<PAGE>
Filed by Board of Trade of the City of Chicago (CBOT)
Subject Company - Board of Trade of the City of Chicago
Pursuant to Rule 425 under the Securities Act of 1933
File No. 132-01854
* * * *
The following press release and attachments thereto were distributed on June 30,
2000.
For Immediate Release David Prosperi
312-435-3456
Katherine Spring
312-475-5987
CBOT FILES SUIT OVER EXERCISE RIGHT
The CBOT complaint seeks a declaration that its move to a Delaware
not-for-profit corporation preserves the Exercise Right
CHICAGO, June 30, 2000-Today, the Board of Trade of the City of
Chicago filed a lawsuit seeking a declaration that the CBOT's
reincorporation as a Delaware not-for-profit corporation would not
extinguish the Exercise Right and asking the Court to prevent the
Chicago Board Options Exchange from taking any action to the
contrary. CBOT's reincorporation as a Delaware not-for-profit is
known as Step One of the Board of Trade's restructuring strategy. Step
One was resoundingly approved by over 90% of the CBOT's members in
a June 28 vote.
On June 20, 2000, CBOE issued a circular stating that when Step One of
CBOT restructuring is completed CBOT Full Members' CBOE Exercise
Right would "disappear" as a matter of law. Yesterday, the CBOT wrote
to the CBOE asking for a written confirmation that the CBOE's position had
changed and that following CBOT's reincorporation in Delaware CBOE
would take no action to jeopardize the Exercise Right. The CBOE
refused to provide that confirmation.
CBOT Chairman David Brennan stated: "I have pledged to our
members to do whatever is needed to preserve the CBOE Exercise Right
as an essential element of our restructuring plan. Since CBOE persists
in its unfounded claim that Step One is inconsistent with the Exercise
Right and would otherwise remain free to act to attempt to encumber or
eliminate that legal right at any time, we had no choice but to act. We
look forward to judicial vindication of our position and to moving
forward with our plan to modernize the Board of Trade's business
operations."
<PAGE>
Attached are copies of the CBOE's June 29 response, our reply, and our
letter to CBOT members regarding the lawsuit.
We urge CBOT members and membership interest holders to read the Registration
Statements on Form S-4, including the proxy statement/prospectus contained
within the Registration Statements, regarding the CBOT restructuring referred to
herein or in connection herewith, when it becomes available, as well as the
other documents that the CBOT has filed or will file with the Securities and
Exchange Commission, because they contain or will contain important information.
CBOT members and membership interest holders may obtain a free copy of the proxy
statement/prospectus, when it becomes available, and other documents filed by
the CBOT at the Commission's web site at www.sec.gov, or from the CBOT by
directing such request in writing or by telephone to: Board of Trade of the City
of Chicago, 141 W. Jackson Blvd., Chicago, Illinois 60604-2994, Attention:
Office of the Secretary, Telephone: (312) 435-3605, Facsimile: (312) 347-3827.
This communication shall not constitute an offer to sell or the solicitation of
an offer to buy, nor shall there be any sale of securities in any state in which
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state. No offering of
securities shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as amended.
<PAGE>
[CBOE LOGO] Thomas A. Bond
Vice Chairman
Phone: 312 786-7088
Fax: 312 786-7407
[email protected]
June 29, 2000
BY MESSENGER
Mr. David P. Brennan
Chairman of the Board
Chicago Board of Trade
141 West Jackson Boulevard
Chicago, Illinois 60604
Dear David,
Your letter of today suggests that the Chicago Board of Trade has misunderstood
CBOE Information Circular IC00-64. By no means does the circular imply any
change in CBOE's legal position concerning the effect of CBOT's restructuring on
the exercise right. The purpose of the circular was simply to assure our members
that we do not intend to bar exercisers from the CBOE's trading floor on account
of the reincorporation of CBOT as a Delaware non-stock corporation.
Sincerely,
/s/ Tom
* * * *
<PAGE>
[LETTERHEAD OF CHICAGO BOARD OF TRADE]
David P. Brennan
Chairman of the Board
June 30, 2000
Dear Bill and Tom:
On June 20, 2000, CBOE issued a circular stating that when Step One of our
Restructuring is completed our Full Members' CBOE Exercise Right would
"disappear" as a matter of law. We strongly disagree with CBOE's view. After
receiving your June 29 circular, I wrote to you asking for confirmation that
CBOE's position had changed and that you would take no action to jeopardize the
Exercise Right based on our reincorporation in Delaware. Your letter of June
29th refused to provide that confirmation.
As you know, preserving the Exercise Right is an essential ingredient of our
restructuring plan. Since you have been unwilling to provide us with any
assurance that you will not act to attempt to encumber or eliminate the Exercise
Right after Step One is effectuated, we had no choice but to act. After careful
deliberation, we have today filed a complaint in the Circuit Court of Cook
County seeking a declaration that implementation of Step One does not extinguish
or impair the Exercise Right and asking the Court to prevent CBOE from taking
any action to the contrary.
