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49792 Federal Register / Vol. 68, No.

160 / Tuesday, August 19, 2003 / Notices

the top. All submissions requesting the Commission’s electronic docket DEPARTMENT OF LABOR
confidential treatment must conform (EDIS) at http://edis.usitc.gov.
with the requirements of section 201.6 Employee Benefits Security
of the Commission’s Rules of Practice SUPPLEMENTARY INFORMATION: On March Administration
and Procedure (19 CFR 201.6). All 20, 2003, the Department of Commerce
(Commerce) made its preliminary [Prohibited Transaction Exemption (PTE)
written submissions, except for 2003–26, Exemption Application Numbers
confidential business information, will determinations for China (68 FR 13674) D–11137, 11138, and 11139]
be made available for inspection by and Korea (68 FR 13681). On April 14,
interested persons. The Commission 2003, the Commission accordingly Northwest Airlines Pension Plan for
may include such confidential business established a schedule for the conduct Salaried Employees (Salaried Plan),
information in the report it sends to of the final phase of the subject the Northwest Airlines Pension Plan
USTR. All submissions should be investigations (68 FR 17964). On August for Pilot Employees (Pilot Plan), and
addressed to the Secretary at the 11, 2003, Commerce made its final the Northwest Airlines Pension Plan
Commission’s office in Washington, DC. determinations for China (68 FR 47538) for Contract Employees (Contract
The Commission’s rules do not and Korea (68 FR 47540). The Plan) (Collectively, the Plans), Located
authorize filing of submissions with the Commission, therefore, is revising its in Eagan, MN
Secretary by facsimile or electronic schedule to conform with the statutory AGENCY: Employee Benefits Security
means, except to the extent permitted by deadlines established by the date of Administration, Department of Labor.
section 201.8 of the Commission’s Rules publication in the Federal Register of ACTION: Grant of individual exemption.
(19 CFR 201.18) (see Handbook for Commerce’s final determinations.
Electronic Filing Procedures, ftp:// SUMMARY: This document contains a
The Commission’s new schedule for
ftp.usitc.gov/pub/reports/ final exemption issued by the
electronic_filing_handbook.pdf). the investigations is as follows: A
Department of Labor (the Department)
Hearing-impaired individuals are supplemental staff report will be placed from certain prohibited transaction
advised that information on this matter in the nonpublic record on August 27, restrictions of the Employee Retirement
can be obtained by contacting our TDD 2003, and party comments on the Income Security Act of 1974 (ERISA or
terminal on (202) 205–1810. supplemental staff report and on the Act) and from certain taxes imposed
Commerce’s final determinations are by the Internal Revenue Code of 1986
Issued: August 13, 2003.
due on September 4, 2003. Party (the Code).
By order of the Commission.
comments may not exceed 20 pages of The exemption permits: (1) The in-
Marilyn R. Abbott, textual material, double-spaced and kind contribution(s) of the common
Secretary. single-sided, on stationery measuring stock of Pinnacle Airlines Corp.1
[FR Doc. 03–21201 Filed 8–18–03; 8:45 am] 81⁄2 x 11 inches, and shall otherwise (Pinnacle Stock) to the Plans by
BILLING CODE 7020–02–P satisfy the requirements of section Northwest Airlines, Inc. (Northwest), a
207.30(b) of the Commission’s rules. party in interest with respect to such
Plans; (2) the holding of the Pinnacle
INTERNATIONAL TRADE For further information concerning
Stock by the Plans; (3) the sale of the
COMMISSION these investigations see the
Pinnacle Stock by the Plans to
Commission’s notice cited above and Northwest; (4) the acquisition, holding,
[Investigations Nos. 731–TA–1014 and 1017 the Commission’s Rules of Practice and and exercise by the Plans of a put option
(Final)] Procedure, part 201, subparts A through (the Put Option) granted to the Plans by
E (19 CFR part 201), and part 207, Northwest; and (5) the guaranty to the
Polyvinyl Alcohol From China and subparts A and C (19 CFR part 207).
Korea Plans by Northwest Airlines
Authority: These investigations are being Corporation (NWA Corp.) of
AGENCY: International Trade conducted under authority of title VII of the Northwest’s obligation to honor the Put
Commission. Tariff Act of 1930; this notice is published Option (the Exemption Transactions).
ACTION: Revised schedule for the subject pursuant to section 207.21 of the The exemption affects participants and
investigations. Commission’s rules. beneficiaries of, and fiduciaries with
Issued: August 13, 2003. respect to, the Plans.
DATES: August 13, 2003. DATES: This exemption is effective as of
By order of the Commission.
FOR FURTHER INFORMATION CONTACT: January 15, 2003.
Debra Baker (202–205–3180), Office of Marilyn R. Abbott, FOR FURTHER INFORMATION CONTACT:
Investigations, U.S. International Trade Secretary. Wendy M. McColough of the Office of
Commission, 500 E Street SW., [FR Doc. 03–21202 Filed 8–18–03; 8:45 am] Exemption Determinations, Employee
Washington, DC 20436. Hearing- BILLING CODE 7020–02–P Benefits Security Administration, U.S.
impaired persons can obtain Department of Labor, telephone (202)
information on this matter by contacting 693–8540. (This is not a toll-free
the Commission’s TDD terminal on 202– number.)
205–1810. Persons with mobility SUPPLEMENTARY INFORMATION: On
impairments who will need special January 17, 2003, the Department
assistance in gaining access to the published a notice in the Federal
Commission should contact the Office Register (68 FR 2578) of a proposed
of the Secretary at 202–205–2000. individual exemption (the Proposed
General information concerning the Exemption). The Proposed Exemption
Commission may also be obtained by was requested in an application filed on
accessing its Internet server (http://
www.usitc.gov). The public record for 1 Pinnacle Airlines Corp. is the holding company

these investigations may be viewed on of Pinnacle Airlines, Inc.

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Federal Register / Vol. 68, No. 160 / Tuesday, August 19, 2003 / Notices 49793

behalf of Northwest pursuant to section (the March 3 Comment). Northwest the amount of $2,671,983 (118,167
408(a) of the Act and section 4975(c)(2) represents that the contribution was shares valued at $22.61 per share).
of the Code, and in accordance with the effected after the date on which the The Term Sheet did not provide for
procedures set forth in 29 CFR part Department had completed work on the the Additional Initial Contribution. This
2570, subpart B (55 FR 32836, August Proposed Exemption. The details of the additional contribution was agreed
10, 1990). Effective December 31, 1978, Pinnacle Stock contribution were upon as a result of a technical concern
section 102 of Reorganization Plan No. provided in the March 3, 2003 letter. raised by Fiduciary Counselors
4 of 1978 (5 U.S.C. App. 1, 1995) Northwest also provided more detail regarding covenants in Northwest’s
transferred the authority of the Secretary about the final terms of the transactions $1.125 billion Credit and Guarantee
of the Treasury to issue exemptions of as agreed to by Northwest and the Plans’ Agreement dated October 24, 2000, as
the type requested to the Secretary of independent fiduciary, Aon Fiduciary amended under which Northwest is the
Labor. Accordingly, this final exemption Counselors, Inc. (Fiduciary Counselors borrower (the Credit Agreement), with
is issued solely by the Department. or Independent Fiduciary). Northwest Northwest’s bank lenders. The
The notice set forth a summary of the states that, in this regard, some Additional Initial Contribution served to
facts and representations contained in refinements were made to the provide the Plans with added protection
Northwest’s November 6, 2002 provisions of the ‘‘Term Sheet’’ when until Northwest obtained written
application for exemptive relief the parties negotiated and entered into assurances from the bank lenders that
(Application) and referred interested the final ‘‘Omnibus Agreement’’ the Put Option does not violate the
persons to the Application for a (executed on January 15, 2003). The Credit Agreement. On February 14,
complete statement of the facts and changes incorporated into the Omnibus 2003, Northwest obtained formal
representations. The Application has Agreement were requested and written confirmation from the bank
been available for public inspection at approved by Fiduciary Counselors. In lenders that none of the rights afforded
the Department in Washington, DC. this regard, Northwest believes that this to the Plans in the Omnibus Agreement
The notice also invited interested provided even more favorable terms for nor the exercise of such rights would
persons to submit comments on the the Plans than those reflected in the violate the Credit Agreement.
proposed exemption and/or to request Term Sheet.2 Accordingly, Northwest notes that,
that a public hearing be held. In consistent with the Omnibus
response to the solicitation of comments Contribution of Pinnacle Stock Agreement’s terms, the Additional
from interested persons, the Department Northwest reported that the Omnibus Initial Contribution will be treated as a
received over 1,700 letters, e-mails, Agreement was executed between credit balance and be applied toward
faxes and phone calls, of which more Pinnacle Airlines Corporation future contributions to the Contract
than 1,000 requested that a public (Pinnacle), Northwest Airlines, Inc. Plan.
hearing be held on the Proposed The total value of the Initial
(Northwest), Northwest Airlines
Exemption. Many of the commenters Contribution and Additional Initial
Corporation (NWA Corp.) and Aon
expressed concern about the effect of Contributions made to the Contract Plan
Fiduciary Counselors, Inc (Fiduciary
the Proposed Exemption on the Plans. was $43,821,894. Pinnacle Stock in that
Counselors). Pursuant to the terms of
The concerns expressed generally amount was transferred to State Street
the Omnibus Agreement, Northwest
related to the proposed contribution of Bank, the trustee for the Northwest
contributed Pinnacle Stock to the
Pinnacle Stock instead of a cash Master Trust for Defined Benefit Plans
Contract Plan. The Omnibus Agreement
contribution to the Plans; the value and that holds the assets of all of the
provided for two contributions to be
method of valuation of the Pinnacle Northwest Plans (the Master Trust).
made to the Contract Plan on January
Stock; the effects of the proposed Northwest instructed State Street Bank
15, 2003. An ‘‘Initial Contribution’’ was
transactions on the Plans; and the to establish an ‘‘Investment Fund’’ in
made in the amount of $41,149,911. The
adequacy of the proposed safeguards connection with the Plans’ Master Trust.
Initial Contribution was comprised of
that are intended to protect the Plans’ The Investment Fund holds Pinnacle
1,819,833 shares valued at $22.61 per
interests. In view of the comments Stock on behalf of the Contract Plan and
share.3 The amount of the Initial
requesting a hearing, on March 11, 2003, the Salaried Plan. As a result of
Contribution is equal to the amount that
the Department published in the instructions given to State Street, after
was required to meet the quarterly
Federal Register (68 FR 11589) a notice the contribution was made to the
funding requirements under ERISA
of hearing on the Proposed Exemption. Investment Fund, the Contract Plan
section 302 and Code section 412(l) for
The hearing on the Proposed Exemption owns 83.5% of the Investment Fund,
the Contract Plan due on January 15,
was held on May 5 and 6, 2003 at the while the Salaried Plan owns 16.5% of
2003. The Omnibus Agreement also
Department of Labor (the Hearing). the Investment Fund. Each Plan’s
provided for an ‘‘Additional Initial
Upon consideration of all of the percentage ownership reflects the
Contribution’’ to the Contract Plan in
comments received and testimony relative size of each Plan to each other.
offered at the Hearing, the Department 2 Northwest notes that the Omnibus Agreement,
At that time, the Pilot Plan did not
has determined to grant the proposed while consistent with the Term Sheet, provides
participate in the Pinnacle Stock
exemption subject to certain specific terms for: the contribution transactions; Investment Fund.4
transferability of Pinnacle Stock; corporate
modifications. These modifications and governance; voting rights; the Put Option; 4 Northwest states, as noted in the Proposed
the major comments are discussed representations and warranties; and a number of Exemption, that the Master Trust is established in
below. other matters. a manner such that all Plans hold an undivided and
3 Northwest represents that the amount of shares commingled interest in the assets of the Trust.
Discussion of the Comments necessary to satisfy the required contribution was Since Northwest was prohibited from investing the
based upon a final valuation of Pinnacle by Pilot Plan’s assets in employer stock, the Pilot Plan
Northwest March 3, 2003 Comment Fiduciary Counselors, relying on a valuation report at that time, did not participate in the investment
By letter dated March 3, 2003, prepared by Eclat Consulting. Northwest notes that, fund. However, Northwest notes that it has received
while Fiduciary Counselors received and reviewed the consent of the Air Line Pilots Association
Northwest described the Northwest valuation information provided by Morgan Stanley (ALPA), the union representing Northwest pilots, to
contribution of Pinnacle Stock made to & Co. Inc. (Morgan Stanley), Fiduciary Counselors permit the Pilot Plan to hold Pinnacle Stock (see
the Contract Plan on January 15, 2003 retained Eclat to provide valuation services. Continued

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49794 Federal Register / Vol. 68, No. 160 / Tuesday, August 19, 2003 / Notices

