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). Call 202.693.7773 or TTY 202.693.7755. For the reasons set forth below, the Independent Fiduciary has concluded that it is prudent for the Plans to accept the Contribution and that the Contribution is in the interest of the Plans and their participants and beneficiaries: Transfer restrictions on Pinnacle Stock held by the Plans are reasonable in light of the Put Option. electronic version on GPOs govinfo.gov. If, on August 1, 2003, NWA Corp. decides not to repurchase the Series C Preferred Stock, beginning on August 1, 2003 and on each succeeding quarter end date, NWA Corp. must use all Available Cash (a defined term in the Agreements) to effect partial repurchases of the Series C Preferred Stock, but only if and to the extent NWA Corp. is not prohibited from making such repurchases under applicable Delaware corporate law or any loan agreement to which NWA Corp. is a party. Once Pinnacle Stock is publicly traded, the Put Option will be suspended if all of the remaining shares of Pinnacle Stock held by the Plans have a market value not less than 110% of the Floor Price and such shares are freely tradable. Pinnacle Airlines Corp. is the holding company of Pinnacle Airlines, Inc. 2. documents in the last year, 16 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. better and aid in comparing the online edition to the print edition. In the case of United Airlines, for example, the airline has not rejected the ASAs it has entered into with its regional airline partners Atlantic Coast Airlines, SkyWest and Air Wisconsin. (a) The term independent fiduciary means a fiduciary who is: (1) independent of and unrelated to Northwest and its affiliates, and (2) appointed to act on behalf of the Plans for all purposes related to, but not limited to, (A) the in-kind contribution of the Pinnacle Stock by Northwest to the Plans, (B) the holding of the Pinnacle Stock by the Plans; (C) the acquisition, holding, and exercise by the Plans of the Put Option, and (D) any sale of the Pinnacle Stock by the Plans. Northwest appointed Fiduciary Counselors investment manager of the Investment Fund and Fiduciary Counselors has accepted this appointment. At the present time, the Board was unable to make this finding. While every effort has been made to ensure that The concerns expressed generally related to the proposed contribution of Pinnacle Stock instead of a cash contribution to the Plans; the value and method of valuation of the Pinnacle Stock; the effects of the proposed transactions on the Plans; and the adequacy of the proposed safeguards that are intended to protect the Plans' interests. Fiduciary Counselors notes that immediately prior to the transaction, NWA Inc. (NWAI), an affiliate of Northwest, owned 86,842 shares of common stock, par value $0.01 per share, of Pinnacle Airlines, Inc., a Georgia corporation, constituting all of the issued and outstanding capital stock of Pinnacle Airlines, Inc. Pursuant to the transaction, Pinnacle Airlines, Inc. declared and paid to NWAI a dividend consisting of a promissory note payable to the order of NWAI in the aggregate principal amount of $200 million. Effective December 31, 1978, section 102 of Reorganization Plan No. documents in the last year, 117 As the Plans' independent fiduciary, Fiduciary Counselors must act prudently and in the interests of the Plans and their participants. More frequent notice will be required based on Northwest's liquidity and the value of the Pinnacle Stock contributed to the Plans. 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. Accordingly, this final exemption is issued solely by the Department. Fiduciary Counselors will also determine fair market value at the time it exercises the Put Option so long as the shares of Pinnacle Stock are not publicly traded. documents in the last year, 946 In addition, the Independent Fiduciary negotiated that Northwest Airlines Corporation (NWA Corp), Northwest's ultimate parent company, will guarantee Northwest's obligations under the Omnibus Agreement, including the consummation of the Put Option. The value of Pinnacle Stock is determined by an independent fiduciary, Fiduciary Counselors, based on the valuation provided by their independent valuation firm, Eclat. 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. Fiduciary Counselors assumed that since Northwest could take up to 180 days to settle the option that it would. In this process, Northwest and Fiduciary Counselors each select their own nationally recognized valuation expert (Principals' Experts), which experts submit their appraisals to a third expert chosen by the Principals' Experts. As a result of instructions given to State Street, after the contribution was made to the Investment Fund, the Contract Plan owns 83.5% of the Investment Fund, while the Salaried Plan owns 16.5% of the Investment Fund. Each Plan's percentage ownership reflects the relative size of each Plan to each other. Start Printed Page 49801. Northwest asserts that, while the Department has required collateral for some similar exemptions in the past, it has not required collateral in all cases. Eclat provided additional information in support of its view that the discount rates, and other factors used in determining the fair market value of the Pinnacle Stock were reasonable and theoretically sound. Eclat used the Black-Scholes option-pricing model to determine the value of the Put Option. Northwest Airlines Corporation (NWA Corp.) will guarantee Northwest's obligations under the Omnibus Agreement, including the Put Option. In addition, U.S. Airways has recently signed an agreement with Mesa for more regional aircraft. 