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documents in the last year, by the Indian Affairs Bureau 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. (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. In this regard, section 11.3(b) of the Omnibus Agreement now provides that at the request of a majority of Pinnacle's independent directors, a fairness opinion will be obtained from an investment bank respecting certain Affiliate Transactions. on FederalRegister.gov 1, 1995) transferred the authority of the Secretary of the Treasury to issue exemptions of the type requested to the Secretary of Labor. 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. Until the ACFR grants it official status, the XML 3. Moreover, to the extent that Northwest has assets to secure the contributions, such assets will be used to maintain the liquidity necessary for Northwest to weather the ongoing economic challenges. 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. 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. establishing the XML-based Federal Register as an ACFR-sanctioned The IF Report provides that the Independent Fiduciary and its advisors participated in numerous telephone conferences with representatives of Northwest and Pinnacle through November, December and early January concerning the Independent Fiduciary's engagement, the proposed Contribution, the status of Northwest's minimum funding waiver applications to the Internal Revenue Service and the Proposed Exemption. New Documents 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. (c) The term control means the power to exercise a controlling influence over the management or policies of a person other than an individual. Similarly, U.S. Airways did not reject its ASA with its regional airline partners Mesa and Chautauqua. The selection of an independent qualified appraiser to determine the value of an in-kind contribution and the acceptance of the resulting valuation are fiduciary decisions governed by the provisions of Part 4 of Title I ERISA. At that time, the Pilot Plan did not participate in the Pinnacle Stock Investment Fund.[4]. how long to keep medicare statements after death; 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. At the time a participant exercises conversion rights, the Series C Preferred Stock is converted to Common Stock, the Common Stock is sold and cash is allocated to participant accounts. For purposes of this requirement, the term employer real property means real property leased to, and the term employer securities means securities issued by, an employer any of whose employees are covered by the Plans or by an affiliate of such employer; and. 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.. The notice also invited interested persons to submit comments on the proposed exemption and/or to request that a public hearing be held. 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. Northwest explained that, as part of labor agreements reached in 1993, Northwest's parent company, NWA Corp., issued to trusts for the benefit of participating employees 9.1 million shares of a new class of Series C cumulative, voting, convertible, redeemable preferred stock, par value of $.01 per share (the Series C Preferred Stock), and 17.5 million shares of Common Stock and provided the union groups with three positions on the Board of Directors. Official Publications from the U.S. Government Publishing Office. Schedule Health & Welfare Appointment. The Omnibus Agreement provided for two contributions to be made to the Contract Plan on January 15, 2003. Northwest Airlines Pension Plan For Pilot Employees litigation, intellectual property, and other public records. It is the view of the Department that acceptance of an in-kind contribution is a fiduciary act subject to section 404 of ERISA. Thus, to eliminate the potential for a conflict of interest, two parties completely independent of NorthwestFiduciary Counselors and Eclatrepresented the interests of the Plans in connection with the transaction. (b) A statement that the appraiser is independent of Pinnacle and Northwest, and that the appraiser has no interest in the securities issued by Pinnacle or Northwest. The director designated by the Plans will have the right to serve on Pinnacle's audit committee to the extent permitted under applicable SEC and stock exchange rules. Northwest noted that under the terms of the Omnibus Agreement, Northwest is responsible for making up the difference, if any, between the IPO price and the original contribution value. Northwest Response: Northwest notes that like other major airlines, Northwest is in a temporary period of extraordinary airline revenue weakness and volatility. (j) That the fair market value of the stock has been determined by way of a prudent investigation. Fiduciary Counselors sent additional information to the Department on July 11, 2003. 4 of 1978 (5 U.S.C. The stock has long term upside potential because of the planned IPO. These can be useful The OFR/GPO partnership is committed to presenting accurate and reliable Eclat determined that Pinnacle and Northwest are healthy companies, even in light of current economic conditions in the airline industry. The 4.48% discount represents what Eclat used for Pinnacle's pre-tax cost of debt (9.6%) adjusted for a six-month period. Northwest will obtain an amendment of the Omnibus Agreement so that the Independent Fiduciary will have first priority to sell Pinnacle Stock in an initial public offering, if certain conditions exist. A comprehensive set of representations and warranties relating to both Pinnacle, Northwest and its affiliates. 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. Posted on . 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. 