Description of the Put Option shares of capital stock of Pinnacle or Modification of Final Deferral Rule
Northwest noted that the description otherwise effect changes in the capital Northwest observed that the Term
of the Put Option in the first and second structure of Pinnacle. Thus, the fourth Sheet, as reflected in the Proposed
columns at 68 FR 2580 of the Federal bullet point in the second column at 68 Exemption, allows Northwest to defer
Register notice accurately describes the FR 2585 (describing certain voting the closing date with respect to Pinnacle
structure of the Put Option as described rights) should be modified accordingly. Stock repurchased pursuant to the Put
in Northwest’s Application. However, as The requirement (detailed in the last Option (such delay, a ‘‘Deferral’’). The
noted in Northwest’s Application, the bullet point in the second column of the length of the Deferral varies based upon
final terms of the Put Option were Proposed Exemption at 68 FR 2585) that a function of (1) the ‘‘liquidity’’ of
subject to negotiation with Fiduciary Plan shares of Pinnacle Stock be voted Northwest (as defined in the Omnibus
Counselors. Northwest believes that the in favor of certain corporate actions is Agreement) and (2) the value of
final terms for the Put Option, which are now set to expire upon the occurrence Pinnacle Stock contributed to the Plans.
more favorable to the Plans, are more of an Early Termination Event. See In the Proposed Exemption, it was noted
completely and accurately stated in the Omnibus Agreement at section 7.3. that the length of the Deferral would be
description of the Put Option contained Independent Directors
shortened if Pinnacle Stock was
in the description of the Term Sheet as publicly traded at the time that the Put
set forth at 68 FR 2587. Northwest noted that the second Option is exercised. As with the Term
bullet point in the third column at 68 Sheet, the final Omnibus Agreement
Fair Market Value of Pinnacle Stock
FR 2585 (respecting the obtainment of provides that the Deferral shall be
Northwest noted that, as reflected in fairness opinions) has been revised. In shortened if Pinnacle Stock is publicly
the Term Sheet, Fiduciary Counselors this regard, section 11.3(b) of the traded. However, the Omnibus
will determine the fair market value of Omnibus Agreement now provides that Agreement revises this provision to
the Pinnacle Stock contributed to the at the request of a majority of Pinnacle’s provide that, if Pinnacle Stock is
Plans on an annual basis and in advance independent directors, a fairness publicly traded, the Deferral will be
of each contribution to the Plans. opinion will be obtained from an reduced, in each case, by thirty days
Fiduciary Counselors will also investment bank respecting certain except that in no event shall Northwest
determine fair market value at the time Affiliate Transactions. The Term Sheet have less than a 30 day Deferral in
it exercises the Put Option so long as the originally placed the right to request which to close the transactions
shares of Pinnacle Stock are not this fairness opinion solely on the Plans’ contemplated by the Put Option. This
publicly traded. Accordingly, the director, who asked that this duty be change generally reduces the length of
reference in the first column at 68 FR placed on the independent directors of the available Deferral when the Plans
2585 to quarterly valuations is no longer which the Plans’ director is a member. hold more than $325 million in
correct. Northwest notes that quarterly Pinnacle Stock (measured as of the date
valuations were contemplated in the Valuation in Connection With the Right of each contribution). See Omnibus
Application, but a change to annual of First Refusal Agreement at section 8.2.
valuations was made when Northwest Northwest noted that the Omnibus
and Fiduciary Counselors agreed to the Fiduciary Counselors March 5, 2003
Agreement added certain valuation Comment
Term Sheet. details that expand the discussion of the
Right of First Refusal at 68 FR 2586. The On March 5, 2003, Jones Day
Corporate Governance Rights
description of Northwest’s right of first submitted comments on behalf of
Northwest explained that the Fiduciary Counselors, the Independent
Omnibus Agreement granted the Plans refusal with respect to Pinnacle Stock is
Fiduciary (the March 5 Comment).
additional rights in order to protect their accurate; however, if the Plans negotiate
interest in the Pinnacle Stock. Omnibus the sale of Pinnacle Stock to a third Restrictions on Transfer and Voting
Agreement at section 7.2, Certain party for non-cash consideration, the The Independent Fiduciary notes that
Approval Rights. In this regard, Omnibus Agreement includes a specific the Proposed Exemption, in the first
beginning at such time as the Plans hold valuation mechanism with respect to column of 68 FR 2580 (first full
more than 50% of the issued and such consideration. See Omnibus paragraph), makes reference to voting
outstanding Pinnacle Stock, and until Agreement at section 6.2. First, the restrictions and limits on the ability of
the earlier of (i) the date the Plans hold Plans must provide Northwest with an the Plans to dispose of the Pinnacle
less than 25% of such shares or (ii) the ‘‘Offer Notice’’ which shall contain an Stock, except pursuant to an initial
Put Option with respect to such shares independent valuation of the public offering (IPO) initiated by
has terminated, the affirmative vote of consideration by a nationally recognized Northwest or by exercise of the Put
the Plan s director will be required to (1) valuation expert acceptable to Fiduciary Option. In addition, as reflected in the
approve the election, appointment and Counselors and Northwest. If Fiduciary Omnibus Agreement, the Independent
compensation of any new Chief Counselors and Northwest are unable to Fiduciary has negotiated a lapse of all
Executive Officer (CEO), (2) approve any agree on the valuation expert, the transfer restrictions on the Pinnacle
modification or other changes to the Omnibus Agreement sets forth a dispute Stock held by the Plans on July 1, 2006,
Note Pinnacle has issued to Northwest mechanism to arrive at a final and upon an ‘‘Early Termination Event’’
(3) approve any amendment to Pinnacle determination. In this process, (including a breach of the Omnibus
s bylaws that affects the Plans shares of Northwest and Fiduciary Counselors Agreement by Northwest or Pinnacle or
Pinnacle Stock in a manner different each select their own nationally Northwest’s failure to honor its Put
from other shares of Pinnacle Stock or recognized valuation expert (Principals’ Option obligations, but excluding
otherwise amends the Series A Preferred Experts), which experts submit their violations of the ‘‘scope clause’’
Stock, and (4) unless Pinnacle is appraisals to a third expert chosen by limitations in certain of Northwest’s
publicly traded, approve the issuance of the Principals’ Experts. The third expert collective bargaining agreements 5). A
then determines which of the two
below for discussion of the Northwest and ALPA assessed values should be assigned to 5 Section 1C of the Northwest Pilots Agreement,

Letter Agreement). such non-cash consideration. the Collective Bargaining Agreement between

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Federal Register / Vol. 68, No. 160 / Tuesday, August 19, 2003 / Notices 49795

breach of the Omnibus Agreement by as of the last trading day before the at Northwest’s expense. See Omnibus
Pinnacle constitutes an Early closing date of the Put Option. Agreement at section 9.1(d).
Termination Event if such breach In addition, in the paragraph 5. A provision providing that the
continues because Northwest fails to immediately following subparagraph exercise price of any options on
exercise its rights as a stockholder to (iii) in the second column of 68 FR Pinnacle Stock granted to its executive
cause the Pinnacle directors to cure the 2580, the reference to the price of employees under its stock incentive
breach or to replace such directors. See Pinnacle Stock being determined as of plan at the time of an IPO would be at
Omnibus Agreement, Definition of the exercise date should be expanded to the greater of the value of the stock at
‘‘Early Termination Event’’ at section reflect these concepts. Similarly, in the the time it was contributed to the Plans
1.1. second column of 68 FR 2588 (third full or the IPO price. See Omnibus
paragraph), the reference in subclause Agreement at section 11.2.
Eclat Consulting Valuation
(II) to the closing price of Pinnacle Finally, Fiduciary Counselors
The Independent Fiduciary represents shares on the closing date should refer requests that in Section III. Definitions
that the description of the valuation by to the last trading day before the closing at (a) of the Proposed Exemption in
Eclat Consulting (Eclat) of Pinnacle in date. column 1 of 68 FR 2590, the reference
the Proposed Exemption commencing in to ‘‘5 percent (5%) of such fiduciary’s
the second column of 68 FR 2580 (the Plan Director
gross income, for Federal income tax
Eclat Report) should be updated to As also mentioned in the March 3 purposes, in its prior tax year, will be
reflect Eclat’s valuation of Pinnacle as of Comment, the Independent Fiduciary paid by Northwest’’ should read ‘‘5
January 15, 2003. The January 15, 2003 notes that at the fifth paragraph of the percent (5%) of such fiduciary’s annual
Eclat valuation report (January 15, 2003 ‘‘Voting Provisions’’ section in the gross revenue in the year of its
Valuation) was attached to the Proposed Exemption at column 2 of 68 engagement, will be paid by
Independent Fiduciary’s report FR 2585, the description of the required Northwest.’’
submitted to the Department on April affirmative vote of the director The Department has determined that
25, 2003 (see below for a discussion of designated by the Plans should be it would be appropriate to modify the
these documents). expanded to include the approval of: definition of independent fiduciary as
Put Option amending the Note, amending follows:
Pinnacle’s charter or by-laws in certain ‘‘(3) the annual gross revenue received
As previously mentioned in the respects, implementing certain changes by such fiduciary, during any year of its
March 3 Comment, the changes to the in Pinnacle’s capital structure, or engagement, from Northwest and its
description of the Put Option in the issuing capital stock prior to an IPO, as affiliates exceeds 5 percent (5%) of the
Proposed Exemption are noted by the set forth in the Omnibus Agreement. See independent fiduciary’s annual gross
Independent Fiduciary who adds that Omnibus Agreement at section 7.2. revenue from all sources for its prior tax
the Proposed Exemption should be Additionally, the Independent year.’’
revised in accordance with the Fiduciary corrects language in the fifth
definition of ‘‘Market Value’’ in section paragraph of the ‘‘Voting Provisions’’ of Fiduciary Counselors and Eclat April
1.1 and the language of section 8.3 of the Proposed Exemption that states a 25, 2003 Submissions
the Omnibus Agreement. In particular, majority of Pinnacle’s board is needed On April 25, 2003, Fiduciary
subparagraph (i) at 68 FR 2580 of the for the approval of compensation of Counselors provided to the Department
Proposed Exemption should reflect that, Pinnacle’s CEO. Section 7.2(b) of the the Independent Fiduciary Report on
prior to an IPO, the Plans will be Omnibus Agreement requires only that Contribution of Pinnacle Airlines Corp.
entitled to the greatest of (1) the value the appointment of a new CEO be Stock to the Northwest Airlines Pension
of the stock when contributed, (2) the approved by a majority of Pinnacle’s Plan For Contract Employees dated
fair market value of the stock on the board (excluding the Northwest March 16, 2003 (the IF Report), the
date that the determination of fair Director), and does not make reference January 15, 2003 Eclat valuation of
market value is made (e.g., with respect to the compensation of Pinnacle’s CEO. Pinnacle (the January 15, 2003
to the Put Option, the date the Put Valuation), and an explanation of the
Option is exercised), or, if greater, (3) Additional Comments valuation of the Put Option.
the value as of the closing date of the The Independent Fiduciary reports
Put Option. that it negotiated the following The Independent Fiduciary Report
Similarly, subparagraph (iii) at 68 FR additional requirements. The Independent Fiduciary represents
2580 should reflect that, after an IPO, 1. A comprehensive set of that after extensive negotiations during
the Plans will be entitled to the greatest representations and warranties relating November and December, 2002, and
of the value of the stock at the time of to both Pinnacle, Northwest and its January, 2003, Fiduciary Counselors and
the contribution, or the average of the affiliates. See Omnibus Agreement at Northwest, along with Pinnacle and
closing price for the Pinnacle Stock on sections 5.1 and 5.2. NWA Corp., Northwest’s ultimate
the public market for the 10 trading 2. An additional provision that would parent company, entered into an
days (or such other number if fewer prohibit Northwest from using its rights Omnibus Agreement, dated January 15,
than 10) preceding the exercise date, or under the Series A Preferred Share to 2003, which sets forth the terms and
block a Transfer of Pinnacle Stock conditions pursuant to which Fiduciary
Northwest and the Air Line Pilots Association dated following an Early Termination Event. Counselors will accept the Pinnacle
as of September 13, 1998, as amended, or any
successor agreement. This Section requires that all
See Omnibus Agreement at section 6.3. Stock (the Contribution).6
‘‘revenue flying’’ for Northwest and its affiliates 3. Northwest Airlines Corporation
must be performed by pilots on the integrated Pilots (NWA Corp.) will guarantee Northwest’s 6 Fiduciary Counselors notes that immediately

System Seniority List in accordance with the obligations under the Omnibus prior to the transaction, NWA Inc. (NWAI), an
collective bargaining agreement, except for revenue Agreement, including the Put Option. affiliate of Northwest, owned 86,842 shares of
flying by an airline that at all times operates only common stock, par value $0.01 per share, of
aircraft that are certified with a maximum passenger See Omnibus Agreement at section 8.8. Pinnacle Airlines, Inc., a Georgia corporation,
capacity of 60, and a maximum gross takeoff weight 4. The right to engage an investment constituting all of the issued and outstanding
of less than 70,000 pounds. banker on behalf of the Plans in an IPO, Continued

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49796 Federal Register / Vol. 68, No. 160 / Tuesday, August 19, 2003 / Notices

