on the achievement of a number of interrelated agreements among its 
creditors, lenders, interested government agencies, and unionized 
employees. To avoid the devastation to the global economy that would be 
caused if Chrysler's business were to fail, the governments of the 
United States, Canada, and the Province of Ontario have offered to fund 
a new venture, New Chrysler, that will combine substantially all of 
Chrysler LLC's core operating assets with advanced automotive 
technology, distribution, procurement capabilities, and management 
services of Fiat or its subsidiaries to create an ongoing viable 
automobile company. Under these extraordinary and urgent circumstances, 
the governments are prepared to subsidize the restructured New Chrysler 
to ensure that a viable automobile manufacturing industry remains in 
North America. Knowing how quickly New Chrysler's prospects could 
deteriorate, however, the governments have placed stringent conditions 
on their commitment. Those stringent conditions include the conditions 
related to the exemption transaction, which is an integral component of 
that larger picture.
    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 due consideration of the 
factual and legal arguments regarding this issue, as well as the costs, 
risks, and delays associated with litigating the issue, New Chrysler 
and the UAW agreed to enter into a settlement agreement, that was 
presented to the Bankruptcy Court for approval after notice was 
provided to affected parties. Ultimately, the Modified Settlement 
Agreement was approved by the Bankruptcy Court and the initial steps 
towards implementing the transactions that are at the heart of this 
application began to occur as contemplated in that agreement.
    After several months of arms length negotiations, the UAW has 
asserted that, after due consideration of the issues involved and 
seeking to avoid protracted litigation on the matter, it entered into a 
Modified Settlement Agreement with New Chrysler under which 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''). 
The medical benefit coverage for New Chrysler active employees prior to 
their retirement is not within the scope of this Modified Settlement 
Agreement and shall continue to be provided in accordance with the 
terms of the applicable collective bargaining agreement and health care 
benefit plan.
    The Modified Settlement Agreement is another part of the complete 
and integrated arm's-length transactions involving multiple parties, 
including New Chrysler, Fiat, the Treasury Department, the Canadian 
Government, and the UAW. Throughout the 2009 negotiations over the 
terms of the Settlement Agreement, the parties engaged in extended 
discussions concerning the impact of rising health care costs on New 
Chrysler's financial viability. In this regard, the UAW has completed 
its due diligence utilizing professional financial and legal advisors 
with respect to the Modified Settlement Agreement and determined that 
it is fair, reasonable and in the best interest of the Covered Group.
    On June 10, 2009, 41 days after filing for bankruptcy protection, 
the sale of most of Chrysler LLC's assets to New Chrysler was 
completed. As discussed in more detail below, Fiat will initially own a 
minority 20% stake of New Chrysler with the option of taking additional 
equity up to a 35% stake if certain operational and capitalization 
goals are achieved.

Ownership of New Chrysler

    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 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.
    Initially, the Class A and Class B membership interests generally 
are identical except that the Class B membership interests may 
ultimately represent a greater percentage of the outstanding equity 
interest in New Chrysler upon the occurrence of certain Class B events 
(discussed below). Fiat has several other options to acquire additional 
Class A membership interests (also discussed below) except that, until 
the U.S. Treasury loan and the Canadian loan to New Chrysler have been 
repaid in full, Fiat may not acquire additional membership interests if 
such exercise or acquisition would cause the total interest held by 
Fiat and its affiliates to exceed 49.9 percent. At a future date, the 
earlier of January 1, 2013, or the date of any New Chrysler Initial 
Public Offering (IPO), each outstanding Class B membership interest 
will be automatically converted to Class A membership interests, 
thereby reducing the Class B membership to zero.
    Pursuant to the New Chrysler Operating Agreement (the Operating 
Agreement), beginning on June 10, 2009, and ending on December 31, 
2012, the occurrence of three events (the ``Class B events'') would 
cause the value of Class B membership interests held by Fiat to 
increase by 5% for each event, thereby increasing Fiat's interest up to 
a maximum of 15% for all three events, without any new issuance of 
shares. The Class B events are as follows:
    (1) If New Chrysler receives government approvals for the 
production of an engine based on the Fiat's fully integrated robotized 
engine family to be manufactured in the U.S. and delivers a commitment 
to begin commercial production of the engine as soon as commercially 
practicable;

[[Page 51186]]

