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NYBOT to Go Ahead with ICE Merger Vote Despite Lawsuit

The New York Board of Trade (NYBOT) said Friday that its members are still prepared to vote Monday on the $1 billion-plus merger with Atlanta-based IntercontinentalExchange (ICE), despite pending legal action from a "substantial" number of NYBOT permit holders who feel they are being unfairly left out of the deal.

The plaintiffs, who each hold permits to trade certain futures and options at the 136-year-old exchange, filed the suit Thursday in New York through attorneys at Bernfeld, DeMatteo & Bernfeld LLP. The law firm said a "substantial" number of permit holders have initiated the action.

In a copy of the lawsuit obtained by NGI, the attorneys noted that in the fall of 2006, the NYBOT board announced that it had entered into a proposed agreement with ICE, the net effect of which would be to sell and transfer the NYBOT exchange to ICE. "Under the proposal, ICE will pay in excess of $1.2 billion in cash and stock, all of which is to be paid solely to the full members of NYBOT," the complaint said. "The permit holder members receive no portion of that $1.2 billion. The permit holder members will, however, lose significant existing rights and protections, jeopardizing their ability to continue to operate and maintain viable floor operations or the value of their permits.

"If the ICE agreement is allowed to proceed in this fashion, irreparable injury will result," the lawsuit stated. "The rights of the permit holder members will have been taken from them and stripped of their value without their consent and without any consideration."

Lead attorney for the case David Bernfeld, said that permit holder members are responsible for a significant portion of NYBOT's trading volume and revenue and have been an integral part of building the value that the company is now selling. The lawsuit contains multiple claims, including breach of fiduciary duty, breach of contract, fraud, breach of plaintiffs' membership rights as well as violations of the New York Not for Profit Corporate law. The law firm is seeking "injunctive and declaratory relief to void and/or enjoin the implementation of the ICE agreement, as well as substantial monetary damages."

NYBOT, a global marketplace for cocoa, coffee, cotton, frozen concentrated orange juice and sugar among other things, responded Friday afternoon that it intends to go forward with the meeting of its equity members and the vote on the merger scheduled for Monday, noting that they "do not believe that the suit will delay the closing of our transaction." According to the terms of the deal, two-thirds of NYBOT's 749 members, who collectively own 977 seats, must vote in favor of the merger in order for it be successful.

"While the New York Board of Trade cannot comment on the specifics of the complaint that has allegedly been filed on behalf of certain NYBOT permit holders, which the exchange has not yet received, we can confirm that NYBOT carefully considered the rights of permit holders throughout the transaction," the exchange said. "We note that under exchange bylaws, permit holders do not own equity in the exchange, have no right to vote, and have no right to receive any distributions of cash or property, whether upon liquidation, merger or otherwise."

Under the exchanges bylaws, "Permit Holders, Lessees and Member Firms will not have any voting rights in the Exchange or any rights to receive any distributions of cash, securities or other property, whether on dissolution, liquidation, merger, consolidation or otherwise."

The transaction, which is expected to close in the first half of next year, will deliver to NYBOT 10.297 million shares of ICE common stock and $400 million in cash. Since the deal was announced back on Sept. 15 (see Daily GPI, Sept. 18), ICE's share price has jumped 62% from a $64.63/share close on Sept. 14 to $104.84/share on Thursday.

The merger of the exchanges has been seen as a melding of the old with the new. Upon consummation, NYBOT will become a wholly owned subsidiary of ICE. Major features of the deal are that rapidly growing ICE will get a critically needed and lucrative clearing operation, NYBOT subsidiary New York Clearing Corp., while on the other side, the open outcry exchange will be able to offer electronic trading.

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