The IF Report states that on January Pinnacle, the Independent Fiduciary regarding restrictions on directors of
15, 2003, Fiduciary Counselors reviewed and considered the business of airlines. In its determinations, the
determined that the Master Trust could Pinnacle, and the contractual Independent Fiduciary has also taken
accept a contribution by Northwest of relationship between Pinnacle and into account Northwest’s request for a
1,938,000 shares of Pinnacle Stock, Northwest. The Independent Fiduciary minimum funding waiver with respect
valued at $43,821,894.00, on behalf of and its advisors also met with the senior to Plan contributions in 2003 and 2004,
the Contract Plan on terms and officers of Pinnacle. and considered the likelihood that such
conditions set forth in the Omnibus The Independent Fiduciary and its waiver will be granted.
Agreement. Pursuant to its engagement advisors reviewed various documents The IF Report states that under the
letter with Northwest, the scope of relevant to the Contribution, including ASA, Northwest has committed 95
Fiduciary Counselors’ engagement without limitation, Northwest’s regional jet aircraft financed by
includes determining whether to accept certificate of incorporation; Northwest’s Bombardier to be delivered to Pinnacle
the Contribution on behalf of the Plans, corporate bylaws; the certificate of by December 31, 2004. As of December
and if so, to value the Pinnacle Stock for incorporation of Pinnacle; the Master 31, 2002, the carrier had taken
Plan funding purposes. Fiduciary Trust agreement pursuant to which the possession of 51 regional jets. The
Counselors’ duties also include the Plan assets are currently held and addition of the regional jets has more
discretionary authority to manage the managed; audited financial statements than doubled the size of the airline.
Pinnacle Stock as investment manager. of the Plans for 2000 and 2001; the According to the IF Report, Eclat
The IF Report notes that the current Plan documents; the Plans’ estimates that Pinnacle’s value to the
Independent Fiduciary drew upon the annual reports on Forms 5500 for 2000 Northwest domestic system is between
resources of its affiliate, Aon Investment and 2001; other information provided $520 million and $540 million annually
Counseling, Inc. (AIC), to assist it in its by Northwest regarding the Plans’ assets as the carrier exists today. Pinnacle
financial analysis and valuation of the (including the Plans’ investment itself had revenues of approximately
Pinnacle Stock. The Independent guidelines and portfolio composition); a $345.2 million for 2002.
Fiduciary also engaged the law firm of statement prepared by the Plans’ The IF Report explains that, because
Jones Day as legal counsel to advise it actuaries of the Plans’ liquidity needs to Pinnacle’s operations are so entwined
in connection with its negotiations with pay benefits and administrative with Northwest’s, Eclat evaluated
Northwest regarding its engagement and expenses in the near future and the Northwest as well as Pinnacle in its
Eclat, to provide financial expertise and sources of funds (other than the November 27, 2002 report to the PBGC
to value the Pinnacle Stock. Eclat Pinnacle Stock) available to satisfy such (The Eclat Report). Despite the turmoil
furnished to the Independent Fiduciary liquidity needs; and certain of in the industry in recent years, Eclat felt
its report and opinion as to the value of Pinnacle’s collective bargaining that Northwest has emerged as, perhaps,
the contributed Pinnacle Stock at the agreements. In addition, the the most stable airline in the industry.
time of the Initial Contribution on Independent Fiduciary reviewed a While all of the ‘‘Big 6’’ network airlines
January 15, 2003 (January 15, 2003 number of other documents, including are losing money, Northwest has
Valuation). Eclat will furnish a similar SEC Form S–1 filed with the Securities suffered the smallest loss of any carrier.
valuation report with respect to each Exchange Commission on February 25, Northwest reported a net loss of $46
subsequent contribution. In negotiating 2002 registering shares of Pinnacle million, with operating income of $8
the terms of the Contributions and Stock for an IPO and the Airline million in the 3rd quarter of 2002.
determining whether to accept the Services Agreement dated March 1, Northwest ended the 3rd quarter with
Initial Contribution, the Independent 2002. As a result of its review, certain over $2.5 billion in cash and short-term
Fiduciary, with its financial advisors changes were incorporated in the new receivables.
and legal counsel, reviewed those Airline Services Agreement entered into The IF Report notes that Northwest is
documents that it deemed relevant, on January 14, 2003 (ASA). a global carrier through its alliance with
participated in meetings and telephone The IF Report provides that the KLM and its Amsterdam hub, and its
conferences with officers and other Independent Fiduciary and its advisors own hub in Tokyo. While the U.S.
representatives of Northwest, and participated in numerous telephone market has suffered tremendous losses
considered aspects of the Contribution conferences with representatives of due to the slowdown in the U.S.
that it deemed pertinent to its Northwest and Pinnacle through economy and the terrorist attacks of
engagement, including without November, December and early January 9/11, the global market has rebounded
limitation Northwest’s current and concerning the Independent Fiduciary’s much quicker. Northwest’s presence in
future ability to honor the Put Option. engagement, the proposed Contribution, international markets has helped offset
Because the value of the Pinnacle Stock the status of Northwest’s minimum the losses in the U.S. domestic market.
is based on the financial performance of funding waiver applications to the As with all domestic U.S. carriers,
Internal Revenue Service and the Northwest has been hit by the drop in
capital stock of Pinnacle Airlines, Inc. Pursuant to Proposed Exemption. On January 11, revenue due to lower overall yields and
the transaction, Pinnacle Airlines, Inc. declared and 2003, the Independent Fiduciary and its depressed passenger levels. The drop-off
paid to NWAI a dividend consisting of a promissory advisors conducted a telephone in premium passenger traffic, the weak
note payable to the order of NWAI in the aggregate
principal amount of $200 million. NWAI then interview with Pinnacle’s chief U.S. economy, and the increased
transferred the shares of Pinnacle Airlines, Inc. to executive officer and chief financial presence of low-cost carriers has
Pinnacle in exchange for its issuance to NWAI of officer as part of its due diligence. impacted the ability of the network
(i) 15,000,000 shares of Pinnacle’s common stock, The Independent Fiduciary and its carriers to generate high yield revenue.
par value $0.01 per share (Pinnacle Stock), and one
share of Series A Preferred Stock, par value $0.01
advisors analyzed the voting, transfer Through reduced employment levels
per share, of Pinnacle (the ‘‘Series A Preferred and put right features of the Pinnacle and other cost-cutting measures,
Share’’), which, upon issuance and together with Stock and engaged in significant Northwest has been able to minimize
the Pinnacle Stock, constitutes all of the issued and negotiations on those features with the ongoing impact of reduced revenue
outstanding capital stock of Pinnacle. NWAI then
transferred the Pinnacle Shares and the Series A
Northwest. The Independent Fiduciary levels, which the Independent Fiduciary
Preferred Share to Northwest as a contribution to was also advised on the requirements of believes are likely a permanent change
the capital of Northwest. the U.S. Department of Transportation in the industry. The labor situation is

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stable. One of the strengths of the The IF Report notes that in the Eclat provided to the Department on January
Northwest network is that the airline Report, Eclat’s valuation of the Pinnacle 10, 2003. The Term Sheet formed the
has the least exposure of any major Common Stock was considerably lower basis for the Omnibus Agreement,
carrier to low-cost carriers in the than the value it ultimately determined which was executed on January 15,
industry. This is primarily due to the for the Independent Fiduciary in the 2003, after the Independent Fiduciary
fact that Southwest Airlines does not January 15, 2003 Valuation. Eclat’s received confirmation from the
serve 2 of the 3 Northwest hubs— original valuation for PBGC was based Department that the Proposed
Memphis (Pinnacle’s largest market) on publicly available information, Exemption had been issued.
and Minneapolis. Southwest has a small primarily a draft S–1 Registration Fiduciary Counselors states that the
operation in Detroit with only 2 gates. Statement which contained financial Omnibus Agreement provides:
The IF Report states that Eclat expects information only for the first nine • For purposes of the funding
that low-cost carriers will expand and months of 2002. As a result of its standard account of each Plan, the value
gain share in the future but feels that engagement by the Independent of the shares of Pinnacle Stock
Northwest is in the best shape of any Fiduciary, Eclat was given access to contributed to each Plan will be
network carrier to compete. non-public information including the determined by the Independent
ASA, Pinnacle’s full 2002 revenue Fiduciary. In addition to determining
The Eclat Report and the January 15, the value of Pinnacle Stock at the time
figures and information concerning the
2003 Valuation of a proposed contribution, the
delivery schedule for delivery of
Fiduciary Counselors and Eclat regional jets to Pinnacle. The IF Report Independent Fiduciary will provide an
represent that Eclat was originally represents that, in the January 15, 2003 annual written valuation of the per
retained by PBGC to value Pinnacle and Valuation, Eclat determined that the net share value of all Pinnacle Stock held by
to evaluate the financial viability of equity value (before discounts) of the Plans as of each December 31 and
Northwest. Eclat is an aviation- Pinnacle was $412,923,928.00. Based on at any time the Independent Fiduciary
consulting firm that specializes in input from AIC, Eclat then applied a 15 exercises the Put Option described
detailed analysis of the economic and percent liquidity discount and a 5 below.
financial issues that surround the percent minority discount. AIC valued • Subject to the further conditions
industry. The IF Report states that the Put Option at $20,680,684 using a and restrictions set forth in the Omnibus
Eclat’s clients come from almost every Black-Scholes American option-pricing Agreement, the Plans may transfer the
sector of the aviation industry—airports, model. The value of the transaction was Pinnacle Stock prior to July 1, 2006, (1)
airlines, labor organizations and also adjusted for the period between the only in the event of an IPO or sale to
aerospace/aeronautics corporations. exercise of the put and the Plan’s receipt a third party initiated by Northwest, (2)
With PBGC’s consent, Eclat was of the funds. This period could range by exercise of the Put Option (as
subsequently retained by the between 30 and 180 days depending on described below), or (3) because of an
Independent Fiduciary to value the Northwest’s liquidity position. The Early Termination Event (including a
Pinnacle Common Stock. result was a net value of breach of the Omnibus Agreement by
Eclat states in the January 15, 2003 $339,178,820.00 for the purposes of Northwest or Pinnacle which is not
Valuation that the valuation includes determining the value of the stock cured timely or Northwest’s failure to
competitive, operational and financial contributed on January 15, 2003. honor the Put Option).
elements essential to validating • The Plans will be granted a Put
Pinnacle’s current market viability as a Negotiation of the Term Sheet and Option with respect to each share of
Northwest regional partner and as a Omnibus Agreement Pinnacle Stock contributed to the Plans,
stand-alone airline and that the The Independent Fiduciary which may be exercised by the
valuation describes the state of the recognizes that all aspects of its Independent Fiduciary at any time. To
regional airline industry, delves into engagement involved fiduciary actions, exercise the Put Option, the
some of the more important issues and, for that reason, representatives of Independent Fiduciary must provide
surrounding Pinnacle specifically, the Independent Fiduciary and its written notice to Northwest of its
provides a brief financial review of the financial and legal advisors actively election to put to Northwest any or all
carrier, explains the valuation participated in the negotiations relating of the shares of Pinnacle Stock then
methodology, compares Pinnacle to to the Omnibus Agreement and in the held by the Plans. The closing date of
Continental Express, and comments on evaluation of the decision of whether to the purchase and sale of shares with
the stability of Northwest. Appendices accept the Contribution. From a respect to which the Put Option has
were attached that illustrate the fiduciary standpoint, Independent been exercised will be the 30th calendar
valuation model used and highlight Fiduciary was required to determine day after such notice is given. However,
some of the additional information used whether the terms it negotiated in the if Pinnacle has not yet consummated the
to conduct the analysis. Omnibus Agreement and its decision IPO by the date that would otherwise be
The IF Report summarizes that, in whether to accept the Contribution were the closing date, Northwest will have
order to determine the value of prudent, for the benefit of, and in the the right to defer such closing date for
Pinnacle, Eclat created a model based interest of, Plan participants and their up to 150 days, depending on
on the Three-Stage Free Cash Flow to beneficiaries. In this regard, the Northwest’s liquidity. The closing date
Equity valuation technique. This model Independent Fiduciary represented that may be further deferred and deferred
is designed to value firms, like Pinnacle, it negotiated terms that it determined payments may be made by Northwest as
that are expected to go through three were no less favorable to the Plans than agreed to by the Independent Fiduciary
phases of growth—an initial phase of terms negotiated at arm’s length with an if Northwest posts collateral in an
high growth, a transitional period where unrelated third party under similar amount and on terms satisfactory to the
the growth rate declines, and a steady- circumstances. Independent Fiduciary. Alternatively,
state period where growth is stable. The terms of the transaction Northwest may arrange for the stock to
Once these growth assumptions are negotiated between the Independent be purchased by a third party.
made, the present value of expected free Fiduciary and Northwest were • If the Pinnacle Stock is not publicly
cash flow is calculated. embodied in a Term Sheet, which was traded, the Plans will receive the