    (2) if New Chrysler records cumulative revenues reported in the 
quarterly financial statements in an amount specified in the New 
Chrysler Operating Agreement attributable to the company's sales made 
outside of the NAFTA Countries following the date of the Operating 
Agreement and if New Chrysler executes one or more franchise agreements 
covering in the aggregate at least 90% of the total Fiat group 
automobile dealers in Latin America pursuant to which such dealers will 
carry New Chrysler products;
    (3) if New Chrysler receives ecological event governmental 
approvals for a car based on Fiat platform technology that has fuel 
efficiency measured by miles per gallon of at least 40 combined miles 
per gallon fuel economy and delivers a commitment to begin assembly in 
commercial quantities in a production facility located in the U.S. as 
soon as commercially practicable.
    According to the terms of the Operating Agreement, in the event 
that Fiat determines that a Class B event has occurred prior to January 
1, 2013, it must submit written notice to New Chrysler. After supplying 
written notice, such event shall be deemed to have irrevocably occurred 
unless the company supplies written notice of objection. If an 
objection is raised, then New Chrysler and Fiat will attempt in good 
faith to resolve the dispute. If no agreement is reached, then the 
parties will enter into binding arbitration. Accordingly, the 200,000 
Class B membership interests held by Fiat will increase to thirty-five 
percent (35%) of the voting and economic interest of New Chrysler and 
the 800,000 Class A membership interests held by the Treasury 
Department, the Canadian Government and the VEBA Trust will be diluted 
to sixty-five percent (65%) of the voting and economic interest of New 
Chrysler.
    On the earlier of January 1, 2013 or any New Chrysler IPO, each 
outstanding Class B membership interest will be exchanged for Class A 
membership interests in an amount such that the proportional interest 
of Fiat in New Chrysler is unchanged.

Alternative and Incremental Call Options

    If one or more of the Class B events does not occur prior to 
January 1, 2013, Fiat will have the option beginning on January 1, 2013 
and ending on June 30, 2016, to purchase from New Chrysler 5% of the 
Class A membership interests for each Class B event that has not 
occurred (the Alternative Call Option). The price will be calculated 
pursuant to a formula, the use of which depends upon whether or not New 
Chrysler has completed an IPO before Fiat exercises any call options, 
and which has been designed to approximate the fair market value of the 
interests at the time of exercise. Fiat additionally has the option to 
purchase from the Company Class A membership interests in an aggregate 
amount of up to 16% of the outstanding membership interests (the 
``Incremental Call Option''). The time frame for Fiat to exercise this 
option is the same as for the Alternative Call Option (January 1, 2013 
through June 30, 2016).

Call Option Agreement

    Initially, New Chrysler will not be publicly traded, though there 
are mechanisms for the VEBA Trust to sell the Shares under certain 
conditions to other parties prior to New Chrysler becoming a publicly 
traded company. The VEBA Trust, Fiat, the Treasury Department and the 
Canadian Government agreed to provide Fiat with additional incentives 
to encourage Fiat to take action that will increase the aggregate value 
of the parties' investment in New Chrysler. Thus, in accordance with 
the Call Option Agreement, between July 1, 2012 and June 1, 2016, Fiat 
has the option to purchase from the VEBA Trust up to 40% of the VEBA 
Trust's equity interests in New Chrysler. These interests consist of 
the 676,924 Class A membership interests issued to the VEBA Trust by 
New Chrysler on closing, less any interests that the VEBA Trust has 
already disposed of under the Equity Recapture Agreement (as more fully 
discussed below) at the time of exercise. Fiat may purchase no more 
than 20% of such interests within any six-month period. Fiat's ability 
to exercise its rights under the Call Option Agreement is limited by 
the requirement that, until New Chrysler has repaid its loan from the 
United States Treasury and the Canadian Government in full, Fiat may 
not own more than 49.9% of the outstanding equity interests in New 
Chrysler.
    The exercise price will be determined pursuant to a formula which 
is designed to arrive at the fair market value of the interests. The 
exercise price may be adjusted if, upon exercise, the VEBA Trust elects 
to transfer to Fiat interests in one or more entities through which, 
for tax and administrative purposes, the VEBA Trust holds membership 
interests (each such entity, a ``VEBA HoldCo'').\9\ Transfer of VEBA 
HoldCo interests, rather than direct transfer of membership interests, 
would prevent Fiat from obtaining a step-up in tax basis. Thus, Fiat 
might be required to recognize additional gain upon a subsequent 
disposition, beyond any gain attributable to the period in which Fiat 
owns the membership interests. The Call Option Agreement provides for a 
reduction in price to compensate for this increased tax liability, 
offset by any positive tax attributes for Fiat (e.g., net operating 
losses) caused by receiving interests in the VEBA HoldCo rather than 
membership interests directly. If Fiat, the VEBA, and the United States 
Treasury cannot agree on the amount of such an adjustment, each has a 
right to appoint an arbitrator to a panel of three arbitrators who will 
determine the amount of the adjustment.
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    \9\ VEBA Holdco means one or more Delaware limited liability 
companies and/or corporations to which the VEBA Trust transferred 
all or part of the Membership Interests issued to the VEBA Trust 
pursuant to the Equity Subscription Agreement.
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First Offer Right and Equity Recapture Agreement

