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. 2323 Eastlake Ave E Ste 400. the official SGML-based PDF version on govinfo.gov, those relying on it for The IF Report notes that in the Eclat Report, Eclat's valuation of the Pinnacle Common Stock was considerably lower than the value it ultimately determined for the Independent Fiduciary in the January 15, 2003 Valuation. The March 5 Comment noted that due to the firm's recent name change, the reference to Jones, Day, Reavis & Pogue in the first column of the Proposed Exemption at 68 FR 2584 should be changed to Jones Day. 7. The Series C Preferred Stock ranks senior to Common Stock with respect to liquidation and certain dividend rights. All transactions involving the Plans in connection with the contribution of Pinnacle shares will be no less favorable to the Plans than arm's length transactions involving unrelated parties. A menu will appear on the left side of the screen. In addition, Delaware law would not restrict NWA Corp., a Delaware corporation, from repurchasing the Pinnacle Stock as the guarantor of the Put Option. 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. delta airlines pension plan phone number. In addition, Fiduciary Counselors negotiated comprehensive voting and governance rights specifically for the Plans under the Omnibus Agreement. Finally, Fiduciary Counselors requests that in Section III. Here, they assert, the purpose of the exemption, to provide the Plans with a valuable security while maintaining Northwest's liquidity, would be undermined if assets were required to be used as collateral in connection with contributions of Pinnacle Stock. B. Despite the turmoil in the industry in recent years, Eclat felt that Northwest has emerged as, perhaps, the most stable airline in the industry. The restrictions of sections 406(a), 406(b)(1) and (b)(2), and 407(a) of the Act and the sanctions resulting from the application of section 4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A) through (E) of the Code, shall not apply to: (1) The transfer of the common shares of Pinnacle Airlines Corp. (Pinnacle Stock) to the Northwest Airlines Pension Plan for Salaried Employees, the Northwest Airlines Pension Plan for Pilot Employees, and the Northwest Airlines Pension Plan for Contract Employees (the Plans) through the in-kind contribution(s) of such shares 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 by Northwest which permits the Plans to sell the Pinnacle Stock to Northwest; and. Printer Friendly Version Archived News Release Caution: Information may be out of date. (p) Any other factors necessary for a prudent determination of the market value of Pinnacle Stock. The IF Report notes that the Independent Fiduciary drew upon the resources of its affiliate, Aon Investment Counseling, Inc. (AIC), to assist it in its financial analysis and valuation of the Pinnacle Stock. The details of the Pinnacle Stock contribution were provided in the March 3, 2003 letter. 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. This Section requires that all revenue flying for Northwest and its affiliates must be performed by pilots on the integrated Pilots System Seniority List in accordance with the collective bargaining agreement, except for revenue flying by an airline that at all times operates only aircraft that are certified with a maximum passenger capacity of 60, and a maximum gross takeoff weight of less than 70,000 pounds. It is not an official legal edition of the Federal With PBGC's consent, Eclat was subsequently retained by the Independent Fiduciary to value the Pinnacle Common Stock. 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. This is because a cash contribution is not a viable alternative given the company's liquidity needs. The labor situation is Start Printed Page 49797stable. The ASA also was revised to eliminate the unilateral right of Northwest to terminate the ASA in the event of the bankruptcy of Northwest. Northwest notes that the board previously approved the Omnibus Agreement, which includes the Put Option, and no further action would be required of the board in the event that the Put Option is exercised by the Independent Fiduciary. Northwest believes this is the best outcome for all Plan participants and beneficiaries. 3. Northwest and ALPA assert that the voluntary contribution gives Northwest the liquidity it needs, and thereby the ability to maintain all of its Plans, by eliminating the funding requirement for the Pilot Plan for the 2003 Plan Year, possibly reducing the funding requirements for future plan years, and by waiving the monthly contribution requirement under the pilot collective bargaining agreement for the 2004 and 2005 Plan Years. Thus, the ALPA agreement will be formally entered into and effective on the date of the voluntary contribution. 