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greatest of (i) the initial contribution liquidity of the Plans such that the Plans issuance of capital stock prior to an IPO.
value (the ‘‘Floor Price’’), (ii) the fair would not be able to pay benefits and The Independent Fiduciary negotiated
market value as determined by the expenses when due. If such appropriate further powers with respect to the Plan
Independent Fiduciary at the time of the Plan fiduciary determines the liquidity director, including the right to object to
exercise of the Put Option, or, if greater, of the Plans is impaired, such fiduciary Business Combinations involving
at the closing date of the Put Option, shall direct the Independent Fiduciary Northwest’s affiliates.
and, (iii) if a third party sale is elected to dispose of all or a portion of the • Any change to the ASA, including
for the Plans (under the limited Pinnacle Stock consistent with the any early termination of the ASA by
circumstances described above) and terms of the Omnibus Agreement to the Pinnacle, must be approved by a
Northwest does not exercise its right of extent commercially reasonable. majority of Pinnacle’s independent
first refusal, the proceeds from the sale • All transactions involving the Plans directors, which majority must include
of Pinnacle Stock held by the Plans to in connection with the contribution of the director designated by the Plans.
such third party. If the Pinnacle Stock Pinnacle shares will be no less favorable Any transaction involving Northwest
is publicly traded, the Plans will receive to the Plans than arm’s length outside the ordinary course of business
the greater of (i) the Floor Price, or (ii) transactions involving unrelated parties. that involves more than $2 million and
the average closing price for the stock • No commissions, fees, costs, any ordinary course transaction that
on the public market for the 10 trading charges or other expenses will be borne involves more than $5 million must be
days preceding the exercise date or, if by the Independent Fiduciary or the approved by a majority of the
greater, the closing price on the day Plans in connection with any independent directors. In this event, a
before the Put Option closing date. acquisition, holding or disposition of majority of the independent directors
• Once Pinnacle Stock is publicly Pinnacle shares to or from the Plans, may require a fairness opinion from a
traded, the Put Option will be other than the underwriters’ discount or nationally recognized investment
suspended if all of the remaining shares other broker-dealer fees or commissions banking firm.
of Pinnacle Stock held by the Plans have charged in any sale of such shares. In • The Independent Fiduciary
a market value not less than 110% of the addition, the Independent Fiduciary negotiated a comprehensive set of
Floor Price and such shares are freely negotiated the right to engage an representations and warranties relating
tradable. Fiduciary Counselors and its investment banker on behalf of the to both Pinnacle Corp. and Northwest
advisors negotiated with Northwest and Plans in an IPO, at Northwest’s expense. and its affiliates relating to Northwest’s
Pinnacle concerning the ability of the • Northwest will provide at least ability to honor the Put Option and to
Plans to transfer the Pinnacle Stock and quarterly notice to the Independent the value of Pinnacle Corp. The
the rights of the Plans to cause Fiduciary of its cash liquidity. More representations and warranties must be
Northwest to register the shares of frequent notice will be required based true at the time of any Contribution. The
Pinnacle Stock under Federal and State on Northwest’s liquidity and the value Independent Fiduciary negotiated the
securities laws for resale to third parties. of the Pinnacle Stock contributed to the survival of the representations and
In negotiating the rights and restrictions Plans. In addition, Northwest will warranties in general for 24 months after
set forth in the transfer and registration provide the Independent Fiduciary with the Closing Date and indefinitely with
rights provisions of the Omnibus the information required to be provided respect to those relating to Northwest’s
Agreement, Fiduciary Counselors to its lenders under its credit agreement. ownership of the Pinnacle Stock and
balanced the need of the Plans to In addition, Northwest shall provide it Pinnacle’s ownership of the outstanding
achieve greater diversification in light of with copies of any amendments to the shares of Pinnacle Airlines, Inc. prior to
the anticipated holdings of shares of credit agreement. the Initial Contribution; Northwest’s
Pinnacle Stock with the need to • The Independent Fiduciary ownership of the Pinnacle Stock prior to
maximize the value of the investment in negotiated a comprehensive set of any subsequent Contribution; and
such stock. governance rights accorded to the Plans Northwest’s and NWA’s representation
• In addition, the Independent as a condition of acceptance of Pinnacle that the contemplated transactions do
Fiduciary negotiated that Northwest Stock. In this regard, as long as the not violate or result in a default under
Airlines Corporation (NWA Corp), Plans hold at least 5 percent of the any of their material contracts,
Northwest’s ultimate parent company, Pinnacle Stock, the Plans will have the including without limitation, the Credit
will guarantee Northwest’s obligations right to designate one nominee to Agreement.
under the Omnibus Agreement, Pinnacle’s board of directors, and
including the consummation of the Put Northwest will vote the Series A Valuation of the Put Option
Option. Preferred Share held by it in favor of Fiduciary Counselors stated that, in
• As a condition to any such such designee. The director designated conjunction with Northwest’s
contribution by Northwest, the by the Plans will have the right to serve contribution of Pinnacle stock to the
Independent Fiduciary must determine on Pinnacle’s audit committee to the Plans, Northwest has provided the Plans
on behalf of the Plans that the extent permitted under applicable SEC with a Put Option to protect them from
acceptance of the contributed shares is and stock exchange rules. Once the a possible decline in Pinnacle’s shares’
prudent and in the interests of the Plans hold more than 50 percent of the value. The value of the transaction is
Plans’ participants and beneficiaries and Pinnacle Stock, the affirmative vote of enhanced due to the downside
otherwise consistent with the fiduciary the director designated by the Plans protection that this Put Option provides.
standards of ERISA. In addition, the shall be required to approve the In valuing the Pinnacle shares, it was
Independent Fiduciary will monitor on appointment of any new CEO of necessary to assign a value, not only to
an ongoing basis the prudence of the Pinnacle and compensation of any CEO, Pinnacle, but also to the Put Option.
Plans’ continued holding of Pinnacle any amendments to the $200 million Prior to valuing the put option, Eclat’s
Stock consistent with the fiduciary Note of Pinnacle Airlines, Inc. held by estimate of the value of Pinnacle was
standards of ERISA. The appropriate Northwest, the amendment of Pinnacle’s $333,436,072, after application of an
fiduciary of the Plans (other than the charter or by-laws in certain respects, or illiquidity discount of 15% and a
Independent Fiduciary) will determine the implementation of certain changes minority discount of 5%. This value
that such investment will not impair the in Pinnacle’s capital structure or the was further discounted by 4.48%, to

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$318,498,136, to reflect Northwest’s • The Independent Fiduciary • Based on the Eclat and AIC
ability to delay payment on the put for negotiated the terms of the Put Option valuations, the Independent Fiduciary
up to 6 months. Although the Plan’s which provide downside protection by determined that the contribution of
option is exercisable at anytime, unlike permitting the Plans to sell the Pinnacle 1,938,000 shares of Pinnacle Stock
a normal option, Northwest does not Stock back to Northwest for the greater should be valued at $43,821,894 as of
have to immediately settle. Northwest of the original value at which it was January 15, 2003, the date the
has from 30 to 180 days to settle the credited to the funding standard contribution occurred.
option. The 4.48% discount represents account or its fair market value at the Duties of the Independent Fiduciary
what Eclat used for Pinnacle’s pre-tax time it is sold back to Northwest.
cost of debt (9.6%) adjusted for a six- Transfer restrictions on Pinnacle The Department notes that the
month period. Fiduciary Counselors Stock held by the Plans are reasonable appointment of an independent
assumed that since Northwest could in light of the Put Option. Specifically, fiduciary to represent the interests of the
take up to 180 days to settle the option the Independent Fiduciary negotiated a Plans with respect to the transactions
that it would. Although Eclat cannot limited period for the transfer that are the subject of the exemption
know what market conditions might be restrictions (until July 1, 2006) and the request was a material factor in its
like during this settlement period, this elimination of such restrictions upon determination to propose exemptive
rate also exceeds the Plan’s assumed the occurrence of an Early Termination relief. In response to the commenters’
asset earnings rate. Event. concerns about the role of the
The value was then increased to • The Independent Fiduciary independent fiduciary, the Department
reflect the value of the put. The Put negotiated voting and governance rights believes that it would be helpful to
Option is exercisable at any time by the to be accorded to the Plans that protect provide its views on the responsibilities
Plan. Eclat used the Black-Scholes the interests of the Plans (e.g. protect the of an independent fiduciary in
option-pricing model to determine the connection with the in-kind
plans from adverse changes in the ASA,
value of the Put Option. Using the contribution of property to an employee
in Pinnacle’s capital structure, etc.).
Black-Scholes American option pricing benefit plan.
• Registration rights and Plan As noted in the Department’s
model, Eclat determined the value of the director’s rights preserve the value of
Put Option to be $20,680,684. Interpretive Bulletin, 29 CFR 2509.94–
the Pinnacle Stock while held by the 3(d) (59 FR 66736, December 28 1994),
The Independent Fiduciary’s Plans. apart from consideration of the
Determinations • The Independent Fiduciary retained prohibited transaction provisions, plan
Fiduciary Counselors notes that under an independent, expert airlines fiduciaries must determine that
section 404(a)(1) of ERISA, a fiduciary valuation firm, Eclat, to provide acceptance of an in-kind contribution is
must discharge its duties with respect to valuation services. Eclat determined consistent with ERISA’s general
a plan solely in the interest of plan that Pinnacle and Northwest are healthy standards of fiduciary conduct. It is the
participants and beneficiaries. In companies, even in light of current view of the Department that acceptance
addition, a fiduciary must act for the economic conditions in the airline of an in-kind contribution is a fiduciary
exclusive purpose of providing benefits industry. act subject to section 404 of ERISA. In
to participants and beneficiaries; must • The terms of the ASA and related this regard, section 404(a)(1)(A) and (B)
act prudently; and must diversify the agreements are more favorable to of ERISA requires that fiduciaries
investment of plan assets to minimize Pinnacle than an arm’s length discharge their duties to a plan solely in
the risk of large losses, unless under the transaction between unrelated parties, the interests of the participants and
circumstances it is clearly prudent not and substantially determine and beneficiaries, for the exclusive purpose
to do so. For the reasons set forth below, enhance the value of Pinnacle. The of providing benefits to participants and
the Independent Fiduciary has requirement that the director nominated beneficiaries and defraying reasonable
concluded that it is prudent for the by the Plans approve any changes in the administrative expenses, and with the
Plans to accept the Contribution and ASA will ensure that any modification care, skill, prudence, and diligence
that the Contribution is in the interest of those terms is done only if the under the circumstances then prevailing
of the Plans and their participants and changes, taken as a whole, are favorable that a prudent person acting in a like
beneficiaries: to Pinnacle and its shareholders, capacity and familiar with such matters
• Participants and beneficiaries of the including the Plans. would use in the conduct of an
Plans stand to benefit from an IPO of the • Participants and beneficiaries of the enterprise of a like character and with
Pinnacle Stock. The ASA provides a Plans benefit from Northwest’s like aims. In addition, section
range of revenues to be paid by improved liquidity and continued 404(a)(1)(C) requires that fiduciaries
Northwest to Pinnacle, and Eclat valued viability and competitiveness in the diversify plan investments so as to
the Company based on the minimum current economic environment. minimize the risk of large losses, unless
revenues, which would result from the • The Independent Fiduciary under the circumstances it is clearly
ASA. If Pinnacle in fact achieves the considered, and determined, that the prudent not to do so. Accordingly, the
maximum operating margin provided Plans’ holding of Pinnacle Stock was fiduciaries of a plan must act
under the ASA, Eclat estimated that the consistent with the Plans’ investment ‘‘prudently,’’ ‘‘solely in the interest’’ of
value of Pinnacle would be guidelines and would not impair the the plan’s participants and beneficiaries,
approximately 20 percent greater than Plans’ diversification. The Pension and with a view to the need to diversify
the value used for purposes of the Investment Committee informed the plan assets when deciding whether to
contribution. Independent Fiduciary that the holding accept an in-kind contribution. If
• In valuing Pinnacle Stock, the of Pinnacle Stock constituting the Initial accepting an in-kind contribution is not
Independent Fiduciary specifically Contribution to the Plans would not and ‘‘prudent,’’ not ‘‘solely in the interest’’
applied a 15% liquidity discount and a was not expected in the foreseeable of the participants and beneficiaries of
5% discount to take into account that, future to impair the liquidity of the the plan, or would result in an improper
for some period, the Plans would be a Plans and that the Plans would be able lack of diversification of plan assets, the
minority shareholder. to pay benefits and expenses when due. responsible fiduciaries of the plan

