Grant of Individual Exemption Involving Ford Motor Company, Located in Detroit, MI, 14192-14205 [2010-6458]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 75, Number 56 (Wednesday, March 24, 2010)]
[Notices]
[Pages 14192-14205]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-6458]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Prohibited Transaction Exemption 2010-08; Exemption Application No. L-
11575]


Grant of Individual Exemption Involving Ford Motor Company, 
Located in Detroit, MI

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

ACTION: Grant of individual exemption.

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    This document contains a final exemption issued by the Department 
of Labor (the Department) from certain prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(the Act or ERISA). The transactions involve the UAW Ford Retirees 
Medical Benefits Plan (the Ford VEBA Plan) and its funding vehicle, the 
UAW Retiree Medical Benefits Trust (the VEBA Trust), (collectively the 
VEBA).\1\
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    \1\ Because the Ford VEBA Plan will not be qualified under 
section 401 of the Internal Revenue Code of 1986, as amended (the 
Code), there is no jurisdiction under Title II of the Act pursuant 
to section 4975 of the Code. However, there is jurisdiction under 
Title I of the Act.

DATES: Effective Date: This exemption is effective as of December 31, 
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2009.

FOR FURTHER INFORMATION CONTACT: Warren Blinder, Office of Exemption 
Determinations, Employee Benefits Security Administration, U.S. 
Department of Labor, telephone (202) 693-8553. (This is not a toll-free 
number.)

SUPPLEMENTARY INFORMATION: On December 8, 2009, the Department 
published a notice of proposed individual exemption in the Federal 
Register at 74 FR 64716 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 was requested in 
an application filed by the Ford Motor Company (Ford or the Applicant) 
pursuant to section 408(a) of ERISA and in accordance with the 
procedures set forth in 29 CFR 2570, Subpart B (55 FR

[[Page 14193]]

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 final exemption is being issued solely by the 
Department.

Background

    On February 13, 2006, Ford and the International Union, United 
Automobile, Aerospace and Agricultural Implement Workers of America 
(the UAW) and a class of Ford retirees entered into a settlement 
agreement (the Hardwick I Settlement Agreement) in the case of Int'l 
Union, UAW, et al. v. Ford Motor Company, Civil Action No. 05-74730, 
2006 WL 1984363 (E.D. Mich. July 13, 2006). The case was brought to 
contest whether Ford had the right to unilaterally modify hourly 
retiree welfare benefits for hourly retirees who had been represented 
by the UAW. Under the terms of the Hardwick I Settlement Agreement, 
benefits provided under a new plan were to be paid from a voluntary 
employees' beneficiary association (the Mitigation VEBA) controlled by 
a committee independent of Ford. The Mitigation VEBA was to be funded 
by Ford through cash and other payments, and by contributions from 
active Ford employees through wage deferrals and the diversion of cost-
of-living adjustments.
    In light of deteriorating global economic conditions and the 
significant impact on Ford's financial health by retiree health care 
funding obligations, in 2007 Ford announced its intention to terminate 
retiree health care coverage for UAW represented employees and retirees 
and its plan to terminate the Hardwick I Settlement Agreement, 
effective in 2011. As a result, on November 9, 2007, the UAW and a 
class of retirees (the 2007 Class) filed suit against Ford in the 
United States District Court for the Eastern District of Michigan (the 
District Court), challenging Ford's unilateral right to alter retiree 
health benefits and asserting that such benefits were vested. See Int'l 
Union, UAW, et al. v. Ford Motor Company, Civil Action No. 07-14845, 
2008 WL 4104329 (E.D. Mich. Aug. 29, 2008).
    Following a series of negotiations, Ford and the UAW agreed to a 
proposed settlement (the Hardwick II 2008 Settlement Agreement, 
otherwise referred to as the 2008 Settlement Agreement), under which 
Ford's obligations for providing post-retirement medical benefits to 
the 2007 Class and a group of Ford active employees eligible for 
retiree benefits (the 2007 Covered Group) would be terminated and the 
Ford VEBA Plan would be established and maintained by an independent 
committee (the Committee).\2\ Pursuant to the 2008 Settlement 
Agreement, the Ford VEBA Plan would be funded by the VEBA Trust, which 
would be responsible for the payment of post-retirement medical 
benefits to members of the 2007 Class and the 2007 Covered Group. 
Furthermore, under the terms of the 2008 Settlement Agreement, coverage 
and operations for the Ford VEBA Plan would commence on the day 
following the ``Implementation Date,'' or January 1, 2010. Ford also 
agreed to transfer assets to the VEBA Trust on behalf of the Ford VEBA 
Plan with an estimated worth of $13.2 billion, based on a present value 
as of December 31, 2007.
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    \2\ See Ford Motor Co., 2008 WL 4104329.
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    On July 23, 2009, Ford, the UAW, and Class Counsel entered into an 
agreement to amend the 2008 Settlement Agreement (the Amendment 
Agreement) by providing, inter alia, that Ford could use Ford common 
stock (Ford Common Stock) to pay up to approximately 50% of certain 
future obligations to the VEBA Trust on behalf of the Ford VEBA Plan. 
The revised settlement agreement (the 2009 Settlement Agreement) took 
effect on November 9, 2009, upon the District Court's issuance of an 
``Order and Final Judgment'' granting approval to the Amendment 
Agreement, including approval of the amendment to the trust agreement 
for the VEBA Trust and certification of the class under the modified 
class definition.\3\
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    \3\ See Int'l Union, UAW, et al. v. Ford Motor Company, Civil 
Action No. 07-14845, (E.D. Mich. Nov. 9, 2009) (Doc.  71, 
Order and Final J.).
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    The 2009 Settlement Agreement obligates Ford to contribute to the 
VEBA Trust, on behalf of the Ford VEBA Plan, the following deposits or 
remittances: (a) The balance in a temporary asset account created under 
the 2008 Settlement Agreement (the TAA) as of the date of transfer or, 
at Ford's discretion, cash in lieu of some or all of the investments in 
the TAA, (b) two promissory notes issued by Ford in an aggregate 
principal amount of $13.2 billion (New Note A and New Note B, and 
collectively, the New Notes), (c) warrants to acquire 362,391,305 
shares of Ford Common Stock, at a par value of $.01 and at a strike 
price of $9.20 per share (the Warrants), and (d) any shares of Ford 
Common Stock transferred by Ford in settlement of its payment 
obligation under New Note B (Payment Shares). In addition, Ford is 
obligated to direct the trustee of the Existing Internal VEBA (as 
defined below) to transfer to the VEBA Trust all assets in the Existing 
Internal VEBA or cash in an amount equal to the Existing Internal VEBA 
balance on the date of transfer. Furthermore, the District Court's 
Order and Final Judgment directed the committee of the Mitigation VEBA, 
or the trustee of the Mitigation VEBA, to transfer the assets of such 
plan to the VEBA Trust.

