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Iranian Investment in Pan Am
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1506740
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Iranian Investment in Pan Am
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Jerry H. Jones Files (Ford Administration)
Jerry Jones' Staff Secretary Files
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Aeronautics, Commercial
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1975-02-28
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1975-01-01
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1975
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The original documents are located in Box 2, folder "Iranian Investment in Pan Am" of the
Jerry H. Jones Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
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OP IMMED
DE WTE #0419 0421940
0 1118277 FEB 75
FM JERRY H. JONES
1
DECLASSIFIED
TO DICK CHENEY
E.O. 12958, Sec. 3.5
G 9 N F I E N I WH50133
NSC Memo, 11/24/98, State Dept. Guidelines
By WHM , NARA, Date 11/21/00
MEMORANDUM FOR
THE PRESIDENT
FROM:
L. WILLIAM SEIDMAN
SUBJECT:
PROPOSED IRANIAN GOVERNMENT
INVESTMENT IN PAN AMERICAN AIRLINES
AS YOU KNOW, INITIAL NEGOTIATIONS HAVE BEEN COMPLETED
WITH RESPECT TO AN IRANIAN GOVERNMENT INVESTMENT OF $300
MILLION IN PAN AMERICAN AIRLINES. BECAUSE THE CONTROVERSIAL
ISSUE OF OPEC GOVERNMENT INVESTMENT IS INVOLVED, BOTH PAN
AM AND IRAN ARE SEEKING A FAVORABLE SIGNAL FROM THE
ADMINISTRATION BEFORE PROCEEDING FURTHER WITH THE
TRANSACTION.
ANY AGREEMENT REACHED BY THE PARTIES WOULD ULTIMATELY
BE SUBJECT TO CAB APPROVAL OF MATTERS RELATING TO POTENTIAL
IRANIAN CONTROL OF PAN AM. A FAVORABLE ADMINISTRATION
DECISION WOULD, THEREFORE, NOT NECESSARILY ENSURE SUCCESSFUL
COMPLETION OF THE TRANSACTION. A NEGATIVE SIGNAL WOULD,
HOWEVER, ALMOST CERTAINLY STOP THE PROPOSED INVESTMENT.
DECISION REQUIRED. THE MAIN DECISION REQUIRED IS
WHETHER THE ADMINISTRATION SHOULD APPROVE IN PRINCIPLE THE
PROPOSED IRANIAN INVESTMENT IN PAN AM.
TERMS OF TRANSACTION. AFTER COMPLETION OF THE TRANS=
ACTION AS NOW PROPOSED, IRAN WOULD HOLD APPROXIMATELY $245
MILLION (20-30 PERCENT) OF PAN AMIS DEBT, OWN 55 PERCENT OF THE
STOCK OF INTERCONTINENTAL HOTELS CORPORATION CAN OFFSHORE HOTEL
CHAIN WHOLLY OWNED BY PAN AMD, HAVE WARRANTS TO PURCHASE
RECALLED
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UP TO 13 PERCENT OF PAN AMIS EQUITY AND HAVE ONE MEMBER ON PAN
AM!S 17 MEMBER BOARD OF DIRECTORS (SEE ATTACHED ANNEX I FOR
FURTHER DETAILS OF TRANSACTION).
BASIC ISSUES -- SEVERAL BROADER ISSUES MUST BE CONSIDERED
IN ORDER TO REACH A DECISION ON THE IRANIAN/PAN AM REQUEST.
THEY ARE:
-- OUR POLICY WITH RESPECT TO OPEC GOVERNMENT
INVESTMENT IN THE U.S.
--- OUR POLICY WITH RESPECT TO RECYCLING AND THE
IMPACT OF DENIALI ON THE FUTURE FLOW OF OPEC FUNDS
TO THE US.
-- FOREIGN POLICY IMPLICATIONS - ESPECIALLY IRANIAN/
U.S. RELATIONS.
--- FOREIGN GOVERNMENT INFLUENCE IN KEY U.S. FIRMS
--: INJECTION OF AN UNDESIRABLE FOREIGN POLICY ELEMENT
INTO THE CAB AND PRESIDENTIAL DECISION MAKING
PROCESS IN CASES INVOLVING PAN AM.
--: EFFECT ON PAN AMIS LONG RUN ECONOMIC VIABILITY,
DISCUSSION OF KEY ISSUE: OPEC GOVERNMENT INVESTMENT
IN U.S. - ONE OF THE PRINCIPAL OBJECTIVES OF OUR RECYCLING
POLICY IS TO ENCOURAGE OPEC NATIONS TO MAKE LONG TERM
CONSTRUCTIVE INVESTMENTS IN THE CONSUMING NATIONS. SUCH
INVESTMENTS CONTRIBUTE TO OUR CURRENT BALANCE OF PAYMENTS,
HELP ALLEVIATE THE CURRENT CAPITAL SHORTAGE, AND GIVE THE
OPEC COUNTRIES A STAKE IN OUR ECONOMY WHICH SHOULD PROVIDE
SOME INCENTIVE FOR THEM TO REFRAIN FROM ACTIONS WHICH WOULD
HAVE A NEGATIVE EFFECT ON OUR ECONOMY AND THEIR INVESTMENTS,
AN INTERAGENCY REVIEW OF FOREIGN INVESTMENT IN THE U.S. IS
UNDERWAY AND, WHILE NOT COMPLETE, IT IS POSSIBLE TO SAY THAT
ALL BUT THE MOST EXTREME VIEWS WOULD PERMIT SOME FOREIGN
GOVERNMENT INVESTMENT IN US FIRMS - INCLUDING FIRMS LIKE PAN AM,
OUR EXISTING LAWS AND REGULATIONS ARE SUCH THAT THERE IS
MINIMUM DANGER THAT A FOREIGN INVESTOR COULD USE HIS INVEST-
MENT HERE IN A WAY THAT WOULD CAUSE SERIOUS HARM TO OUR
ECONOMY OR NATIONAL SECURITY. HOWEVER, A MAJOR RESERVATION
HAS BEEN RAISED CONCERNING THE POLITICAL AND ECONOMIC
INFLUENCE THAT A FOREIGN GOVERNMENT MIGHT OBTAIN THROUGH
SUBSTANTIAL INVESTMENTS, ALTHOUGH THE SUBSTANCE OF THESE
CONCERNS HAVE NEVER BEEN CLEARLY DEFINED, THOSE THAT HOLD
THIS VIEW MAINTAIN THAT A FOREIGN GOVERNMENT COULD MAKE
SUBTLE USE OF SUCH INFLUENCE TO HARM OUR NATIONALI OR ECONOMIC
SECURITY INTERESTS BUT IN A MANNER THAT WOULD PUT IT BEYOND
THE REACH OF EXISTING LAW.