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would be liable for any losses resulting the value, the reasons for the valuation more than fair market value. The
from such a breach of fiduciary in light of the methodologies, and the Independent Fiduciary must not simply
responsibility, even if a contribution in reasons that the appraiser chose to defer to the conclusions reached by the
kind does not constitute a prohibited apply particular valuation methods appraiser, but rather will take
transaction under section 406 of ERISA. rather than others, appropriate action to ensure:
The selection of an independent (e) A statement of the relevance or (a) That the appraisal is based upon
qualified appraiser to determine the significance accorded to the valuation complete, accurate, and current data;
value of an in-kind contribution and the methodologies taken into account, (b) That the appraiser is appropriately
acceptance of the resulting valuation are (f) The effective date of the valuation, qualified to conduct the valuation;
fiduciary decisions governed by the (g) a description of the nature of (c) That the valuation methodologies
provisions of Part 4 of Title I ERISA. In Pinnacle’s business and history, are appropriate and adequately
discharging its obligations under section (h) A description of the economic explained and that the appraiser has
404(a)(1), the independent fiduciary outlook in general, and of the condition adequately justified its decision not to
must take steps calculated to obtain the and outlook of Pinnacle’s industry in use alternative methodologies;
most accurate valuation available. In particular, (d) That any variables used in the
addition, the fiduciary obligation to act (i) An analysis of Pinnacle’s financial valuation analysis such as projected
prudently requires, at a minimum, that condition and earning capacity, revenues, expenses, operating margins,
the independent fiduciary conduct an (j) A description of all of the factors
depreciation, discount rates,
objective, thorough, and analytical taken into account in making the
capitalization rates, and multipliers are
critique of the valuation. In conducting valuation, including any restrictions,
adequately supported by market data;
such verification, the independent understandings, agreements or
(e) That the stock’s value is calculated
fiduciary must evaluate a number of obligations limiting the Plans’ ability to
with appropriate discounts for lack of
factors relating to the accuracy and dispose of the stock,
marketability and control after a
methodology of the valuation and the (k) A statement of past transactions
reasoned evaluation of the relevant
expertise of the independent qualified involving Pinnacle Stock, including
market data concerning such discounts,
appraiser. Reliance solely on the dates, amounts, price, and whether the
as well as of each Plan’s actual ability
valuation provided by the appraiser transactions were at arms-length, as well
to effectively dispose of its stock or to
would not be sufficient to meet this as a description of any attempts to buy
control Pinnacle;
prudence requirement. or sell Pinnacle Stock over the last five
years, including a description of any (f) That the appraisal’s reasoning and
In considering whether to accept an assumptions are consistent, logical, and
in-kind contribution, the Independent previous plans for initial public
offerings, supported by appropriate financial and
Fiduciary’s responsibilities include the economic data and that any calculations
following: (l) An analysis of the market price of
securities of corporations engaged in the are accurate;
1. The Independent Fiduciary must
same or similar lines of business as (g) That the valuation is based on
prudently determine the fair market
Pinnacle, which are actively traded on complete, accurate, and audited
value of the Pinnacle Stock as of the
a recognized exchange or automated financial statements, which have been
date it is contributed to the Plans. In
broker-dealer quotation system, properly analyzed;
determining the fair market value of the
stock, the Independent Fiduciary must (m) An analysis of the marketability, (h) That the assumptions
obtain an appraisal by a qualified or lack thereof of the Pinnacle Stock, underpinning the valuation are properly
independent appraiser, and must ensure with specific reference to any identified, and a careful analysis is
that the appraisal is consistent with restrictions, understandings, performed of the impact of changes in
sound principles of valuation. agreements, or obligations limiting the those assumptions on the value of
2. The Independent Fiduciary must Plans’ ability to dispose of the Pinnacle Pinnacle Stock;
ensure that each appraisal, at a Stock, (i) That the valuation has
minimum, includes the following (n) An analysis of the degree to which appropriately considered Northwest’s
elements: actual control (both in form and in financial condition in valuing Pinnacle
(a) A summary of the appraiser’s substance) will pass to any of the Plans Stock, as well as the impact of a
qualifications to evaluate Pinnacle as a result of any of the contemplated Northwest bankruptcy on the value of
Stock, transactions, Pinnacle Stock; and
(b) A statement that the appraiser is (o) To the extent that Pinnacle’s (j) That the fair market value of the
independent of Pinnacle and Northwest, current or projected revenues and stock has been determined by way of a
and that the appraiser has no interest in expenses are related to, or dependent prudent investigation.
the securities issued by Pinnacle or upon, contracts, agreements, or 4. The Independent Fiduciary must
Northwest, understandings between Northwest and ensure that all of the conditions above
(c) A statement that the appraisal is Pinnacle, an analysis of Northwest’s are satisfied with respect to any past
being conducted to determine the fair financial condition, the likelihood of a contributions of Pinnacle Stock, as well
market value of Pinnacle Stock, which Northwest bankruptcy, and the potential as any future contributions. If previous
is defined as the price at which the impact of a Northwest bankruptcy on valuations or analyses do not comport
stock would change hands between a those contracts, agreements, or with these conditions, the Independent
willing buyer and a willing seller when understandings, and on the market Fiduciary must perform any additional
the former is not under any compulsion value of Pinnacle Stock, and work necessary to make the valuations
to buy and the latter is not under any (p) Any other factors necessary for a and analyses consistent with the
compulsion to sell, and both parties are prudent determination of the market conditions of this exemption. In no
able, as well as willing, to trade and are value of Pinnacle Stock. circumstance, however, may the parties
well informed about the stock and the 3. The Independent Fiduciary must treat Pinnacle Stock previously
market for the stock, investigate the facts and assumptions contributed to the Plans as if it had a
(d) A statement of the stock’s value, underlying the appraisals to ensure that higher value than was attributed to it at
the methodologies used in determining stock contributions are not valued at the time of the original contribution.

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Northwest represents that, if the that it and the airline industry face However, Northwest has proposed to
Independent Fiduciary determines that significant financial challenges. contribute Pinnacle Stock because it
the Pinnacle Stock previously Northwest sought the exemption to believes that it is a superior investment
contributed to the Plans was worth less permit the Pinnacle Stock contribution for the Plans. The stock has long term
at the time of the contribution than the as part of its overall strategy of upside potential because of the planned
amount attributed to it at the time of the managing the current economic IPO. Indeed, the January 15, 2003
contribution, Northwest shall contribute uncertainty. By permitting the Valuation indicates that the Plans could
additional Pinnacle Stock or cash in contribution of Pinnacle Stock, receive a 20 percent IPO premium in
amounts sufficient to make up the Northwest is able to preserve needed connection with the Pinnacle Stock
shortfall. cash so that it can withstand several investment.
Lastly, the Department notes that the years of losses. Maintaining liquidity is Finally, Northwest notes that regional
above described responsibilities to be key to Northwest’s strategy for avoiding airline stocks have generally been less
undertaken by the Independent bankruptcy. volatile and better performing than the
Fiduciary are material factors in the Northwest strongly believes that stocks of major airlines. Since
Department’s determination to grant a Pinnacle Stock has significant value and September 10, 2001, regional airlines
final exemption. that the value of Pinnacle Stock will have lost 48% of their value while the
increase when the IPO market improves major airlines have lost 78% (excluding
Additional Comments and Submissions
for regional airlines. Regional airlines U.S. Airways and United that have filed
Northwest April 10, 2003 Submission play an indispensable role in providing for Chapter 11 bankruptcy protection).
On April 10, 2003, Northwest major airlines with important access to Northwest also believes that the value of
submitted additional documentation to passengers, largely from markets too Pinnacle Stock is less exposed to
the Department in connection with the small to be serviced by a major airline. bankruptcy risk than Northwest stock.
January 15, 2003 contribution of Pinnacle contributed over $500 million This is because a regional airline derives
Pinnacle Stock to the Contract Plan in revenue to Northwest in 2002 and is its value from the value of its ASA with
(April 10 Submission Documents). expected to grow its regional jet flying the major carrier and the major carrier
Northwest noted that the Pinnacle Stock approximately 30 percent per year is unlikely to terminate the ASA in
is being held in an Investment Fund through 2005. As Pinnacle grows to 95 bankruptcy because it would severely
established in connection with the aircraft, the number of passengers and disrupt the flow of high yield
Master Trust, and the amounts were revenue will more than double. passengers. In the case of United
allocated to the Contract Plan and Northwest has entered into a 10-year Airlines, for example, the airline has not
Salaried Plan consistent with the ASA with Pinnacle through 2012 that rejected the ASAs it has entered into
provisions of the Master Trust, as provides substantial value. Pinnacle’s with its regional airline partners
described in the Proposed Exemption. compensation formula within the ASA Atlantic Coast Airlines, SkyWest and
Northwest appointed Fiduciary contractually provides for a target Air Wisconsin. Similarly, U.S. Airways
Counselors investment manager of the operating margin of 14 percent from did not reject its ASA with its regional
Investment Fund and Fiduciary 2003 through 2007, with a guaranteed airline partners Mesa and Chautauqua.
Counselors has accepted this floor of 12 to 13 percent during this In addition, U.S. Airways has recently
appointment. period. In 2008, the target operating signed an agreement with Mesa for more
margin will be reset to a market-based regional aircraft. Wall Street analysts
Northwest April 26, 2003 Comment percentage, but it will be no less than 10 also look favorably on ExpressJet, the
By letter dated April 26, 2003, percent and no higher than 14 percent. Continental Airlines regional airline
Northwest responded to many of the Northwest will no longer guarantee a partner. However, Northwest
comments the Department had received minimum operating margin in 2008. understands that some of United’s
concerning the Proposed Exemption The target margin will be reset after airline services agreements have been
(April 26 Comment). Northwest 2008 based on historical and expected renegotiated and that it has been
observed that the comments submitted operating costs. reported that the airline services
to the Department raised several Northwest asserts that its beliefs in agreement between United and Atlantic
concerns regarding the contribution of this regard have been independently Coast Airlines is the subject of current
Pinnacle Stock to the Plans, as verified. In connection with the negotiations. Moreover, in connection
contemplated by the Proposed Exemption Transactions, Northwest with the Omnibus Agreement entered
Exemption. Because many of the does not determine the value of into between Fiduciary Counselors and
comments raise common concerns, Pinnacle Stock. The value of Pinnacle Northwest, Fiduciary Counselors
Northwest organized its responses to Stock is determined by an independent negotiated for limitations on
address these common concerns. fiduciary, Fiduciary Counselors, based Northwest’s ability to unilaterally
on the valuation provided by their amend or terminate the ASA.
Airline Industry and Northwest independent valuation firm, Eclat. The
Financial Condition valuation prepared by Eclat took into Valuation of Pinnacle Stock
Comment: A number of comments consideration current industry Comment: A number of comments
noted that the airline industry is conditions. If the markets return, expressed concerns that Pinnacle Stock
experiencing significant financial substantial upside will benefit the is a risky and illiquid investment and
troubles and that some other airlines are Plans. Future contributions of Pinnacle hard to value because there is no
in bankruptcy. The comments expressed Stock will continue to be subject to established market for the security.
concern that Northwest is exposed to independent review and valuation. Northwest Response: Northwest
bankruptcy risk and that the Pinnacle Northwest adds that under ERISA represents that it did not value Pinnacle
Stock would have greatly reduced value sections 406 and 407, Northwest could Airlines for purposes of the Exemption
if Northwest were to file for bankruptcy, have contributed the stock of its parent Transactions. As a condition of the
because Pinnacle serves Northwest. company (traded under the symbol Proposed Exemption, Fiduciary
Northwest Response: Northwest NWAC) to satisfy its funding obligations Counselors, using the services of its
responded that Northwest recognizes without seeking an exemption. independent appraisal firm Eclat,