Written Comments

    The Department invited all interested persons to submit written 
comments and/or requests for a public hearing with respect to the 
notice of proposed exemption on or before January 21, 2010. During the 
comment period, the Department received three (3) telephone inquiries 
and thirteen (13) written comments from interested persons on the 
proposed exemption. Of the written comments received, ten (10) were 
submitted by participants in the Ford VEBA Plan. Ford, counsel for the 
Committee, and Independent Fiduciary Services (IFS), the independent 
fiduciary for the Ford VEBA Plan (the Independent Fiduciary), submitted 
the remaining comments. The Department received no hearing requests 
during the comment period.
    Several of the written comments and callers supported the adoption 
of the exemption. In this regard, the UAW, along with Class Counsel, 
reviewed Ford's application for exemption and expressed support for the 
application and stated their belief that the transactions which are the 
subject of the exemption are in the best interest of the Ford VEBA 
Plan's participants and beneficiaries. Furthermore, the Department 
received written comments from Ford, the Committee, and IFS, which 
supported the exemption and requested certain modifications and/or 
clarifications regarding the exemption.
    Following is a discussion of the aforementioned comments, including 
the responses made by Ford or the Department to address the issues 
raised therein.

Participant Comments

    The telephone inquiries received by the Department from 
participants in the Ford VEBA Plan related primarily to the commenters' 
difficulty in understanding the notice of proposed exemption or the 
effect of the exemption on the commenters' benefits, including a 
concern that the 2009 Settlement Agreement was too advantageous to Ford 
and would not ensure that benefit levels would remain affordable for 
all retirees.

[[Page 14194]]

    With respect to the written comments received by the Department 
from Ford VEBA Plan participants, the majority of commenters neither 
supported nor opposed the exemption but instead raised other concerns 
which were beyond the scope of the exemption. Such comments related to 
the perceived unfair treatment of retirees within the UAW; lack of 
bargaining power of retirees in the settlement negotiation process 
between Ford, the UAW, and Class Counsel; and concerns about the rising 
costs of maintaining healthcare coverage under the Ford VEBA Plan. 
However, several commenters did raise concerns that were relevant to 
the Department's consideration of the final exemption.
    One commenter questioned whether, when Ford returns to 
profitability, participants in the Ford VEBA Plan would benefit from 
any increase in the health benefits of active UAW members that may be 
earned as a result of negotiations between the UAW and Ford with 
respect to future labor contracts. A second commenter was concerned 
that the amount of employer securities contributed by Ford to the VEBA 
Trust was ``inherently insecure and unstable,'' in light of the 
volatility in the stock markets. The commenter also asked whether Ford 
would provide additional funding to the Ford VEBA Plan if the fair 
market value of Ford Common Stock declines, and what else Ford had done 
to ensure that the securities will maintain their value.

Ford's Response to Participant Comments

    In responding to both of the commenters' concerns, Ford initially 
observes that the funding of the VEBA Trust was not unilaterally 
determined by Ford, but rather was the product of a prolonged and 
intense negotiation among Ford, the UAW (representing active 
employees), and Class Counsel (representing retirees). Ford contends 
that, although no party got everything it wanted, all three parties 
were ultimately satisfied that the 2009 Settlement Agreement was the 
best one that they could achieve under the circumstances. Otherwise, 
Ford points out that no agreement would have been reached. As Ford 
notes, the 2009 Settlement Agreement was also approved by a Federal 
court, which had to satisfy itself that the 2009 Settlement Agreement 
was fair, reasonable, and adequate, and was in the best interests of 
the retiree Class.
    In responding to the first commenter's concerns, Ford contends that 
the fundamental deal reached by the parties is that Ford will make the 
payments specified by the 2009 Settlement Agreement at the times 
specified by the agreement, to an independent VEBA (i.e., the VEBA 
Trust) over which it has no authority. Ford notes that, in exchange, 
its obligation to pay for retiree health care is extinguished, and 
instead, the VEBA Trust will establish and administer a welfare plan 
that will provide Ford retirees with health care benefits.
    Ford explains that under this structure, the health care benefits 
to be provided to retirees by the VEBA Trust are completely separate 
from the health care benefits to be provided to active employees by 
Ford. Neither Ford nor the UAW has the ability to adjust retiree health 
benefits. Rather, notes Ford, retiree health benefits are set by the 
Committee of the VEBA Trust in the interest of present and future 
retirees within the Covered Group whose health care will be funded by 
the VEBA Trust. Ford explains that, if Ford and the UAW were to agree 
on improved benefits for active employees, the Committee could consider 
increasing benefit levels, but would not have to do so.
    In sum, Ford represents that its responsibility is to provide no 
more or no less than the agreed-upon funding for the VEBA Trust. Ford 
remarks that, what the Committee of the Ford VEBA Plan does with those 
funds, including how much health care coverage to provide for retirees, 
is a matter for the Committee to decide, and not Ford.
    In responding to the second commenter, Ford explains that, as a 
condition of agreeing to accept employer securities in lieu of cash, 
the UAW and Class Counsel negotiated a number of provisions designed to 
protect the VEBA Trust. Ford notes that, for example, the VEBA Trust is 
provided with ``registration rights,'' to aid the Independent Fiduciary 
in divesting the Ford securities that are paid into the VEBA Trust. In 
addition, Ford makes it clear that the 2009 Settlement Agreement sets 
forth several specific conditions under which Ford is prevented from 
exercising its option to make contributions in Ford Common Stock.
    Moreover, Ford explains that its option to contribute securities 
instead of cash is itself a form of protection for the VEBA Trust. As 
Ford notes, its continued commercial viability is necessary to ensure 
that the VEBA Trust is fully funded. Ford asserts that permitting it to 
make contributions in Ford Common Stock rather than cash gives Ford the 
flexibility to avoid cash payments in low liquidity environments. 
Moreover, Ford maintains that it is not in anyone's interest to compel 
a payment that pushes Ford into insolvency, thereby jeopardizing the 
New VEBA's funding going forward.
    With respect to the second commenter's concern regarding market 
volatility, Ford notes that its option to contribute shares of Ford 
Common Stock does not have a fixed share price, but rather fluctuates 
with the market. Ford explains that, specifically, it must pay the 
number of shares equal in value to the amount of the cash payment it 
was obligated to make, calculated using a share price derived from an 
average of recent market prices. If Ford's share price is down, 
observes Ford, it must pay proportionally more shares of Ford Common 
Stock to the VEBA Trust to satisfy its payment obligation. According to 
Ford, the Independent Fiduciary can then assess the market--acting 
solely in the interest of the VEBA Trust (and thus, of retirees)--to 
determine whether to continue to hold Ford Common Stock, thereby giving 
the VEBA Trust the advantage of any appreciation, or whether to sell 
it, using the registration rights noted above.
    Ford reiterates that it will pay what it is obligated to do so 
under the 2009 Settlement Agreement, and whether that obligation is 
settled in more or fewer securities is a function of Ford's market 
price. Ford notes that it does not have an obligation to ``true-up'' 
the Ford VEBA Plan. If, for example, the price of Ford Common Stock 
falls before the VEBA Trust disposes of the securities, Ford explains 
that the parties have agreed that the other rights possessed by the 
VEBA Trust and the Independent Fiduciary are sufficient to protect the 
VEBA Trust. In addition, Ford notes that it is paying $25 million extra 
under New Note A in each year where there is a payment date under New 
Note B. Ford maintains that this additional amount was designed to 
compensate the VEBA Trust for any costs in selling shares of Ford 
Common Stock and for any short term risk of stock price volatility.
    In sum, Ford represents that it, the UAW, and the Class Counsel, on 
behalf of retirees, agreed that giving Ford the option to pay part of 
its payment obligation to the VEBA Trust with employer securities was 
in the long term interest of the VEBA Trust, Ford retirees, and Ford, 
given the protections that were put in place to protect the VEBA Trust 
from downside risk.