We regret that you have forced us to resolve this dispute in the courts, but by
virtue of your June 29 letter you have given us no alternative. At the same
time, we are willing to continue our negotiations with you on a merger or other
joint business strategies that will strengthen our two great institutions. We
are hopeful that in the coming weeks we can still amicably resolve our
differences.
Sincerely,
/s/ David P. Brennan
David P. Brennan
LaSalle at Jackson
Chicago, Illinois 60604-2994
312 435-3601
Fax 312 341-3392
<PAGE>
We urge CBOT members and membership interest holders to read the Registration
Statements on Form S-4, including the proxy statement/prospectus contained
within the Registration Statements, regarding the CBOT restructuring referred to
herein or in connection herewith, when it becomes available, as well as the
other documents that the CBOT has filed or will file with the Securities and
Exchange Commission, because they contain or will contain important information.
CBOT members and membership interest holders may obtain a free copy of the proxy
statement/prospectus, when it becomes available, and other documents filed by
the CBOT at the Commission's web site at www.sec.gov, or from the CBOT by
directing such request in writing or by telephone to: Board of Trade of the City
of Chicago, 141 W. Jackson Blvd., Chicago, Illinois 60604-2994, Attention:
Office of the Secretary, Telephone: (312) 435-3605, Facsimile: (312) 347-3827.
This communication shall not constitute an offer to sell or the solicitation of
an offer to buy, nor shall there be any sale of securities in any state in which
offer, solicitation, or sale would be unlawful prior to registration or
qualification under the securities laws of any such state. No offering of
securities shall be made by means of a prospectus meeting the requirements of
Section 10 of the Securities Act of 1933, as amended.
<PAGE>
[LETTERHEAD OF CHICAGO BOARD OF TRADE]
David P. Brennan
Chairman of the Board
June 30, 2000
Dear Fellow Members:
On June 20, 2000, CBOE issued a circular stating that when Step One of our
Restructuring is completed our Full Members' CBOE Exercise Right would
"disappear" as a matter of law. We strongly disagree with CBOE's view.
Yesterday, June 29, CBOE issued a new circular, and in response I wrote to CBOE
asking for confirmation that its position had changed and that after our
reincorporation in Delaware CBOE would take no action to jeopardize the Exercise
Right. CBOE has refused to provide that confirmation. Instead, late yesterday
afternoon they sent me the attached letter, which speaks for itself. My reply
to CBOE's June 29 letter is also attached.
Your Board of Directors and I have pledged to preserve the CBOE Exercise Right
as an essential element of our restructuring strategy. Since CBOE persists in
its unfounded claim that Step One is inconsistent with the Exercise Right and
that it is free to attempt to encumber or eliminate that legal right at any
time, your Board of Directors had no choice but to act. After careful
deliberation, we have today filed a complaint in Circuit Court of Cook County
seeking a declaration that implementation of Step One does not extinguish the
Exercise Right, and asking the Court to prevent CBOE from taking any action to
the contrary. A copy of the complaint is available in the Legal Department.
We have told CBOE management that we are still willing to engage in
negotiations, and we hope that our two great institutions can still resolve our
differences amicably. At the same time, we remain committed to preserving the
Exercise Right as we move forward with our restructuring initiative.
Sincerely,
/s/ David P. Brennan
David P. Brennan
141 W. Jackson Blvd.
Chicago, Illinois 60604-2994
312 435-3601
Fax: 312 341-3392
<PAGE>
We urge CBOT members and membership interest holders to read the Registration
Statements on Form S-4, including the proxy statement/prospectus contained
within the Registration Statements, regarding the CBOT restructuring referred to
herein or in connection herewith, when it becomes available, as well as the
other documents that the CBOT has filed or will file with the Securities and
Exchange Commission, because they contain or will contain important information.
CBOT members and membership interest holders may obtain a free copy of the proxy
statement/prospectus, when it becomes available, and other documents filed by
the CBOT at the Commission's web site at www.sec.gov, or from the CBOT by
directing such request in writing or by telephone to: Board of Trade of the City
of Chicago, 141 W. Jackson Blvd., Chicago, Illinois 60604-2994, Attention:
Office of the Secretary, Telephone: (312) 435-3605, Facsimile: (312) 347-3827.
This communication shall not constitute an offer to sell or the solicitation of
an offer to buy, nor shall there be any sale of securities in any state in which
offer, solicitation, or sale would be unlawful prior to registration or
qualification under the securities laws of any such state. No offering of
securities shall be made by means of a prospectus meeting the requirements of
Section 10 of the Securities Act of 1933, as amended.
<PAGE>
The following letter and attachments thereto were distributed to CBOT members
and membership interest holders on June 30, 2000.