THERE IS AN ADDED DIFFICULTY IN THE PRESENT CASE IN
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THAT PAN AM IS REGULATED BY THE CAB AND, IN SOME CASES, THE
PRESIDENT. THE DEPARTMENT OF TRANSPORTATION IS CONCERNED
THAT IRANIAN INVESTMENT IN PAN AM WOULD INJECT ADDITIONAL
FOREIGN POLICY CONSIDERATIONS INTO THE DELIBERATIONS OF THE
CAB AND THE PRESIDENT IN MAKING DECISIONS INVOLVING PAN AM
OR OTHER INTERNATIONAL CARRIERS. ON THE OTHER HAND, OTHER
AGENCIES LOOK UPON CAB AND PRESIDENTIAL REGUALTIONS AS AN
ADDED SAFEGUARD TO ENSURE THAT THE IRANIANS WOULD NOT USE
THEIR INVESTMENT IN A WAY CONTRARY TO OUR NATIONAL INTEREST.
DEFENSE DEPARTMENT REQUIREMENTS. ANY AGREEMENT REACHED
BY PAN AM AND IRAN MUST CONTAIN PROVISIONS WHICH ASSURE
CONFORMITY WITH DEFENSE DEPARTMENT REGULATIONS: DEALING
WITH CLASSIFIED DEFENSE CONTRACTS AND THE CIVIL RESERVE
AIR FLEET (CRAF). OTHERWISE, THE DEFENSE DEPARTMENT WOULD
OBJECT TO THE TRANSACTION.
PAN AM OFFICIALS ARE OPTIMISTIC THAT THEY CAN WORK OUT
APPROPRIATE ARRANGEMENTS, BUT THE PRECISE METHODS OF
SATISFYING DOD CONCERNS REQUIRE FURTHER DISCUSSIONS WITH
IRAN AND DOD. THEREFORE, ADMINISTRATION APPROVAL IN
PRINCIPLE AT THIS TIME MUST BE GIVEN SUBJECT TO SATISFACTION
OF DEFENSE DEPARTMENT REGULATIONS.
ADVANTAGES OF A FAVORABLE DECISION
1. A FAVORABLE DECISION WOULD INDICATE TO OTHER
POTENTIAL OPEC INVESTORS THAT THE U.S. IS WILLING TO ACCEPT
CONSTRUCTIVE LONG TERM OPEC GOVERNMENT INVESTMENT.
2, THE INVESTMENT WOULD SET A USEFUL PRECEDENT FOR
THE TYPE OF OPEC INVESTMENT WE WOULD WELCOME CT.E. MAINLY
DEBT WITH A RELATIVELY SMALL EQUITY INTEREST IN A FIRM IN
A HIGHLY REGULATED INDUSTRY).
3. DENIAL WOULD BE INTERPRETED BY OPEC NATIONS AS AN
INDICATION THAT WE INTENDED TO LIMIT THEIR INVESTMENT IN
THE U.S. AND COULD HAVE A MAJOR NEGATIVE EFFECT ON SUCH
INVESTMENT HERE,
4. BECAUSE OF ITS GENERALLY FAVORABLE FEATURES, THE
TRANSACTION PROVIDES A GOOD TEST CASE TO SAMPLE CONGRESSIONAL
AND PUBLIC REACTION TO SUBSTANTIALI OPEC INVESTMENT IN U.S.
COMPANIES.
5, THE INVESTMENT WOULD AVERT ANOTHER PAN AM CASH
CRISIS IN LATE 1975 AND MIGHT PROVIDE THE TYPE OF MEDIUM
TERM FINANCIAL RELIEF NECESSARY TO ENABLE PAN AM TO CONSUMMATE
A MERGER OR ROUTE RESTRUCTURING NEEDED TO CREATE A VIABLE AIRLINE.
RECALLED
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DISADVANTAGES OF A FAVORABLE DECISION
1 THE INVESTMENT MIGHT TAKE PRESSURE OFF PAN AM TO
TAKE THE DRASTIC ACTIONS REQUIRED TO RETURN TO LONG RUN
PROFITABILITY (E.G. MERGER OR ROUTE RESTRUCTURING).
2. IRANIAN INFLUENCE IN PAN AM WOULD INJECT A NEW,
AND WHAT SOME CONSIDER AN UNDESIRABLE, ELEMENT INTO CAB
AND PRESIDENTIAL DECISION MAKING IN CASES INVOLVING PAN AM
AND OTHER INTERNATIONAL AIRLINES.
3. WHETHER OR NOT THE RELATIONSHIP ACTUALLY AFFECTS
PRESIDENTIAL DECISIONS, IT WILL BE PERCEIVED AS HAVING, DR
AS CAPABLE OF HAVING, AN INFLUENCE ON SUCH DECISIONS, WHICH
MAY GIVE FURTHER IMPETUS TO THE CURRENT EFFORT TO LIMIT THE
PRESIDENTIS STATUTORY AUTHORITY OVER INTERNATIONAL ROUTE
AND RATE DECISIONS.
4. FURTHER PAN AM FINANCIAL PROBLEMS COULD LEAD TO
ANOTHER REQUEST FOR AN IRANIAN BAILOUT WHICH, IF APPROVED,
WOULD INCREASE IRANIAN INFLUENCE IN PAN AM ANDI THEREBY SET
PRECEDENTS FOR LARGER SHAREHOLDINGS IN us COMPANIES BY
FOREIGN INVESTORS.
5. WOULD ADVANCE IRAN AIR'S CASE FOR ADDING ROUTES TO
THE U.S., WHICH WOULD FURTHER DILUTE THE NORTH ATLANTIC
MARKET FOR U.S. CARRIERS AND COULD INCLUDE ADDITIONAL CON-
CORDE OPERATIONS WHICH WOULD IMPACT THE FIRST CLASS MARKET.
