Ford 2009 Annual Report Download - page 44

Management’s Discussion and Analysis of Financial Condition and Results of Operations
42 Ford Motor Company | 2009 Annual Report
"Warrant Agreement") dated December 11, 2009 between us and the LLC (the "Warrants" and, together with the New
Notes and Guaranties, the "New Securities"). The New Notes are secured on second lien basis, to the extent of $3 billion
of obligations thereunder, with collateral securing our obligations under the Credit Agreement.
Under New Note B, we have the option, subject to certain conditions, of making each payment in cash, Ford Common
Stock, or a combination of cash and Ford Common Stock. Any Ford Common Stock to be delivered in satisfaction of such
payment obligation is to be valued based on its volume-weighted average price per share for the 30 trading-day period
ending on the second business day prior to the relevant payment date ("30-day VWAP price").
The Warrants, which expire on January 1, 2013, entitle the holder thereof to purchase 362,391,305 shares of Ford
Common Stock at an exercise price of $9.20 per share. Generally, the warrants can be exercised at any time, but the
underlying shares cannot be transferred prior to October 1, 2012, unless the closing sale price of Ford Common Stock was
above $11.04 for at least 20 trading days in the 30 consecutive trading days ending on the last trading day in the preceding
calendar quarter. Upon exercise of the Warrants, the warrant holder has the option to elect to have us settle on a
cashless, net share basis (i.e., delivering to the holder shares of Ford Common Stock having a value equal to the "in-the-
money" value of the Warrants being exercised).
In addition, on December 11, 2009, we entered into a Securityholder and Registration Rights Agreement with the LLC
(the "Registration Rights Agreement"), which provides for certain hedging restrictions, certain sales restrictions relating to
the Warrants and shares of Ford Common Stock underlying the Warrants and delivered in payment of New Note B, and
customary registration rights relating to the sale of shares of Ford Common Stock received by the UAW VEBA Trust
pursuant to our stock payment option under New Note B, as well as the Warrants and shares of Ford Common Stock
issued upon the exercise thereof.
As disclosed previously, notwithstanding our option to pay a portion of our obligations to the UAW VEBA Trust in stock
in lieu of cash, we will use our discretion in determining which form of payment makes sense at the time of each required
payment, balancing liquidity needs and preservation of shareholder value. In making such a determination, we will
consider facts and circumstances existing at the time of each required payment, including market and economic
conditions, our available liquidity, and the price of Ford Common Stock.
On December 31, 2009, with respect to New Note A, we paid to the LLC the payment due on that date of $1.3 billion,
the payment of a true-up amount of $150 million, and a partial prepayment of New Note A in the amount of $500 million.
The true-up amount was negotiated as part of the arrangement for us to use during 2009 the cash in the TAA in exchange
for a fixed return of 9% per annum plus an amount that represents a hypothetical return on a portfolio of assets invested
70% in the equity markets and 30% in fixed income markets, subject to a cap of $150 million. Because the equity markets
performed well in 2009, the true-up amount met the $150 million cap.
Also on December 31, 2009, with respect to New Note B, we paid to the LLC the payment due on that date of
$610 million in cash. We decided to make the New Note B payment in cash because the 30-day VWAP price was $9.13
and the December 31, 2009 closing sale price of Ford Common Stock was $10.00 per share.
After giving effect to the payments made on the New Notes on December 31, 2009, the New Notes had a fair value of
$7 billion.
Thereafter, at the close of business on December 31, 2009, we transferred to the UAW VEBA Trust: (i) our ownership
interest in the LLC, which was the legal owner of the New Securities and which held cash and marketable securities in its
TAA with a value on that date of $619 million, and (ii) the assets in our then-existing internal VEBA trust consisting of cash
and marketable securities with a value on December 31, 2009 of $3.5 billion. The transfer by us to the UAW VEBA Trust of
the ownership of these assets, including the beneficial ownership of the New Securities, irrevocably settled our obligation,
valued at about $13.6 billion on December 31, 2009, to provide retiree health care benefits to eligible active and retired
UAW Ford hourly employees and their eligible spouses, surviving spouses and dependents.