Cataldo
J. Capozza
Naples,
FL 34103-3752
(239)
261-2169
cjaycap@aol.com
October
4,
2006
TO
MY
FELLOW NYMEX SHAREHOLDERS:
Several
of
you have called or written to me over the past few days to ask if I would
comment on management’s proposals for the Special Meeting on October 12, 2006.
After careful consideration, I have decided to do so to express concerns
that I
know I share with many of my fellow shareholders.
On
October
12, 2006, we will be asked to vote in favor of fourteen specific proposals.
According to the Proxy, the shareholders must vote in favor of all
fourteen specific proposals
at the
Special Meeting for any of the proposals to be implemented. If we want to
proceed with an initial public offering of NYMEX stock, management has insisted
that we approve all thirteen other specific proposals described in the Proxy,
in
addition to the fourteenth proposal related to the IPO. I believe we can
send a
message to management by voting in FAVOR of the IPO proposal and AGAINST
the
other thirteen proposals. Management should be able to revise the proxy to
withdraw the proposed changes to the Certificate of Incorporation and Bylaws
in
time for us to vote again for the IPO without the undesirable provisions
part of
the deal.
Let
me
reiterate my position by saying that I strongly share everyone’s interest in
seeing a successful IPO before the end of the year. Since we began discussing
strategic alternatives for NYMEX last year, I have been in favor of an IPO
as a
means of positioning the Exchange for economic success in an increasingly
competitive environment as well as rewarding long-term shareholders for their
investment in NYMEX. I questioned the General Atlantic Transaction because
I did
not think it was necessary for us to give 10 percent of our equity to GA
for a
$135 million loan. NYMEX certainly didn’t need the loan to fund its ongoing
operations, and I have never heard anyone say otherwise. Even when the loan
was
raised to $170 million, I didn’t see any reason why we should give away 10
percent of our equity for a loan that we just didn’t need.
Shareholder
driven changes that have been approved and withdrawn by
management:
As
originally proposed, the GA Transaction included several other terms that
didn’t
make sense to me, and I voiced my opposition to them. Many other Equity Owners
agreed with me and objected to them as well. NYMEX heard our opposition to
the
GA Transaction and, as a result, made what appeared to be material changes
to
the terms of the proposal. In addition to raising the price from $135 million
to
$160 or $170 million, the final Proxy for the GA Transaction included the
following changes:
| · |
management
reduced
the
number of shares of common stock to be authorized from 200,000,000,
which
was unnecessary to complete the proposed sale, to just 81,600,000
shares;
|
| · |
management
withdrew
its
proposal for the issuance of 6,000,000 shares (2,000,000 shares each
in
Series A-1, A-2, and A-3) of common stock that were not explained
or
accounted for in the Preliminary Proxy;
|
| · |
management
eliminated
its
proposal that the directors have the power to appoint themselves
as the
only candidates for election to the
Board;
|
| · |
management
withdrew
its
proposal to restrict the right of Exchange members to change the
Certificate of Incorporation or the Bylaws;
and
|
| · |
management
eliminated
its
proposal to restrict the right of Exchange members to call for special
meetings.
|
The
modified GA Transaction was approved by an overwhelming majority of
shareholders. I believe most shareholders who voted in favor of the GA
Transaction expected it to be followed by an IPO that included the terms
as they
were modified. Given the opposition of Exchange members to the GA Transaction
on
its original terms and their strong support for it on its modified terms,
such
an expectation was justified. Regrettably, however, management
has taken back nearly all of the changes they gave us in December of
2005.
Four
most disturbing and anti-shareholder proposals:
I
am
commenting upon five of the specific proposals up for a vote. First,
we have
been asked to approve an IPO for NYMEX. As I said above, I am in favor of
the
IPO, even though we have no specific information about how much money NYMEX
expects to raise by selling shares to the public, the number of shares existing
shareholders will be permitted to sell in the IPO, or how shareholders will
be
permitted to sell their shares to the public.
Second,
we have
been asked to approve seven amendments to NYMEX’s Certificate of Incorporation.
These proposed amendments seek to take back many of the changes to the GA
Transaction that were made in December of 2005. The most important take-back
is
a proposal to increase the number of authorized shares of NYMEX common stock
to
95,500,000, which includes 4,300,000 shares of stock that will be issued
for the
Long-Term Incentive Plan. We also have been asked to approve the Long-Term
Incentive Plan, which is a bonus plan for the directors and certain officers
of
NYMEX. When the GA Transaction was first proposed, I objected to the
authorization of 6,000,000 shares of common stock that were not fully explained
in the Preliminary Proxy. Many of us were concerned that the Board intended
to
use the 6,000,000 shares to compensate themselves at our expense. We objected
to
a lucrative bonus or option plan for the Board and expressed our view that
the
directors should receive no special benefit that was not shared with all
the
members of the Exchange.
