After that date, the Omnibus Agreement provides Fiduciary Counselors with the right to cause an IPO of Pinnacle Stock. Document page views are updated periodically throughout the day and are cumulative counts for this document. In response to the commenters' concerns about the role of the independent fiduciary, the Department believes that it would be helpful to provide its views on the responsibilities of an independent fiduciary in connection with the in-kind contribution of property to an employee benefit plan. Fiduciary Counselors notes, as described in its report, in accepting the Pinnacle Stock contribution, Fiduciary Counselors determined that Pinnacle Stock fit within the Plans' investment guidelines and diversification needs. See Omnibus Agreement at section 6.2. If Pinnacle in fact achieves the maximum operating margin provided under the ASA, Eclat estimated that the value of Pinnacle would be approximately 20 percent greater than the value used for purposes of the contribution. At the time the voluntary contribution is made to the Pilot Plan, Northwest also will contribute Pinnacle Stock to the Salaried Plan in an amount such that the amount of the Pinnacle Stock held by the Salaried Plan equals the required minimum funding contribution due under ERISA and the Code on September 15, 2003. Once the Plans hold more than 50 percent of the Pinnacle Stock, the affirmative vote of the director designated by the Plans shall be required to approve the appointment of any new CEO of Pinnacle and compensation of any CEO, any amendments to the $200 million Note of Pinnacle Airlines, Inc. held by Northwest, the amendment of Pinnacle's charter or by-laws in certain respects, or the implementation of certain changes in Pinnacle's capital structure or the issuance of capital stock prior to an IPO. Similarly, subparagraph (iii) at 68 FR 2580 should reflect that, after an IPO, the Plans will be entitled to the greatest of the value of the stock at the time of the contribution, or the average of the closing price for the Pinnacle Stock on the public market for the 10 trading days (or such other number if fewer than 10) preceding the exercise date, or as of the last trading day before the closing date of the Put Option. In this regard, Northwest believes that this provided even more favorable terms for the Plans than those reflected in the Term Sheet.[2]. See Omnibus Agreement at section 7.3. In the absence of the contribution of Pinnacle Stock, the Plans could suffer from increased underfunding. For example, the Plans obtained a Put Option, corporate governance rights, voting rights in Pinnacle and the right to initiate an IPO or sale of Pinnacle Stock. For complete information about, and access to, our official publications Federal Register. The Northwest board of directors determined that at this time the company could not legally redeem the 4.8 million shares of its Series C Preferred Stock still outstanding and made the following statement: After a thorough review of the legal restrictions applicable to the company, the board concluded that Northwest was not able to buy back the Series C Preferred Stock, at this time. (g) a description of the nature of Pinnacle's business and history. As described in the Proposed Exemption, the current provisions of the Pilot Plan and the pilot collective bargaining agreement prohibit the Pilot Plan from acquiring or holding employer securities. In the March 3 Comment, Northwest observed that there are three references to NWA Inc. in the second column at 68 FR 2584 that should reference Northwest (Northwest Airlines, Inc.), the wholly-owned subsidiary corporation of NWA Inc. Thus, the Put Option serves to protect the Plans from declines in the value of Pinnacle Stock and the liquidity notice feature ensures that the Independent Fiduciary has sufficient notice so that it may exercise the Put Option at a time when Northwest has sufficient financial resources to meet its obligation under the Put Option. (k) A statement of past transactions involving Pinnacle Stock, including dates, amounts, price, and whether the transactions were at arms-length, as well as a description of any attempts to buy or sell Pinnacle Stock over the last five years, including a description of any previous plans for initial public offerings. It is the view of the Department that acceptance of an in-kind contribution is a fiduciary act subject to section 404 of ERISA. electronic version on GPOs govinfo.gov. While all of the Big 6 network airlines are losing money, Northwest has suffered the smallest loss of any carrier. The voluntary contribution to the Pilot Plan will consist entirely of Pinnacle Stock. The Omnibus Agreement provided for two contributions to be made to the Contract Plan on January 15, 2003. First, the Plans must provide Northwest with an Offer Notice which shall contain an independent valuation of the consideration by a nationally recognized valuation expert acceptable to Fiduciary Counselors and Northwest. In addition, a fiduciary must act for the exclusive purpose of providing benefits to participants and beneficiaries; must act prudently; and must diversify the investment of plan assets to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. The Independent Fiduciary and its advisors analyzed the voting, transfer and put right features of the Pinnacle Stock and engaged in significant negotiations on those features with Northwest. Total cost is only $ 299.00. In determining the fair market value of the Pinnacle Stock, the Independent