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determined the value of Pinnacle Stock. further requires that Northwest provide Northwest’s ability to terminate the
In doing so, Fiduciary Counselors’ legal regular notice of its liquidity to ASA, rights to sell the Pinnacle Stock or
obligations run exclusively to the Plans, Fiduciary Counselors. Thus, the Put dispose of it in an IPO in a variety of
not to Northwest. As the Plans’ Option serves to protect the Plans from circumstances, and a protective Put
independent fiduciary, Fiduciary declines in the value of Pinnacle Stock Option. In addition, Pinnacle has an
Counselors must act prudently and in and the liquidity notice feature ensures independent Board of Directors with
the interests of the Plans and their that the Independent Fiduciary has one member appointed by Fiduciary
participants. sufficient notice so that it may exercise Counselors, and the Fiduciary
Northwest asserts that in valuing the Put Option at a time when Counselors-appointed Board member is
Pinnacle Stock, there are well- Northwest has sufficient financial entitled to special voting rights on
established valuation methodologies resources to meet its obligation under certain matters.
available to the valuation experts to the Put Option. Exposure to Future Underfunding
assess the value of non-public securities Northwest asserts that, while the
like Pinnacle Stock. Such techniques Department has required collateral for Comment: Several commenters
were employed by Fiduciary Counselors some similar exemptions in the past, it expressed concern that the exemption
and Eclat in this circumstance. In has not required collateral in all cases. would expose the Plans to increased
particular, the risk and the liquidity of Here, they assert, the purpose of the underfunding in the future.
the Pinnacle Stock were taken into exemption, to provide the Plans with a Northwest Response: Northwest notes
account and are explained in the reports valuable security while maintaining that it has never before sought a
issued by Fiduciary Counselors and Northwest’s liquidity, would be prohibited transaction exemption and
Eclat. Equally important, Fiduciary undermined if assets were required to has never missed a pension funding
Counselors negotiated for special rights be used as collateral in connection with payment. Indeed, during the 1990’s,
associated with the Plans’ acquisition of contributions of Pinnacle Stock. Northwest contributed to its pension
Pinnacle Stock that limit the risks Moreover, to the extent that Northwest plans millions of dollars more than the
associated with Pinnacle Stock. For has assets to secure the contributions, required amount of contributions. As
example, the Plans obtained a Put such assets will be used to maintain the Northwest’s track record demonstrates,
Option, corporate governance rights, liquidity necessary for Northwest to Northwest agrees that the Plans need to
voting rights in Pinnacle and the right weather the ongoing economic be soundly funded. The Proposed
to initiate an IPO or sale of Pinnacle challenges. Exemption is part of Northwest’s
Stock. strategy to achieve that goal. Through
Conflicts of Interest the contribution of Pinnacle Stock,
Collateral for Pinnacle Stock Comments: Commenters expressed a Northwest will be able to meet up to
Contribution concern that the contribution of $330 million (based on the current
Comment: Some comments suggested Pinnacle Stock involves a conflict of valuation) in near term funding
that Northwest be required to post interest on the part of Northwest. obligations while maintaining the
collateral in order to contribute Pinnacle Northwest Response: Northwest states airline’s ability to weather difficult
Stock to the Plans. that, because there is a potential for a times, to the benefit of all concerned.
Northwest Response: Northwest conflict of interest, the Proposed Moreover, when the IPO of Pinnacle
explains that, while the Proposed Exemption required that Northwest Stock occurs, the Plans may benefit
Exemption and the Omnibus Agreement appoint an independent fiduciary who from a potentially significant IPO
negotiated with Fiduciary Counselors is vested with the discretion to premium with respect to their holdings
do not require collateral, the Proposed determine whether the Plans should of Pinnacle Stock. In the absence of the
Exemption and the Omnibus Agreement acquire, hold or dispose of Pinnacle contribution of Pinnacle Stock, the
include provisions designed to limit the Stock. The Proposed Exemption Plans could suffer from increased
need for collateral. The purpose of included specific conditions that ensure underfunding. This is because a cash
collateral would be to protect the Plans that the independent fiduciary is free contribution is not a viable alternative
from declines in the value of Pinnacle from conflicts of interest. The Proposed given the company’s liquidity needs.
Stock and secure the Put Option Exemption further required that the Preference for Cash Contribution
accorded to the Plans. In this case, the independent fiduciary obtain expert
valuation advice from an independent Comment: A number of commenters
Omnibus Agreement provides the Plans
valuation firm. Thus, to eliminate the expressed a preference that pension
with a Put Option that allows Fiduciary
potential for a conflict of interest, two contributions be made with cash rather
Counselors at any time to ‘‘put’’
parties completely independent of than Pinnacle Stock.
Pinnacle Stock back to Northwest at the Northwest Response: Northwest notes
greater of the price at the time the stock Northwest—Fiduciary Counselors and
Eclat—represented the interests of the that like other major airlines, Northwest
was contributed or the price at the time is in a temporary period of
of the put.7 The Omnibus Agreement Plans in connection with the
transaction. extraordinary airline revenue weakness
7 Northwest notes that specifically, if the Pinnacle Northwest represents that the final and volatility. In this environment, it is
Stock is not publicly traded, the Plans will receive terms of the Omnibus Agreement reflect necessary to maintain high liquidity
the greatest of (i) the initial contribution value (the the fact that Fiduciary Counselors has reserves to ensure the viability of the
Floor Price), (ii) the fair market value as determined
represented the Plans’ interests. In this airline and protect the long-term
by the Independent Fiduciary at the time of the interests of the pension plans and plan
exercise of the Put Option, or, if greater, at the regard, the Plans acquired Pinnacle
closing date of the Put Option, and, (iii) if a third Stock at a favorable price and the Plans participants.
party sale is elected by the Plans and Northwest Northwest asserts that, if its current
obtained voting and management rights,
does not exercise its right of first refusal, the cash needs were not so great, Northwest
proceeds from the sale of Pinnacle Stock held by anti-dilution rights, limits on
would make its pension contributions in
the Plans to such third party. If the Pinnacle Stock
is publicly traded, the Plans will receive the greater days preceding the exercise date or, if greater, the
cash as it has in the past. However,
of (i) the Floor Price, or (ii) the average closing price closing price on the day before the Put Option because of its liquidity needs, a cash
for the stock on the public market for the 10 trading closing date. contribution is not a viable alternative.

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Northwest stated ‘‘[i]n the absence of an environment. Northwest believes this is Northwest May 20 and June 10, 2003
exemption, Northwest would have to the best outcome for all Plan Comment Letters
consider the contribution of NWA Corp. participants and beneficiaries.
stock or an IRS waiver. Alternatively, On May 20 and June 10, 2003,
Eclat May 16, 2003 Response Northwest responded to certain issues
Northwest could consider filing for
bankruptcy, which would suspend most On May 16, 2003, Mr. William S. raised during the Hearing that were not
pension contributions, and could result Swelbar, Managing Director of Eclat, responded to in the April 26 Comment.
in termination of some or all of the responded to the Department 1. During the Hearing, the Department
Plans.’’ concerning questions on the two asked Northwest to provide information
The goal of the Pinnacle Stock valuations of Pinnacle. Eclat provided concerning the funded status of the Pilot
contribution is to (1) provide the Plans additional information in support of its
Plan, Contract Plan and Salaried Plan at
with a valuable security, (2) meet near view that the discount rates, and other
the end of 2002. Northwest provided the
term pension funding obligations, and factors used in determining the fair
funded status of each Plan as of 1/1/03
(3) allow Northwest to preserve cash to market value of the Pinnacle Stock were
withstand the current economic reasonable and theoretically sound. as shown in the following table.

NORTHWEST AIRLINES, INC.—CURRENT LIABILITY FUNDED STATUS AT JANUARY 1, 2003


Pilots plan Contract plan Salaried plan

Current Liability using 6.65% interest rate (IRC § 412(l)) ......................................... $3,665,896,686 $2,673,540,738 $425,037,585
Market Value of Assets (with PY02 accrued contributions) ...................................... 2,253,513,119 2 1,385,832,156 3 254,670,253

Actuarial Value of Assets (with PY02 accrued contributions) 1 ................................. 2,704,215,743 2 1,662,998,587 3 305,604,304

1 Actuarial value of assets smoothes investment gains and losses over a five-year period.
2 Accrued contribution of $202,626,983 for PY02.
3 Accrued contribution of $20,083,879 for PY02.

2. During the Hearing, employees of established through labor negotiations Conversion Option described below).
Northwest referenced an employee stock between Northwest and its unions in The shares were then allocated to
program that was established by the 1993 to hold contributions of Northwest individual accounts established on
company in 1993. Northwest explained Airlines Corporation Series C Preferred behalf of each eligible employee. A total
that, as part of labor agreements reached Stock. These negotiations resulted in of 9.1 million shares of Series C
in 1993, Northwest’s parent company, agreements (Agreements) between Preferred Stock were contributed to the
NWA Corp., issued to trusts for the Northwest and each of its unions under Employee Stock Plan.
benefit of participating employees 9.1 which Northwest would contribute to Each share of the Series C Preferred
million shares of a new class of Series the Employee Stock Plan a newly Stock is convertible at any time into
C cumulative, voting, convertible, created, special class of stock (the Series 1.364 shares of NWA Corp. Common
redeemable preferred stock, par value of C Preferred Stock) in an amount that Stock (Common Stock). At the time a
$.01 per share (the Series C Preferred would equal the monetary value of participant exercises conversion rights,
Stock), and 17.5 million shares of certain wage and other concessions the Series C Preferred Stock is converted
Common Stock and provided the union agreed to by the unions. Each of to Common Stock, the Common Stock is
groups with three positions on the Northwest’s three main unions at the sold and cash is allocated to participant
Board of Directors. The Series C time of the Agreements also was granted accounts. In addition, under the
the right to appoint one director to the
Preferred Stock ranks senior to Common Agreements, the trustee of each plan
Northwest board of directors.
Stock with respect to liquidation and was given a one time Special
The Employee Stock Plan covers in
certain dividend rights. As long as the general terms Northwest’s employees Conversion Option that, if elected,
Common Stock is publicly traded, no employed from August 1, 1993 through resulted in the relevant trusts receiving
dividends accrue on the Series C 1996, including employees represented Common Stock at the rate of 1.9096
Preferred Stock. by Air Line Pilots Association (ALPA), shares of Common Stock for each share
The Northwest Airlines Corporation International Association of Machinists of the Series C Preferred Stock that they
Employee Stock Plan (Employee Stock and Aerospace Workers (IAM), would have otherwise received. The
International Brotherhood of Teamsters Special Conversion Option expired on
Plan) was established in 1993. The
(IBT), Airline Technical Support February 9, 1994. On that day, ALPA,
Employee Stock Plan is a profit sharing
Association (ATSA), Northwest Airlines TWUA, NAMA, ATSA and the
plan that is tax qualified under section
Meteorologists Association (NAMA), Company on behalf of its management
401(a) of the Code and subject to
Transport Workers Union of America and non-contract employees exercised
ERISA.8 The Employee Stock Plan was
(TWUA) and management employees. In the Special Conversion Option, with the
8 The original Employee Stock Plan was 1994 through 1997, Northwest made IAM and IBT electing not to exercise the
established in 1993. On December 2, 2002, the annual contributions of Series C Special Conversion Option (63 shares
Employee Stock Plan was divided into three Preferred Stock to the Employee Stock are still owned by the ALPA trust).
components, which were then merged into the Thus, almost all of the Series C
existing Northwest Airlines Retirement Savings Plan for the benefit of employees
Plan for Pilot Employees, Northwest Airlines represented by the IAM and IBT (the Preferred Stock that remains in the
Retirement Savings Plan for Contract Employees other labor groups had converted their Employee Stock Plan is allocated to the
and Northwest Airlines Retirement Savings Plan for right to receive Series C Preferred Stock accounts of employees represented by
Salaried Employees. Each of these plans is a Code the IAM and IBT. As of December 31,
section 401(k) plan that is tax qualified under into Common Stock under the Special
section 401(a) of the Code and subject to ERISA. For
2002, 4.3 million shares of Series C
ease of reference, Northwest refers to the Employee C Preferred Stock remains accurate after the merger Preferred Stock have been converted
Stock Plan, but the factual discussion of the Series with the Northwest 401(k) plans. into Common Stock and the remaining

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4.8 million shares outstanding are restrictions applicable to stock buy backs that Northwest has the corporate and
convertible into 6.6 million shares of under Delaware Law did not permit legal authority to meet its obligations
Common Stock. Northwest to proceed at this time with the under the agreement, including the Put
The holders of outstanding Series C buy back of the Series C Preferred Stock.
Option. Northwest asserts that it
Preferred Stock have a ‘‘put right’’ in The board noted that the company’s couldn’t make this representation if
2003 to require NWA Corp. to obligation to the holders of the Series C there were restrictions that limited its
repurchase such shares for an amount Preferred Stock continues until ability to honor the Put Option or other
equal to the actual wage savings Northwest has the ability to repurchase aspects of the Omnibus Agreement and
achieved under the 1993 labor the Series C Preferred Stock. Until the this representation was the product of
agreement (projected to be $226 million Series C stock is repurchased, each the negotiations between the
at the August 1, 2003 put date). NWA share will accrue a 12% per year Independent Fiduciary and Northwest
Corp. has the option to repurchase such dividend on the $46.96 per share buy (as noted above).
shares in cash, by the issuance of back price.
additional Common Stock, or by the use On August 1, 2003, in response to the Fiduciary Counselors’ July 11, 2003
of cash and stock. A decision to issue Department’s questions concerning the Submission
only additional Common Stock must be ‘‘legal restrictions’’ that prevented Additional Information
approved by a majority of the three Northwest from repurchasing the Series
C Preferred Stock and whether these Fiduciary Counselors sent additional
directors elected by the holders of the
legal restrictions were tied to information to the Department on July
Series C Preferred Stock. If NWA Corp.
Northwest’s financial condition, 11, 2003. The information addressed,
decides not to repurchase the Series C
Northwest explained that in making the among other issues, how the possibility
Preferred Stock, quarterly dividends
Series C stock repurchase decision, the of a Northwest bankruptcy was factored
will accrue beginning August 1, 2003, at
board of NWA Corp. was subject to a into the valuation, how the valuation
12% per annum and the employee
Delaware law that applies only to NWA was ‘‘stress’’ tested for other
unions will receive three additional
Corp.’s repurchase of its own stock. The assumptions contained in the valuation,
Board of Directors positions. If, on
Delaware law does not apply to the and the reasons for the selection of a
August 1, 2003, NWA Corp. decides not
repurchase of Pinnacle Stock, which is 15% liquidity discount.
to repurchase the Series C Preferred Fiduciary Counselors, AIC and Eclat
Stock, beginning on August 1, 2003 and not treated as NWA Corp.’s own stock.
The Delaware law applicable to the represent that the ASA between
on each succeeding quarter end date, Northwest and Pinnacle provided the
NWA Corp. must use all ‘‘Available repurchase of the Series C stock requires
the Board to make a finding that NWA framework for the final valuation. There
Cash’’ (a defined term in the were significant changes made to the
Agreements) to effect partial Corp. has adequate surplus, defined as
the net asset value of the corporation in original valuation performed for the
repurchases of the Series C Preferred PBGC (the Eclat Report) based on this
Stock, but only if and to the extent excess of its capital. At the present time,
the Board was unable to make this agreement that proved to be more
NWA Corp. is not prohibited from conservative with respect to the
making such repurchases under finding.
The Department also questioned ultimate valuation. Fiduciary
applicable Delaware corporate law or Counselors, AIC and Eclat also noted
whether such restrictions would
any loan agreement to which NWA that some of the information used by
similarly preclude Northwest from
Corp. is a party. Any decision not to use Eclat for the January 15, 2003 Valuation
honoring the Put Option. Northwest
all Available Cash to effect such partial responded that no similar legal was not available during the initial
purchases must be approved by a restriction would apply to the valuation in the Eclat Report.
majority of the directors elected by the repurchase of Pinnacle Stock pursuant Additionally, by letter dated July 15,
holders of the Series C Preferred Stock. to the exercise of the Put Option. 2003, Fiduciary Counselors represents
On August 1, 2003, Northwest issued
Minnesota law would not restrict the that in preparing the valuation for
a press release that announced its
repurchase of Pinnacle stock by subsequent contributions, Eclat will
decision on the Series C Preferred Stock.
Northwest, a Minnesota corporation, reexamine the assumptions used in
The Northwest board of directors
which issued the Put Option. In preparing the initial valuation and will
determined that at this time the addition, Delaware law would not continue to stress test the assumptions
company could not legally redeem the restrict NWA Corp., a Delaware in its valuation model to reflect the
4.8 million shares of its Series C corporation, from repurchasing the credit-worthiness of Northwest and
Preferred Stock still outstanding and Pinnacle Stock as the guarantor of the changing conditions in the regional jet
made the following statement: Put Option. Both the Minnesota law and market.
After a thorough review of the legal the Delaware law relate to the
restrictions applicable to the company, the repurchase of the stock issued by Change of Affiliation of Fiduciary
board concluded that Northwest was not able Northwest Airlines, Inc. and NWA Counselors
to buy back the Series C Preferred Stock, at
this time. As a board, we recognize the Corp., respectively, and would not On July 11, 2003, Fiduciary
valuable contributions our employees made apply to the repurchase of stock of Counselors informed the Department
to the company during the 1993–1996 wage Pinnacle (the Pinnacle Stock). that Fiduciary Counselors Inc. (formerly
reduction period and acknowledge the Northwest notes that the board Aon Fiduciary Counselors, Inc.)
company’s obligation to buy back the Series previously approved the Omnibus (Fiduciary Counselors) is no longer a
C Preferred Stock. We want to do so as soon Agreement, which includes the Put subsidiary of Aon Corporation. As of
as possible. We devoted substantial time and Option, and no further action would be June 30, 2003, Fiduciary Counselors was
effort to this issue. We discussed the Series acquired by Fiduciary Group, Inc., in a
required of the board in the event that
C Preferred Stock buy back at length in our
regularly scheduled April and June board the Put Option is exercised by the management-led buyout.
meetings, and held two special meetings in Independent Fiduciary. Fiduciary Counselors notes that there
July devoted exclusively to the Series C issue Northwest stated that the language at will be no change in its providing
* * *. At the conclusion of these section 5.1(b) of the Omnibus objective and independent investment
deliberations, it was clear that the legal Agreement contains a representation management. Ellen A. Hennessy will

