Northwest represents that the contribution was effected after the date on which the Department had completed work on the Proposed Exemption. In negotiating the rights and restrictions set forth in the transfer and registration rights provisions of the Omnibus Agreement, Fiduciary Counselors balanced the need of the Plans to achieve greater diversification in light of the anticipated holdings of shares of Pinnacle Stock with the need to maximize the value of the investment in such stock. This prototype edition of the Northwest Airlines, Inc. Eagan, MN 55121-1534. The President of the United States issues other types of documents, including but not limited to; memoranda, notices, determinations, letters, messages, and orders. Agency Employee Benefits Security Administration Date January 16, 2003 Release Number 03-3 On July 11, 2003, Fiduciary Counselors informed the Department that Fiduciary Counselors Inc. (formerly Aon Fiduciary Counselors, Inc.) (Fiduciary Counselors) is no longer a subsidiary of Aon Corporation. Without modifications to the pilot collective bargaining agreement, the Proposed Exemption contemplated that the other two Plans would receive a contribution of Pinnacle Stock in an amount equal to the maximum amount permitted under section 407(a)(2) of ERISA, while the Pilot Plan would receive no contributions of Pinnacle Stock. 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. For complete information about, and access to, our official publications documents in the last year, 480 Furthermore, the fact that a transaction is subject to an administrative or statutory exemption is not dispositive of whether the transaction is in fact a prohibited transaction; and, (5) The availability of this exemption is subject to the express condition that the material facts and representations contained in the application are true and complete and accurately describe all material terms of the transactions, which are the subjects of the exemption. documents in the last year, 28 A number of commenters asked, if Pinnacle Stock is contributed to the Plans, how would this affect the manner in which other Plan assets are invested? 702 King Farm Boulevard, Suite 400, Rockville, MD 20850 / +1 212-944-4455 / issgovernance.comAMR Under Pressure to Preserve Pensions . northwest airlines pension plan phone number. on The initial fee was remitted directly to Aon Consulting, Inc., then a parent company of both Fiduciary Counselors and AIC. The value of the transaction was also adjusted for the period between the exercise of the put and the Plan's receipt of the funds. In addition, as reflected in the Omnibus Agreement, the Independent Fiduciary has negotiated a lapse of all transfer restrictions on the Pinnacle Stock held by the Plans on July 1, 2006, and upon an Early Termination Event (including a breach of the Omnibus Agreement by Northwest or Pinnacle or Northwest's failure to honor its Put Option obligations, but excluding violations of the scope clause limitations in certain of Northwest's collective bargaining agreements[5] However, as noted in Northwest's Application, the final terms of the Put Option were subject to negotiation with Fiduciary Counselors. The details of the Pinnacle Stock contribution were provided in the March 3, 2003 letter. While every effort has been made to ensure that The description of Northwest's right of first refusal with respect to Pinnacle Stock is accurate; however, if the Plans negotiate the sale of Pinnacle Stock to a third party for non-cash consideration, the Omnibus Agreement includes a specific valuation mechanism with respect to such consideration. On December 2, 2002, the Employee Stock Plan was divided into three components, which were then merged into the existing Northwest Airlines Retirement Savings Plan for Pilot Employees, Northwest Airlines Retirement Savings Plan for Contract Employees and Northwest Airlines Retirement Savings Plan for Salaried Employees. Northwest and ALPA believe that the Letter Agreement also enhances protections for participants in all three Plans by giving the Independent Fiduciary first priority to sell Pinnacle Stock in an IPO where the number of shares sought to be sold exceeds the number that can be sold. This repetition of headings to form internal navigation links 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. According to Northwest, the Omnibus Agreement provides the Plans substantial investment risk protection, protection that would not be available to the Plans when investing in securities with similar risk and return characteristics. Manage Products and Account Information Support Americas +1 212 318 2000 EMEA +44 20 7330 7500 Asia Pacific +65 6212 1000 Bloomberg Technology Bloomberg Pursuits Bloomberg Politics. on The Independent Fiduciary must not simply defer to the conclusions reached by the appraiser, but rather will take appropriate action to ensure: (a) That the appraisal is based upon complete, accurate, and current data; (b) That the appraiser is appropriately qualified to conduct the valuation; (c) That the valuation methodologies are appropriate and adequately