[LETTERHEAD OF CHICAGO BOARD OF TRADE]
David P. Brennan
Chairman of the Board
June 30, 2000
Dear Fellow Members:
On June 20, 2000, CBOE issued a circular stating that when Step One of our
Restructuring is completed our Full Members' CBOE Exercise Right would
"disappear" as a matter of law. We strongly disagree with CBOE's view.
Yesterday, June 29, CBOE issued a new circular, and in response I wrote to CBOE
asking for confirmation that its position had changed and that after our
reincorporation in Delaware CBOE would take no action to jeopardize the Exercise
Right. CBOE has refused to provide that confirmation. Instead, late yesterday
afternoon they sent me the attached letter, which speaks for itself. My reply
to CBOE's June 29 letter is also attached.
Your Board of Directors and I have pledged to preserve the CBOE Exercise Right
as an essential element of our restructuring strategy. Since CBOE persists in
its unfounded claim that Step One is inconsistent with the Exercise Right and
that it is free to attempt to encumber or eliminate that legal right at any
time, your Board of Directors had no choice but to act. After careful
deliberation, we have today filed a complaint in Circuit Court of Cook County
seeking a declaration that implementation of Step One does not extinguish the
Exercise Right, and asking the Court to prevent CBOE from taking any action to
the contrary. A copy of the complaint is available in the Legal Department.
We have told CBOE management that we are still willing to engage in
negotiations, and we hope that our two great institutions can still resolve our
differences amicably. At the same time, we remain committed to preserving the
Exercise Right as we move forward with our restructuring initiative.
Sincerely,
/s/ David P. Brennan
David P. Brennan
141 N. Jackson Blvd.
Chicago, Illinois 60604
312 435-3601
FAX: 312 341-3392
We urge CBOT members and membership interest holders to read the Registration
Statements on Form S-4, including the proxy statement/prospectus contained
within the Registration Statements, regarding the CBOT restructuring referred to
herein or in connection herewith, when it becomes available, as well as the
other documents that the CBOT has filed or will file with the Securities and
Exchange Commission, because they contain or will contain important information.
CBOT members and membership interest holders may obtain a free copy of the proxy
statement/prospectus, when it becomes available, and other documents filed by
the CBOT at the Commission's web site at www.sec.gov, or from the CBOT by
directing such request in writing or by telephone to: Board of Trade of the City
of Chicago, 141 W. Jackson Blvd., Chicago, Illinois 60604-2994, Attention:
Office of the Secretary, Telephone: (312) 435-3605, Facsimile: (312) 347-3827.
This communication shall not constitute an offer to sell or the solicitation of
an offer to buy, nor shall there be any sale of securities in any state in which
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state. No offering of
securities shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as amended.
<PAGE>
For Immediate Release David Prosperi
312-435-3456
Katherine Spring
312-475-5987
CBOT FILES SUIT OVER EXERCISE RIGHT
The CBOT complaint seeks a declaration that its move to a Delaware
not-for-profit corporation preserves the Exercise Right
CHICAGO, June 30, 2000-Today, the Board of Trade of the City of
Chicago filed a lawsuit seeking a declaration that the CBOT's
reincorporation as a Delaware not-for-profit corporation would not
extinguish the Exercise Right and asking the Court to prevent the
Chicago Board Options Exchange from taking any action to the
contrary. CBOT's reincorporation as a Delaware not-for-profit is
known as Step One of the Board of Trade's restructuring strategy. Step
One was resoundingly approved by over 90% of the CBOT's members in
a June 28 vote.
On June 20, 2000, CBOE issued a circular stating that when Step One of
CBOT restructuring is completed CBOT Full Members' CBOE Exercise
Right would "disappear" as a matter of law. Yesterday, the CBOT wrote
to the CBOE asking for a written confirmation that the CBOE's position had
changed and that following CBOT's reincorporation in Delaware CBOE
would take no action to jeopardize the Exercise Right. The CBOE
refused to provide that confirmation.
CBOT Chairman David Brennan stated: "I have pledged to our
members to do whatever is needed to preserve the CBOE Exercise Right
as an essential element of our restructuring plan. Since CBOE persists
in its unfounded claim that Step One is inconsistent with the Exercise
Right and would otherwise remain free to act to attempt to encumber or
eliminate that legal right at any time, we had no choice but to act. We
look forward to judicial vindication of our position and to moving
forward with our plan to modernize the Board of Trade's business
operations."
Attached are copies of the CBOE's June 29 response, our reply, and our letter to
CBOT members regarding the lawsuit.