AGENCY RECOMMENDATIONS
(1) TREASURY, STATE, COMMERCE, OMB, CIEP, NSC AND THE
DOMESTIC COUNCIL ALLI FAVOR APPROVAL OF THE INVESTMENT
CON CONDITION THAT THE FINAL AGREEMENT BETWEEN PAN AM AND
IRAN CONTAIN PROVISIONS WHICH SATISFY DEFENSE DEPARTMENT
REQUIREMENTS.) THE MAIN REASONS FOR THEIR RECOMMENDATIONS
ARE THE POSITIVE EFFECT IT WOULD HAVE ON (I) OUR PROSPECTS
FOR ATTRACTING MORE OPEC GOVERNMENT INVESTMENT AND INFLUENCING
ITS MOVEMENT INTO CONSTRUCTIVE, LONG TERM VENTURES IN THE US:
AND (II) THE SHORT TERM FINANCIAL CONDITION OF PAN AM.
(2) THE ONLY DISSENTING AGENCY IS TRANSPORTATION WHICH
BELIEVES THE INVESTMENT COULD ADD AN UNDESTRABLE FOREIGN
POLICY ELEMENT TO CAB AND PRESIDENTIAL DECISION MAKING, OR
WOULD BE PERCEIVED AS INFLUENCING PRESIDENTIAL AUTHORITY
OVER INTERNATIONAL ROUTES AND RATES. TRANSPORTATION IS
ALSO CONCERNED THAT PAN AM WOULD NOT PROCEED AS VIGOROUSLY
AS IT SHOULD WITH A MERGER OR RESTRUCTURING.
RECALLED
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(3) DEFENSE TAKES NO POSITION FOR OR AGAINST BUT POINTS
OUT THAT ANY FINAL AGREEMENT MUST CONTAIN PROVISIONS WHICH
ASSURE CONFORMITY WITH ITS REGULATIONS DEALING WITH CLASSIFIED
DEFENSE WORK AND THE CIVIL RESERVE FLEET.
(4) THE FEDERAL ENERGY ADMINISTRATION BELIEVES THAT THE
ADMINISTRATION SHOULD NEITHER APPROVE NOR DISAPPROVE THE
TRANSACTION.. RATHER, FEA RECOMMENDS THAT WE OFFER NO OBJECTION
AT THIS TIME, PROVIDED THAT THE CONCERNS OF THE CAB AND THE
DEPARTMENT OF DEFENSE ARE MET. IN THE MEANTIME THE ISSUE OF
FOREIGN GOVERNMENT INVESTMENT IN THE U.S. PER SE SHOULD BE
EXPLORED -- AS IS CURRENTLY BEING DONE BY THE INTERAGENCY
REVIEW GROUP,
(5) ARTHUR BURNS, SPEAKING FOR THE FEDERAL RESERVE,
INDICATES HEI HAS DOUBTS, MAINLY ON GROUNDS OF NATIONALI
PRESTIGE, ABOUT THE PROPOSED INVESTMENT. THESE DOUBTS WOULD,
HEI NOTES, BE GREATLY REDUCED IF IRAN WHOULD AGREE TO LIMITING
THE WARRANTS TO NON-VOTING COMMON STOCK.
RECOMMENDATIONS OF SENIOR WHITE HOUSE STAFF
(1) MR. HARTMANN BELIEVES (I) A MORE COMPREHENSIVE CHECK
OF CONGRESSIONAL AND LABOR REACTION IS DESIRABLE BEFORE ANY
DECISION IS MADE, (II) DOD SHOULD BE REQUIRED TO STATE ITS
POSITION AND (III) DOD CONCERNS WITH RESPECT TO THE CIVIL
RESERVE AIR FLEET AND CLASSIFIED CONTRACTS SHOULD BE
FULLY RESOLVED BEFORE ANY ADMINISTRATION APPROVAL IS:
ANNOUNCED,
(2) MR. RUMSFELDIS OFFICE HAD NO COMMENT.
(3) MR. MARSH FAVORS APPROVALI OF THE IRANIAN INVESTMENT.
(4) MR. AREEDA BELIEVES THE TRANSPORTATION DEPARTMENT
CONCERNS ARE "WORTH WEIGHING" BUT ON BALANCE HE DOES NOT
BELIEVE THEY ARE STRONG ENOUGH TO DETERMINE THE RESULT.
INITIAL CONGRESSIONAL AND LABOR REACTION - THE SUBJECT
OF OPEC INVESTMENT IN THE U.S. IS ALREADY AN IMPORTANT
ISSUE IN CONGRESS AS SEVERAL BILLS TO RESTRICT OR
LIMIT FOREIGN INVESTMENT HAVE BEEN INTRODUCED, ANY
DECISION ON THE IRANIAN CASE WILL UNDOUBTEDLY EVOKE CON=
GRESSIONAL COMMENT.
PAN AM REPRESENTATIVES HAVE CONSULTED A NUMBER OF
SENATORS AND REPORT THAT so FAR THEY HAVE ENCOUNTERED NO
ADVERSE REACTION. AN INDEPENDENT CHECK BY THE STAFF OF
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CIEP WITH SENATORS JACKSON, JAVITS, SCOTT, WILLIAMS, PERCY,
STEVENSON, CHURCH, STEVENS, PEARSON ALSO UNCOVERED NO
OBJECTION TO THE TRANSACTION. PAN AM HAS ALSO HAD A NUMBER
OF CONSULTATIONS ON THE HOUSE SIDE AND REPORTS NO ADVERSE
REACTION so FAR,
ACCORDING TO PAN AM, INITIAL CONTACTS WITH THE TEAMSTERS:
AND THE AFL-CIO INDICATES THAT LABOR WILL NOT HAVE MAJOR
OBJECTIONS TO THE TRANSACTION.
APPROVE IRANIAN INVESTMENT IN PAN AM
DISAPPROVE IRANIAN INVESTMENT IN PAN AM
WILL: DISCUSS
NATURE OF PUBLIC STATEMENT - IF YOU DECIDE TO APPROVE
THE IRANIAN INVESTMENT, YOU SHOULD THEN DECIDE WHETHER
THE APPROPRIATE DEPARTMENT SHOULD MAKE SOME PUBLIC STATE-
MENT TO SATISFY THE IRANIAN AND PAN AM DESIRE FOR PUBLIC
ADMINISTRATION ENDORSEMENT OF THE PRINCIPLE OF THE
TRANSACTION,
A PUBLIC STATEMENT COULD HAVE ADVANTAGES IN THAT IT
(1) WOULD INDICATE CLEARLY THE ADMINISTRATION POSITION ON AN
ISSUE OF IMPORTANCE TO IRAN AND OTHER OPEC INVESTORS (2) MIGHT
BEI USED TO REEMPHASIZE TO IRAN THAT THE TRANSACTION IS SUBJECT
TO CAB APPROVAL AND CONDITIONAL UPON SATISFACTORY ARRANGEMENTS
WITH DOD WITH RESPECT TO THE CRAF FLEET AND CLASSIFIED CON-
TRACTS. THERE WOULD BE PARTICULAR ADVANTAGES IN A PARALLEL
OR JOINT STATEMENT WITH IRAN IN THAT IRAN WOULD CLEARLY
ACKNOWLEDGE THAT IT RECOGNIZED THE NEED FOR DOD AND CAB
APPROVAL AND THAT IT HAD NO DESIRE TO CONTROL THE MANAGEMENT
OR OPERATION OF PAN AM. SUCH A STATEMENT WOULD GREATLY
ASSIST IN ALLAYING PUBLIC AND CONGRESSIONAL FEARS OF AN OPEC
TAKEDVER.
