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Enron Mail |
Notice No. 00-387
November 9, 2000 TO: NYMEX Division Members FROM: The Board of Directors RE: Termination of Members Retention and Retirement Plan As you have been previously advised, on Wednesday, October 4, 2000 the Board of Directors voted unanimously to terminate the New York Mercantile Exchange Members Retention and Retirement Plan (the Plan) conditioned upon the Exchange receiving a satisfactory Private Letter Ruling from the IRS in connection with the Exchange's pending demutualization plan. On October 17, 2000, the Exchange held an open members meeting to discuss the termination of the Plan and to answer any questions. At the meeting, a number of members requested that the Board review its decision to use the 8.5% discount rate recommended by Deloitte & Touche in connection with termination of the Plan. At the members meeting, it was agreed that the Board would review the discount rate issue again at its next regular meeting. Following the members meeting, the Exchange obtained two additional professional opinions from actuaries. One opinion stated that the appropriate range of discount rates that should be used in terminating the Plan should be between 7.8% and 8.1% and recommended using a discount rate of 8.0%. The third opinion recommended that the appropriate range should be between 7.47% and 8.32% depending upon various credit and other related actuarial issues. Each of the actuaries (including Deloitte & Touche) attended the Board meeting on November 2, 2000 to present the rationale in support of their respective recommendations and to answer any questions posed by members of the Board. The Board was advised by the Exchange's General Counsel, as well as by two independent outside counsels, that in order to avoid even the appearance of a conflict of interest, the Board should delegate authority to choose an appropriate discount rate to a committee of Directors who do not have any financial interest in the Plan. The Board passed a resolution in which it approved the recommendation of its Counsel and delegated authority to select an appropriate discount rate to a special committee (the Committee) composed of five Directors who did not have an interest in the Plan. After the Board formed the Committee, the members of the Committee, the actuaries and the legal advisors left the room to discuss the matter privately. After thoroughly reviewing the matter, the Committee returned and unanimously resolved and determined that the appropriate discount rate that should be used in connection with the termination of the Plan is 8.0%. On October 23, 2000, the Exchange received a satisfactory Private Letter Ruling from the IRS. At its meeting on November 2, 2000, the Board set a target closing date of November 15, 2000 for the demutualization transaction. Eligible participants of the Plan who are members at the time of the closing of demutualization will receive service credit under the plan through December 31, 2000. All other rules regarding eligibility and continuous service requirements will be applied according to the terms and conditions set forth in the Plan. Under the terms of the Plan, in the event of termination, Qualified Participants (i.e. those participants with at least 15 years of Continuous Service, as defined in the Plan) are entitled to a payout equal to the net present value (NPV) of the scheduled ten-year benefit payment that they would otherwise have received if the Plan had not terminated, to the extent of the assets held in trust for this purpose. If there are remaining assets in trust after making payment to the Qualified Participants, those remaining assets are to be distributed to participants with Continuous Service (as defined in the Plan) between 10 years and 14 years. These 10 - 14 year participants are entitled to the NPV of a fraction of the benefits they would have received had the Plan remained in place until their normal retirement age; the numerator of the fraction is the number of whole years of Continuous Service and the denominator is 15. If there are not sufficient assets to pay each 10 -14 year participant their calculated sums, then each 10 - 14 year participant will receive a pro rata distribution. These 10 - 14 year participants must be members of record at the time of the closing of demutualization in order to be eligible to receive any distribution. The Exchange is reviewing the census data and other pertinent considerations with its actuaries, and all preliminary calculations should be regarded as tentative and subject to change pending the results of that review. At this time, the Board believes that there are sufficient assets to pay each Qualified Participant his or her lump-sum benefit, based upon the approved a discount rate of 8.0%. At this time, it appears that after making payments to Qualified Participants, the remaining assets will be sufficient to provide pro rata benefits to 10 - 14 year participants. 10 - 14 year participants can calculate their approximate distribution amount by multiplying the NPV benefit of their corresponding age (see attached Schedule) by the fraction of their whole years of service (10/15, 11/15, 12/15, 13/15, or 14/15) by twenty-six (26%) (which at this time appears to be the approximate percentage of "remaining assets" available compared to the total of all partial benefits otherwise calculated). Qualified Participants who are already receiving benefits received their last quarterly payment in October 2000. Remaining obligations to such participants will be valued in the same manner as other Qualified Participants. It is anticipated that actual payouts under the termination procedure will be made in mid-January 2001. As of December 31, 2000 it is expected that total Plan assets will be approximately $33.5 million. Regardless of the discount rate used, 100% of the assets of the Plan will be distributed. Using a discount rate of 8.0% the Qualified Participants will receive approximately $30 million or ninety percent (90%) of the total Plan assets and 10 - 14 year participants will receive the balance. For illustrative purposes, and subject to the conditions noted above, the attached Schedule represents an approximation of the anticipated lump-sum payment to a Qualified Participant who has reached the age indicated (but who has not yet begun receiving quarterly benefits) as of December 31, 2000. In the event that any member has any questions in connection with termination of the Plan, please contact Chris Bowen at 299-2200 or Suellen Galish at 299-2215. Copies of both the original and amended Plans are available. Separate But Related Matter Contrary to erroneous information which has been disseminated by others, neither the original Members Retention and Retirement Plan nor the amended Plan provides for member votes on amendments. In accordance with Section 8 of the original Plan, in 1997 the amended Plan was approved by a three fourths (3/4) vote of the Board. Section 8 of both the original and amended Plan provides that "the Board of Directors of NYMEX may at anytime, amend or terminate this Plan in whole or in part, upon the affirmative vote of three fourths (3/4) of the entire Board". Section 8 of the Plan further specifically describes how the Plan assets are to be distributed in the event of termination. Section 8(C) (1) states that the net present value of lump sum termination payments shall be "calculated by using the applicable interest rate determined by the Board in its sole discretion, in good faith, and such determination shall be conclusive and binding on all parties". Section 11, entitled Authorization of the Plan and which remains unchanged from the original Plan, only applies to the original authorization of the Plan which occurred in 1990. Again, contrary to erroneous assertions that have been made, neither the original Plan nor the amended Plan makes any reference to a specific discount rate that should be used in calculating NPV. In fact, the estates of two deceased former members (Mel Miller and Leon Grappel) that erroneously have been reported to have received lump sum payments based upon a discount rate of 6.0% actually received payments based upon discount rates of 7.4% (paid in 1992) and 7.2% (paid in 1993), respectively. Inaccurate contentions and allegations diminish and undermine what we are seeking to achieve as a global financial institution. Attachment Age @ 12/31/00 NPV Benefit (8.0% discount) 59.5 $204,100 58.5 194,600 57.5 185,600 56.5 177,000 55.5 168,800 54.5 161,000 53.5 153,600 52.5 146,500 51.5 139,700 50.5 133,200 49.5 127,000 48.5 121,200 47.5 115,600 46.5 110,200 45.5 105,100 44.5 100,200 43.5 95,600 42.5 91,200 41.5 87,000 40.5 82,900 39.5 79,100 38.5 75,400 37.5 71,900 36.5 68,600 35.5 65,400 34.5 62,400 33.5 59,500 32.5 56,800 31.5 54,100 30.5 51,600 __________________________________________________ Please click on the link below to indicate you have received this email. "http://208.206.41.61/email/email_log.cfm?useremail=sara.shackleton@enron.com& refdoc=(00-387)" Note: If you click on the above line and nothing happens, please copy the text between the quotes, open your internet browser, paste it into the web site address and press Return.
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