Legend
<PAGE>
[CBOE LOGO] Thomas A. Bond
Vice Chairman
Phone: 312 786-7088
Fax: 312 786-7407
[email protected]
June 29, 2000
BY MESSENGER
Mr. David P. Brennan
Chairman of the Board
Chicago Board of Trade
141 West Jackson Boulevard
Chicago, Illinois 60604
Dear David,
Your letter of today suggests that the Chicago Board of Trade has misunderstood
CBOE Information Circular IC00-64. By no means does the circular imply any
change in CBOE's legal position concerning the effect of CBOT's restructuring on
the exercise right. The purpose of the circular was simply to assure our members
that we do not intend to bar exercisers from the CBOE's trading floor on account
of the reincorporation of CBOT as a Delaware non-stock corporation.
Sincerely,
/s/ Tom
<PAGE>
[CHICAGO BOARD OF TRADE]
David P. Brennan
Chairman of the Board
June 30, 2000
Dear Bill and Tom:
On June 20, 2000, CBOE issued a circular stating that when Step One of our
Restructuring is completed our Full Members' CBOE Exercise Right would
"disappear" as a matter of law. We strongly disagree with CBOE's view. After
receiving your June 29 circular, I wrote to you asking for confirmation that
CBOE's position had changed and that you would take no action to jeopardize the
Exercise Right based on our reincorporation in Delaware. Your letter of June
29th refused to provide that confirmation.
As you know, preserving the Exercise Right is an essential ingredient of our
restructuring plan. Since you have been unwilling to provide us with any
assurance that you will not act to attempt to encumber or eliminate the Exercise
Right after Step One is effectuated, we had no choice but to act. After careful
deliberation, we have today filed a complaint in the Circuit Court of Cook
County seeking a declaration that implementation of Step One does not extinguish
or impair the Exercise Right and asking the Court to prevent CBOE from taking
any action to the contrary.
We regret that you have forced us to resolve this dispute in the courts, but by
virtue of your June 29 letter you have given us no alternative. At the same
time, we are willing to continue our negotiations with you on a merger or other
joint business strategies that will strengthen our two great institutions. We
are hopeful that in the coming weeks we can still amicably resolve our
differences.
Sincerely,
/s/ David P. Brennan
David P. Brennan
LaSalle at Jackson
Chicago, Illinois 60604-2994
312 435-3601
FAX 312 341-3392
<PAGE>
Atty No. 90443
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT, CHANCERY DIVISION
__________________________________________
)
Board of Trade of the City of Chicago, )
)
Plaintiff, ) In Chancery
) Declaratory Judgment
v. )
) Civil Action No. ___________
Chicago Board Options Exchange, Inc., )
)
Defendant. )
__________________________________________)
COMPLAINT FOR DECLARATORY JUDGMENT
AND FOR INJUNCTIVE RELIEF
-------------------------
The Board of Trade of the City of Chicago seeks a declaration by this
Court that Step One of the CBOT's Restructuring Plan preserves the Exercise
Right held by its Full Members in accordance with the contract between the CBOT
and the Chicago Board Options Exchange, Inc., dated September 1, 1992. This
action is ripe for decision because on June 20, 2000, the CBOE breached the 1992
contract and declared its intent to breach the 1992 contract further if the CBOT
moves forward with its planned restructuring.
Plaintiff, the CBOT, complains against defendant, the CBOE, as
follows:
INTRODUCTION
------------
1. When the Chicago Board of Trade created the Chicago Board Options
Exchange in 1972, the CBOE's Certificate of Incorporation provided that CBOT
members would be entitled to become members of the CBOE at no additional cost.
That entitlement is known to Chicago Board of Trade members as the Exercise
Right, and has significant value to CBOT's
<PAGE>
Full Members. By exercising that right, CBOT members become eligible to have
membership privileges on both the CBOT and the Chicago Board Options Exchange.
2. After the creation of the Exercise Right, the CBOT and CBOE had a
series of disputes about its definition and scope. Those disputes were resolved
under a contract executed by the parties in 1992. That contract specifically
delineates the Exercise Right and limits that right to the 1,402 Full
Memberships of the Chicago Board of Trade. The 1992 contract also specifically
provides that both parties have the right to bring suit under Illinois law to
enforce the terms of the agreement and to recover damages for any breach of the
agreement.
3. The parties' 1992 contract contemplated that at some point in the
future, the Chicago Board of Trade might opt to merge, consolidate or
restructure in some way, and the agreement therefore included specific
provisions allowing the CBOT to pursue different structural alternatives while
preserving the Exercise Right for its 1,402 Full Members.
4. The Chicago Board of Trade is now on the brink of such a
restructuring -critical to its long term viability - to enhance its open outcry
futures trading while also benefitting from the dramatic growth of electronic
trading. The strategy for the CBOT's Restructuring Plan, approved by the Board
in January 2000, was carefully planned to comport with the terms of the 1992
Agreement and thus preserve the Exercise Right.