THE MAIN DISADVANTAGES OF A USG PUBLIC STATEMENT ARE
THAT (1) IT MIGHT APPEAR THAT THE ADMINISTRATION WAS FAVORING
PAN AM OR TRYING TO INFLUENCE THE ULTIMATE CAB DECISION AND
(2) IT COULD SET A PRECEDENT LEADING TO SIMILAR REQUESTS
FROM OTHER INVESTORS,
RECOMMENDATIONS: THE AGENCIES FAVORING APPROVAL ALSO
FAVOR A PUBLIC STATEMENT INDICATING APPROVAL IN PRINCIPLE BUT
MAKING IT CLEAR THAT THE TRANSACTION IS SUBJECT TO CAB
APPROVAL AND CONDITIONAL UPON WORKING OUT ACCEPTABLE ARRANGE-
RECALLED
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MENTS WITH DOD CONCERNING AVAILABILITY OF PAN AM PLANES FOR
THE CRAF FLEET AND IRANIAN ACCESS TO CLASSIFIED DEFENSE
MATERIAL.
MR. HARTMANN BELIEVES THAT A MESSAGE FROM THE SECRETARY
OF STATE TO HIS COUNTERPART IN IRAN WOULD BE A SUFFICIENTLY
AUTHORITATIVE SIGNAL IF SUCH A SIGNAL IS ESSENTIAL TO FURTHER
PROGRESS ON THE TRANSACTION.
ALLI OF YOUR ADVISERS CAUTION AGAINST YOUR PERSONAL
INVOLVEMENT IN ANY PUBLIC OR PROVATE COMMITMENT PRIOR TO CAB
CONSIDERATION OF THE CASE.
STATE, THE NSC AND THE CIEP STRONGLY RECOMMEND THAT WE
CONDITION ANY OFFICIAL STATEMENT OF APPROVAL ON ISSUANCE
OF A PARALLEL OR JOINT STATEMENT BY IRAN IN WHICH THE IRANIAN
GOVERNMENT CLEARLY ACKNOWLEDGES THAT (1) THE TRANSACTION IS
SUBJECT TO CAB APPROVAL AND SATISFACTORY WORKING OUT OF DOD
REQUIREMENTS AND (2) IT HAS NO DESIRE TO CONTROL MANAGEMENT
OR OPERATION OF PAN AM. THE APPROPRIATE US DEPARTMENT
COR DEPARTMENTS) COULD ISSUE A STATEMENT ALONG WITH ITS
IRANIAN COUNTERPART OR A JOINT STATEMENT COULD BE MADE
IN THE CONTEXT OF THE JOINT COMMISSION IN ORDER TO PLEASE
THE SHAH,
APPROVE JOINT OR PARALLEL US/IRAN
STATEMENTS
APPROVE UNILATERAL us STATEMENT
DISAPPROVE PUBLIC STATEMENT
WILLI DISCUSS
CONFIDENTIAL
JANUARY 31, 1975
PRINCIPAL PROVISIONS OF TENTATIVE
AGREEMENT BETWEEN PAN AM AND IRAN
THE AGREEMENT CONTEMPLATES THAT THE IRANIAN SIDE WILL MAKE
AVAILABLE TO PAN AM AN AMOUNT NOT TO EXCEED $300 MILLION,
THEI PRINCIPAL PROVISIONS OF THE TENTATIVE AGREEMENT ARE AS FOLLOWS:
1) OF THE $300 MILLION, AN AMOUNT (SAY $55 MILLION) WILL BE USED
TO ACQUIRE 55 PERCENT OF THE STOCK OF THE INTERCONTINENTAL
HOTELS CORPORATION, AN OFF-SHORE HOTEL CHAIN WHOLLY OWNED BY
PAN AM. THE EXACT PURCHASE PRICE IS YET TO BE NEGOTIATED.
RECALLED
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EACH SIDE WILL HAVE THE RIGHT OF REFUSAL IN THEI EVENT EITHER
WISHES TO SELL ALL OR ANY PART OF ITS IHC STOCK.
2) OUT OF THE REMAINDER OF THE $300 MILLION, THE COMPANY WILL
ENDEAVER TO ACQUIRE AT LEAST 75 PERCENT OF THE OUTSTANDING
$389,500,000 $389, OF PAN AMIS SENIOR DEBT NOW HELD BY INSTITUTIONAL
INVESTORS AT A SUBSTANTIAL DISCOUNT PRICE SATISFACTORY TO
IRAN AND PAN AM, UP TO $70 MILLION OF THE AMOUNT REMAINING
FROM THE $300 MILLION AFTER THE ACQUISITION OF THE HOTEL
COMPANY STOCK AND THE DISCOUNT PURCHASE OF THE SENIOR DEBT
WILL BE LENT TO THE COMPANY FOR ITS NECESSARY CASH NEEDS,
3) THE MONIES MADE AVAILABLE FOR THE ACQUISITION OF SENIOR DEBT
AND THE COMPANY'S CASH NEEDS WILL BE IN THE FORM OF A TEN-YEAR
LOAN TO PAN AM BEARING INTEREST AT A RATE OF 10 1/2 PERCENT
PER ANNUM, WITH A COMMITMENT FEE OF 1/2 PERCENT PER ANNUM.
SINCE NO PRINCIPAL REPAYMENTS WILL BE REQUIRED FOR THE FIRST
THREE YEARS, THIS WILLI IMPROVE THE COMPANYS CASH FLOW FOR THE
FIRST THREE YEARS BY A CUMULATIVE AMOUNT OF ROUGHLY $60 MILLION,
4) THE AGREEMENT IS SUBJECT TO THE CONDITION THAT THE BANKS
WHICH HAVE PRESENTLY EXTENDED A LINE OF CREDIT AMOUNTING TO
$125 MILLION, PAYABLE ON SEPTEMBER 30, 1975, WILL CONTINUE
THAT LINE OF CREDIT INTO THE FUTURE.