Fiduciary obtains an appraisal from an independent qualified appraiser selected by the Independent Fiduciary, and ensures that the appraisal and the Independent Fiduciary's analysis of the appraisal are consistent with sound principles of valuation and with the elements described by the Department in the Preamble to this final exemption in the section entitled Duties of the Independent Fiduciary; (g) The terms of (1) the Put Option granted by Northwest; (2) any exercise of the Put Option by the Plans; and (3) any sale of the Pinnacle Stock by the Plans to Northwest other than through the exercise of the Put Option will be in accordance with the terms set forth in the Term Sheet and the Omnibus Agreement; (h) Immediately after each contribution, employer securities and employer real property, including the Pinnacle Stock, will represent no more than 10 percent (10%) of the value of each Plan's assets. documents in the last year, 1487 However, Northwest understands that some of United's airline services agreements have been renegotiated and that it has been reported that the airline services agreement between United and Atlantic Coast Airlines is the subject of current negotiations. documents in the last year, 117 AIC valued the Put Option at $20,680,684 using a Black-Scholes American option-pricing model. However, Northwest notes that it has received the consent of the Air Line Pilots Association (ALPA), the union representing Northwest pilots, to permit the Pilot Plan to hold Pinnacle Stock (see below for discussion of the Northwest and ALPA Letter Agreement). A total of 9.1 million shares of Series C Preferred Stock were contributed to the Employee Stock Plan. Northwest strongly believes that Pinnacle Stock has significant value and that the value of Pinnacle Stock will increase when the IPO market improves for regional airlines. The allocation method made pursuant to the Letter Agreement will result in a modest change in the percentage of the Contract and Salaried Plans' assets invested in Pinnacle Stock compared to the ratable allocation contemplated by the Proposed Exemption. 1. developer tools pages. At the present time, the Board was unable to make this finding. This additional contribution was agreed upon as a result of a technical concern raised by Fiduciary Counselors regarding covenants in Northwest's $1.125 billion Credit and Guarantee Agreement dated October 24, 2000, as amended under which Northwest is the borrower (the Credit Agreement), with Northwest's bank lenders. provide legal notice to the public or judicial notice to the courts. This table of contents is a navigational tool, processed from the The Term Sheet formed the basis for the Omnibus Agreement, which was executed on January 15, 2003, after the Independent Fiduciary received confirmation from the Department that the Proposed Exemption had been issued. The shares were then allocated to individual accounts established on behalf of each eligible employee. (m) An analysis of the marketability, or lack thereof of the Pinnacle Stock, with specific reference to any restrictions, understandings, agreements, or obligations limiting the Plans' ability to dispose of the Pinnacle Stock. The IF Report states that Eclat's clients come from almost every sector of the aviation industryairports, airlines, labor organizations and aerospace/aeronautics corporations. Register (ACFR) issues a regulation granting it official legal status. Northwest sought the exemption to permit the Pinnacle Stock contribution as part of its overall strategy of managing the current economic uncertainty. Eclat used the Black-Scholes option-pricing model to determine the value of the Put Option. If NWA Corp. decides not to repurchase the Series C Preferred Stock, quarterly dividends will accrue beginning August 1, 2003, at 12% per annum and the employee unions will receive three additional Board of Directors positions. The value was then increased to reflect the value of the put. how long to keep medicare statements after death; Contributions of Pinnacle Stock to the Salaried Plan and the Contract Plan will likewise be held in a separate segregated subaccount of the Master Trust and held for the exclusive benefit of each respective plan. Northwest noted that, as reflected in the Term Sheet, Fiduciary Counselors will determine the fair market value of the Pinnacle Stock contributed to the Plans on an annual basis and in advance of each contribution to the Plans. Northwest also believes that the value of Pinnacle Stock is less exposed to bankruptcy risk than Northwest stock. Plan beneficiaries may also contact FSCO staff by telephone at (416) 226-7776 or toll-free at 1-800-668-0128, if they require assistance in finding this information. In addition, section 404(a)(1)(C) requires that fiduciaries diversify plan investments so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. 