Ford's Comment

    The Department also received a written comment from Ford, which 
provides factual corrections and supplemental information regarding the 
2009 Settlement Agreement and events occurring after the date on which 
the

[[Page 14195]]

proposed exemption was published in the Federal Register. The comment 
also requests the modification of certain operative language of the 
proposed exemption. Furthermore, Ford's comment requests the 
Department's confirmation relating to the party in interest status of 
the Existing Internal VEBA and modifications regarding the duties and 
responsibilities of the Committee and the Independent Fiduciary.
A. Supplemental Information Regarding Implementation of the 2009 
Settlement Agreement
    1. Name Change of the LLC. Ford represents that, on December 1, 
2009, the name of its wholly-owned limited liability company, ``Ford-
UAW Holdings LLC'' (the LLC), was changed to ``VEBA-F Holdings LLC.'' 
As is described in Representation 8, on pages 64720--64721 of the 
Summary of Facts and Representations of the proposed exemption (the 
Representations, and each individually, a Representation), Ford 
established the LLC to hold the assets in the TAA, the New Notes, the 
Warrants, and any Payment Shares transferred by Ford in settlement of 
its first payment obligation under New Note B. Under the 2009 
Settlement Agreement, Ford had the option to transfer its wholly owned 
interest in the LLC (the LLC Interest) to the VEBA Trust in lieu of 
transferring the assets inside the LLC. According to Ford, the name was 
changed in advance of Ford's transfer of the LLC Interest to the VEBA 
Trust on behalf of the Ford VEBA Plan because Ford's trademark policy 
prohibits Ford from transferring an entity with ``Ford'' in its name to 
an unaffiliated party.
    2. Execution of Agreements and Exchange of Notes. As described in 
Representation 9, on page 64721 of the proposed exemption, the 2009 
Settlement Agreement provides that the ``Term Note,'' \4\ ``Convertible 
Note,'' \5\ ``TAA Note'' \6\ and the right to future ``Base Amount 
Payments,'' \7\ will be exchanged for the New Notes and Warrants, in 
accordance with the terms of the Security Exchange Agreement (the 
Exchange Agreement) among Ford, certain subsidiary guarantors, and the 
LLC.\8\
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    \4\ The Term Note, issued by Ford in April 2008 and due January 
1, 2018, was issued in the original principal amount of $3.0 billion 
and bears 9.50% interest per annum, which is payable semi-annually.
    \5\ The Convertible Note, issued by Ford in April 2008 and due 
January 1, 2013, was issued with an aggregate principal amount of 
$3.3 billion and bears 5.75% interest per annum, which is payable 
semi-annually.
    \6\ The TAA Note was issued by Ford to the LLC in late 2008 
under the 2008 Settlement Agreement in exchange for a payment of 
$2.282 billion, the value of the assets in the TAA as of December 
31, 2008. The TAA Note had an interest rate of 9% per annum and a 
maturity date of December 31, 2009.
    \7\ The Base Amount Payments are annual payments of $52.3 
million that Ford is obligated to make for 15 years to the VEBA 
Trust under the 2008 Settlement Agreement.
    \8\ Upon the exchange, the aggregate principal amount of the New 
Notes and the amortization thereof represent the equivalent value of 
(a) the principal amounts of and interest payments on the Term Note, 
the Convertible Note and the TAA Note; (b) any unpaid Base Amount 
Payments; and (c) an additional $25 million per year during the 
period 2009 through 2018, which is intended to cover transaction 
costs the Ford VEBA Plan incurs in selling any shares of Ford Common 
Stock delivered pursuant to Ford's exercise of the stock settlement 
option under New Note B.
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    Ford represents that, on December 11, 2009, Ford, the LLC, and 
certain subsidiary guarantors entered into the Exchange Agreement. On 
the same date, Ford and the LLC also entered into the Securityholder 
and Registration Rights Agreement, and Ford and ComputerShare Trust 
Company N.A. (Ford's transfer agent) entered into an agreement (the 
Warrant Agreement) to effect the transfer of the Warrants to the VEBA 
Trust. In accordance with the 2009 Settlement Agreement and the 
Exchange Agreement, Ford issued New Note A, New Note B, certain 
guaranties, and the Warrants to the LLC on December 31, 2009 in 
exchange for the Convertible Note, the Term Note, and the TAA Note. 
Upon the exchange, the Convertible Note, the Term Note, and the TAA 
Note were cancelled. The Department notes the foregoing updates and 
additional representations.
    3. Payments Under New Note A and New Note B. On page 64721 of the 
proposed exemption, Representation 9 describes the payment schedule 
under the New Notes which Ford is obligated to follow unless Ford 
elects to prepay the amounts due thereunder. Ford represents that, on 
December 31, 2009, with respect to New Note A, it paid to the LLC the 
payment due on that date of $1,268,470,000, the payment of an estimated 
``True-Up Amount'' of $150,000,000,\9\ and a partial prepayment of New 
Note A in the amount of $500,000,000. Furthermore, Ford represents that 
it also paid $609,950,000 in cash to the LLC on December 31, 2009 in 
accordance with the terms of New Note B.
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    \9\ Under the terms of New Note A, Ford is obligated to pay to 
the LLC a ``True-up Amount,'' calculated according to a formula 
provided in the TAA Note, to reflect a hypothetical investment 
return on the TAA assets paid to Ford in exchange for the TAA Note. 
Based on year-end returns available after December 31, 2009, Ford 
determined that the final True-Up Amount due under New Note A is 
$150,000,000.
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    According to Ford, it determined to make the $500,000,000 
prepayment on New Note A in order to retire some of its most expensive 
debt, and, as a result, improve its balance sheet. Ford maintains that 
this prepayment was beneficial to the Ford VEBA Plan, both as a 
creditor and as a shareholder of Ford.
    Consequently, Ford notes that in accordance with the terms of New 
Note A, described in Representation 10 of the proposed exemption, on 
page 64722, each future principal payment on New Note A, beginning with 
the June 30, 2010 payment, will be reduced proportionately to reflect 
the prepayment made on December 31, 2009. As a result, the payment 
schedule under the New Notes has been modified as follows to reflect 
the foregoing payments:

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         Payment date           Payment of note A    Payment of note B
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June 30, 2010.................  $249.45 million..  $609.95 million
June 30, 2011.................  249.45 million...  609.95 million
June 30, 2012.................  584.06 million...  654 million
June 30, 2013.................  584.06 million...  654 million
June 30, 2014.................  584.06 million...  654 million
June 30, 2015.................  584.06 million...  654 million
June 30, 2016.................  584.06 million...  654 million
June 30, 2017.................  584.06 million...  654 million
June 30, 2018.................  584.06 million...  654 million
June 30, 2019.................  22.36 million....  26 million
June 30, 2020.................  22.36 million....  26 million
June 30, 2021.................  22.36 million....  26 million

[[Page 14196]]

 
June 30, 2022.................  22.36 million....  26 million
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    4. Transfer of Certain Assets to the VEBA Trust. Ford represents 
that, at the close of business on December 31, 2009, it exercised its 
right under the 2009 Settlement Agreement, as described in 
Representation 15.a.(1), on pages 64724-64725 of the proposed 
exemption, to transfer the LLC Interest to the VEBA Trust in order to 
satisfy its contractual obligations thereunder. Ford notes that the 
unaudited fair market value of assets in the TAA Account as of December 
31, 2009, excluding New Notes A and B and the Warrants, was 
$768,716,494.20.
    Ford also represents that it caused certain assets of the Existing 
Internal VEBA to be transferred to the VEBA Trust upon the close of 
business on December 31, 2009 in satisfaction of its obligations under 
the 2009 Settlement Agreement, described in Representation 13, on page 
64724 of the proposed exemption. Ford notes that the unaudited fair 
market value of the assets in the Existing Internal VEBA as of December 
31, 2009 was $3,517,847,429.91.
    Furthermore, Ford represents that, in accordance with the 2009 
Settlement Agreement, as described in Representation 15.c.(2) on pages 
64726-64727 of the proposed exemption, the Existing Internal VEBA 
retained $850,000, which may be used for outstanding fees owed by the 
Existing External VEBA to its investment managers. Ford notes further 
that after these outstanding expenses are satisfied, any remaining 
funds will be transferred to the VEBA Trust.
    In response to the above referenced comments, the Department has 
revised the name of the LLC in Section VII(l) of the final exemption. 
In addition, the Department takes note of the foregoing clarifications 
and updates to the Representations.
B. Comments on the Summary of Facts and Representations
    1. Factual Corrections. Ford maintains that certain statements in 
the Representations attributed to the Applicant are not accurate. 
Specifically, Ford notes that in Representation 3, the definition of 
the term ``Covered Group'' appearing on page 64718 of the proposed 
exemption in the last sentence of the first full paragraph in the 
second column, inaccurately states that the 2009 Settlement Agreement 
expanded the members included in the definition of the 2007 Covered 
Group. Instead, according to Ford, the definition of the ``Covered 
Group'' reduced the number of members in the 2007 Covered Group as 
certain of these members retired since the 2008 Settlement Agreement 
and became members of the expanded Class.
    In addition, Ford suggests that, on page 64721 of the proposed 
exemption, in Representation 9, the amortization schedule for New Note 
A should have included the ``True-Up Amount'' that was due on December 
31, 2009. As noted above, the final True-Up Amount was calculated to be 
$150,000,000 and paid by Ford to the LLC on December 31, 2009.
    In response to these comments, the Department takes note of the 
foregoing clarifications and updates to the Representations.
    2. Status of Existing Internal VEBA as a ``Party in Interest''. As 
described on page 64724 of the proposed exemption, in Representation 
13, the Existing Internal VEBA was the subaccount of the Ford-UAW 
Benefits Trust previously maintained by Ford as a source of funding for 
retiree health care expenses. As of December 31, 2008, the Existing 
Internal VEBA had an estimated asset value of approximately $2.7 
billion. Until the Existing Internal VEBA's assets were transferred to 
the VEBA Trust, the assets were invested in a manner consistent with 
its investment policy.
    As described above, on December 31, 2009, Ford directed the trustee 
of the Existing Internal VEBA to transfer to the VEBA Trust all assets 
in the Existing Internal VEBA or cash in an amount equal to the 
Existing Internal VEBA balance on the date of the transfer. The 
Existing Internal VEBA retained an amount equal to the Existing 
Internal VEBA's share of expenses (to the extent permitted by ERISA) 
subject to reconciliation with actual expenses incurred.
    In its exemption application, Ford stated that it believed that any 
deposits, remittances or asset transfers between the VEBA Trust and the 
Existing Internal VEBA do not implicate any prohibited transactions 
under section 406(a) of ERISA because the Existing Internal VEBA is not 
a ``party in interest'' as defined under section 3(14) of ERISA, with 
respect to the Ford VEBA Plan. The VEBA Trust and the Ford VEBA Plan 
were established by the UAW Ford Retirees Employees' Beneficiary 
Association (the Ford EBA), an employees' beneficiary organization 
within the meaning of section 3(4) of ERISA, acting through the 
Committee.
    Ford requests that the Department confirm that the Existing 
Internal VEBA was not a ``party in interest'' with respect to the Ford 
VEBA Plan at the time the trustee of the Existing Internal VEBA 
transferred assets to the VEBA Trust in accordance with the terms of 
the 2009 Settlement Agreement based on its analysis of section 3(14) of 
ERISA. In this regard, Ford explains that the Existing Internal VEBA 
was a ``voluntary employees' beneficiary association'' and a tax-exempt 
trust authorized by section 501(c)(9) of the Code. Ford also explains 
that the Existing Internal VEBA was governed by the Ford-UAW Benefits 
Trust Master Trust Agreement between Ford Motor Company and The 
Northern Trust Company and that the Existing Internal VEBA is managed 
by the Asset Management department of Ford Motor Company through 
various third party managers. In addition, Ford examined the party in 
interest provisions under section 3(14) of ERISA and concludes that the 
Existing Internal VEBA and the Ford VEBA Plan would not fit any of the 
party in interest relationships that are described therein with respect 
to each other.
    Based upon Ford's representations that neither VEBA was a fiduciary 
or service provider to the other or is otherwise described in any of 
the other categories of party in interest under section 3(14) of ERISA, 
the Department is of the view that neither the Existing Internal VEBA 
nor the Ford VEBA Plan is a party in interest with respect to each 
other. Based upon Ford's representations, the transfer of assets from 
the Existing Internal VEBA to the Ford VEBA Plan was not a prohibited 
sale, exchange or transfer of assets between a plan and a party in 
interest under section 406(a) of ERISA.
C. Comments on the Operative Language
    1. Covered Transactions. On page 64730 of the proposed exemption, 
Section I(b) provides exemptive relief for the sale of Ford Common 
Stock held by the Ford VEBA Plan to Ford in accordance with the Right 
of First Offer or a Ford self-tender under the Securityholder and 
Registration Rights Agreement. However, Ford notes that the 
Securityholder and Registration Rights Agreement provides that Ford