THE FUNDS LENT BY IRAN SHALL SHARE PARI PASSU IN COLLATERAL
WITH THE OTHER SENIOR DEBT OF THE COMPANY, BUT IF THE OTHER
LENDERS AGREE TO EXTEND THEIR CREDIT ON AN UNSECURED BASIS,
IRAN WILL ACCEPT THAT ITS LOAN NOT BE SECURED.
5) AS PART OF THE TOTAL TRANSACTION, PAN AM WILL MAKE AVAILABLE
TO IRAN WARRANTS ENTITLING IT TO PURCHASE SIX MILLION SHARES
OF THE COMPANY'S STOCK AT ANY TIME WITHIN TEN YEARS AFTER THE
DATE OF THE AGREEMENT, AT THE LESSER OF $2.75 75 PER SHARE OR
15 PERCENT PREMIUM OF THE AVERAGE DAILY CLOSING PRICES FROM
THE SIGNING OF THE AGREEMENT TO ONE WEEK PRIOR TO THE FIRST
BORROWING, THE WARRANTS WOULD BE TRANSFERRABLE EITHER THROUGH
A PUBLIC OFFERING OR IN PRIVATE TRANSACTIONS PROVIDED THAT,
UNLESS THE COMPANY OTHERWISE AGREES, NO TRANSFEREE CAN ACQUIRE
WARRANTS TO PURCHASE A NUMBER OF SHARES GREATER THAN 1 PERCENT
OF THE NUMBER OF SHARES OF THE COMPANY STOCK THEN OUTSTANDING.
WHEN FULLY EXERCISED, THOSE WARRANTS WOULD RESULT IN IRAN
ACQUIRING 13 PERCENT OF THE ISSUED SHARES (COMPUTED AFTER THE
FULL EXERCISE OF THE WARRANTS), OR 8 PERCENT OF THE TOTAL
AUTHORIZED SHARES (41 MILLION SHARES ARE NOW ISSUED AND
OUTSTANDING; 80 MILLION ARE AUTHORIZED).
6) PAN AMIS MANAGEMENT WILL INCLUDE ON THE MANAGEMENT SLATE
RECALLED
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OF DIRECTORS (NOW CONSISTING OF 17 DIRECTORS, BUT EXPANDABLE
TO 20) ONE PERSON NOMINATED BY IRAN so LONG AS IRAN CONTINUES
TO HOLD THE DEBT OR THE SHARES ACQUIRED THROUGH THE EXERCISE
OF WARRANTS.
7) IT IS UNDERSTOOD THAT FINALI IMPLEMENTATION OF THE AGREEMENT
WILLI BE SUBJECT TO REQUISITE APPROVALS BY THE PERTINANT U.S.
REGULATORY AGENCIES,
8 FEBRUARY 1975
IN REPLY REFER TO
1-1375/75
MEMORANDUM FOR MR. L. WILLIAM SEIDMAN, ASSISTANT TO THE PRESIDENT
FOR ECONOMIC AFFAIRS
SUBJECT: PROPOSED IRANIAN GOVERNMENT INVESTMENT IN
PAN AMERICAN AIRLINES
THANK YOU FOR OUR COPY OF YOUR MEMORANDUM OF 6 FEBRUARY
CONCERNING DOD COMMENTS AND RECOMMENDATIONS ON IRANIAN INVEST-
MENT IN PAA. LET ME RE-EMPHASIZE THE DDD VIEW THAT WE ARE NOT
IN A POSITION TO APPROVE OR DISAPPROVE THE ARRANGEMENTS.
HOWEVER, ANY DEAL WORKED OUT MUST CONTAIN PROVISIONS WHICH ASSURE
CONFORMITY WITH CERTAIN CONDITIONS OF DOD INDUSTRIAL SECURITY
REGULATIONS AND THOSE PERTAINING TO THE CIVIL RESERVE AIR FLEET
(CRAF) PROGRAM.
THE FIRST PROBLEM CONCERNS THE DOD INDUSTRIAL SECURITY PROGRAM
AND ITS REGULATIONS. PAA NOW HOLDS CLASSIFIED CONTRACTS ON BEHALF
OF THE DEPARTMENT OF defense. IF THE APPOINTMENT OF AN IRANIAN-
NOMINATED MEMBER TO THE BOARD OF DIRECTORS WOULD COMPROMISE
ANY OF THESE CONTRACTS, THE DOD WOULD FEEL OBLIGATED TO OBJECT
UNLESS THE IRANIAN DIRECTOR COULD BE ISOLATED FROM CORPORATE
MANAGEMENT OVER PAA ACTIVITIES ASSOCIATED WITH CLASSIFIED
CONTRACTS, THIS COULD BE DONE IF THE IRANIAN ON THE BOARD
OF DIRECTORS WAS EXCLUDED IN THE MANNER PRESCRIBED IN THE DOD
INDUSTRIAL SECURITY MANUAL. THIS EXCLUSION ACTION WOULD HAVE
TO BE MADE A MATTER OF RECORD BY THE PAA BOARD OF DIRECTORS,
AND AT LEAST A QUDRUM OF THE BOARD OF DIRECTORS WAS PROPERLY
CLEARED AND NOT APPOINTED BY A FOREIGN INTEREST.
THE SECOND PROBLEM CONCERNS THE QUESTION OF A RESPONSIVENESS
IN TIME OF EMERGENCY ACTIVITATION OF THE CRAF, BECAUSE OF PAA
PARTICIPATION IN THAT PROGRAM. ANY SECURITY LIENS ON PAA AIRCRAFT
RAISE THE QUESTION OF LOSS TO CRAF OF THE PAA CONTRIBUTION TO
CRAFI CABOUT 20 PERCENT OF THE TOTAL CRAF) IN THE EVENT OF
RECALLED
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DEFAULT. IF AIRCRAFT ALLOCATED TO CRAF ARE OFFERED AS SECURITY
FOR THE IRANIAN LOAN, WE BELIEVE THAT SOME RIGHT OF FIRST
REFUSAL SHOULD BE PROVIDED TO ENABLE THE US GOVERMENT TO PURCHASE
CDR ARRANGE FOR A US COMPANY TO PURCHASE) THE AIRCRAFT AT
THE BEST AVAILABLE PRICE IN THE EVENT THAT THEIR SALE IS NECESSARY
TO PAY BACK THE LOAN. THIS WOULD GIVE us THE OPTION TO PREVENT
SALE TO A FOREIGN PURCHASER CINCLUDING IRAN). IF TRANSFER
TO IRANIAN REGISTRY WAS CONTEMPLATED, THUS REMOVING THE AIRCRAFT
FROM CRAF ALLOCATION UNDER us LAW, OR IF ANY OTHER REASONS THERE
WAS DOUBT AS TO PAAIS CLEAR OWNERSHIP AND CONTROL OF AIRCRAFT IN
THE EVENT OF A CONTINGENCY CAUSING ACTIVATION OF CRAF, IT WOULD
BE NECESSARY FOR THE DOD TO OBJECT.