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. Defined Benefit Master Trust : C/O Delta Air Lines, Inc., 1030 Delta Boulevard, Atlanta, US-GA, 30354, US: 2012-12-18: Delta Pilots Disability and Survivorship Plan : C/O Delta Air Lines, Inc., 1030 Delta Boulevard, Atlanta, US-GA, 30354, US: 2012-12-04: Northwest Airlines Pension Plan for Salaried Employees Northwest noted that the Pinnacle Stock is being held in an Investment Fund established in connection with the Master Trust, and the amounts were allocated to the Contract Plan and Salaried Plan consistent with the provisions of the Master Trust, as described in the Proposed Exemption. (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. By permitting the contribution of Pinnacle Stock, Northwest is able to preserve needed cash so that it can withstand several years of losses. Indeed, during the 1990's, Northwest contributed to its pension plans millions of dollars more than the required amount of contributions. The third expert then determines which of the two assessed values should be assigned to such non-cash consideration. By the end of 2021, the IAM National Pension Fund pays benefits to over 116,000 retirees and reaches $15 billion in assets under management. Page 53 of 61. The Independent Fiduciary must ensure that all of the conditions above are satisfied with respect to any past contributions of Pinnacle Stock, as well as any future contributions. Moreover, when the IPO of Pinnacle Stock occurs, the Plans may benefit from a potentially significant IPO premium with respect to their holdings of Pinnacle Stock. 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. Fiduciary Counselors' duties also include the discretionary authority to manage the Pinnacle Stock as investment manager. Eclat's original valuation for PBGC was based on publicly available information, primarily a draft S-1 Registration Statement which contained financial information only for the first nine months of 2002. The information addressed, among other issues, how the possibility of a Northwest bankruptcy was factored into the valuation, how the valuation was stress tested for other assumptions contained in the valuation, and the reasons for the selection of a 15% liquidity discount. Printer Friendly Version Archived News Release Caution: Information may be out of date. by the Farm Credit System Insurance Corporation The IF Report explains that, because Pinnacle's operations are so entwined with Northwest's, Eclat evaluated Northwest as well as Pinnacle in its November 27, 2002 report to the PBGC (The Eclat Report). 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). If the Pinnacle Stock is not publicly traded, the Plans will receive the. headings within the legal text of Federal Register documents. 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. daily Federal Register on FederalRegister.gov will remain an unofficial 1. 4. In contrast, under its new ownership, neither Fiduciary Counselors nor any affiliate will accept any other engagement from Northwest while it is independent fiduciary for the Plans. New Documents The Employee Stock Plan was established through labor negotiations between Northwest and its unions in 1993 to hold contributions of Northwest Airlines Corporation Series C Preferred Stock. Northwest noted that the description of the Put Option in the first and second columns at 68 FR 2580 of the Federal Register notice accurately describes the structure of the Put Option as described in Northwest's Application. The Department notes that the Preamble to the Proposed Exemption stated that either party may terminate the Independent Fiduciary Agreement for any reason upon 60 days notice and that the Agreement may be terminated immediately for cause. Agency Employee Benefits Security Administration Date January 16, 2003 Release Number 03-3 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. Seattle WA 98102-3305. The Independent Fiduciary also engaged the law firm of Jones Day as legal counsel to advise it in connection with its negotiations with Northwest regarding its engagement and Eclat, to provide financial expertise and to value the Pinnacle Stock. Fiduciary Counselors notes that under section 404(a)(1) of ERISA, a fiduciary must discharge its duties with respect to a plan solely in the interest of plan participants and beneficiaries. Document page views are updated periodically throughout the day and are cumulative counts for this document. 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 result was a net value of $339,178,820.00 for the purposes of determining the value of the stock contributed on January 15, 2003. 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