explained and that the appraiser has adequately justified its decision not to use alternative methodologies; (d) That any variables used in the valuation analysis such as projected revenues, expenses, operating margins, depreciation, discount rates, capitalization rates, and multipliers are adequately supported by market data; (e) That the stock's value is calculated with appropriate discounts for lack of marketability and control after a reasoned evaluation of the relevant market data concerning such discounts, as well as of each Plan's actual ability to effectively dispose of its stock or to control Pinnacle; (f) That the appraisal's reasoning and assumptions are consistent, logical, and supported by appropriate financial and economic data and that any calculations are accurate; (g) That the valuation is based on complete, accurate, and audited financial statements, which have been properly analyzed; (h) That the assumptions underpinning the valuation are properly identified, and a careful analysis is performed of the impact of changes in those assumptions on the value of Pinnacle Stock; (i) That the valuation has appropriately considered Northwest's financial condition in valuing Pinnacle Stock, as well as the impact of a Northwest bankruptcy on the value of Pinnacle Stock; and. We devoted substantial time and effort to this issue. Upon consideration of all of the comments received and testimony offered at the Hearing, the Department has determined to grant the proposed exemption subject to certain modifications. 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. 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. documents in the last year, 274 (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 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. Thus, the fourth bullet point in the second column at 68 FR 2585 (describing certain voting rights) should be modified accordingly. documents in the last year, by the Indian Affairs Bureau Each Plan's percentage ownership reflects the relative size of each Plan to each other. Eclat used the Black-Scholes option-pricing model to determine the value of the Put Option. Fiduciary Counselors also obtained a determination from Northwest's Pension Investment Committee that the holding of Pinnacle Stock would not impair the liquidity of the Plans and that the Plans would be able to pay benefits and expenses when due. Based on current client engagements, Fiduciary Counselors anticipates that the portion retained by it will comprise less than 5% of Fiduciary Counselors' gross revenue for 2003. 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. The Term Sheet did not provide for the Additional Initial Contribution. The Department has determined that it would be appropriate to modify the definition of independent fiduciary as follows: (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.. Pursuant to the terms of the Omnibus Agreement, Northwest contributed Pinnacle Stock to the Contract Plan. In no circumstance, however, may the parties treat Pinnacle Stock previously contributed to the Plans as if it had a higher value than was attributed to it at the time of the original contribution. The Plans will be granted a Put Option with respect to each share of Pinnacle Stock contributed to the Plans, which may be exercised by the Independent Fiduciary at any time. The Plan is a defined benefit pension plan for the benefit of certain union-represented employees. establishing the XML-based Federal Register as an ACFR-sanctioned that agencies use to create their documents. The goal of the Pinnacle Stock contribution is to (1) provide the Plans with a valuable security, (2) meet near term pension funding obligations, and (3) allow Northwest to preserve cash to withstand the current economic environment. In considering whether to accept an in-kind contribution, the Independent Fiduciary's responsibilities include the following: 1. Fiduciary Counselors stated that Eclat's valuation took into account a variety of financial data. Comments: Commenters expressed a concern that the contribution of Pinnacle Stock involves a conflict of interest on the part of Northwest. (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. The Additional Initial Contribution served to provide the Plans with added protection until Northwest obtained written assurances from the bank lenders that the Put Option does not violate the Credit Agreement. (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. Northwest noted that the Omnibus Agreement added certain valuation details that expand the discussion of the Right of First Refusal at 68 FR 2586. In particular, subparagraph (i) at 68 FR 2580 of the Proposed Exemption should reflect that, prior to an IPO, the Plans will be entitled to the greatest of (1) the value of the stock when contributed, (2) the fair market value of the stock on the date that the determination of fair market value is made (e.g., with respect to the Put Option, the date the Put Option is exercised), or, if greater, (3) the value as of the closing date of the Put Option. Northwest stated that it would not. 