THE DEALI MUST ALSO BE CONSISTANT WITH CURRENT USG AIRCRAFT
CONTRACTS TO HAVE PAA PLANES REMAIN IN THE CRAF PROGRAM.
FOR EXAMPLE, ONE REQUIREMENT OF THE CRAF PROGRAM RELATES TO
THE NATIONALITY OF THE AIRCREWS. PAA IS OBLIGATED TO FURNISH
CREWS WITH AIRCRAFT IF CRAF IS ACTIVATED. THOSE CREWS MUST BE
LICENSED BY THE USG AND HAVE APPROPRIATE SECURITY CLEARANCES.
THIS COULD BE AN ISSUE IF THE CREWS WERE FOREIGN PERSONNEL.
WE ARE PREPARED TO HAVE COGNIZANT OFFICIALS PROVIDE
TECHNICAL ASSISTANCE CONCERNING THE INDUSTRIAL SECURITY
PROGRAM AND THE CRAF PROGRAM. IF DESIRED.
151 ROBERT ELLSWORTH
ASSISTANT SECRETARY OF DEFENSE
INTERNATIONAL SECURITY AFFAIRS
3551
RECALLED
PSN:042670
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LIBRARY GERAND ? FORD
CONFIDENTIAL-
2-10
OF DEFENSE
ASSISTANT SECRETARY OF DEFENSE
WASHINGTON,D.C. 20301
UNITED STATES OF AMERICA
INTERNATIONAL
8 February 1975
SECURITY AFFAIRS
In reply refer to
1-1375/75
MEMORANDUM FOR MR. L. WILLIAM SEIDMAN, ASSISTANT TO THE PRESIDENT
FOR ECONOMIC AFFAIRS
SUBJECT: Proposed Iranian Government Investment in
Pan American Airlines
Thank you for our copy of your memorandum of 6 February concerning DOD
comments and recommendations on Iranian investment in PAA. Let me re-
emphasize the DOD view that we are not in a position to approve or dis-
approve the arrangements. However, any deal worked out must contain
provisions which assure conformity with certain conditions of DOD Indus-
trial Security Regulations and those pertaining to the Civil Reserve
Air Fleet (CRAF) Program.
The first problem concerns the DOD Industrial Security Program and its
regulations. PAA now holds classified contracts on behalf of the Depart-
ment of Defense. If the appointment of an Iranian-nominated member to
the Board of Directors would compromise any of these contracts, the DOD
would feel obligated to object unless the Iranian Director could be iso-
lated from corporate management over PAA activities associated with
classified contracts. This could be done if the Iranian on the Board
of Directors was excluded in the manner prescribed in the DOD Industrial
Security Manual. This exclusion action would have to be made a matter of
record by the PAA Board of Directors, and at least a quorum of the Board
of Directors was properly cleared and not appointed by a foreign interest.
The second problem concerns the question of a responsiveness in time of
emergency activitation of the CRAF, because of PAA participation in that
program. Any security liens on PAA aircraft raise the question of loss to
CRAF of the PAA contribution to CRAF (about 20% of the total CRAF) in the
event of default. If aircraft allocated to CRAF are offered as security
for the Iranian loan, we believe that some right of first refusal should
be provided to enable the US Government to purchase (or arrange for a US
company to purchase) the aircraft at the best available price in the event
that their sale is necessary to pay back the loan. This would give us the
REVOLUTION
DECLASSIFIED
Authority DOD Directive 5200.30
11/21/00
CONFIDENTIAL
By WHM
FORD i LIBRARY GERALD
AMERICAN
BICENTENNIAL
1776-1976
CONFIDENTIAL
2.
option to prevent sale to a foreign purchaser (including Iran). If transfer
to Iranian registry was contemplated, thus removing the aircraft from CRAF
allocation under US law, or if for any other reasons there was doubt as to
PAA's clear ownership and control of aircraft in the event of a contingency
causing activation of CRAF, it would be necessary for the DOD to object.
planes
The deal must also be consistent with current USG aircraft contracts to have PAA/
remain in the CRAF Program. For example, one requirement of the CRAF
Program relates to the nationality of aircrews. PAA is obligated to
furnish crews with aircraft if CRAF is activated. Those crews must be
licensed by the USG and have appropriate security clearances. This
could be an issue if the crews were foreign personnel.
We are prepared to have cognizant officials provide technical assistance
concerning the Industrial Security Program and the CRAF Program, if
desired.
Robert Ellsworth
Assistant Secretary of Defense
International Security Affairs
CONFIDENTIAL
FORD i LIBRARY GERALD
DECLASSIFIED
-
E.O. 12958, Sec. 3.5
CONFIDENTIAL
NSC Memo, 11/24/98, State Dept. Guidelines
ACTION
By WHM , NARA, Date 11/21/00
MEMORANDUM FOR
THE PRESIDENT
FROM:
L. William Seidman
SUBJECT:
Proposed Iranian Government
Investment in Pan American Airlines
As you know, initial negotiations have been completed
with respect to an Iranian Government investment of $300
million in Pan American Airlines. Because the controversial
issue of OPEC government investment is involved, both Pan
Am and Iran are seeking a favorable signal from the
Administration before proceeding further with the
transaction.
Any agreement reached by the parties would ultimately
be subject to CAB approval of matters relating to potential
Iranian control of Pan Am. A favorable Administration
decision would, therefore, not necessarily ensure successful
completion of the transaction. A negative signal would,
however, almost certainly stop the proposed investment.
Decision Required. The main decision required is
whether the Administration should approve in principle the
proposed Iranian investment in Pan Am.