[[Page 14197]]

may purchase Payment Shares or Warrants, that the VEBA Trust intends to 
transfer to third parties in accordance with the Right of First Offer 
or a Ford self-tender. Moreover, Representation 12.c of the proposed 
exemption, on page 64724, also states that the Right of First Offer 
applies to ``Warrants, Payment Shares or shares of Ford Common Stock 
received upon the exercise of all or a portion of the Warrants.''
    To ensure that the final exemption aligns with the description in 
the Representations, as well as with the substantive underlying 
documents themselves, Ford requests that Section I(b) of the proposed 
exemption be revised as follows:

    If the exemption is granted, the restrictions of sections 
406(a)(1)(A), 406(b)(1), and 406(b)(2) of ERISA shall not apply, 
effective December 31, 2009, to the sale of Ford Common Stock or 
Warrants held by the Ford VEBA Plan to Ford in accordance with the 
Right of First Offer or a Ford self-tender under the Securityholder 
and Registration Rights Agreement.

    The Department acknowledges the fact that Warrants were 
inadvertently excluded from Section I(b) of the proposed exemption. As 
such, the Department concurs with Ford's requests to modify Section 
I(b), and conforming changes have been made to the final exemption.
    2. Definitions. Ford suggests that certain definitions should be 
added to Section VII of the final exemption or modified for clarity and 
to reflect the occurrence of certain events prescribed by the 2009 
Settlement Agreement. Specifically, Ford suggests that the following 
definition for ``Payment Shares'' be added in the final exemption to 
the Definitions in Section VII, because the term is not defined and it 
is an element of the previously defined term ``Securities'':

    The term ``Payment Shares'' means any shares of Ford Common 
Stock issued by Ford to satisfy all or a portion of its payment 
obligation under New Note B, subject to the terms and conditions 
specified in New Note B.

    Ford also requests that the following definitions in Section VII be 
modified in the final exemption to correct the effective dates, and 
updated to reflect recent events described in Section A above:

    The term ``Exchange Agreement'' means the Security Exchange 
Agreement among Ford, the subsidiary guarantors listed in Schedule I 
thereto, and the LLC, dated as of December 11, 2009.
    The term ``LLC'' means the Ford-UAW Holdings LLC, established by 
Ford as a wholly-owned LLC, and subsequently renamed VEBA-F Holdings 
LLC, established to hold the assets in the TAA and certain other 
assets required to be contributed to the VEBA under the 2008 
Settlement Agreement, as amended by the 2009 Settlement Agreement.
    The term ``Securityholder and Registration Rights Agreement'' 
means the Securityholder and Registration Rights Agreement by and 
among Ford and the LLC, dated as of December 11, 2009.

    The Department concurs with the above referenced additions and 
modifications to Section VII of the proposed exemption, and it has made 
conforming changes to the final exemption.
    3. Conditions. Ford notes that on pages 64730--64731 of the 
proposed exemption, Section II provides ``Conditions Applicable to 
Section I(a) and I(b)'' that relate to the duties and responsibilities 
of the Committee and the Independent Fiduciary. Ford requests that, to 
the extent the parallel conditions proposed in both General Motor 
Corporation's and Chrysler LLC's proposed individual exemptions \10\ 
are substantively modified in a manner affecting Ford's proposed 
exemption, conforming modifications will be made to the conditions 
proposed for Ford.
---------------------------------------------------------------------------

    \10\ See Section II-Conditions Applicable to Section I(a), 
Notice of Proposed Individual Exemption Involving General Motors 
Corporation, Located in Detroit, MI, 74 FR 47963, September 18, 
2009; Section II-Conditions Applicable to Section I(a), Notice of 
Proposed Individual Exemption Involving Chrysler LLC, Located in 
Auburn Hills, MI, 74 FR 51182, October 5, 2009.
---------------------------------------------------------------------------

    The Department concurs with Ford's request to conform modifications 
of the operative language in Section II of the proposed exemption 
relating to the functions of the Committee and the Independent 
Fiduciary.

The Committee's Comment

    The Committee submitted a written comment that was supportive of 
the proposed exemption, and suggests certain modifications to the 
operative language of the proposed exemption and the Representations. 
The Committee's comment letter also relates to the respective roles of 
the Independent Fiduciary and any investment banks retained by the 
Independent Fiduciary with respect to the Securities held by the VEBA 
Trust.
A. Modifications to Summary of Facts and Representations
    1. Number of Investment Banks. As illustrated on page 64718 of the 
proposed exemption, Representation 4 states that the trust agreement 
for the VEBA Trust provides for separate retiree accounts designed to 
segregate payments attributable to GM, Chrysler, and Ford, pursuant to 
the terms of each company's settlement agreement with the UAW and each 
respective class (the Separate Retiree Accounts). As described on page 
64728 of the proposed exemption, in Representation 16, the Committee 
represented that, in the event that a single Independent Fiduciary 
represents two or more Separate Retiree Accounts:

    A separate investment bank will be retained with respect to each 
of the three plans comprising the VEBA Trust. The investment bank's 
initial recommendations will be made solely with the goal of 
maximizing the returns for the single plan that owns the securities 
for which the investment bank is responsible.

    In its initial discussions with the Department, the Committee made 
the argument that the arrangement for retention of separate investment 
banks would minimize the likelihood of an immediate transactional 
conflict inherent wherein one Independent Fiduciary managing more than 
one Separate Retiree Account would be immediately confronted by the 
need to dispose of the securities of each company.
    The Committee has retained IFS as the Independent Fiduciary with 
respect to the Securities, and has currently retained separate 
independent fiduciaries with respect to the GM and Chrysler Separate 
Retiree Accounts. As noted, however, it is conceivable that at some 
future date any or all three Independent Fiduciary engagements may be 
consolidated and the foregoing conditions would then come into play. In 
such event, the Committee argues that the requirement for different 
investment banks for each Separate Retiree Account would not be in the 
interest of the Ford VEBA Plan and would not advance the goal of 
reducing potential fiduciary conflicts. The Committee contends that the 
need to retain multiple investment banks should be at the discretion of 
the Independent Fiduciary and the investment banks themselves, or that 
such requirement should be limited to investment banks performing a 
traditional underwriting role and being paid on a transactional basis, 
not those retained for ongoing valuation or investment consulting 
services.\11\
---------------------------------------------------------------------------

    \11\ The Committee suggests that an investment bank performing 
valuation or investment consulting and advisory services will often 
be paid a flat or asset-based fee, while an investment bank 
performing underwriting and brokerage services will be paid a 
transaction-based fee as a percentage of the overall sale. 
Additionally, the Committee notes that it is not anticipated that 
the Independent Fiduciary likely would retain a separate consulting 
and advisory firm for day-to-day advice (unless appropriate).