    In addition to the Call Options, Fiat will have the first right to 
purchase all or a part of the Shares (the ``First Offer Right'') if a 
third party has offered to purchase some or all of the Shares beginning 
two (2) years after the Closing Date as defined in the New Chrysler 
Operating Agreement. When the Committee receives the proposed Sale 
offer after the start of the First Offer Right period, the Committee 
must issue written notice to Fiat, the Treasury Department, the 
Canadian Government, and New Chrysler stating its intention to sell 
some or all of the Shares, the number of such Shares, the price and 
terms the Committee proposes to be paid for such Shares, and other 
material terms of the proposed Sale (the ``First Notice''). For thirty 
(30) days after the issuance of the First Notice, Fiat will have the 
irrevocable non-transferable First Offer Right to purchase all or a 
portion of the Shares subject to the proposed Sale, at the price and 
under the terms and conditions of such proposed Sale.
    Also under the New Chrysler Operating Agreement, at any time prior 
to an initial public offering of New Chrysler, holders of 75% of 
outstanding membership interests in New Chrysler may decide to transfer 
a majority of membership interests to a third party. In that event, 
those holders may also require all holders of membership interests to 
transfer their interests on the same terms and for the same 
consideration (the ``Drag-Along Right''). The VEBA Trust may elect to 
transfer membership interests directly or to transfer interests in one 
or more VEBA Holdcos; if the VEBA Trust transfers interests in VEBA 
Holdcos, then

[[Page 51187]]

consideration paid the VEBA Trust pursuant to such a transaction would 
be adjusted for the same equitable tax-related factors described above 
under the Call Option Agreement. On behalf of the VEBA Trust, the 
Independent Fiduciary would negotiate in good faith with the New 
Chrysler Board of Directors (the ``Board'') over the amount of any 
adjustment in price resulting from the transfer of interests in a VEBA 
HoldCo. If the Board and the Independent Fiduciary could not come to an 
agreed-upon resolution, the Independent Fiduciary would appoint one of 
the three members of a board of arbitrators who would determine the 
amount of the adjustment. The second arbitrator would be appointed by 
the Board, and the third would be agreed upon by the Board and the 
Independent Fiduciary, or, failing such agreement, appointed by the 
administering authority for the American Arbitration Association.
    In addition to the above-described agreements, and as a condition 
to the Treasury Department's agreement to provide financing for New 
Chrysler, the VEBA Trust has entered into a separate agreement with the 
Treasury Department referred to as an Equity Recapture Agreement. Under 
the terms of the Equity Recapture Agreement, if the VEBA realizes from 
the sale of the Shares a total value of more than the threshold amount 
of $4.25 billion, increased at nine percent (9%) per annum starting on 
January 1, 2010 (the ``Threshold Amount''), the VEBA agrees to pay to 
the Treasury Department the proceeds received in excess of the 
Threshold Amount plus any remaining Shares still held by the VEBA (the 
``Contingent Value Right''). The nine percent (9%) per annum cap on the 
increase is derived from actuarial assumptions that were used to 
determine the amount of appreciation required to provide the 
anticipated benefits under the Plan. 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. 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.
    If on December 31, 2014, December 31, 2016, or December 31, 2018, 
the VEBA Trust's Shares are not equal to the value of the Threshold 
Amount, and the VEBA Trust or a VEBA Trust-controlled affiliate 
continues to hold Shares, the VEBA Trust is obligated under the Equity 
Recapture Agreement to transfer a portion of such Shares to the 
Treasury Department. The value of the transferred Shares will equal a 
set percentage of the Black Scholes value of the Treasury Department's 
Contingent Value Right. The applicable percentages of the value of the 
Contingent Value Right to be transferred on each of December 31, 2014, 
December 31, 2016, and December 31, 2018, are 33%, 50%, and 100%, 
respectively. The amounts transferred on prior Interim Settlement Dates 
are subtracted from the amount to be transferred on each Interim 
Settlement Date.
    The Black Scholes value of the Contingent Value Right will be 
determined using the following assumptions: (1) A Share price based on 
the average over the prior 60 days of trading; (2) a time to maturity 
equal to ten years, seven years, or five years, on December 31, 2014, 
December 31, 2016, and December 31, 2018, respectively; (3) an exercise 
price based on an implied future stock price equivalent to the 
Threshold Amount on the applicable maturity date; and (4) a risk free 
interest rate equal to the rate for a U.S. Treasury Note for a term 
equal to the assumed time to maturity.
    If New Chrysler stock is not publicly traded on an Interim 
Settlement Date, the U.S. Treasury and the VEBA will each appoint an 
independent nationally recognized investment bank to conduct a separate 
appraisal of the value of the Contingent Value Right. If the separate 
appraisals yield values within 10% of each other, those values will be 
averaged. If the separate appraisals are more than 10% apart, the VEBA 
and the U.S. Treasury will appoint a third independent appraiser, whose 
determination will be averaged with the determination closest to that 
of the third independent appraiser.