Terms of Transaction. After completion of the trans-
action as now proposed, Iran would hold approximately $245
million (20-30%) of Pan Am's debt, own 55% of the stock of
Intercontinental Hotels Corporation (an offshore hotel
chain wholly owned by Pan Am), have warrants to purchase
up to 13% of Pan Am's equity and have one member on Pan
Am's 17 member Board of Directors (see attached Annex I for
further details of transaction).
Basic Issues -- Several broader issues must be considered
in order to reach a decision on the Iranian/Pan Am request.
They are:
-- Our policy with respect to OPEC government
investment in the U.S.
-- Our policy with respect to recycling and the
impact of denial on the future flow of OPEC funds
to the US.
-- Foreign policy implications - especially Iranian/
FORD i LIBRARY GERALD
U.S. relations.
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-- Foreign government influence in key U.S. firms
-- Injection of an undesirable foreign policy element
into the CAB and Presidential decision making
process in cases involving Pan Am.
-- Effect on Pan Am's long run economic viability.
Discussion of Key Issue: OPEC Government Investment
in U.S. - One of the principal objectives of our recycling
policy is to encourage OPEC nations to make long term
constructive investments in the consuming nations. Such
investments contribute to our current balance of payments,
help alleviate the current capital shortage, and give the
OPEC countries a stake in our economy which should provide
some incentive for them to refrain from actions which would
have a negative effect on our economy and their investments.
An interagency review of foreign investment in the U.S. is
underway and, while not complete, it is possible to say that
all but the most extreme views would permit some foreign
government investment in US firms - including firms like Pan Am.
Our existing laws and regulations are such that there is
minimum danger that a foreign investor could use his invest-
ment here in a way that would cause serious harm to our
economy or national security. However, a major reservation
has been raised concerning the political and economic
influence that a foreign government might obtain through
substantial investments. Although the substance of these
concerns have never been clearly defined, those that hold
this view maintain that a foreign government could make
subtle use of such influence to harm our national or economic
security interests but in a manner that would put it beyond
the reach of existing law.
There is an added difficulty in the present case in
that Pan Am is regulated by the CAB and, in some cases, the
President. The Department of Transportation is concerned
that Iranian investment in Pan Am would inject additional
foreign policy considerations into the deliberations of the
CAB and the President in making decisions involving Pan Am
or other international carriers. On the other hand, other
agencies look upon CAB and Presidential regulations as an
added safeguard to ensure that the Iranians would not use
their investment in a way contrary to our national interest.
FORD i LIBRARY GERALD
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Defense Department Requirements. Any agreement reached
by Pan Am and Iran must contain provisions which assure
conformity with Defense Department regulations dealing
with classified defense contracts and the Civil Reserve
Air Fleet (CRAF). Otherwise, the Defense Department would
object to the transaction.
Pan Am officials are optimistic that they can work out
appropriate arrangements, but the precise methods of
satisfying DOD concerns require further discussions with
Iran and DOD. Therefore, Administration approval in
principle at this time must be given subject to satisfaction
of Defense Department regulations.
Advantages of a Favorable Decision
1. A favorable decision would indicate to other
potential OPEC investors that the U.S. is willing to accept
constructive long term OPEC government investment.
2. The investment would set a useful precedent for
the type of OPEC investment we would welcome (i.e. mainly
debt with a relatively small equity interest in a firm in
a highly regulated industry).
3. Denial would be interpreted by OPEC nations as an
indication that we intended to limit their investment in
the U.S. and could have a major negative effect on such
investment here.
4. Because of its generally favorable features, the
transaction provides a good test case to sample Congressional
and public reaction to substantial OPEC investment in U.S.
companies.
5. The investment would avert another Pan Am cash
crisis in late 1975 and might provide the type of medium
term financial relief necessary to enable Pan Am to consummate
a merger or route restructuring needed to create a viable airline.
FORD LIBRARY is GERALD
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Disadvantages of a Favorable Decision
1. The investment might take pressure off Pan Am to
take the drastic actions required to return to long run
profitability (e.g. merger or route restructuring).
2. Iranian influence in Pan Am would inject a new,
and what some consider an undesirable, element into CAB
and Presidential decision making in cases involving Pan Am
and other international airlines.
3. Whether or not the relationship actually affects
Presidential decisions, it will be perceived as having, or
as capable of having, an influence on such decisions, which
may give further impetus to the current effort to limit the
President's statutory authority over international route
and rate decisions.
4. Further Pan Am financial problems could lead to
another request for an Iranian bailout which, if approved,
would increase Iranian influence in Pan Am and thereby set
precedents for larger shareholdings in US companies by
foreign investors.
5. Would advance Iran Air's case for adding routes to
the U.S., which would further dilute the North Atlantic
market for U.S. carriers and could include additional Con-
corde operations which would impact the first class market.
GERALD LIBRARY R. FORD
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Agency Recommendations
(1) Treasury, State, Commerce, OMB, CIEP, NSC and the
Domestic Council all favor approval of the investment
(on condition that the final agreement between Pan Am and
Iran contain provisions which satisfy Defense Department
requirements.) The main reasons for their recommendations
are the positive effect it would have on (i) our prospects
for attracting more OPEC government investment and influencing
its movement into constructive, long term ventures in the US
and (ii) the short term financial condition of Pan Am.
(2) The only dissenting agency is Transportation which
believes the investment could add an undesirable foreign
policy element to CAB and Presidential decision making, or
would be perceived as influencing Presidential authority
over international routes and rates. Transportation is
also concerned that Pan Am would not proceed as vigorously
as it should with a merger or restructuring.
(3) Defense takes no position for or against but points
out that any final agreement must contain provisions which
assure conformity with its regulations dealing with classified
defense work and the Civil Reserve Fleet.
(4) The Federal Energy Administration believes that the
Administration should neither approve nor disapprove the
transaction. Rather, FEA recommends that we offer no objection
at this time, provided that the concerns of the CAB and the
Department of Defense are met. In the meantime the issue of
foreign government investment in the U.S. per se should be
explored -- as is currently being done by the interagency
review group.
(5) Arthur Burns, speaking for the Federal Reserve,
indicates he has doubts, mainly on grounds of national
prestige, about the proposed investment. These doubts would,
he notes, be greatly reduced if Iran would agree to limiting
the warrants to non-voting common stock.