5. As had been explained by representatives of the CBOT to CBOE
management in a series of meetings from January through June of this year, the
CBOT's restructuring is to take place in two overall "steps," each requiring a
vote of the CBOT's membership. Step One, approved by the Chicago Board of
Trade's members just two days ago, on June 28, 2000, will result in the CBOT
becoming a Delaware not-for-profit corporation - the
2
<PAGE>
same corporate structure as the Chicago Board Options Exchange. Implementation
of Step One began yesterday, June 29, 2000, and will culminate in the CBOT's
formal election to move to Delaware, scheduled to take place promptly following
a special membership meeting on July 7, 2000. The rights and privileges of the
Chicago Board of Trade's members, including their trading rights and privileges,
will not be affected by the change in the exchange's state of incorporation.
6. Nevertheless, on June 20, 2000 - only eight days prior to the
special ballot vote on Step One - the Chicago Board Options Exchange circulated
to its members and the media an Information Circular, declaring its intent to
breach the 1992 Agreement should the Chicago Board of Trade move forward with
its Restructuring Plan. For the first time, the CBOE announced that if the
Chicago Board of Trade implements Step One, thereby changing its state of
incorporation, the Exercise Right would be extinguished. Specifically, the CBOE
has taken the remarkable position that when the Chicago Board of Trade
"disappears" as a specially chartered Illinois corporation, "the exercise right
disappears with it."
7. Yesterday, June 29, the CBOE issued another Information Circular,
and again stated that "reincorporation of the CBOT as a Delaware corporation is
inconsistent with the exercise right. . .," but also stated that "it is not the
CBOE's intent to bar CBOT exercisers from the CBOE trading floor at this time."
That same day, CBOT's Chairman, David Brennan, requested written confirmation
that the CBOE would not take any steps to extinguish the Exercise Right as a
result of the CBOT's reincorporation in Delaware.
3
<PAGE>
8. The CBOE refused to provide any such confirmation, and instead
reiterated its earlier position and stated that the June 29 circular does not
"imply any change in CBOE's legal position concerning the effect of CBOT's
restructuring on the exercise right."
9. CBOE's argument boils down to the following: if the Chicago Board
of Trade changes its state of incorporation, its contracts - including its 1992
contract with the CBOE - are no longer valid and enforceable and the CBOT's
members lose their Exercise Right. The Board of Trade disagrees.
PARTIES
-------
10. Plaintiff, the CBOT, is a futures exchange with its principal
place of business at 141 West Jackson Boulevard, Chicago, Illinois. Currently,
the CBOT is a corporation organized and existing by virtue of a Special
Legislative Act of the General Assembly of the State of Illinois, enacted into
law in 1859.
11. Defendant, the CBOE, is an options exchange with its principal
place of business at 400 South LaSalle Street, Chicago, Illinois. The CBOE is a
Delaware not-for-profit, non-stock corporation.
JURISDICTION AND VENUE
----------------------
12. This Court has subject matter jurisdiction over this matter and
personal jurisdiction over the parties under the common law of the State of
Illinois and 735 ILCS 5/2-209 by virtue of their acts within the State of
Illinois.
13. Venue is proper in this Court under 735 ILCS 5/2-101 and 735 ILCS
5/2-102 as the CBOE has its principal place of business in Cook County,
Illinois.
4
<PAGE>
BACKGROUND
THE CBOT TODAY
--------------
14. The CBOT was organized in 1848 as a voluntary, unincorporated
association. In 1859, the Illinois General Assembly granted the association a
special charter that incorporated the CBOT. Today, that specially chartered not-
for-profit corporation is owned and operated by its members.
15. The Chicago Board of Trade is the largest futures and options
exchange in the United States, providing facilities for the trading of a wide
variety of futures and options contracts ranging from contracts on corn, wheat
and soybeans to contracts on U.S. Treasury Securities and the Dow Jones
Industrial Average.
16. Trading in CBOT contracts is currently conducted in two ways -
open outcry trading in a trading pit and via an electronic trading system, most
of which is conducted by the Ceres Trading Limited Partnership formed in 1992.
Today, most trading at the CBOT occurs by open outcry.
17. Ceres was designed to operate different new business ventures for
the benefit of the CBOT members, including an electronic trading division. With
respect to Ceres, the CBOT is the general partner and owns ten percent of its
partnership interests. Chicago Board of Trade clearing members own 20% of the
partnership interests as limited partners, and individual Chicago Board of Trade
members own the remaining 70% as limited partners.
18. Over the years, the CBOT has formed various membership classes.
The original class, known as a Full Membership, entitles anyone holding that
class of membership to
5
<PAGE>
trade as principal and broker any and all futures or options contracts traded at
the CBOT. There are 1,402 Full Memberships at the CBOT. These memberships may be
sold, leased or assigned.
19. The other classes of membership have less trading, voting and
liquidation rights than Full Memberships. Associate Memberships, created in
1979, for example, may trade only in options contracts and financial futures
contracts and have voting and liquidation rights equal to 1/6 of those of Full
Memberships. IDEM (Index, Debt and Energy Market) Membership Interests allow
holders to trade a limited number of specific contracts, including Dow futures
and Municipal bonds. COM (Commodities Market) Membership Interests allow holders
to trade only in options contracts. The IDEM and COM Membership Interests,
created in 1982, have no voting rights, and have liquidation rights equal to
one-half of one percent of those of Full Members.