In
his
December 22, 2005, Chairman’s Letter, Mitchell Steinhause assured us that there
were no “secret stock option plans.” Mr. Steinhause also said, “The Board will
benefit from this transaction solely as stockholders, in the exact same way
our
other stockholders will benefit.” Despite Mr. Steinhause’s assurances, in the
current Proxy management recommends a vote in favor of the Long-Term Incentive
Plan so that the Board may “grant incentive stock options . . . to provide
additional incentive to those employees and directors of NYMEX whose
contributions are essential to the growth and success of NYMEX’s business.” At
best, management has reversed its position since December 22, 2005, and needs
to
explain the reason for its about-face. At worst, Mr. Steinhause’s assurances on
December 22, 2005, were misleading, and management needs to explain why they
did
not correct the Chairman’s Letter before the Special Meeting on March 13, 2006,
when the GA Transaction was approved.
As
you
know, the GA Transaction includes $10 million that is payable
only if an IPO that values NYMEX’s equity at $2 billion or greater occurs by
December 31, 2006. We
must
assume that the IPO will value NYMEX at no less than $2 billion. At that
minimum
valuation, the 4,300,000 shares to be set aside for the Long-Term Incentive
Plan
transfers nearly $100 million in equity from all the shareholders to the
Board
and a small number of eligible employees. This is an enormous sum to be given
to
the beneficiaries of the Long-Term Incentive Plan. If the IPO is priced at
$50
per share, the Long-Term Incentive Plan will transfer almost a quarter of a
billion dollars of our shareholders’ assets to management and staff. I recognize
the desirability of providing an incentive to directors and key employees,
but
the sum that management now seeks - particularly after Mr. Steinhause assured
us
that there were no “secret stock option plans” - is grossly excessive and
unwarranted.
Third,
we have
been asked to approve an amendment to the Bylaws to increase the percentage
of
shares needed to call a special meeting of shareholders from 10 percent to
more
than 50 percent. This is a direct reversal of the change Mr. Steinhause
announced on December 22, 2005. As you may recall, many of us strongly opposed
raising the number of shares of stock necessary to call a special meeting
when
the GA Transaction was first proposed. On December 22, 2005, Mr. Steinhause
announced that the 10 percent threshold would be maintained in response to
our
feedback. The 10 percent threshold promotes responsible corporate governance
by
increasing the accountability of our elected directors. There was no need
to
amend the Bylaws to raise the threshold for a special meeting when the GA
Transaction was approved on March 13, 2006, and there is no need to raise
the
threshold now. CBOT maintained the 10 percent threshold, and so should
NYMEX.
Fourth,
we have
been asked to approve an amendment to the Certificate of Incorporation to
require a 66-2/3 percent vote of shareholders to amend certain provisions
of the
Certificate of Incorporation, including those relating to the removal of
directors. This “supermajority voting” provision is another direct reversal of
the change Mr. Steinhause announced on December 22, 2005. As with the 10
percent
threshold for special meetings, the current simple majority voting provision
leaves greater control in the hands of shareholders. The proposed supermajority
voting provision increases management’s control over the Exchange.
Fifth,
we have
been asked to approve a change to the Certificate of Incorporation to permit
80
percent of the Board to adopt, amend, or repeal the Bylaws without the approval
of the shareholders. This includes the right to amend the Bylaws concerning
the
rules for nominating directors. If we approve this change to the Certificate
of
Incorporation, the Board could decide to give themselves the right to appoint
themselves as the only candidates for election to the Board, potentially
undoing
yet another one of the changes announced by Mr. Steinhause on December 22,
2005.
There was no need to empower the directors to amend the Bylaws without
shareholder approval when we voted for the GA Transaction on March 13, 2006,
and
there is no need to give such power to the Board now.
Conclusion:
I
want to
reiterate that I am strongly in favor of an IPO and I am committed to
positioning the Exchange for future economic success. However, I am equally
in
favor of preserving the same shareholder rights that have driven the Exchange
in
the past. Please voice your concerns by voting in FAVOR of the IPO and AGAINST
the thirteen other proposals that erode the rights of NYMEX
shareholders.
Best
regards,
Cataldo
J.
Capozza
cc:
Wolf
Haldenstein Alder Freeman & Herz LLP
Mark
C.
Rifkin, Esquire