4. This is because a cash contribution is not a viable alternative given the company's liquidity needs. Alternatively, Northwest may arrange for the stock to be purchased by a third party. establishing the XML-based Federal Register as an ACFR-sanctioned (Pinnacle Stock) to the Plans by Northwest Airlines, Inc. (Northwest), a party in interest with respect to such Plans; (2) the holding of the Pinnacle Stock by the Plans; (3) the sale of the Pinnacle Stock by the Plans to Northwest; (4) the acquisition, holding, and exercise by the Plans of a put option (the Put Option) granted to the Plans by Northwest; and (5) the guaranty to the Plans by Northwest Airlines Corporation (NWA Corp.) of Northwest's obligation to honor the Put Option (the Exemption Transactions). As of June 30, 2003, Fiduciary Counselors was acquired by Fiduciary Group, Inc., in a management-led buyout. Select the item (s) you need from this menu. Fiduciary Counselors, AIC and Eclat represent that the ASA between Northwest and Pinnacle provided the framework for the final valuation. For purposes of this exemption, a fiduciary will not be deemed to be independent of and unrelated to Northwest if: (1) Such fiduciary directly or indirectly controls, is controlled by or is under common control with Northwest, (2) such fiduciary directly or indirectly receives any compensation or other consideration in connection with any transaction described in this exemption; except that an independent fiduciary may receive compensation for acting as an independent fiduciary from Northwest in connection with the transactions contemplated 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 such fiduciary, during any year of its engagement, from Northwest and its affiliates exceeds 5 percent (5%) of the independent fiduciary's annual gross revenue from all sources for its prior tax year. The purpose of collateral would be to protect the Plans from declines in the value of Pinnacle Stock and secure the Put Option accorded to the Plans. The Department notes that the appointment of an independent fiduciary to represent the interests of the Plans with respect to the transactions that are the subject of the exemption request was a material factor in its determination to propose exemptive relief. In this environment, it is necessary to maintain high liquidity reserves to ensure the viability of the airline and protect the long-term interests of the pension plans and plan participants. In connection with the change in ownership of Fiduciary Counselors, Fiduciary Counselors and AIC have agreed that future payments will be allocated in the same proportions. In this regard, beginning at such time as the Plans hold more than 50% of the issued and outstanding Pinnacle Stock, and until the earlier of (i) the date the Plans hold less than 25% of such shares or (ii) the Put Option with respect to such shares has terminated, the affirmative vote of the Plan s director will be required to (1) approve the election, appointment and compensation of any new Chief Executive Officer (CEO), (2) approve any modification or other changes to the Note Pinnacle has issued to Northwest (3) approve any amendment to Pinnacle s bylaws that affects the Plans shares of Pinnacle Stock in a manner different from other shares of Pinnacle Stock or otherwise amends the Series A Preferred Stock, and (4) unless Pinnacle is publicly traded, approve the issuance of shares of capital stock of Pinnacle or otherwise effect changes in the capital structure of Pinnacle. To schedule an in-person visit, please click on the link below your desired NWA Location. The Special Conversion Option expired on February 9, 1994. Fiduciary Counselors and its advisors negotiated with Northwest and Pinnacle concerning the ability of the Plans to transfer the Pinnacle Stock and the rights of the Plans to cause Northwest to register the shares of Pinnacle Stock under Federal and State securities laws for resale to third parties. 2. The amount of the Initial Contribution is equal to the amount that was required to meet the quarterly funding requirements under ERISA section 302 and Code section 412(l) for the Contract Plan due on January 15, 2003. 1. One of the strengths of the Northwest network is that the airline has the least exposure of any major carrier to low-cost carriers in the industry. Prior to valuing the put option, Eclat's estimate of the value of Pinnacle was $333,436,072, after application of an illiquidity discount of 15% and a minority discount of 5%. The Omnibus Agreement also provided for an Additional Initial Contribution to the Contract Plan in the amount of $2,671,983 (118,167 shares valued at $22.61 per share). The Contract Employees share of the Master Trust assets are $1,665,979,000. The hearing on the Proposed Exemption was held on May 5 and 6, 2003 at the Department of Labor (the Hearing). The length of the Deferral varies based upon a function of (1) the liquidity of Northwest (as defined in the Omnibus Agreement) and (2) the value of Pinnacle Stock contributed to the Plans. on Any remaining Pinnacle stock will then be contributed to the Contract Plan. NWA is the plan administrator and the employer plan sponsor of the Plan. In this regard, the Plans acquired Pinnacle Stock at a favorable price and the Plans obtained voting and management rights, anti-dilution rights, limits on Northwest's ability to terminate the ASA, rights to sell the Pinnacle Stock or dispose of it in an IPO in a variety of circumstances, and a protective Put Option. for better understanding how a document is structured but Fiduciary Counselors states that the Omnibus Agreement provides: Fiduciary Counselors stated that, in conjunction with Northwest's contribution of Pinnacle stock to the Plans, Northwest has provided the Plans with a Put Option to protect them from a possible decline in Pinnacle's shares' value. ALPA and Northwest informed the Department that the Letter Agreement will be executed by the parties in connection with a proposed voluntary contribution of Pinnacle Stock (described below). During the Hearing, employees of Northwest referenced an employee stock program that was established by the company in 1993. On March 5, 2003, Jones Day submitted comments on behalf of Fiduciary Counselors, the Independent Fiduciary (the March 5 Comment). On January 11, 2003, the Independent Fiduciary and its advisors conducted a telephone interview with Pinnacle's chief executive officer and chief financial officer as part of its due diligence. Northwest also provided more detail about the final terms of the transactions as agreed to by Northwest and the Plans' independent fiduciary, Aon Fiduciary Counselors, Inc. (Fiduciary Counselors or Independent Fiduciary). This phrase should be changed to employer securities and employer real property. The exemption permits: (1) The in-kind contribution(s) of the common stock of Pinnacle Airlines Corp.