Establishment of the New VEBA Plan and Trust

    The Modified Settlement Agreement provides that, upon the 
``Implementation Date'', the retiree medical benefit obligations to the 
``Covered Group'' will become fixed and such obligations will be 
transferred to the New Chrysler VEBA Plan and the VEBA Trust, which has 
been established to fund benefits under the Plan. The New Chrysler VEBA 
Plan and the VEBA Trust shall, as of the Implementation Date, be the 
employee welfare benefit plan and trust that are exclusively 
responsible for all retiree medical benefits with respect to the Class 
and the Covered Group. The UAW Chrysler Retirees Employees Beneficiary 
Association, an employee organization within the meaning of section 
3(4) of ERISA (``Chrysler Retiree EBA''), acting through the Committee, 
will establish and maintain the New Chrysler VEBA Plan, subject to 
ERISA, to provide retiree health benefits to the Class and Covered 
Group after the Implementation Date, which will be December 31, 2009. 
Prior to the Section 363 Sale, the Old Chrysler Plan provided retiree 
health benefits to the Class and the Covered Group; following the 
closing of the Section 363 Sale, the New Chrysler Plan (``New Chrysler 
VEBA Plan'') assumed responsibility for the provision of the benefits 
with respect to claims incurred on or before the Implementation Date. 
The New Chrysler VEBA Plan will be responsible for benefit claims 
incurred after the Implementation Date. It is anticipated that there 
will be approximately 120,000 participants and beneficiaries of the New 
Chrysler VEBA Plan beginning on January 1, 2010.
    After the Implementation Date, the Committee will have sole 
responsibility to determine the scope and level of retiree health 
benefits available to the Class and Covered Group under the New 
Chrysler VEBA Plan. The Committee may raise or lower the level of 
retiree health care benefits available to the Class and Covered Group. 
In exercising its authority over benefit design, the Committee shall be 
guided by the principle that the New Chrysler VEBA Plan should provide 
substantial health benefits for the duration of the lives of all 
participants and beneficiaries in the Plan.
    The UAW Chrysler Retirees EBA along with the UAW General Motors 
Company Retirees EBA and the UAW Ford Retirees EBA, each acting through 
the Committee, established the VEBA Trust on October 16, 2008. The VEBA 
Trust will be the funding source for the New Chrysler VEBA Plan. The 
VEBA Trust is the subject of a trust agreement between the trustee and 
the Committee, acting on behalf of the respective EBAs. The VEBA Trust 
is intended to be tax-exempt under section 501(c)(9) of the Internal 
Revenue Code, as amended, and, as a trust holding assets of plans 
subject to ERISA, will itself be subject to ERISA's fiduciary 
responsibility standards.
    The VEBA Trust will have three separate retiree accounts, designed 
to segregate payments attributable to General Motors (GM), Ford, and 
Chrysler, pursuant to the terms of each company's settlement agreement 
with the UAW and each respective class. Each retiree account will be a 
separate, dedicated account, to be used for the sole purpose of funding 
benefits provided under the separate plans,