---------------------------------------------------------------------------

[[Page 14198]]

    The Committee points out that, as a threshold matter, the term 
``investment bank'' or ``investment banker'' is not a precise term, but 
refers to a range of services including investment valuation, 
investment consulting and advice, and brokerage or underwriting 
performed under the authority and supervision of one or more regulators 
(including, but not limited to the Federal Reserve and/or the SEC). The 
Committee maintains that typically, though not necessarily, an 
investment bank engaged to provide a regular valuation will not be the 
same as an investment bank engaged to assist the Independent Fiduciary 
in connection with a large private sale or an initial public offering, 
and even in the latter event, different investment banks may be 
employed for different markets (public versus private, international 
versus domestic, institutional versus retail).
    The Committee suggests that, particularly in the case of an 
investment bank engaged only to provide valuation or investment advice, 
the Independent Fiduciary may conclude that there is no potential 
conflict in retaining a single investment bank with respect to two or 
more Separate Retiree Accounts. Furthermore, the Committee believes 
that retaining a single investment bank may in fact provide potential 
benefits in the form of experience, cost savings, and communication.
    The Committee proffers that Ford, Chrysler, and GM are at vastly 
different stages of marketability, are competing for capital in 
different markets (including public versus private), and are not 
competing against each other so much as they are part of a huge global 
automobile market with many other competitors.\12\ The Committee notes 
that a conflict could arise in the unlikely event that the Independent 
Fiduciary proposes to sell large blocks of stock of two or more car 
companies in the same market at the exact same time. In that case, the 
Committee suggests that the Independent Fiduciary would probably 
(though not necessarily) engage separate investment bankers at that 
time to underwrite the sales. Furthermore, the Committee contends that 
it would maintain safeguards to mitigate the risk of conflicts. For 
example, the Committee notes that it would still appoint a conflicts 
monitor and perform its own monitoring of the Independent Fiduciary, 
and it would continue to raise any questions about potential conflicts.
---------------------------------------------------------------------------

    \12\ According to the Committee, the most likely reason that an 
investment bank would propose going to market under this scenario is 
if the overall market itself is booming, such that there is ample 
appetite for the securities. In the event that a plan needs 
liquidity in a falling market, the Committee is more likely to 
explore other options, including reducing benefits or seeking 
alternative sources of capital such as through borrowing.
---------------------------------------------------------------------------

    Accordingly, the Committee proposes that, on page 64728 of the 
proposed exemption, Representation 16 should be revised, to replace the 
text referenced above, as follows:

    In the event that a single Independent Fiduciary is retained to 
represent two or more plan Accounts, and it proposes to sell 
Securities from two or more such Accounts at the same time, a 
separate investment bank (if any) will be retained for each Account 
with respect to the marketing or underwriting of the Securities. For 
this purpose, an investment bank will be considered as having been 
retained to market or underwrite securities if it is compensated on 
the success of the offering and/or as a percentage of the offering 
or sales proceeds. The foregoing does not preclude the engagement of 
a single investment bank to provide valuation services or long-term 
investment consulting on behalf of two or more plan Accounts, 
provided that (1) the fees of the investment bank are not contingent 
upon the success or size of an offering or sale, and (2) for each 
plan Account, the investment bank's recommendations are made solely 
with the goal of maximizing the returns for such Account.

    In addition, the Committee explains that there may be some 
confusion as to whether two different Independent Fiduciaries may 
retain the same investment bank. The Committee states that there should 
be no limitations on the number of investment banks that the 
Independent Fiduciary must retain other than general fiduciary 
principles. According to the Committee, although it is unlikely that an 
Independent Fiduciary would consider, or that an investment bank would 
accept, an engagement that might involve marketing securities of two 
different companies in the same market at the same time, it would not 
be unusual, for instance, to retain the same investment bank to make a 
private offering of securities in the domestic market and a public 
offering of different securities in a foreign market, where such 
investment bank is best qualified to do so.
    Accordingly, the Committee suggests that Representation 16 of the 
proposed exemption be modified to include the following:

    To the extent that two Accounts are represented by different 
Independent Fiduciaries, nothing herein shall prohibit the 
Independent Fiduciaries from retaining the same investment bank with 
respect to the Accounts which they manage if they determine that it 
is in the interest of their respective Accounts to do so.

    The Department concurs with the Committee that, in the event that 
one Independent Fiduciary represents two or more (Separate Retiree) 
Accounts, and it proposes to sell Securities from two or more such 
Separate Retiree Accounts at the same time, then a separate investment 
bank (if any) will be retained for each Separate Retiree Account with 
respect to the marketing or underwriting of the Securities. 
Notwithstanding the above, nothing in the final exemption would 
preclude the Independent Fiduciary of two or more Separate Retiree 
Accounts from retaining the same investment banker to provide valuation 
services or long-term investment consulting on behalf of two or more of 
such Separate Retiree Accounts.\13\ Lastly, with respect to the 
Committee's suggestion that, to the extent that two Separate Retiree 
Accounts are represented by different Independent Fiduciaries, nothing 
herein shall prohibit the Independent Fiduciaries from retaining the 
same investment bank with respect to the Separate Retiree Accounts 
which they manage if they determine that it is in the interest of their 
respective Separate Retiree Accounts to do so, the Department is of the 
view that a separate investment bank (if any) must be retained to 
represent each such Separate Retiree Account with respect to the 
marketing or underwriting of the Securities. Therefore, subject to 
these limitations, the Department concurs with the Committee's 
requested clarifications.
---------------------------------------------------------------------------

    \13\ In reaching the Department's conclusion, it is our 
understanding, based on the Committee's representations, that the 
fees paid to a single investment bank to provide valuation services 
or long-term investment consulting on behalf of two or more Separate 
Retiree Accounts will not be contingent upon the success or size of 
an offering or sale, and for each Separate Retiree Account, the 
investment bank's recommendations are made solely with the goal of 
maximizing the returns for such Account.
---------------------------------------------------------------------------

    2. Reporting Deviations From an Investment Bank's Recommendations. 
If a single Independent Fiduciary is retained with respect to more than 
one Separate Retiree Account, on page 64728 of the proposed exemption, 
Representation 16 provides that the Independent Fiduciary shall report 
each instance in which it proposes to ``deviate'' from a 
``recommendation'' of the investment bank. The Committee initially 
represented to the Department that such arrangement would help to 
minimize the likelihood of a conflict inherent in retaining one 
Independent Fiduciary to manage the securities of more than one 
Separate Retiree Account.
    However, the Committee now proffers that this requirement may not 
be practical, in light of information gained