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. Northwest provided that the Omnibus Agreement guarantees that the Plans always receive the greater of the initial contribution value of Pinnacle Stock or the value of the stock at the time of an IPO or the exercise of the Put Option. 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. Northwest noted that, as is the case for sponsors of defined benefit plans, Northwest has adopted investment guidelines and asset allocation strategies that guide the investment of the Plans' assets. 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%. A provision providing that the exercise price of any options on Pinnacle Stock granted to its executive employees under its stock incentive plan at the time of an IPO would be at the greater of the value of the stock at the time it was contributed to the Plans or the IPO price. The Independent Fiduciary must investigate the facts and assumptions underlying the appraisals to ensure that stock contributions are not valued at more than fair market value. The Northwest Airlines Pension Plan for Contract Employees is approximately forty percent of the Master Trust. 2323 Eastlake Ave E Ste 400. 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. Argentina Australia Belgi (Nederlands) Belgique (Franais) Brasil (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. 2. 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). AP/World Wide Photos 88044 32PG_3 .qxd:Fall 2006_09_28_06.qxd 6/27/07 11:55 AM Page 29 Northwest replied that Northwest does not manage Pinnacle. Similar considerations will be taken into account by Fiduciary Counselors in determining whether to accept any future contribution of Pinnacle Stock. Create an Account and Draft a QDRO for This Plan. 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. In 1994 through 1997, Northwest made annual contributions of Series C Preferred Stock to the Employee Stock Plan for the benefit of employees represented by the IAM and IBT (the other labor groups had converted their right to receive Series C Preferred Stock into Common Stock under the Special Conversion Option described below). Northwest provided the funded status of each Plan as of 1/1/03 as shown in the following table. Participants and beneficiaries of the Plans benefit from Northwest's improved liquidity and continued viability and competitiveness in the current economic environment. If the markets return, substantial upside will benefit the Plans. QDRO Preparation for NORTHWEST AIRLINES PENSION PLAN FOR . The President of the United States manages the operations of the Executive branch of Government through Executive orders. This model is designed to value firms, like Pinnacle, that are expected to go through three phases of growthan initial phase of high growth, a transitional period where the growth rate declines, and a steady-state period where growth is stable. This value was further discounted by 4.48%, to Start Printed Page 49799$318,498,136, to reflect Northwest's ability to delay payment on the put for up to 6 months. Thus, Northwest notes that the holding of Pinnacle Stock by the Plans can fit within the overall investment strategy adopted for the Plans. 5. 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. The value of Pinnacle Stock is determined by an independent fiduciary, Fiduciary Counselors, based on the valuation provided by their independent valuation firm, Eclat. by the Farm Credit System Insurance Corporation 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. The Application has been available for public inspection at the Department in Washington, DC. The Independent Fiduciary represents that the description of the valuation by Eclat Consulting (Eclat) of Pinnacle in the Proposed Exemption commencing in the second column of 68 FR 2580 (the Eclat Report) should be updated to reflect Eclat's valuation of Pinnacle as of January 15, 2003. documents in the last year, by the Engineers Corps and the Environmental Protection Agency Eclat was provided with Pinnacle's audited financial statements for the years 2000 and 2001. These negotiations resulted in agreements (Agreements) between Northwest and each of its unions under which Northwest would contribute to the Employee Stock Plan a newly created, special class of stock (the Series C Preferred Stock) in an amount that would equal the monetary value of certain wage and other concessions agreed to by the unions. The target margin will be reset after 2008 based on historical and expected operating costs. Participants and beneficiaries of the Plans stand to benefit from an IPO of the Pinnacle Stock. The IF Report states that Eclat expects that low-cost carriers will expand and gain share in the future but feels that Northwest is in the best shape of any network carrier to compete. As with the Term Sheet, the final Omnibus Agreement provides that the Deferral shall be shortened if Pinnacle Stock is publicly traded. The IAM National 401 (k) Fund has 30,905 participant accounts and $743 million in assets under management.
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