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. Printer Friendly Version Archived News Release Caution: Information may be out of date. 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. This prototype edition of the The Independent Fiduciary recognizes that all aspects of its engagement involved fiduciary actions, and, for that reason, representatives of the Independent Fiduciary and its financial and legal advisors actively participated in the negotiations relating to the Omnibus Agreement and in the evaluation of the decision of whether to accept the Contribution. Each of these plans is a Code section 401(k) plan that is tax qualified under section 401(a) of the Code and subject to ERISA. 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. The Proposed Exemption was requested in an application filed on Start Printed Page 49793behalf of Northwest pursuant to section 408(a) of the Act and section 4975(c)(2) of the Code, and in accordance with the procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836, August 10, 1990). Pinnacle Airlines Corp. is the holding company of Pinnacle Airlines, Inc. 2. As a condition of the Proposed Exemption, Fiduciary Counselors, using the services of its independent appraisal firm Eclat, Start Printed Page 49802determined the value of Pinnacle Stock. informational resource until the Administrative Committee of the Federal The original Employee Stock Plan was established in 1993. 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. 1. 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. documents in the last year, 117 Since Northwest was prohibited from investing the Pilot Plan's assets in employer stock, the Pilot Plan at that time, did not participate in the investment fund. Accordingly, Northwest notes that, consistent with the Omnibus Agreement's terms, the Additional Initial Contribution will be treated as a credit balance and be applied toward future contributions to the Contract Plan. Maintaining liquidity is key to Northwest's strategy for avoiding bankruptcy. 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. The exemption permits: (1) The in-kind contribution(s) of the common stock of Pinnacle Airlines Corp.[1] Enter the nine-digit employee number and press #. 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. For example, Fiduciary Counselors appointed a director to Pinnacle's board who sits on the board's audit committee. 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 drop-off in premium passenger traffic, the weak U.S. economy, and the increased presence of low-cost carriers has impacted the ability of the network carriers to generate high yield revenue. The Independent Fiduciary and its advisors reviewed various documents relevant to the Contribution, including without limitation, Northwest's certificate of incorporation; Northwest's corporate bylaws; the certificate of incorporation of Pinnacle; the Master Trust agreement pursuant to which the Plan assets are currently held and managed; audited financial statements of the Plans for 2000 and 2001; the current Plan documents; the Plans' annual reports on Forms 5500 for 2000 and 2001; other information provided by Northwest regarding the Plans' assets (including the Plans' investment guidelines and portfolio composition); a statement prepared by the Plans' actuaries of the Plans' liquidity needs to pay benefits and administrative expenses in the near future and the sources of funds (other than the Pinnacle Stock) available to satisfy such liquidity needs; and certain of Pinnacle's collective bargaining agreements. 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. provide legal notice to the public or judicial notice to the courts. In addition, Northwest will provide the Independent Fiduciary with the information required to be provided to its lenders under its credit agreement. 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. documents in the last year, 480 This is because a regional airline derives its value from the value of its ASA with the major carrier and the major carrier is unlikely to terminate the ASA in bankruptcy because it would severely disrupt the flow of high yield passengers. Northwest Airlines Retirees . The voluntary contribution to the Pilot Plan will consist entirely of Pinnacle Stock. 2323 Eastlake Ave E Ste 400. developer tools pages. Preview; Edit & Save; Related Documents; 50 of the Top 250 law firms use our Products every day. In the March 5 Comment, Fiduciary Counselors corrected previous information provided to the Department in the Proposed Exemption with reference to employer securities or employer real property in the last sentence of paragraph 14 in column 1 of 68 FR 2584 (emphasis added) and each other place it occurs. Open for Comment, Rules of Practice and Procedure; Adjusting Civil Money Penalties for Inflation, Economic Sanctions & Foreign Assets Control, Revised Definition of Waters of the United States, Certain Preserved Mushrooms From France Determination, Energy Conservation Program: Test Procedure for Dishwashers, Prior Label Approval System: Expansion of Generic Label Approval, Rate Adjustments for Indian Irrigation Projects, Establishing the President's Advisory Council on African Diaspora Engagement in the United States, Employee Benefits Security Administration, Valuation in Connection With the Right of First Refusal, Fiduciary Counselors March 5, 2003 Comment, Fiduciary Counselors and Eclat April 25, 2003 Submissions, The Eclat Report and the January 15, 2003 Valuation, Negotiation of the Term Sheet and Omnibus Agreement, The Independent Fiduciary's Determinations, Airline Industry and Northwest Financial Condition, Collateral for Pinnacle Stock Contribution, Northwest May 20 and June 10, 2003 Comment Letters, Fiduciary