20. Only the 1,402 holders of Full Memberships hold the CBOE Exercise
Right that is at the heart of this dispute. (At the time of CBOE's formation,
the CBOT had 1,402 members, and the 1992 Agreement specifically limits the
Exercise Right to those 1,402 Full Memberships.)
THE CBOE "EXERCISE RIGHT"
-------------------------
21. The Chicago Board Options Exchange was created in 1972, in order
to provide a market for stock options trading. The CBOE's Certificate of
Incorporation specifically recognized the "special contribution made to the
organization and development of the Corporation by the members of the Board of
Trade of the City of Chicago." (Exhibit A)
22. In part to recognize the special contribution made by the members
of the CBOT, and in part to promote growth and liquidity of the CBOE, Article
Fifth (b) of the CBOE's
6
<PAGE>
Certificate of Incorporation provides that every present and future member of
the CBOT would be entitled to become a member of the CBOE at no additional cost.
The ability of a Chicago Board of Trade Full Member to exercise this right to
become a member at the CBOE is referred to as the Exercise Right.
23. Following the CBOE's incorporation, the two exchanges disputed
the scope of the Exercise Right, including whether a Chicago Board of Trade
member was entitled to lease the trading rights and privileges associated with
CBOT membership and CBOE membership independently.
THE 1992 AGREEMENT
------------------
24. On September 1, 1992, the exchanges entered into an agreement to
resolve those ongoing disputes. (Exhibit B)
25. In Section 3(c) of the 1992 Agreement, the CBOE agreed that "any
eligible CBOT Full Member or Eligible CBOT Full Member Delegate is entitled to
become an Exerciser Member [of the CBOE] pursuant to Article Fifth (b), provided
such individual qualifies to be a CBOE Regular Member in accordance with the
rules of the CBOE applicable generally to CBOE Regular Membership."
26. Under the 1992 Agreement, an "Eligible CBOT Full Member" is
defined as "an individual who at the time is the holder of one of the One
Thousand Four Hundred Two (1,402) existing CBOT full memberships and who is in
possession of all trading rights and privileges appurtenant to such CBOT Full
Membership." (Section 1(a)) Thus, pursuant to the contract between the
exchanges, the exercise right is restricted to the 1,402 Full Memberships
currently existing at the CBOT.
7
<PAGE>
27. Section 1(c) further defined the "trading rights and privileges
appurtenant to such CBOT Full Membership" as (i) the rights and privileges that
entitle a holder to trade as principal and broker for others in all contracts on
the CBOT (regardless of whether by open outcry, by electronic means or
otherwise); and (ii) every trading right or privilege granted, assigned or
issued by the CBOT to holders of Full Memberships as a class, excluding rights
or privileges that are the subject of an option not exercised by the Full
Member. Thus, under the contract, the Exercise Right attaches to the 1,402 Full
Memberships, so long as those Full Memberships entitle holders to trade all
contracts traded on the CBOT and to every trading right or privilege associated
with Full Membership.
28. The right embedded in their Full Membership to trade at the CBOE
is a major source of value to Chicago Board of Trade Full Members. This Exercise
Right gives Eligible Full Members and Eligible Full Member Delegates access to
two exchanges. In addition, since a Full Member has the right to lease his Board
of Trade membership (along with the Exercise Right) to parties known as
Delegates, members continue to benefit from the value of the Exercise Right even
after they retire from active trading. Currently, nearly half of the CBOT's Full
Members have exercised their right to trade at the Chicago Board Options
Exchange.
29. At the time they entered into the 1992 Agreement, both parties
recognized and acknowledged the possibility that the Chicago Board of Trade
might in the future reorganize or change its structure. The Agreement therefore
included provisions allowing the CBOT to change its structure while still
maintaining the Exercise Right for its Full Members. (See Exhibit
8
<PAGE>
B (P) 3(d)). Notably, the Agreement does not in any way restrict the Chicago
Board of Trade from changing its state of incorporation as part of such a
restructuring.
THE CBOT'S RESTRUCTURING PLAN
-----------------------------
30. The industry served by the CBOT has undergone significant changes
over the last several years. Electronic trading has emerged as the dominant form
of trading in Europe and Asia, is becoming a more popular form of trading in
U.S. markets, and poses a competitive threat to traditional open outcry
exchanges. Since the mid-1990's, electronic trading has grown dramatically,
whereas traditional open outcry trading, which is the hallmark of the current
CBOT, has declined. In 1999, the all-electronic Eurex exchange, a foreign
exchange, overtook the CBOT to become the world's most active exchange.