Recommendations of Senior White House Staff
(1) Mr. Hartmann believes (i) a more comprehensive check
of Congressional and Labor reaction is desirable before any
decision is made, (ii) DOD should be required to state its
position and (iii) DOD concerns with respect to the Civil
Reserve Air Fleet and classified contracts should be
fully resolved before any Administration approval is
announced.
(2) Mr. Rumsfeld's office had no comment.
FORD i LIBRARY GERALD
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(3) Mr. Marsh favors approval of the Iranian Investment.
(4) Mr. Areeda believes the Transportation Department
concerns are "worth weighing" but on balance he does not
believe they are strong enough to determine the result.
Initial Congressional and Labor Reaction - The subject
of OPEC investment in the U.S. is already an important
issue in Congress as several bills to restrict or
limit foreign investment have been introduced. Any
decision on the Iranian case will undoubtedly evoke Con-
gressional comment.
Pan Am representatives have consulted a number of
Senators and report that so far they have encountered no
adverse reaction. An independent check by the staff of
CIEP with Senators Jackson, Javits, Scott, Williams, Percy,
Stevenson, Church, Stevens, Pearson also uncovered no
objection to the transaction. Pan Am has also had a number
of consultations on the House side and reports no adverse
reaction so far.
According to Pan Am, initial contacts with the Teamsters
and the AFL-CIO indicates that labor will not have major
objections to the transaction.
Approve Iranian Investment in Pan Am
Disapprove Iranian Investment in Pan Am
Will discuss
FORD is LIBRARY GERALD
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Nature of Public Statement - If you decide to approve
the Iranian investment, you should then decide whether
the appropriate department should make some public state-
ment to satisfy the Iranian and Pan Am desire for public
Administration endorsement of the principle of the
transaction.
A public statement could have advantages in that it
(1) would indicate clearly the Administration position on an
issue of importance to Iran and other OPEC investors (2) might
be used to reemphasize to Iran that the transaction is subject
to CAB approval and conditional upon satisfactory arrangements
with DOD with respect to the CRAF fleet and classified con-
tracts. There would be particular advantages in a parallel
or joint statement with Iran in that Iran would clearly
acknowledge that it recognized the need for DOD and CAB
approval and that it had no desire to control the management
or operation of Pan Am. Such a statement would greatly
assist in allaying public and Congressional fears of an OPEC
takeover.
The main disadvantages of a USG public statement are
that (1) it might appear that the Administration was favoring
Pan Am or trying to influence the ultimate CAB decision and
(2) it could set a precedent leading to similar requests
from other investors.
Recommendations: The agencies favoring approval also
favor a public statement indicating approval in principle but
making it clear that the transaction is subject to CAB
approval and conditional upon working out acceptable arrange-
ments with DOD concerning availability of Pan Am planes for
the CRAF fleet and Iranian access to classified defense
material.
Mr. Hartmann believes that a message from the Secretary
of State to his counterpart in Iran would be a sufficiently
authoritative signal if such a signal is essential to further
progress on the transaction.
All of your advisers caution against your personal
involvement in any public or private commitment prior to CAB
consideration of the case.
State, the NSC and the CIEP strongly recommend that we
condition any official statement of approval on issuance
of a parallel or joint statment by Iran in which the Iranian
government clearly acknowledges that (1) the transaction is
subject to CAB approval and satisfactory working out of DOD
requirements and (2) it has no desire to control management
or operation of Pan Am. The appropriate US department
(or departments) could issue a statement along with its
Iranian counterpart or a joint statement could be made
FORD LIBRARY 076530
in the context of the Joint Commission in order to please
the Shah.
- 8 -
Approve Joint or Parallel US/Iran
Statements
Approve Unilateral US Statement
Disapprove Public Statement
Will Discuss
FORD i LIBRARY GERALD
CONFIDENTIAL
January 31, 1975
PRINCIPAL PROVISIONS OF TENTATIVE
AGREEMENT BETWEEN PAN AM AND IRAN
The agreement contemplates that the Iranian side will make available to Pan Am
an amount not to exceed $300 million. The principal provisions of the tentative
agreement are as follows:
1) Of the $300 million, an amount (say $55 million) will be used to acquire 55%
of the stock of Intercontinental Hotels Corporation, an off-shore hotel chain
wholly owned by Pan Am. The exact purchase price is yet to be negotiated.
Each side will have a right of refusal in the event either wishes to sell all
or any part of its IHC stock.
2) Out of the remainder of the $300 million, the Company will endeavor to acquire
at least 75% of the outstanding $389,500,000 of Pan Am's senior debt now held
by Institutional Investors at a substantial discount price satisfactory to Iran
and Pan Am. Up to $70 million of the amount remaining from the $300 million
after the acquisition of the Hotel Company stock and the discount purchase of
senior debt will be lent to the Company for its necessary cash needs.
3) The monies made available for the acquisition of senior debt and the Company's
cash needs will be in the form of a ten-year loan to Pan Am bearing interest
at a rate of 10½ per annum, with a commitment fee of 1/2% per annum. Since no
principal repayments will be required for the first three years, this will im-
prove the Company's cash flow for the first three years by a cumulative amount
of roughly $60 million.
4) The agreement is subject to the condition that the banks which have presently
extended a line of credit amounting to $125 million, payable on September 30,
1975, will continue that line of credit into the future.
The funds lent by Iran shall share pari passu in collateral with the other
senior debt of the Company, but if the other lenders agree to extend their credit
on an unsecured basis, Iran will accept that its loan not be secured.
5) As part of the total transaction, Pan Am will make available to Iran warrants
entitling it to purchase six million shares of the Company's stock at any time
within ten years after the date of the agreement, at the lesser of $2.75 per
share or 15% premium of the average daily closing prices from the signing of
the agreement to one week prior to the first borrowing. The warrants would be
transferrable either through a public offering or in private transactions pro-
vided that, unless the Company otherwise agrees, no transferee can acquire
warrants to purchase a number of shares greater than 1% of the number of shares
of the Company stock then outstanding.
When fully exercised, those warrants would result in Iran acquiring 13%
of the issued shares (computed after the full exercise of the warrants), or
8% of the total authorized shares (41 million shares are now issued and out-
standing; 80 million are authorized).
6) Pan Am's management will include on the management slate of directors (now con-
sisting of 17 directors, but expandable to 20) one person nominated by Iran so
long as Iran continues to hold the debt or the shares acquired through the exer-
cise of the warrants.
7) It is understood that final implementation of the agreement will be subject to
requisite approvals by the pertinent U. S. regulatory agencies.
FORD & LIBRARY 038ALD