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. Total cost is only $ 299.00. The Department has, in transactions of this nature, placed emphasis on the need for an Independent Fiduciary and on such Independent Fiduciary's considered and objective evaluation of the transactions. legal research should verify their results against an official edition of At the conclusion of these deliberations, it was clear that the legal restrictions applicable to stock buy backs under Delaware Law did not permit Northwest to proceed at this time with the buy back of the Series C Preferred Stock. 5. documents in the last year, 876 On August 1, 2003, in response to the Department's questions concerning the legal restrictions that prevented Northwest from repurchasing the Series C Preferred Stock and whether these legal restrictions were tied to Northwest's financial condition, Northwest explained that in making the Series C stock repurchase decision, the board of NWA Corp. was subject to a Delaware law that applies only to NWA Corp.'s repurchase of its own stock. Representatives are available to assist you The Proposed Exemption included specific conditions that ensure that the independent fiduciary is free from conflicts of interest. We want to do so as soon as possible. Although the Plan's option is exercisable at anytime, unlike a normal option, Northwest does not have to immediately settle. 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). AIC valued the Put Option at $20,680,684 using a Black-Scholes American option-pricing model. 1. include documents scheduled for later issues, at the request 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. It is the view of the Department that acceptance of an in-kind contribution is a fiduciary act subject to section 404 of ERISA. documents in the last year, 675 for better understanding how a document is structured but 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. daily Federal Register on FederalRegister.gov will remain an unofficial Alternatively, Northwest could consider filing for bankruptcy, which would suspend most pension contributions, and could result in termination of some or all of the Plans.. The Term Sheet originally placed the right to request this fairness opinion solely on the Plans' director, who asked that this duty be placed on the independent directors of which the Plans' director is a member. On April 25, 2003, Fiduciary Counselors provided to the Department the Independent Fiduciary Report on Contribution of Pinnacle Airlines Corp. Stock to the Northwest Airlines Pension Plan For Contract Employees dated March 16, 2003 (the IF Report), the January 15, 2003 Eclat valuation of Pinnacle (the January 15, 2003 Valuation), and an explanation of the valuation of the Put Option. 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. 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 this regard, the Independent Fiduciary represented that it negotiated terms that it determined were no less favorable to the Plans than terms negotiated at arm's length with an unrelated third party under similar circumstances. Start Printed Page 49808. 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. Northwest responded that no similar legal restriction would apply to the repurchase of Pinnacle Stock pursuant to the exercise of the Put Option. Definitions at (a) of the Proposed Exemption in column 1 of 68 FR 2590, the reference to 5 percent (5%) of such fiduciary's gross income, for Federal income tax purposes, in its prior tax year, will be paid by Northwest should read 5 percent (5%) of such fiduciary's annual gross revenue in the year of its engagement, will be paid by Northwest.. The Independent Fiduciary retained an independent, expert airlines valuation firm, Eclat, to provide valuation services. Publi . You are here: . The Proposed Exemption is part of Northwest's strategy to achieve that goal. Northwest will make a voluntary contribution to the Pilot Plan on or before September 15, 2003 so that the funded current liability percentage for the Plan is at least 80% for the 2003 Plan Year. 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. 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. Similarly, in the second column of 68 FR 2588 (third full paragraph), the reference in subclause (II) to the closing price of Pinnacle shares on the closing date should refer to the last trading day before the closing date. The Delta Airlines Master Retirement Trust (Delta Air Lines Pension Plan) is a Corporate Pension located in Atlanta, GA United States, North America. 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. 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. [7] informational resource until the Administrative Committee of the Federal 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. and services, go to In determining the fair market value of the stock, the Independent Fiduciary must obtain an appraisal by a qualified independent appraiser, and must ensure that the appraisal is consistent with sound principles of valuation. 