[[Page 14199]]

during the process of interviewing and selecting the Independent 
Fiduciaries in connection with the Ford, GM, and Chrysler exemption 
applications. The Committee notes that, typically, an investment bank 
will not ``recommend'' a single, specific course of action, but through 
a dialogue with the Independent Fiduciary will present, discuss, modify 
and refine various options and scenarios that the Independent Fiduciary 
ultimately will use in making its decisions as a fiduciary. Thus, the 
Committee argues that it would not be feasible for the Independent 
Fiduciary to report back to the Committee when it proposes to deviate 
from a specific recommendation, given that interactions between the 
Independent Fiduciary and an investment bank generally lack a single, 
identifiable ``recommendation'' (either orally or in writing) that the 
Independent Fiduciary does or does not intend to follow.
    Moreover, the Committee contends that some investment banker 
recommendations are unlikely ever to raise conflict issues. For 
instance, the Committee notes that an investment bank may develop a 
preliminary valuation of certain Ford Securities of $xx, and after 
thorough consideration, the Independent Fiduciary may determine that 
such securities are actually worth $yy. In such event, the Committee 
asserts that the Independent Fiduciary's valuation might be viewed as a 
``deviation'' from the initial recommendation but is unlikely to raise 
any conflict vis-[agrave]-vis any Securities held by the VEBA Trust.
    The Committee is also concerned that the requirement for the 
Committee to review the reported deviations will cause the Committee to 
interpose itself between the two parties before such parties have 
reached a consensus. In this event, the Committee is concerned that it 
may have an implied obligation to substitute its judgment for that of 
the Independent Fiduciary.
    The Department concurs with the Committee's comment that their 
initial representation that the Independent Fiduciary would report any 
deviations from the recommendation of the investment bank raises 
operational issues. Nevertheless, the Department notes that the 
Independent Fiduciary and the Committee are not relieved from their 
fiduciary duties under ERISA in carrying out their respective 
responsibilities. There may be circumstances where the Independent 
Fiduciary has a responsibility under ERISA to inform the conflicts 
monitor or the Committee of a deviation from the investment bank's 
recommendations, and the Committee, as part of its oversight 
responsibility, may need to take appropriate action based on such 
disclosure. Subject to the caveat above, the Department takes note of 
these clarifications and updates to the Summary of Facts and 
Representations of the proposed exemption.
    3. Ford's right to defer payments under New Note B. The Committee 
suggests that the description of Ford's ability to defer payments in 
respect of New Note B, set out in Representation 9.b. in the middle 
column of page 64722 (beginning with ``Furthermore * * *'') may be 
inaccurate. The proposed exemption provides that, on each New Note B 
payment date, subject to satisfaction of all of the ``Stock Settlement 
Conditions'' (as described in the proposed exemption), Ford has the 
option to settle any or all of the amount due with respect to New Note 
B with Ford Common Stock designated as ``Payment Shares.'' The proposed 
exemption further provides that:

* * * if on any payment date under New Note B, conditions 1., 2., 
3., 5., and 6. are met, then, subject to certain limitations, Ford 
would generally have the right to defer such payment by paying it in 
up to five equal annual installments beginning with the next 
scheduled payment date, with interest accruing at 9% beginning on 
the date such payment was originally due and continuing through the 
date such payment is made. Thus, Ford may make such payment (or 
installment thereof) in common stock on any deferred installment 
date if all the conditions for payment in common stock have been met 
on such date.

    The Committee suggests that the above paragraph describing Ford's 
ability to defer payments in respect of New Note B, set out on page 
67422 of the proposed exemption, should be revised to provide the 
following:

    Furthermore, if on any payment date under New Note B, all of the 
foregoing Stock Settlement Conditions other than conditions 4., 7. 
and/or 8. are met, then, subject to certain conditions, Ford would 
generally have the option to defer such payment and to pay it in up 
to five equal annual installments on the first through fifth 
anniversaries of such payment date together with interest at the 
rate of 9% from the date such payment was originally due through the 
applicable installment payment date. On each such installment 
payment date, if all of the Stock Settlement Conditions are then 
satisfied, Ford will have the option to pay the installment by 
delivering Payment Shares with the number of Payment Shares to be so 
delivered determined based on the volume-weighted average selling 
price per shares of Ford Common Stock for the 30 trading day period 
ending on the second business day prior to such installment payment 
date.

    The Department concurs with the Committee's suggested revision to 
the proposed exemption, and takes note of the foregoing clarifications 
and updates to the Representations.
B. Requests for Confirmation
    1. Conditions Applicable in the Event That the Committee Appoints a 
Single Independent Fiduciary. The Committee's comment requested 
confirmation that certain terms and conditions described in the 
Representations on page 64728, and incorporated into Sections II(b)(1) 
through (3) on page 64731, of the proposed exemption would apply only 
if and to the extent that the same Independent Fiduciary is appointed 
to represent two or more Separate Retiree Accounts.
    Sections II(b)(1) through (3) of the proposed exemption provide 
that the Committee will take certain steps to mitigate potential 
conflicts of interest, including the appointment of a conflicts 
monitor, the adoption of procedures to facilitate prompt replacement of 
the Independent Fiduciary due to a conflict of interest, the adoption 
of a written policy by the Independent Fiduciary regarding conflicts, 
and the periodic reporting of actual or potential conflicts. 
Additionally, on page 64728 of the proposed exemption, Representation 
16 provides that a separate investment bank will be retained with 
respect to each Separate Retiree Account, and in the event that the 
Independent Fiduciary deviates from the ``initial recommendations'' of 
an investment bank, ``it would find it necessary to explain why it 
deviated from a recommendation.''
    The Department concurs with the Committee, that the terms and 
conditions described above will apply only if and to the extent that 
the same Independent Fiduciary is appointed to represent two or more 
Separate Retiree Accounts. Notwithstanding the above, nothing in the 
final exemption would preclude the Committee from adopting procedures 
similar to those described in Sections II(b)(1) through (3) of the 
proposed exemption in furtherance of its oversight responsibilities. 
However, the Department believes that the requirement that the 
Independent Fiduciary retain separate investment banks with respect to 
each Separate Retiree Account, subject to the limitations described 
above, applies regardless of how many Separate Retiree Accounts are 
represented by the same Independent Fiduciary.
    2. Investment Bank's Acknowledgement that the VEBA Trust is its 
Ultimate Client. On page 64731 of the proposed exemption, Section II(e) 
provides that ``any contract between the

[[Page 14200]]