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continue as President of Fiduciary immediately for cause. As further noted have first priority to sell Pinnacle Stock
Counselors and, as majority shareholder in the Preamble, the parties to the in an initial public offering, if certain
of Fiduciary Group, will continue to Agreement shall notify the Department conditions exist.
control management decisions with within 30 days of any decision 5. The Contract Plan, the Salaried
respect to Fiduciary Counselors. Ellen regarding the resignation, termination or Plan and the Pilot Plan will have the
A. Hennessy will continue to be the change in control of the Independent same registration rights provided in the
primary person at Fiduciary Counselors Fiduciary. The Department wishes to Omnibus Agreement dated January 15,
handling its responsibilities as clarify that any replacement 2003 between Pinnacle Airlines Corp.,
independent fiduciary to the Northwest Independent Fiduciary must be Northwest and Fiduciary Counselors.
Airlines defined benefit plans. acceptable to the Department and must 6. Northwest may not terminate
Fiduciary Counselors adds that AIC, assume its responsibility prior to the Fiduciary Counselors as the
which remains a subsidiary of Aon, will effective date of the removal of the Independent Fiduciary without the
continue to act as advisor in connection predecessor Independent Fiduciary. consent of ALPA and may not appoint
with this engagement. There will be no a new Independent Fiduciary without
change in their personnel assigned to Northwest and ALPA Agreement the consent of ALPA. The Independent
this engagement or in the manner in Regarding Pinnacle Stock Fiduciary will have the sole
which the fees are split between the two On June 27, 2003, ALPA and responsibility to determine whether to
organizations. Northwest provided the Department acquire, hold or dispose of Pinnacle
As described in the Fiduciary with a Letter of Agreement between Stock on behalf of the Plans and
Counselors letter to the Department on Northwest and the Northwest airline whether to exercise the Put Option with
January 6, 2003, Northwest has agreed pilots represented by ALPA (the Letter respect to Pinnacle Stock.
to pay Fiduciary Counselors an annual Agreement) regarding the acquisition 7. The monthly contributions required
fee that covers both the independent and holding of Pinnacle stock by the to be made to the Pilot Plan pursuant to
fiduciary and investment management Northwest Pension Plan for Pilot the pilot collective bargaining
services provided by Fiduciary Employees (the Pilot Plan). ALPA and agreement are waived for the 2004 and
Counselors and the investment advisory Northwest informed the Department 2005 Plan Year.
services provided by AIC. The initial fee that the Letter Agreement will be As described in the Proposed
was remitted directly to Aon executed by the parties in connection Exemption, the current provisions of the
Consulting, Inc., then a parent company with a proposed voluntary contribution Pilot Plan and the pilot collective
of both Fiduciary Counselors and AIC. of Pinnacle Stock (described below). bargaining agreement prohibit the Pilot
Aon Consulting internally allocated The Letter Agreement provides that: Plan from acquiring or holding
25% of the fee to Fiduciary Counselors, 1. Northwest will make a voluntary employer securities. Without
which comprised less than 5% of its contribution to the Pilot Plan on or modifications to the pilot collective
annual gross revenue in 2002. In before September 15, 2003 so that the bargaining agreement, the Proposed
connection with the change in funded current liability percentage for Exemption contemplated that the other
ownership of Fiduciary Counselors, the Plan is at least 80% for the 2003 two Plans would receive a contribution
Fiduciary Counselors and AIC have Plan Year. This voluntary contribution of Pinnacle Stock in an amount equal to
agreed that future payments will be will eliminate the funding requirements the maximum amount permitted under
allocated in the same proportions. under the Code and ERISA for the 2003 section 407(a)(2) of ERISA, while the
Payment will be made to Fiduciary Plan Year that would otherwise be Pilot Plan would receive no
Counselors, which will remit 75% to payable with respect to the Pilot Plan. contributions of Pinnacle Stock.
AIC. Based on current client 2. The voluntary contribution to the ALPA represents that it recognizes the
engagements, Fiduciary Counselors Pilot Plan will consist entirely of need for Northwest to preserve liquidity
anticipates that the portion retained by Pinnacle Stock. At the time the so ALPA has agreed to modify the
it will comprise less than 5% of voluntary contribution is made to the collective bargaining agreement and the
Fiduciary Counselors’ gross revenue for Pilot Plan, Northwest also will Pilot Plan to permit the Pilot Plan to
2003. contribute Pinnacle Stock to the acquire and hold employer securities
Fiduciary Counselors asserts that the Salaried Plan in an amount such that through a voluntary contribution to the
sale of Fiduciary Counselors will, if the amount of the Pinnacle Stock held Pilot Plan. The Proposed Exemption
anything, increases their independence. by the Salaried Plan equals the required contemplates both voluntary and
As reflected in the Proposed Exemption, minimum funding contribution due required contributions to the Northwest
another Aon affiliate does provide non- under ERISA and the Code on Plans, as did the Application filed by
plan services to Northwest, albeit September 15, 2003. Any remaining Northwest on November 6, 2002 and the
services representing less than 1% of Pinnacle stock will then be contributed Omnibus Agreement.
Aon’s total annual revenue. In contrast, to the Contract Plan. Northwest and ALPA assert that the
under its new ownership, neither 3. The Pinnacle Stock contributed to voluntary contribution gives Northwest
Fiduciary Counselors nor any affiliate the Pilot Plan will be held in a separate, the liquidity it needs, and thereby the
will accept any other engagement from segregated subaccount of the Master ability to maintain all of its Plans, by
Northwest while it is independent Trust and held for the exclusive benefit eliminating the funding requirement for
fiduciary for the Plans. of the Pilot Plan. Contributions of the Pilot Plan for the 2003 Plan Year,
Pinnacle Stock to the Salaried Plan and possibly reducing the funding
Termination of the Independent the Contract Plan will likewise be held requirements for future plan years, and
Fiduciary Agreement in a separate segregated subaccount of by waiving the monthly contribution
The Department notes that the the Master Trust and held for the requirement under the pilot collective
Preamble to the Proposed Exemption exclusive benefit of each respective bargaining agreement for the 2004 and
stated that either party may terminate plan. 2005 Plan Years. The Pilot Plan and its
the Independent Fiduciary Agreement 4. Northwest will obtain an participants benefit from the voluntary
for any reason upon 60 days notice and amendment of the Omnibus Agreement contribution by providing an early
that the Agreement may be terminated so that the Independent Fiduciary will contribution of an asset with significant

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value to more adequately fund the financial information for 2002. Minimum Rate of Return
benefits promised under the Pilot Plan. However, audited 2002 financial Some commenters asked if Northwest
The allocation method made pursuant statements were not available at the would be willing to guarantee the Plans
to the Letter Agreement will result in a time of Eclat’s valuation for the January a minimum rate of return on the
modest change in the percentage of the 15, 2003 contribution. Pinnacle Stock such as a rate equal to
Contract and Salaried Plans’ assets the inflation rate.
Enhanced Communication with Plan
invested in Pinnacle Stock compared to Northwest stated that it would not.
Participants
the ratable allocation contemplated by Northwest provided that the Omnibus
the Proposed Exemption. Without Several commenters requested that
Northwest provide for enhanced Agreement guarantees that the Plans
modification to the pilot collective always receive the greater of the initial
bargaining agreement, the Proposed communication with the Plan
participants concerning the Exemption contribution value of Pinnacle Stock or
Exemption contemplated that the the value of the stock at the time of an
Salaried and Contract Plans could hold Transactions. Additionally, ALPA
requested that it be involved in the IPO or the exercise of the Put Option.
Pinnacle Stock equal up to 10% of each Northwest guarantees the ‘‘principal’’
Plan’s assets. Under the Letter monitoring of the Independent
Fiduciary. attributable to the investment in
Agreement, the Salaried and Contract Pinnacle Stock. According to Northwest,
Plans will instead hold Pinnacle Stock In this regard, Fiduciary Counselors
plans to hold periodic conference calls the Omnibus Agreement provides the
with a value equal to approximately 8% Plans substantial investment risk
of their respective assets. to report to the representatives of the
participants covered by collective protection, protection that would not be
Northwest and ALPA believe that the
bargaining agreements on developments available to the Plans when investing in
Letter Agreement also enhances
with respect to the Pinnacle Stock held securities with similar risk and return
protections for participants in all three
by the plans. Additionally, Northwest characteristics. Moreover, the Plans will
Plans by giving the Independent
notes that the Letter Agreement between receive all of any investment gains
Fiduciary first priority to sell Pinnacle
Northwest and ALPA relating to a attributable to their shares of Pinnacle
Stock in an IPO where the number of
voluntary contribution of Pinnacle Stock at the time of an IPO. Northwest
shares sought to be sold exceeds the
Stock would provide ALPA with a role also noted that it assumes the
number that can be sold.
in reviewing and approving the investment risk associated with any
The Department asked whether
termination, and any replacement, of investment by the Plans, including the
Northwest intends to contribute cash or
the independent fiduciary. This, investment in Pinnacle Stock, and must
some other asset to satisfy the balance
together with the reporting planned by make up any investment losses through
of the calendar year 2003 funding
Fiduciary Counselors, will permit ALPA future contributions to the Plans.
requirements of the Salaried and
Contract Plans that will not be met by to monitor the Independent Fiduciary. The IPO
the Pinnacle Stock contribution as a Plan Asset Investment Guidelines Several commenters asked whether
result of the Letter Agreement. the Plan trustees should decide when to
A number of commenters asked, if
Northwest represents that it will make initiate a public offering since the Plans
Pinnacle Stock is contributed to the
any such contributions in cash. will own a majority of Pinnacle Stock.
Plans, how would this affect the manner
Additionally, Northwest will maintain a Northwest noted that under the terms
in which other Plan assets are invested?
subaccount for each Plan within the Northwest noted that, as is the case of the Omnibus Agreement, Northwest
Master Trust for so long as that Plan for sponsors of defined benefit plans, is responsible for making up the
holds Pinnacle Stock. Once all of the Northwest has adopted investment difference, if any, between the IPO price
Pinnacle Stock in such an account has guidelines and asset allocation strategies and the original contribution value. As
been liquidated, that subaccount may be that guide the investment of the Plans’ a result, Northwest has a strong interest
dissolved. assets. These guidelines contemplate in ensuring that maximum value is
As noted in the June 27, 2003 letter that a certain amount of assets will be obtained in connection with an IPO and
from Northwest and ALPA to the allocated to securities with risk and Northwest believes that it is appropriate
Department, Northwest states that the return characteristics similar to Pinnacle for it to determine the timing of an IPO.
Letter Agreement will be executed in Stock. Thus, Northwest notes that the Additionally, Fiduciary Counselors
connection with the voluntary holding of Pinnacle Stock by the Plans agreed only to a limited period during
contribution. Thus, the ALPA agreement can fit within the overall investment which Northwest has the exclusive right
will be formally entered into and strategy adopted for the Plans. to cause an IPO. Under the Omnibus
effective on the date of the voluntary Fiduciary Counselors notes, as Agreement, Northwest controls the
contribution. described in its report, in accepting the timing of the IPO until the earlier of July
August 6, 2003 Northwest and Pinnacle Stock contribution, Fiduciary 1, 2006 or the occurrence of an early
Independent Fiduciary Response Counselors determined that Pinnacle termination event. After that date, the
Stock fit within the Plans’ investment Omnibus Agreement provides Fiduciary
Audited Financial Statements guidelines and diversification needs. Counselors with the right to cause an
The Department asked the Fiduciary Counselors also obtained a IPO of Pinnacle Stock.
Independent Fiduciary if the January 15, determination from Northwest’s Pension
2003 Valuation was based on audited Investment Committee that the holding Pinnacle Management
financial statements. of Pinnacle Stock would not impair the Several commenters asked if
Fiduciary Counselors stated that liquidity of the Plans and that the Plans Northwest would manage Pinnacle in a
Eclat’s valuation took into account a would be able to pay benefits and manner that maximizes its value.
variety of financial data. Eclat was expenses when due. Similar Northwest replied that Northwest
provided with Pinnacle’s audited considerations will be taken into does not manage Pinnacle. Except for
financial statements for the years 2000 account by Fiduciary Counselors in one director appointed by Northwest,
and 2001. Eclat was also provided with determining whether to accept any Pinnacle’s board is independent of
unaudited interim and full year future contribution of Pinnacle Stock. Northwest. Northwest expects that the