31. The advance of technology, along with increased consumer demand
for cost-efficient and effective forms of trading, among other things, has
fueled the need for exchanges such as the CBOT to change how they operate.
Restructuring in the industry is already underway. The Chicago Mercantile
Exchange has approved and begun to implement a restructuring plan involving
demutualization and securities offerings, and the New York Mercantile Exchange
has already approved a demutualization plan.
32. The Chicago Board of Trade's current mutual, non-profit structure
is oriented towards supporting member opportunities, and has occasionally made
it difficult for the exchange to efficiently make necessary business decisions
focused on technology investments and operational economy.
33. In addition, the Board of Trade faces pressure from a variety of
potential electronic trading competitors. Cantor/eSpeed has already introduced
an electronic trading
9
<PAGE>
platform for CBOT products such as U.S. Treasury futures, and numerous
electronic communication networks already exist for trading financial products
worldwide.
34. The CBOT is threatened by the changes in the industry. Its Board
of Directors has concluded that restructuring is essential to its ability to
preserve a viable open outcry exchange capable of competing in the new economy
while at the same time capturing the growth of electronic trading.
35. To accomplish the restructuring under applicable corporate and
tax laws, several legal steps will be required, including merger of the CBOT
with and into a Delaware corporation, which will be the surviving corporation.
36. Step One of the restructuring, which was approved by the CBOT
membership on June 28, 2000, will result in the CBOT becoming a Delaware
not-for-profit corporation (as opposed to its current status as a specially
chartered Illinois corporation). Implementation of Step One, which is a
necessary precursor to the overall restructuring, began yesterday, on 29, 2000,
and will culminate in the CBOT's election to move to Delaware. The election to
move to a not-for-profit Delaware corporation is expected to take place at a
meeting scheduled on July 7, 2000. The rights and privileges of Chicago Board of
Trade members, including their trading rights and privileges, will not be
affected by the move to Delaware pursuant to Step One.
37. Step Two of the proposed restructuring, which will require
another membership vote, calls for the Chicago Board of Trade to become a for-
profit Delaware corporation, with a focus on updated open outcry or "pit"
trading. The current CBOT membership will own the for-profit corporation. The
1,402 Full Memberships will continue to
10
<PAGE>
allow the holder to trade as principal and broker for others in all Chicago
Board of Trade contracts.
38. Moving to a streamlined, for-profit corporate structure will
allow the Chicago Board of Trade to be more cost-efficient and to compete
effectively in the changing environment. It will also afford the CBOT enhanced
financial and decision-making flexibility.
39. Pursuant to Step Two, the Chicago Board of Trade's electronic
trading business, part of which is now operated by Ceres, will be reorganized as
an independent for-profit corporate structure focused exclusively on electronic
trading. Such a reorganization will provide CBOT members the opportunity to
benefit from the rapid growth of electronic trading without compromising the
viability of open outcry. The 1,402 Full Members, almost all of whom are also
now limited partners of Ceres, will become member shareholders in the for-profit
electronic trading company, which may also make an initial public offering of
its securities. Shares of the electronic trading company will, generally, be
freely transferable.
40. After Step Two, both the open outcry exchange and the electronic
exchange will have the right to offer all products currently traded at the CBOT.
41. After Step Two, the holders of the current 1,402 CBOT Full
Memberships will continue to possess the rights and privileges to trade as
principal and broker in all contracts traded on the CBOT. These 1,402 Full
Memberships will also have full rights and privileges to trade as principal and
broker in all contracts traded on the electronic exchange.
11
<PAGE>
THE CBOT'S RESTRUCTURING PLAN
COMPORTS WITH THE AGREEMENT
---------------------------
42. Understanding that the Exercise Right embedded in Full
Memberships is a significant source of value to its Full Members, the proposed
change to the Chicago Board of Trade's corporate structure expressly comports
with the terms of the 1992 Agreement. In fact, preserving the Exercise Right has
been one of the requirements of the restructuring plan.
43. Pursuant to Section 3(d) of the 1992 Agreement, the Chicago Board
Options Exchange agreed "that in the event the CBOT merges or consolidates with
or is acquired by or acquires another entity ('other entity')" the Exercise
Right "shall continue to apply and this Agreement shall continue in force and
effect" so long as three conditions are satisfied. None of the conditions
require that the Chicago Board of Trade remain a specially chartered Illinois
corporation. And all three conditions are satisfied by the overall Restructuring
Plan.
44. First, "the survivor of such merger, consolidation or acquisition
('survivor') is an exchange which provides or maintains a market in commodity
futures contracts or options, securities, or other financial instruments."
(Section 3(d)(i)) The surviving restructured CBOT will be an exchange that
provides a market in commodity futures or options, securities and other
financial instruments.
