documents in the last year, 16 As Northwest's track record demonstrates, Northwest agrees that the Plans need to be soundly funded. The IF Report notes that Northwest is a global carrier through its alliance with KLM and its Amsterdam hub, and its own hub in Tokyo. 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 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. (e) A statement of the relevance or significance accorded to the valuation methodologies taken into account. An additional provision that would prohibit Northwest from using its rights under the Series A Preferred Share to block a Transfer of Pinnacle Stock following an Early Termination Event. The IAM National 401 (k) Fund has 30,905 participant accounts and $743 million in assets under management. 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. The Independent Fiduciary was also advised on the requirements of the U.S. Department of Transportation regarding restrictions on directors of airlines. Northwest represents that the final terms of the Omnibus Agreement reflect the fact that Fiduciary Counselors has represented the Plans' interests. 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. Wendy M. McColough of the Office of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor, telephone (202) 693-8540. 4. on NARA's archives.gov. 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. Northwest Response: Northwest notes that it has never before sought a prohibited transaction exemption and has never missed a pension funding payment. Each document posted on the site includes a link to the 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 Application pertaining to the exemption, the Proposed Exemption, the comments submitted to the Department and the responses to the comments, the transcript of the Hearing, and all other documents submitted to the Department concerning this exemption have been included as part of the public record of the Application. Indeed, the January 15, 2003 Valuation indicates that the Plans could receive a 20 percent IPO premium in connection with the Pinnacle Stock investment. However, Northwest has proposed to contribute Pinnacle Stock because it believes that it is a superior investment for the Plans. 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. Pursuant to its engagement letter with Northwest, the scope of Fiduciary Counselors' engagement includes determining whether to accept the Contribution on behalf of the Plans, and if so, to value the Pinnacle Stock for Plan funding purposes. App. The OFR/GPO partnership is committed to presenting accurate and reliable Omnibus Agreement at section 7.2, Certain Approval Rights. documents in the last year, 37 After that date, the Omnibus Agreement provides Fiduciary Counselors with the right to cause an IPO of Pinnacle Stock. 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. 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? Several commenters asked whether the Plan trustees should decide when to initiate a public offering since the Plans will own a majority of Pinnacle Stock. 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 stock has long term upside potential because of the planned IPO. 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. Start Printed Page 49803Northwest stated [i]n the absence of an exemption, Northwest would have to consider the contribution of NWA Corp. stock or an IRS waiver. Pinnacle itself had revenues of approximately $345.2 million for 2002. documents in the last year, 1487 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. 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. Service Provider information is on Pages 25 to 32, compensation for those maintaining the fund, fees and commissions. The Pilot Plan and its participants benefit from the voluntary contribution by providing an early contribution of an asset with significant Start Printed Page 49806value to more adequately fund the benefits promised under the Pilot Plan. The Contract Employees share of the Master Trust assets are $1,665,979,000. that agencies use to create their documents. These guidelines contemplate that a certain amount of assets will be allocated to securities with risk and return characteristics similar to Pinnacle Stock. (d) A statement of the stock's value, the methodologies used in determining the value, the reasons for the valuation in light of the methodologies, and the reasons that the appraiser chose to apply particular valuation methods rather than others. Additionally, the Independent Fiduciary corrects language in the fifth paragraph of the Voting Provisions of the Proposed Exemption that states a majority of Pinnacle's board is needed for the approval of compensation of Pinnacle's CEO. The Initial Contribution was comprised of 1,819,833 shares valued at $22.61 per share. The Northwest Airlines Pension Plan for Contract Employees is approximately forty percent of the Master Trust. Thus, the fourth bullet point in the second column at 68 FR 2585 (describing certain voting rights) should be modified accordingly. These can be useful This feature is not available for this document. Northwest states, as noted in the Proposed Exemption, that the Master Trust is established in a manner such that all Plans hold an undivided and commingled interest in the assets of the Trust. Northwest noted that the second bullet point in the third column at 68 FR 2585 (respecting the obtainment of fairness opinions) has been revised. 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. This is because a cash contribution is not a viable alternative given the company's liquidity needs. 2. (c) Protective of the rights of the participants and beneficiaries of the plans. In addition, Delaware law would not restrict NWA Corp., a Delaware corporation, from repurchasing the Pinnacle Stock as the guarantor of the Put Option. As a result, Northwest has a strong interest in ensuring that maximum value is obtained in connection with an IPO and Northwest believes that it is appropriate for it to determine the timing of an IPO. Contact; Member Login Become a Member. 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 Independent Fiduciary retained an independent, expert airlines valuation firm, Eclat, to provide valuation services. We are an independent firm and are not in the investment advisory or trust business. The Department asked whether Northwest intends to contribute cash or some other asset to satisfy the balance of the calendar year 2003 funding requirements of the Salaried and Contract Plans that will not be met by the Pinnacle Stock contribution as a result of the Letter Agreement. Eclat will furnish a similar valuation report with respect to each subsequent contribution. on delta airlines pension plan phone number. During the Hearing, employees of Northwest referenced an employee stock program that was established by the company in 1993. 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. documents in the last year, 84 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. of the issuing agency. documents in the last year, 480 The Independent Fiduciary negotiated the terms of the Put Option which provide downside protection by permitting the Plans to sell the Pinnacle Stock back to Northwest for the greater of the original value at which it was credited to the funding standard account or its fair market value at the time it is sold back to Northwest. Approximately forty percent of the relevance or significance accorded to the valuation methodologies into... 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