Independent Fiduciary and an investment banker includes an 
acknowledgement by the investment banker that the investment banker's 
ultimate client is an ERISA Plan.'' In assisting the Department in 
formulating the conditions of the proposed exemption, the Committee 
represented to the Department that such acknowledgement would be 
helpful in the event that the Committee is forced to replace the 
Independent Fiduciary (such as in the event of an irreconcilable 
conflict). The Committee reasoned that this requirement would ensure 
that, in the event the Independent Fiduciary was replaced, the 
investment banker would continue to represent the plan and work with 
the replacement Independent Fiduciary.
    After conducting interviews and consulting with numerous parties in 
its search for an independent fiduciary to manage the Securities 
received by the Ford VEBA Plan, the Committee has raised concerns 
regarding such condition. The Committee has requested that the 
Department confirm that this condition will not cause the investment 
bank to become a fiduciary or otherwise obligate the investment bank or 
the Independent Fiduciary to provide to the Committee any of the 
investment bank's work-product except upon request, nor will it 
obligate the Committee to request or review any such work product. The 
Committee contends that the Independent Fiduciary is both a named 
fiduciary and an investment manager, thus it should be free within the 
parameters of its contract to determine what information it shares with 
the Committee.
    The Department confirms that the requirement that the investment 
banker acknowledge that its ultimate client is the Ford VEBA Plan will 
not, by itself, make the investment banker a fiduciary of the Ford VEBA 
Plan. Rather, whether an investment banker referred to in Section II of 
the proposed exemption becomes a fiduciary as a result of its provision 
of services depends on whether it meets the definition of a 
``fiduciary'' as set forth in section 3(21) of ERISA and the 
regulations promulgated thereunder.
    3. Obligation of the Committee to Review the Investment Banker 
Reports. As described in Representation 16, on page 64728 of the 
proposed exemption, several safeguards are provided to reduce the risk 
of conflict in the event that a single independent fiduciary is 
retained with respect to more than one Retiree Separate Account. 
Specifically, in assisting the Department to formulate these 
procedures, the Committee had suggested that a ``conflicts monitor'' 
would develop a process for identifying potential conflicts. As a 
result, the Department added Section II(b)(1)(ii) of the proposed 
exemption, which provides that a conflicts monitor appointed by the 
Committee ``regularly review the[hellip] investment banker 
reports[hellip] to identify the presence of factors that could lead to 
a conflict.''
    After conducting interviews with candidates for the Independent 
Fiduciary position, the Committee has raised a concern regarding the 
conflicts monitor's duties. The Committee has requested confirmation 
that Section II(b)(1)(i) does not independently impose any obligation 
on the Committee to provide (or request) ``investment banker reports'' 
as a matter of course (i.e., beyond ERISA's general fiduciary 
requirements). In its comment letter, the Committee notes that it may 
be appropriate for the conflicts monitor or the Committee (or any 
subcommittee with delegated authority) to review investment banker 
reports when provided to them by the Independent Fiduciary, or to 
request such reports under certain circumstances. However, the 
Committee maintains that such reports may contain information that is 
confidential or proprietary, or preliminary, or simply irrelevant to 
its responsibilities. Furthermore, according to the Committee, it is 
not clear what constitutes a ``report,'' with the result that informal 
notes and/or emails may fall under the definition.
    The Department concurs with the Committee that Section II(b)(1)(ii) 
of the proposed exemption does not independently impose an affirmative 
obligation on the Committee to provide (or request) ``investment banker 
reports'' as a matter of course beyond ERISA's general fiduciary 
requirements.

IFS' Comment

    IFS submitted a written comment that is supportive of the proposed 
exemption, and seeks written clarification and confirmation from the 
Department as to the scope of the exemptive relief provided under the 
proposed exemption with respect to certain transactions involving 
Securities held by the Ford VEBA Plan.
A. Exchange of Warrants for Warrants
    Section I(a)(1)-(5), on page 64730 of the proposed exemption, 
provides relief for the acquisition and holding of Securities by the 
Ford VEBA Plan and its funding vehicle, the VEBA Trust, from the 
restrictions of sections 406(a)(1)(A), 406(a)(1)(B), 406(a)(1)(E), 
406(a)(2), 406(b)(1), 406(b)(2) and 407(a) of ERISA if the proposed 
exemption is granted by the Department. Additionally, on page 64730 of 
the proposed exemption, Section I(a)(6) provides relief for the 
disposition of Securities by the Independent Fiduciary, if the 
exemption is granted. For these purposes, Section VII(q) and Section 
VII(z), on page 64733 of the proposed exemption, define ``Securities'' 
and ``Warrants,'' respectively, as ``the New Note A, the New Note B, 
the Warrants, the LLC Interest, any Payment Shares, and additional 
shares of Ford Common Stock acquired pursuant to the Independent 
Fiduciary's exercise of the Warrants,'' and as ``warrants to acquire 
shares of Ford Common Stock, par value $0.01 per share, issued by 
Ford.''
    IFS requests clarification as to whether the aforementioned relief 
extends to warrants issued by Ford or Ford Common Stock acquired and 
held by the Ford VEBA Plan as a result of the disposition of all or 
some of the Securities of a like type (e.g., warrant for warrant or 
stock for stock) (In-Kind Ford Securities) by the Independent Fiduciary 
in exchange for some or all of the Securities. IFS posits that the same 
question arises in the context of a disposition of Warrants by the 
Independent Fiduciary in a transaction in which the consideration the 
Ford VEBA Plan receives consists in whole or in part of In-Kind Ford 
Securities that constitute Ford issued warrants.
    IFS notes that it may determine that it is in the interest of the 
Ford VEBA Plan's participants and beneficiaries to sell certain 
Warrants in exchange for a combination of cash and other Ford issued 
warrants.\14\ IFS explains that the warrants [given by Ford] would have 
a fair market value no less than the fair market value of the Warrants 
the Ford VEBA Plan is selling.\15\ For example, IFS suggests that it 
may find it in the interest of the Ford VEBA Plan and its participants 
and beneficiaries to sell a Warrant to Ford in exchange for cash and a 
replacement warrant of shorter/longer duration or with a different 
strike price. In this example, IFS highlights three transactions; 
namely, (1) the disposition of Warrants by IFS in its role as the 
Independent Fiduciary in favor of other Ford issued warrants, (2) the 
acquisition of the new warrants by the Ford VEBA Plan, and (3) the 
holding of

[[Page 14201]]

these warrants by the Ford VEBA Plan. IFS is seeking confirmation from 
the Department that each of these In-Kind Ford Securities and like 
transactions, assuming the transactions otherwise meet the conditions 
set forth in Section II of the proposed exemption, would fall within 
the exemptive relief contemplated under the proposed exemption.\16\
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    \14\ IFS states that any such transaction would be entered into 
only after IFS has met all the conditions precedent to entering into 
such a transaction as set forth in Section II of the proposed 
exemption, including, but not limited to, determining that the 
transaction is feasible, in the best interests of the Ford VEBA 
Plan, and protective of the participants and beneficiaries of the 
Ford VEBA Plan.
    \15\ IFS notes that for this purpose, it would seek the advice 
of an investment advisor to determine value.
    \16\ IFS notes that it is not suggesting that transactions which 
would fundamentally alter the terms of the Settlement Agreement are 
being contemplated, nor is IFS seeking to bring any such 
transactions within the scope of the Proposed PTE.
---------------------------------------------------------------------------

    More specifically, IFS is seeking confirmation that what it has 
defined as ``other Ford issued warrants'' would fall within the 
definitions of Securiti