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). AP/World Wide Photos 88044 32PG_3 .qxd:Fall 2006_09_28_06.qxd 6/27/07 11:55 AM Page 29 Accordingly, this final exemption is issued solely by the Department. 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. In particular, the risk and the liquidity of the Pinnacle Stock were taken into account and are explained in the reports issued by Fiduciary Counselors and Eclat. Using the Black-Scholes American option pricing model, Eclat determined the value of the Put Option to be $20,680,684. Northwest also believes that the value of Pinnacle Stock is less exposed to bankruptcy risk than Northwest stock. The value was then increased to reflect the value of the put. The holders of outstanding Series C Preferred Stock have a put right in 2003 to require NWA Corp. to repurchase such shares for an amount equal to the actual wage savings achieved under the 1993 labor agreement (projected to be $226 million at the August 1, 2003 put date). In this regard, Northwest believes that this provided even more favorable terms for the Plans than those reflected in the Term Sheet.[2]. Each share of the Series C Preferred Stock is convertible at any time into 1.364 shares of NWA Corp. Common Stock (Common Stock). Additionally, Fiduciary Counselors agreed only to a limited period during which Northwest has the exclusive right to cause an IPO. These can be useful Some commenters asked if Northwest would be willing to guarantee the Plans a minimum rate of return on the Pinnacle Stock such as a rate equal to the inflation rate. Section 1C of the Northwest Pilots Agreement, the Collective Bargaining Agreement between Northwest and the Air Line Pilots Association dated as of September 13, 1998, as amended, or any successor agreement. 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. Wendy M. McColough of the Office of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor, telephone (202) 693-8540. Southwest has a small operation in Detroit with only 2 gates. The terms of the ASA and related agreements are more favorable to Pinnacle than an arm's length transaction between unrelated parties, and substantially determine and enhance the value of Pinnacle. documents in the last year, 28 On that day, ALPA, TWUA, NAMA, ATSA and the Company on behalf of its management and non-contract employees exercised the Special Conversion Option, with the IAM and IBT electing not to exercise the Special Conversion Option (63 shares are still owned by the ALPA trust). Director, Office of Exemption Determinations, Employee Benefits Security Administration, Department of Labor. In valuing Pinnacle Stock, the Independent Fiduciary specifically applied a 15% liquidity discount and a 5% discount to take into account that, for some period, the Plans would be a minority shareholder. Comment: Some comments suggested that Northwest be required to post collateral in order to contribute Pinnacle Stock to the Plans. 4. In addition to determining the value of Pinnacle Stock at the time of a proposed contribution, the Independent Fiduciary will provide an annual written valuation of the per share value of all Pinnacle Stock held by the Plans as of each December 31 and at any time the Independent Fiduciary exercises the Put Option described below. Except for one director appointed by Northwest, Pinnacle's board is independent of Northwest. This prototype edition of the See Omnibus Agreement at section 7.3. If such appropriate Plan fiduciary determines the liquidity of the Plans is impaired, such fiduciary shall direct the Independent Fiduciary to dispose of all or a portion of the Pinnacle Stock consistent with the terms of the Omnibus Agreement to the extent commercially reasonable. 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. Northwest replied that Northwest does not manage Pinnacle. Select the item (s) you need from this menu. No commissions, fees, costs, charges or other expenses will be borne by the Independent Fiduciary or the Plans in connection with any acquisition, holding or disposition of Pinnacle shares to or from the Plans, other than the underwriters' discount or other broker-dealer fees or commissions charged in any sale of such shares. Northwest observed that the Term Sheet, as reflected in the Proposed Exemption, allows Northwest to defer the closing date with respect to Pinnacle Stock repurchased pursuant to the Put Option (such delay, a Deferral). On January 17, 2003, the Department published a notice in the Federal Register (68 FR 2578) of a proposed individual exemption (the Proposed Exemption). 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. The Independent Fiduciary will have the sole responsibility to determine whether to acquire, hold or dispose of Pinnacle Stock on behalf of the Plans and whether to exercise the Put Option with respect to Pinnacle Stock. 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. 