[[Page 51188]]

providing health benefits to the retirees of GM, Ford and Chrysler, and 
defraying the reasonable expenses of each plan. Each retiree account 
will contain a separate sub-account maintained to hold any employer 
security. Assets from one retiree account may not offset the 
liabilities or defray the expenses attributable to another retiree 
account. The VEBA Trust was structured in this way to allow for the 
pooled investment of assets and to provide economies of scale to the 
respective plans' investments, while maintaining a separate plan for 
each three retiree classes. Unless the Committee decides to establish 
segregated investment vehicles for specific separate retiree accounts, 
the assets of the separate retiree accounts, other than any employer 
security sub-account, will be invested on a pooled basis within the 
VEBA Trust (provided that the interest of each account remains 
separately accounted for).
    The Modified Settlement Agreement itself contemplates three 
separate and distinct funding sources for the VEBA Trust: (1) Assets 
held under a pre-existing internal Chrysler VEBA (the ``Preexisting 
Internal VEBA'') that are attributable to the UAW retirees covered 
under the Modified Settlement Agreement--such assets were valued at 
$1,589,500,000 as of March 31, 2009, and those assets, plus the 
earnings thereon, are expected to be contributed to the VEBA Trust on 
or about January 1, 2010; (2) the Shares, which will 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 Sale; 
and (3) 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:

(i) Payment of $315 million on July 15, 2010
(ii) Payment of $300 million on July 15, 2011
(iii) Payment of $400 million on July 15, 2012
(iv) Payment of $600 million on July 15, 2013
(v) Payment of $650 million on July 15, 2014
(vi) Payment of $650 million on July 15, 2015
(vii) Payment of $650 million on July 15, 2016
(viii) Payment of $650 million on July 15, 2017
(ix) Payment of $823.8 million on July 15, 2018
(x) Payment of $823.8 million on July 15, 2019
(xi) Payment of $823.8 million on July 15, 2020
(xii) Payment of $823.8 million on July 15, 2021
(xiii) Payment of $823.8 million on July 15, 2022
(xiv) Final Payment of $827.1 million on July 15, 2023

    The Shares and the Note were contributed to the VEBA Trust on the 
closing date of the Sale, which was June 10, 2009.
    The Trustee, State Street Bank and Trust Company, shall hold the 
assets and income of the Trust in accordance with the terms of the New 
Chrysler VEBA Plan. According to the applicant, the Trustee has no 
discretionary authority with respect to the investment of assets held 
in the VEBA Trust, and must exercise its power in accordance with the 
instructions of the Independent Fiduciary with respect to any employer 
security, and in all other cases the instructions of the Committee or 
any investment manager that may be appointed by the Committee.\10\ 
Subject to the direction of the Independent Fiduciary with respect to 
any employer security, the Trustee shall make payments from the VEBA 
Trust Fund to pay benefits under the Plans as directed by the Committee 
or its designee. According to the terms of the Trust agreement, the 
Trustee may be removed by the Committee at any time upon thirty (30) 
days' advance written notice.
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    \10\ Under ERISA section 403(a)(1), a plan may expressly provide 
that a trustee is subject to the direction of a named fiduciary who 
is not a trustee, in which case the trustee shall be subject to 
proper directions of such fiduciary which are made in accordance 
with the terms of the plan and which are not contrary to the Act. 29 
U.S.C. 1103(a)(1).
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The Committee

    The Committee will serve as Plan Administrator and will be a named 
fiduciary of the New Chrysler VEBA Plan. The Committee will determine 
the benefits to be provided under the Plan, including, without 
limitation, which participants will receive benefits, in what form, and 
in what amount, and the contributions that the participants will be 
required to make to help defray the cost of their coverage. The 
Committee, acting on behalf of the EBAs, shall be responsible for the 
implementation, amendment and overall operation of the VEBA Trust and 
the establishment, amendment, maintenance, and administration of the 
Plans (i.e., Chrysler, Ford and GM). Subject to the provisions of the 
VEBA Trust and applicable laws, the Committee shall have sole, absolute 
and discretionary authority to adopt such rules and provisions and take 
all actions that it deems desirable for the administration of the VEBA 
Trust, and to interpret the terms of the Plans and VEBA Trust. The 
Committee shall be guided by the principle that the Plans should 
provide substantial health benefits for the duration of the lives of 
all participants and beneficiaries.
    The Committee consists of eleven (11) individuals, five (5) 
appointed by the UAW and six (6) who are Independent Members. 
Independent Member terms shall be for three (3)-year periods, except 
the initial terms of four (4) of the six (6) original Independent 
Members, two (2) of whom shall have an initial term of two (2) years, 
and two of whom shall have an initial term of one (1) year. An 
Independent Member may serve more than one term. Neither Chrysler LLC 
nor New Chrysler has any appointment power, and the Committee will 
function independently of both. The initial Independent Members were 
approved by the district court in the English case. No member of the 
Committee may be a current or former officer, director or employee of 
Old GM (i.e., prior to bankruptcy), New GM, Ford, Chrysler LLC or New 
Chrysler, except that a retiree who was represented by the UAW in his 
or her employment with either Old GM, New GM, Ford, Chrysler LLC, or 
New Chrysler or an employee of any such company who is on leave from 
the company and is represented by the UAW, may be a UAW Member. None of 
the Independent Members nor any of their family members, employers or 
partners may have any financial or institutional relationship with 
either Old GM, New GM, Ford, Chrysler LLC, or New Chrysler if such 
relationship could reasonably be expected to impair such Independent 
Member's exercise of independent judgment.
    An Independent Member may be removed or replaced, and a successor 
designated, at any time by an affirmative vote of nine (9) of the other 
members of the Committee. In the event of a vacancy of an Independent 
Member position, whether by expiration of a term, resignation, removal, 
incapacity, or death of an Independent Member, a successor Independent 
Member shall be elected by the affirmative vote of nine (9) Members, 
and when possible, such successor Independent Member shall be elected 
prior to the expiration of the term, resignation, removal, incapacity, 
or death of the Independent Member being replaced. The UAW Members 
shall serve at the discretion of the UAW International President, and 
may be removed or replaced, and a successor designated, at any time by 
written