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Federal Register / Vol. 68, No. 160 / Tuesday, August 19, 2003 / Notices 49807

board, like any board fulfilling its Entity References Department of Labor, Room N–1513,
fiduciary duties, will seek to maximize In the March 3 Comment, Northwest 200 Constitution Avenue, NW.,
the value of the enterprise. In addition, observed that there are three references Washington, DC 20210.
Fiduciary Counselors negotiated For a complete statement of the facts
to NWA Inc. in the second column at 68
comprehensive voting and governance and representations supporting the
FR 2584 that should reference
rights specifically for the Plans under Department’s decision to grant this
Northwest (Northwest Airlines, Inc.),
the Omnibus Agreement. For example, exemption, refer to the January 17, 2003
the wholly-owned subsidiary
Fiduciary Counselors appointed a Notice of Proposed Exemption at 68 FR
corporation of NWA Inc. The references 2578.
director to Pinnacle’s board who sits on
appear almost halfway down the
the board’s audit committee. Once the General Information
column beginning in the fourth full
Plans own 50% of the Pinnacle Stock,
paragraph, and in the last paragraph in The attention of interested person is
the Plans’ director will exercise
the column. directed to the following:
additional approval rights relating to the
company’s bylaws and capital structure. Jones Day (1) The fact that a transaction is the
In addition, changes to the ASA and subject of an exemption under section
The March 5 Comment noted that due 408(a) of the Act and section 4975(c)(2)
other significant transactions must be to the firm’s recent name change, the
approved by a majority of Pinnacle’s of the Code does not relieve a fiduciary
reference to ‘‘Jones, Day, Reavis & or other party in interest or disqualified
directors, which majority must include Pogue’’ in the first column of the
the Plans’ director. person from certain other provisions of
Proposed Exemption at 68 FR 2584 the Act and the Code, including any
Modifications to the ASA should be changed to ‘‘Jones Day’’. prohibited transaction provisions to
On July 23, 2003, Northwest Determination of the Department which the exemption does not apply
confirmed to the Department that the and the general fiduciary responsibility
Accordingly, based upon the provisions of section 404 of the Act,
modifications to the ASA referred to in
representations made by the Applicant, which require, among other things, a
the Proposed Exemption have been
the written comments received in fiduciary to discharge his or her duties
made. The ASA was revised to provide
response to the Proposed Exemption, respecting the plan solely in the interest
that the acquisition or disposition of
the record of the public hearing, and the of the participants and beneficiaries of
shares of Pinnacle Stock pursuant to the
analysis conducted by the Independent the plan and in a prudent fashion in
terms of the Omnibus Agreement does
Fiduciary, the Department has accordance with section 404(a)(1)(B) of
not constitute a Change of Control (as
determined to grant the exemption. The the Act; nor does it affect the
defined in the ASA). The ASA also was
Department has, in transactions of this requirements of section 401(a) of the
revised to eliminate the unilateral right
nature, placed emphasis on the need for Code that the plan operate for the
of Northwest to terminate the ASA in
an Independent Fiduciary and on such exclusive benefit of the employees of
the event of the bankruptcy of
Independent Fiduciary’s considered and the employer maintaining the plan and
Northwest.
objective evaluation of the transactions. their beneficiaries;
10% Limitation In its deliberations, which included its (2) The exemption will not extend to
In the March 5 Comment, Fiduciary analysis of all aspects of the transactions prohibited under section
Counselors corrected previous transactions, the Independent Fiduciary 406(b)(3) of the Act and section
information provided to the Department has consistently represented for the 4975(c)(1)(F) of the Code;
in the Proposed Exemption with record that no contribution of Pinnacle (3) In accordance with section 408(a)
reference to ‘‘employer securities or Stock will be accepted on behalf of the of the Act and section 4975(c)(2) of the
employer real property’’ in the last Plans unless such transactions are found Code and the procedures set forth in 29
sentence of paragraph 14 in column 1 of by the Independent Fiduciary to be in CFR Part 2570, Subpart B (55 FR 32836,
68 FR 2584 (emphasis added) and each the interests of the Plans. Finally, the 32847, August 10, 1990) and based upon
other place it occurs. This phrase Department notes that the Independent the entire record, the Department finds
should be changed to ‘‘employer Fiduciary’s satisfaction of its obligations that the exemption is administratively
securities and employer real property’’. in connection with the determination of feasible, in the interests of the plans and
In this regard, the Department wishes the fair market value of the Pinnacle their participants and beneficiaries and
to note that Northwest has not Stock as previously described by the protective of the rights of the
requested, and the Department is not Department in the Preamble to the final participants and beneficiaries of the
providing, any relief for any exemption is a critical factor in the plans;
contribution of Pinnacle Stock that, Department’s decision to grant a final (4) This exemption is supplemental
when aggregated with any employer exemption. to, and not in derogation of, any other
securities and employer real property The Application pertaining to the provisions of the Act and/or the Code,
currently held by any of the Plans, exemption, the Proposed Exemption, including statutory or administrative
represents more than 10 percent of the the comments submitted to the exemptions and transitional rules.
value of that Plan’s assets. Department and the responses to the Furthermore, the fact that a transaction
comments, the transcript of the Hearing, is subject to an administrative or
Best Interest Standard and all other documents submitted to statutory exemption is not dispositive of
In the March 5 Comment, Fiduciary the Department concerning this whether the transaction is in fact a
Counselors noted that, consistent with exemption have been included as part of prohibited transaction; and
the statutory requirements of section the public record of the Application. (5) The availability of this exemption
404(a) of ERISA, the reference in the The complete Application file, is subject to the express condition that
Proposed Exemption to ‘‘the best including all supplemental submissions the material facts and representations
interests of the Plans’ participants and received by the Department, is available contained in the application are true
beneficiaries’’ (emphasis added) should for public inspection in the Public and complete and accurately describe
be changed to ‘‘the interests of the Disclosure Room of the Employee all material terms of the transactions,
Plans’ participants and beneficiaries’’. Benefits Security Administration, U.S. which are the subjects of the exemption.

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49808 Federal Register / Vol. 68, No. 160 / Tuesday, August 19, 2003 / Notices

Exemption (c) The Independent Fiduciary of the Pinnacle Stock by Northwest to


In accordance with section 408(a) of negotiates and approves the terms of the Plans, (B) the holding of the
the Act and section 4975(c)(2) of the any of the transactions between the Pinnacle Stock by the Plans; (C) the
Code and the procedures set forth in 29 Plans and Northwest that relate to the acquisition, holding, and exercise by the
CFR Part 2570, Subpart B (55 FR 32836, Pinnacle Stock; Plans of the Put Option, and (D) any sale
32847, August 10, 1990) and based upon (d) The Independent Fiduciary of the Pinnacle Stock by the Plans. For
manages the holding and disposition of purposes of this exemption, a fiduciary
the entire record, the Department finds
the Pinnacle Stock and takes whatever will not be deemed to be independent
that the exemption is:
(a) Administratively feasible; actions it deems necessary to protect the
of and unrelated to Northwest if: (1)
(b) In the interests of the plans and rights of the Plans with respect to the
Such fiduciary directly or indirectly
their participants and beneficiaries; and Pinnacle Stock;
(e) The terms of any transactions controls, is controlled by or is under
(c) Protective of the rights of the common control with Northwest, (2)
participants and beneficiaries of the between the Plans and Northwest are no
less favorable to the Plans than terms such fiduciary directly or indirectly
plans. receives any compensation or other
negotiated at arm’s-length under similar
Section I. Covered Transactions circumstances between unrelated third consideration in connection with any
The restrictions of sections 406(a), parties; transaction described in this exemption;
406(b)(1) and (b)(2), and 407(a) of the (f) The Independent Fiduciary except that an independent fiduciary
Act and the sanctions resulting from the determines the fair market value of the may receive compensation for acting as
application of section 4975(a) and (b) of Pinnacle Stock contributed to each plan an independent fiduciary from
the Code, by reason of section as of the date of each such contribution. Northwest in connection with the
4975(c)(1)(A) through (E) of the Code, In determining the fair market value of transactions contemplated herein if the
shall not apply to: the Pinnacle Stock, the Independent amount or payment of such
(1) The transfer of the common shares Fiduciary obtains an appraisal from an compensation is not contingent upon or
of Pinnacle Airlines Corp. (Pinnacle independent qualified appraiser in any way affected by the independent
Stock) to the Northwest Airlines selected by the Independent Fiduciary, fiduciary’s ultimate decision, and (3) the
Pension Plan for Salaried Employees, and ensures that the appraisal and the annual gross revenue received by such
the Northwest Airlines Pension Plan for Independent Fiduciary’s analysis of the fiduciary, during any year of its
Pilot Employees, and the Northwest appraisal are consistent with sound engagement, from Northwest and its
Airlines Pension Plan for Contract principles of valuation and with the
affiliates exceeds 5 percent (5%) of the
Employees (the Plans) through the in- elements described by the Department
independent fiduciary’s annual gross
kind contribution(s) of such shares by in the Preamble to this final exemption
in the section entitled Duties of the revenue from all sources for its prior tax
Northwest Airlines, Inc. (Northwest), a year.
party in interest with respect to such Independent Fiduciary;
Plans; (g) The terms of (1) the Put Option (b) The term ‘‘affiliate’’ means:
(2) The holding of the Pinnacle Stock granted by Northwest; (2) any exercise (1) Any person directly or indirectly
by the Plans; of the Put Option by the Plans; and (3) through one or more intermediaries,
(3) The sale of the Pinnacle Stock by any sale of the Pinnacle Stock by the controlling, controlled by, or under
the Plans to Northwest; Plans to Northwest other than through common control with the person;
(4) The acquisition, holding, and the exercise of the Put Option will be in
exercise by the Plans of a put option accordance with the terms set forth in (2) any officer, director, employee,
(the Put Option) granted by Northwest the Term Sheet and the Omnibus relative, or partner in any such person;
which permits the Plans to sell the Agreement; and
Pinnacle Stock to Northwest; and (h) Immediately after each (3) any corporation or partnership of
(5) The guaranty to the Plans by contribution, employer securities and which such person is an officer,
Northwest Airlines Corporation of employer real property, including the director, partner, or employee.
Northwest’s obligation to honor the Put Pinnacle Stock, will represent no more
Option. than 10 percent (10%) of the value of (c) The term ‘‘control’’ means the
each Plan’s assets. For purposes of this power to exercise a controlling
Section II. Conditions influence over the management or
requirement, the term ‘‘employer real
This exemption is conditioned upon property’’ means real property leased to, policies of a person other than an
adherence to the material facts and and the term ‘‘employer securities’’ individual.
representations described herein and means securities issued by, an employer Date: This exemption is effective as of
upon satisfaction of the following any of whose employees are covered by January 15, 2003.
requirements: the Plans or by an affiliate of such
(a) The Plans acquire the Pinnacle Signed at Washington, DC this 14th day of
employer; and
Stock through one or more contributions (i) The Plans incur no fees, costs or August 2003.
by Northwest during the calendar years other charges as a result of their Ivan L. Strasfeld,
2003 and 2004; participation in any of the transactions Director, Office of Exemption Determinations,
(b) An independent qualified described herein. Employee Benefits Security Administration,
fiduciary (the Independent Fiduciary), Department of Labor.
acting on behalf of the Plans, represents Section III. Definitions
[FR Doc. 03–21162 Filed 8–18–03; 8:45 am]
the Plans’ interests for all purposes with (a) The term ‘‘independent fiduciary’’ BILLING CODE 4510–29–P
respect to the Pinnacle Stock, and means a fiduciary who is: (1)
determines, prior to entering into any of independent of and unrelated to
the transactions described herein, that Northwest and its affiliates, and (2)
each such transaction, including the appointed to act on behalf of the Plans
contribution of the Pinnacle Stock, is in for all purposes related to, but not
the interests of the Plans; limited to, (A) the in-kind contribution

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