Counselors' July 11, 2003 Submission, Change of Affiliation of Fiduciary Counselors, Termination of the Independent Fiduciary Agreement, Northwest and ALPA Agreement Regarding Pinnacle Stock, August 6, 2003 Northwest and Independent Fiduciary Response, Enhanced Communication with Plan Participants, https://www.federalregister.gov/d/03-21162, MODS: Government Publishing Office metadata, Current Liability using 6.65% interest rate (IRC 412(l)), Market Value of Assets (with PY02 accrued contributions), Actuarial Value of Assets (with PY02 accrued contributions). Each document posted on the site includes a link to the 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. Comment: A number of comments noted that the airline industry is experiencing significant financial troubles and that some other airlines are in bankruptcy. Northwest may not terminate Fiduciary Counselors as the Independent Fiduciary without the consent of ALPA and may not appoint a new Independent Fiduciary without the consent of ALPA. 4. 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. Employee Benefits Security Administration, Department of Labor. The value of the transaction is enhanced due to the downside protection that this Put Option provides. The Department wishes to clarify that any replacement Independent Fiduciary must be acceptable to the Department and must assume its responsibility prior to the effective date of the removal of the predecessor Independent Fiduciary. 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. headings within the legal text of Federal Register documents. (5) The guaranty to the Plans by Northwest Airlines Corporation of Northwest's obligation to honor the Put Option. The total value of the Initial Contribution and Additional Initial Contributions made to the Contract Plan was $43,821,894. 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. Such techniques were employed by Fiduciary Counselors and Eclat in this circumstance. More frequent notice will be required based on Northwest's liquidity and the value of the Pinnacle Stock contributed to the Plans. Several commenters requested that Northwest provide for enhanced communication with the Plan participants concerning the Exemption Transactions. The attention of interested person is directed to the following: (1) The fact that a transaction is the subject of an exemption under section 408(a) of the Act and section 4975(c)(2) of the Code does not relieve a fiduciary or other party in interest or disqualified person from certain other provisions of the Act and the Code, including any prohibited transaction provisions to which the exemption does not apply and the general fiduciary responsibility provisions of section 404 of the Act, which require, among other things, a fiduciary to discharge his or her duties respecting the plan solely in the interest of the participants and beneficiaries of the plan and in a prudent fashion in accordance with section 404(a)(1)(B) of the Act; nor does it affect the requirements of section 401(a) of the Code that the plan operate for the exclusive benefit of the employees of the employer maintaining the plan and their beneficiaries; (2) The exemption will not extend to transactions prohibited under section 406(b)(3) of the Act and section 4975(c)(1)(F) of the Code; (3) In accordance with section 408(a) of the Act and section 4975(c)(2) of the Code and the procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon the entire record, the Department finds that the exemption is administratively feasible, in the interests of the plans and their participants and beneficiaries and protective of the rights of the participants and beneficiaries of the plans; (4) This exemption is supplemental to, and not in derogation of, any other provisions of the Act and/or the Code, including statutory or administrative exemptions and transitional rules. has no substantive legal effect. The Proposed Exemption further required that the independent fiduciary obtain expert valuation advice from an independent valuation firm. 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. However, as noted in Northwest's Application, the final terms of the Put Option were subject to negotiation with Fiduciary Counselors. By permitting the contribution of Pinnacle Stock, Northwest is able to preserve needed cash so that it can withstand several years of losses. 702 King Farm Boulevard, Suite 400, Rockville, MD 20850 / +1 212-944-4455 / issgovernance.comAMR Under Pressure to Preserve Pensions . 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. documents in the last year, 90 Indeed, the January 15, 2003 Valuation indicates that the Plans could receive a 20 percent IPO premium in connection with the Pinnacle Stock investment. Indeed, during the 1990's, Northwest contributed to its pension plans millions of dollars more than the required amount of contributions. publication in the future. the Federal Register. 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. 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. On May 16, 2003, Mr. William S. Swelbar, Managing Director of Eclat, responded to the Department concerning questions on the two valuations of Pinnacle. On July 23, 2003, Northwest confirmed to the Department that the modifications to the ASA referred to in the Proposed Exemption have been made. Title: NORTHWEST AIRLINES EXCESS PENSION PLAN FOR SALARIED EMPLOYEES Date: 3/16/2007 Industry: Airline Sector: Transportation. In addition, Northwest shall provide it with copies of any amendments to the credit agreement. 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. These tools are designed to help you understand the official document 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. 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