[[Page 51189]]

notice from the UAW International President to the Committee.
    A majority of the Members of the Committee then in office shall 
constitute a quorum for the purpose of transacting any business; 
provided that at least one Independent Member and one UAW Member are 
present. Each Member of the Committee present at the meeting shall have 
one vote. All actions of the Committee shall be by majority vote of the 
entire Committee, provided that at least one Independent Member and one 
Union Member must be a Member in the majority for any Committee action 
to take effect.

Independent Fiduciary

    Pursuant to the Trust Agreement of the VEBA Trust, the Committee, 
in its sole discretion, will appoint an Independent Fiduciary to manage 
the Employer Security Sub-Account following the consummation of the 
Section 363 Sale.\11\ The Independent Fiduciary shall be a bank, trust 
company or registered investment adviser under the Investment Advisers 
Act of 1940, as amended. The Independent Fiduciary will be a ``named 
fiduciary'' and ``investment manager'' as defined in ERISA and shall 
act on behalf of the New Chrysler VEBA Plan and VEBA Trust in 
connection with the discretionary management and disposition (but not 
the acquisition) of all employer securities contributed to the VEBA 
Trust by New Chrysler including, as currently relevant, the Notes and 
the Shares (including valuation of the Shares), the Call Option and any 
other employer securities held by the VEBA Trust. The exercise of any 
discretionary rights appurtenant to the Shares, the Note, or the Call 
Options (excluding the VEBA Trust's acceptance of the contribution of 
such Shares, and Note) shall be directed by the Independent Fiduciary. 
In effect, the parties anticipate that the Independent Fiduciary will 
``step into the shoes'' of the VEBA Trust in connection with the 
Trust's exercise of its rights and responsibilities as owner of the 
Notes and the Shares, with the sole exception of the Trust's right to 
appoint (with the approval of the UAW) a director to the New Chrysler 
Board.\12\ The appointment of the Independent Fiduciary to perform 
these functions is a contractual obligation of the VEBA Trust. In 
addition, the Committee believes it is appropriate and desirable to 
appoint an Independent Fiduciary with specialized expertise as 
investment manager for purposes of the protections afforded by ERISA 
section 405(d). 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.
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    \11\ The sub-account is maintained by the Trustee within each 
Separate Retiree Account to hold separately any Employer Security 
and any proceeds from the disposition of any Employer Security.
    \12\ Generally, the Committee will remain responsible for 
corporate and tax matters relating to the creation and maintenance 
(e.g., corporate and tax filings and elections, annual reports, 
etc.) of one or more ``passive,'' wholly owned title-holding LLCs 
that will actually take legal title to the New Chrysler interests on 
behalf of the VEBA. These holding entities are contemplated in the 
various transaction documents, will elect to be taxed as ``C'' 
corporations, and will exist primarily for tax reasons (relating to 
VEBA tax qualification and unrelated business income tax 
considerations).
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    The Independent Fiduciary must be independent of and unrelated to 
Chrysler LLC, New Chrysler, the UAW and the Committee or their 
affiliates. This provision will be violated 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 described 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 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.\13\
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    \13\ The Department notes that candidates for the position of 
Independent Fiduciary to the New Chrysler VEBA Plan may be 
affiliated with entities that provide services to Old GM, New GM, 
Ford, Chrysler LLC or New Chrysler or their affiliates. It is the 