[1] Register, and does not replace the official print version or the official The closing date may be further deferred and deferred payments may be made by Northwest as agreed to by the Independent Fiduciary if Northwest posts collateral in an amount and on terms satisfactory to the Independent Fiduciary. The Northwest Airlines Pension Plan for Contract Employees is approximately forty percent of the Master Trust. 7. The IF Report states that under the ASA, Northwest has committed 95 regional jet aircraft financed by Bombardier to be delivered to Pinnacle by December 31, 2004. Such techniques were employed by Fiduciary Counselors and Eclat in this circumstance. Read Our Story Our Approach 5. The documents posted on this site are XML renditions of published Federal Each of Northwest's three main unions at the time of the Agreements also was granted the right to appoint one director to the Northwest board of directors. In view of the comments requesting a hearing, on March 11, 2003, the Department published in the Federal Register (68 FR 11589) a notice of hearing on the Proposed Exemption. Northwest stated that the language at section 5.1(b) of the Omnibus Agreement contains a representation that Northwest has the corporate and legal authority to meet its obligations under the agreement, including the Put Option. For ease of reference, Northwest refers to the Employee Stock Plan, but the factual discussion of the Series C Preferred Stock remains accurate after the merger with the Northwest 401(k) plans. Pinnacle's compensation formula within the ASA contractually provides for a target operating margin of 14 percent from 2003 through 2007, with a guaranteed floor of 12 to 13 percent during this period. The Independent Fiduciary retained an independent, expert airlines valuation firm, Eclat, to provide valuation services. Date: This exemption is effective as of January 15, 2003. This change generally reduces the length of the available Deferral when the Plans hold more than $325 million in Pinnacle Stock (measured as of the date of each contribution). See Omnibus Agreement at section 6.3. documents in the last year, 946 However, the Omnibus Agreement revises this provision to provide that, if Pinnacle Stock is publicly traded, the Deferral will be reduced, in each case, by thirty days except that in no event shall Northwest have less than a 30 day Deferral in which to close the transactions contemplated by the Put Option. The Pinnacle Stock contributed to the Pilot Plan will be held in a separate, segregated subaccount of the Master Trust and held for the exclusive benefit of the Pilot Plan. Section 7.2(b) of the Omnibus Agreement requires only that the appointment of a new CEO be approved by a majority of Pinnacle's board (excluding the Northwest Director), and does not make reference to the compensation of Pinnacle's CEO. Northwest represents that the amount of shares necessary to satisfy the required contribution was based upon a final valuation of Pinnacle by Fiduciary Counselors, relying on a valuation report prepared by Eclat Consulting. Eclat will furnish a similar valuation report with respect to each subsequent contribution. The Delta Airlines Master Retirement Trust (Delta Air Lines Pension Plan) is a Corporate Pension located in Atlanta, GA United States, North America. Northwest notes that the Omnibus Agreement, while consistent with the Term Sheet, provides specific terms for: the contribution transactions; transferability of Pinnacle Stock; corporate governance; voting rights; the Put Option; representations and warranties; and a number of other matters. Eclat is an aviation-consulting firm that specializes in detailed analysis of the economic and financial issues that surround the industry. Comment: A number of comments noted that the airline industry is experiencing significant financial troubles and that some other airlines are in bankruptcy. These guidelines contemplate that a certain amount of assets will be allocated to securities with risk and return characteristics similar to Pinnacle Stock. 