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. (5) The guaranty to the Plans by Northwest Airlines Corporation of Northwest's obligation to honor the Put Option. The Initial Contribution was comprised of 1,819,833 shares valued at $22.61 per share. documents in the last year, 274 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. Any remaining Pinnacle stock will then be contributed to the Contract Plan. 702 King Farm Boulevard, Suite 400, Rockville, MD 20850 / +1 212-944-4455 / issgovernance.comAMR Under Pressure to Preserve Pensions . Additionally, ALPA requested that it be involved in the monitoring of the Independent Fiduciary. Retiree Pass Travel To access paycheck receipts (stubs), W-2's, and 1099's go to the DeltaNet for Alumni home page and click "Self Service" on the white menu bar, then click "My Money". Northwest Response: Northwest explains that, while the Proposed Exemption and the Omnibus Agreement negotiated with Fiduciary Counselors do not require collateral, the Proposed Exemption and the Omnibus Agreement include provisions designed to limit the need for collateral. 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. 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. documents in the last year, by the Food Safety and Inspection Service Under the Letter Agreement, the Salaried and Contract Plans will instead hold Pinnacle Stock with a value equal to approximately 8% of their respective assets. 4. 2. 2. As with the Term Sheet, the final Omnibus Agreement provides that the Deferral shall be shortened if Pinnacle Stock is publicly traded. Northwest Airlines, Inc.Current Liability Funded Status at January 1, 2003. Accordingly, based upon the representations made by the Applicant, the written comments received in response to the Proposed Exemption, the record of the public hearing, and the analysis conducted by the Independent Fiduciary, the Department has determined to grant the exemption. Found inside Page 25Although the number has been sliding dramatically since the late 1980s, nearly twenty-nine thousand most of their pension plans in 2005; a year later, in August 2006, Delta shed its pilots' plan, and Northwest Airlines threatened to About the Plan Plan Documents Important Mailings News and Media Glossary of Terms 10% for . The Independent Fiduciary negotiated the survival of the representations and warranties in general for 24 months after the Closing Date and indefinitely with respect to those relating to Northwest's ownership of the Pinnacle Stock and Pinnacle's ownership of the outstanding shares of Pinnacle Airlines, Inc. prior to the Initial Contribution; Northwest's ownership of the Pinnacle Stock prior to any subsequent Contribution; and Northwest's and NWA's representation that the contemplated transactions do not violate or result in a default under any of their material contracts, including without limitation, the Credit Agreement. The Term Sheet did not provide for the Additional Initial Contribution. Preview; Edit & Save; Related Documents; 50 of the Top 250 law firms use our Products every day. In considering whether to accept an in-kind contribution, the Independent Fiduciary's responsibilities include the following: 1. In addition, Northwest shall provide it with copies of any amendments to the credit agreement. 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. 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. The monthly contributions required to be made to the Pilot Plan pursuant to the pilot collective bargaining agreement are waived for the 2004 and 2005 Plan Year. on Eclat determined that Pinnacle and Northwest are healthy companies, even in light of current economic conditions in the airline industry. Lastly, the Department notes that the above described responsibilities to be undertaken by the Independent Fiduciary are material factors in the Department's determination to grant a final exemption. Fiduciary Counselors and Eclat represent that Eclat was originally retained by PBGC to value Pinnacle and to evaluate the financial viability of Northwest. As Northwest's track record demonstrates, Northwest agrees that the Plans need to be soundly funded. 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. 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. Appendices were attached that illustrate the valuation model used and highlight some of the additional information used to conduct the analysis. By permitting the contribution of Pinnacle Stock, Northwest is able to preserve needed cash so that it can withstand several years of losses. 4 of 1978 (5 U.S.C. northwest airlines pension plan phone number. has no substantive legal effect. On August 1, 2003, Northwest issued a press release that announced its decision on the Series C Preferred Stock. Northwest reported a net loss of $46 million, with operating income of $8 million in the 3rd quarter of 2002. According to the IF Report, Eclat estimates that Pinnacle's value to the Northwest domestic system is between $520 million and $540 million annually as the carrier exists today. 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.
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