responsibility of the Committee to determine whether such 
affiliations are likely to affect the judgment of the candidate in 
performing its services as Independent Fiduciary.
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    The Independent Fiduciary may be removed by the Committee on 30 
days written notice only for cause.\14\ The removal will be effective 
as specified in the written notice, provided that the Independent 
Fiduciary has been given notice of the appointment of a successor 
independent fiduciary. No successor will be appointed in the event the 
New Chrysler VEBA Plan ceases to hold any employer security. In the 
event that the New Chrysler VEBA Plan subsequently acquires or holds an 
employer security and no appointment of a successor independent 
fiduciary has been made, any court of competent jurisdiction may, upon 
application by the retiring independent fiduciary, appoint a successor 
after such notice to the Committee and the retiring independent 
fiduciary.
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    \14\ Cause is defined in the Independent Fiduciary Agreement as: 
(i) Any disqualifying event described in ERISA section 411; (ii) 
determination by any court, arbitrator or government regulatory body 
that the Independent Fiduciary has violated any civil or criminal 
law (including, but not limited to, securities, antitrust or ERISA) 
in connection with the performance of its responsibilities to the 
VEBA Trust (For purposes of avoidance of doubt in connection with 
this and the subsequent subparagraph, a ``determination'' shall mean 
any written judgment, order or decree; court-approved settlement; 
arbitration award; or enforcement action of a government regulatory 
body or SRO, in the form of a written sanction, claim, demand or 
opinion, whether or not appealable); (iii) determination by any 
court, arbitrator or government regulatory body that the Independent 
Fiduciary has materially breached the terms of its engagement, 
whether or not appealable; (iv) any action by the Independent 
Fiduciary that results in imposition of a civil or criminal 
sanction, any prohibited transaction excise tax, or any civil 
judgment or award of damages, on the VEBA Trust, the Committee, the 
trustee, or their respective employees, officers directors or owners 
(whether or not subject to indemnity by the Independent Fiduciary, 
an insurer, or any other person); (v) termination, resignation, or 
death of the Independent Fiduciary principal or officer assigned to 
serve as the relationship principal with respect to the VEBA Trust, 
or the inability of such person to perform his or her duties for a 
continuous period of more than 30 days; (vi) any change of ownership 
of the Independent Fiduciary that constitutes an ``assignment'' of 
the Independent Fiduciary's contract with the VEBA Trust, within the 
meaning of the Investment Advisers Act; (vii) failure of the 
Independent Fiduciary to qualify as an ``investment manager'' within 
the meaning of ERISA section 3(38); (viii) any change in the 
clientele, business or ownership of the Independent Fiduciary that 
results in an actual conflict of interest; (ix) failure of the 
Independent Fiduciary to take into account the legitimate needs of 
the VEBA Trust for liquidity to pay benefits; (x) violation of any 
conditions imposed on the Independent Fiduciary under the terms of 
the prohibited transaction exemption issued by the Department; (xi) 
any other action or inaction of the Independent Fiduciary that the 
Committee determines to be a material breach of the Independent 
Fiduciary's agreement or any law, or is likely to result in an 
irreconcilable conflict; (xii) any circumstance that leads the 
Committee to reasonably conclude that the termination of the 
Independent Fiduciary and replacement by a successor Independent 
Fiduciary is in the financial interest of the VEBA Trust, provided 
that the Committee documents the reasons for the termination.

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[[Page 51190]]