01/18/2023, 284 The Pension Investment Committee informed the Independent Fiduciary that the holding of Pinnacle Stock constituting the Initial Contribution to the Plans would not and was not expected in the foreseeable future to impair the liquidity of the Plans and that the Plans would be able to pay benefits and expenses when due. The right to engage an investment banker on behalf of the Plans in an IPO, at Northwest's expense. The January 15, 2003 Eclat valuation report (January 15, 2003 Valuation) was attached to the Independent Fiduciary's report submitted to the Department on April 25, 2003 (see below for a discussion of these documents). The exemption affects participants and beneficiaries of, and fiduciaries with respect to, the Plans. The Independent Fiduciary reports that it negotiated the following additional requirements. documents in the last year, by the Engineers Corps and the Environmental Protection Agency The ASA provides a range of revenues to be paid by Northwest to Pinnacle, and Eclat valued the Company based on the minimum revenues, which would result from the ASA. Aon Consulting internally allocated 25% of the fee to Fiduciary Counselors, which comprised less than 5% of its annual gross revenue in 2002. Pinnacle itself had revenues of approximately $345.2 million for 2002. In conducting such verification, the independent fiduciary must evaluate a number of factors relating to the accuracy and methodology of the valuation and the expertise of the independent qualified appraiser. The Public Inspection page The OFR/GPO partnership is committed to presenting accurate and reliable (j) A description of all of the factors taken into account in making the valuation, including any restrictions, understandings, agreements or obligations limiting the Plans' ability to dispose of the stock. Northwest ended the 3rd quarter with over $2.5 billion in cash and short-term receivables. Press "0" to be connected with the Employee Service Center. In this case, the Omnibus Agreement provides the Plans with a Put Option that allows Fiduciary Counselors at any time to put Pinnacle Stock back to Northwest at the greater of the price at the time the stock was contributed or the price at the time of the put. On February 14, 2003, Northwest obtained formal written confirmation from the bank lenders that none of the rights afforded to the Plans in the Omnibus Agreement nor the exercise of such rights would violate the Credit Agreement. Regional airlines play an indispensable role in providing major airlines with important access to passengers, largely from markets too small to be serviced by a major airline. As also mentioned in the March 3 Comment, the Independent Fiduciary notes that at the fifth paragraph of the Voting Provisions section in the Proposed Exemption at column 2 of 68 FR 2585, the description of the required affirmative vote of the director designated by the Plans should be expanded to include the approval of: amending the Note, amending Pinnacle's charter or by-laws in certain respects, implementing certain changes in Pinnacle's capital structure, or issuing capital stock prior to an IPO, as set forth in the Omnibus Agreement. Payment will be made to Fiduciary Counselors, which will remit 75% to AIC. In addition, the fiduciary obligation to act prudently requires, at a minimum, that the independent fiduciary conduct an objective, thorough, and analytical critique of the valuation. See Omnibus Agreement at section 11.2. The Independent Fiduciary must prudently determine the fair market value of the Pinnacle Stock as of the date it is contributed to the Plans. Wall Street analysts also look favorably on ExpressJet, the Continental Airlines regional airline partner. The Investment Fund holds Pinnacle Stock on behalf of the Contract Plan and the Salaried Plan. [7] A decision to issue only additional Common Stock must be approved by a majority of the three directors elected by the holders of the Series C Preferred Stock. Additionally, by letter dated July 15, 2003, Fiduciary Counselors represents that in preparing the valuation for subsequent contributions, Eclat will reexamine the assumptions used in preparing the initial valuation and will continue to stress test the assumptions in its valuation model to reflect the credit-worthiness of Northwest and changing conditions in the regional jet market. In addition, in the paragraph immediately following subparagraph (iii) in the second column of 68 FR 2580, the reference to the price of Pinnacle Stock being determined as of the exercise date should be expanded to reflect these concepts. Signed at Washington, DC this 14th day of August 2003. NWA Corp. has the option to repurchase such shares in cash, by the issuance of additional Common Stock, or by the use of cash and stock. (c) A statement that the appraisal is being conducted to determine the fair market value of Pinnacle Stock, which is defined as the price at which the stock would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, and both parties are able, as well as willing, to trade and are well informed about the stock and the market for the stock. We are an independent firm and are not in the investment advisory or trust business. Northwest will provide at least quarterly notice to the Independent Fiduciary of its cash liquidity. As a board, we recognize the valuable contributions our employees made to the company during the 1993-1996 wage reduction period and acknowledge the company's obligation to buy back the Series C Preferred Stock. Northwest has from 30 to 180 days to settle the option. Northwest expects that the Start Printed Page 49807board, like any board fulfilling its fiduciary duties, will seek to maximize the value of the enterprise. Northwest believes that the final terms for the Put Option, which are more favorable to the Plans, are more completely and accurately stated in the description of the Put Option contained in the description of the Term Sheet as set forth at 68 FR 2587. Contributed to the Plans could suffer from increased underfunding the Pilot Plan will consist entirely of Pinnacle,! Plans in an IPO, at Northwest 's expense then be contributed to the Plan... 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