    Following the second anniversary of the Closing Date, under the New 
Chrysler Operating Agreement, the VEBA Trust and other holders of 
Shares may transfer their interests in New Chrysler to third parties. 
Under the Trust Agreement, the Independent Fiduciary would exercise the 
VEBA Trust's right to make such transfers. Before transferring New 
Chrysler Membership Interests to a third party, non-Fiat holders must 
afford Fiat a right of first offer, and other holders a right of second 
offer, whereby Fiat or the other holders could purchase the interests 
to be transferred on the same terms as the terms offered to the third 
party. With respect to employer securities held by the VEBA Trust, the 
Independent Fiduciary would have the responsibility to afford Fiat the 
right of first offer and other holders the right of second offer 
according to the terms of the New Chrysler Operating Agreement.
    The rights of the VEBA Trust under the Shareholders Agreement and 
the Registration Rights Agreement are rights concerning the management 
and disposition of employer securities, and as such, according to the 
terms of the VEBA Trust, will be exercised by the Independent 
Fiduciary. The Independent Fiduciary will determine when and whether to 
exercise certain registration rights.
    The Committee delegated to a subcommittee (i.e., three Committee 
members) the responsibility to retain an Independent Fiduciary on 
behalf of the New Chrysler VEBA Plan. The subcommittee initially 
determined to proceed with the assumption that the interests of each 
plan whose assets are held by the VEBA Trust would be best served by 
seeking to retain a single qualified Independent Fiduciary to represent 
all three plans (providing health benefits, respectively, to retirees 
of Chrysler, GM, and Ford). However, the subcommittee recognizes the 
possibility that engaging multiple Independent Fiduciaries may turn out 
to be the better option.
    The subcommittee intends, as part of the interview process for 
potential candidates for the Independent Fiduciary appointment, to 
question the candidates on the nature and likelihood of potential 
conflicts of interest, the appropriate means of monitoring and 
communicating actual or potential conflicts, including whether the 
candidates currently have formal conflict monitoring procedures, and 
mechanisms for dealing with actual or potential conflicts as they are 
identified. After reviewing the candidates' qualifications, capacity to 
represent all three plans, willingness to do so, and other relevant 
factors, in consultation with counsel, the subcommittee anticipates 
making a final determination as to whether to hire one Independent 
Fiduciary or multiple Independent Fiduciaries.
    The subcommittee will work with the Independent Fiduciary 
candidate(s) to develop procedures to identify, minimize and address 
conflicts of interest as they arise. Specifically, in the event that a 
single Independent Fiduciary is appointed, the subcommittee will engage 
a ``conflicts monitor'' to (i) develop a process for identifying 
potential conflicts, (ii) to regularly review the Independent Fiduciary 
reports, investment banker reports, and public information regarding 
the companies, to identify the presence of factors that could lead to a 
conflict, and (iii) further question the Independent Fiduciary when 
appropriate.
    Additionally, the subcommittee will be prepared to replace the 
Independent Fiduciary in the event of an actual and irreconcilable 
conflict of interest.
    Finally, the subcommittee will require the Independent Fiduciary to 
adopt a written policy regarding conflicts of interest. Such policy 
will require that, as part of the Independent Fiduciary's periodic 
reporting to the Committee, the Independent Fiduciary includes a 
discussion of actual or potential conflicts identified by the 
Independent Fiduciary and options for avoiding or resolving the 
conflict.
    A separate investment bank will be retained with respect to each of 
the three plans comprising the VEBA Trust. The investment bank's 
initial recommendations would be made solely with the goal of 
maximizing the returns for the single plan that owns the securities for 
which the investment bank is responsible. If the Independent Fiduciary 
deviated from such initial recommendations, it would find it necessary 
to explain why it deviated from a recommendation; additionally, such a 
deviation would be a way for the Committee or its designee to flag 
possible conflicts of interest in advance. Any contract between the 
Independent Fiduciary and an investment banker will include an 
acknowledgement by the investment banker that the investment banker's 
ultimate client is an ERISA plan.

Board of Directors

    In addition to the VEBA Trust's ownership interest in New Chrysler, 
for so long as the VEBA Trust remains a member of, and retains at least 
a fifteen percent (15%) interest in, New Chrysler, the VEBA Trust shall 
have the right exercised by the Committee to designate one 
representative to the New Chrysler Board of Directors (the ``Board''), 
subject to the prior written consent of the UAW. Pursuant to the New 
Chrysler Operating Agreement, the Board will initially consist of nine 
(9) members; three (3) of whom will be appointed by Fiat, three (3) of 
whom will be appointed by the Treasury Department (which three 
directors will in turn appoint a fourth director (the ``Final 
Director'')), one (1) of whom will be appointed by the Canadian 
Government, and one (1) of whom will be appointed by the VEBA Trust (as 
described above). In addition, for so long as the VEBA Trust owns any 
membership interests in New Chrysler, the VEBA Trust has agreed to vote 
its membership interests in accordance with the recommendations of the 
independent directors of the Board, in proportion to such 
recommendations. 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.

Administrative Exemptive Relief

    New Chrysler's financial circumstances preclude it from paying cash 
to the New Chrysler VEBA Plan. As explained above, the Bankruptcy 
Proceeding and related Sale were vital for the survival of the business 
previously conducted by Chrysler and this exemption request is critical 
to the larger overall transaction. Certain transactions called for or 
necessitated by the Settlement Agreement between New Chrysler and the 
New Chrylser VEBA Plan are prohibited by the restrictions of 406 of 
ERISA.\15\ Accordingly, the