45. Second, "the 1,402 holders of CBOT Full Memberships are granted
in such merger, consolidation or acquisition membership in the survivor
('Survivor Membership')." (Section 3(d)(ii)) All 1,402 CBOT Full Memberships
will retain the rights and privileges of membership in the surviving
restructured CBOT.
12
<PAGE>
46. Third, "such Survivor Membership entitles the holder thereof to
have full trading rights and privileges in all products then or thereafter
traded on the survivor. . .." (Section 3(d)(iii)) All 1,402 Full Memberships
will have full trading rights and privileges in all contracts traded on the
surviving restructured CBOT.
47. The change from a specially chartered Illinois corporation to a
Delaware not-for-profit corporation pursuant to a merger as part of Step One of
the restructuring in no way nullifies the 1992 Agreement. The Exercise Right and
the 1992 Agreement will therefore continue in full force and effect after Step
One is implemented.
48. Moreover, the CBOT's overall restructuring, pursuant to Step Two,
will satisfy all of the conditions set forth in Section 3(d) of the parties'
1992 Agreement. The Exercise Right and the 1992 Agreement will therefore
continue in full force and effect after the change in corporate structure is
implemented.
THE CBOE'S INTENTION TO EXTINGUISH
THE EXERCISE RIGHT IN BREACH OF THE 1992 AGREEMENT
--------------------------------------------------
49. In both formal and informal communications with Chicago Board
Options Exchange representatives, the Chicago Board of Trade has confirmed that
any restructuring will comport with the 1992 Agreement and thereby preserve the
Exercise Right.
50. Despite assurances that the CBOT will abide by the conditions in
the 1992 Agreement to preserve the Exercise Right, the CBOE has made clear its
intent to breach the Agreement if the CBOT moves forward with restructuring.
51. On June 20, 2000 - just eight days before the CBOT's vote on Step
One -the Chicago Board Options Exchange announced for the first time that
implementation of Step
13
<PAGE>
One, by moving to a Delaware not-for-profit corporate structure, would serve to
extinguish the Exercise Right. In fact, the CBOE took the rather remarkable
position that "The restructuring that has been proposed by the CBOT would result
in the disappearance of the Illinois corporation that is now the Board of Trade
when it merges with and into a new Delaware corporation as the survivor of the
merger. Under the language of Article FIFTH, when the Illinois Board of Trade
disappears, the exercise right disappears with it." (Exhibit C)
52. As the CBOE itself explains, its position that the 1992 Agreement
ceases to exist merely because the Chicago Board of Trade changes its state of
incorporation is based on the fact that Article Fifth (b), which is the original
source of the Exercise Right, has descriptive language identifying the Chicago
Board of Trade as "a corporation organized and existing by Special Legislative
Charter of the General Assembly of the State of Illinois. . . ."
53. In the June 20, 2000 Information Circular, the CBOE made clear
that extinguishment of the Exercise Right will occur "upon the effectiveness of
the merger" - that is, when the Chicago Board of Trade merges with and into a
Delaware not-for-profit corporation - which is likely to occur within days of
the July 7, 2000 meeting to elect to merge to the Delaware not-for-profit
structure.
54. On June 29, the CBOE issued another Information Circular, and
again stated that "reincorporation of the CBOT as a Delaware corporation is
inconsistent with the exercise right. . . ." This circular, however, also stated
that "it is not CBOE's intention to bar CBOT exercisers from the CBOE trading
floor at this time." The CBOT's Chairman, David Brennan, wrote to the
CBOE requesting written confirmation that they would not take action to
extinguish the Exercise Right as a result of the CBOT's reincorporation as a
Delaware
14
<PAGE>
Corporation. The CBOT refused to provide any such confirmation. Instead, the
CBOE retreated to its earlier position: "Your letter of today suggests that the
Chicago Board of Trade has misunderstood CBOE Information Circular IC00-64. By
no means does the circular imply any change in CBOE's legal position concerning
the effect of CBOT's restructuring on the exercise right. (Collectively, Exhibit
F)
55. The CBOE's June 20, 2000 communication also detailed a host of
"other reasons" why the Chicago Board of Trade's overall Restructuring Plan
would allegedly serve to extinguish the Exercise Right. To the contrary, the
Restructuring Plan satisfies the conditions in the 1992 Agreement, and insures
that the 1,402 Full Members of the Chicago Board of Trade will continue to have
all of the trading rights and privileges on the surviving exchange - and in
addition, they will have full trading rights and privileges to trade on the
open-access electronic exchange.
56. In prior correspondence, dated March 2 and March 8, 2000
(Exhibits D & E), from William Brodsky, Chairman of the CBOE, to David Brennan,
Chairman of the CBOT, the Chicago Board Options Exchange had declared its intent
to breach the 1992 Agreement if the CBOT implemented its Restructuring Plan, but
chose not to disclose the reasons it believed the restructuring violated the
1992 Agreement. Nor did the CBOE take the position in March that merely
implementing Step One would extinguish the Exercise Right. Instead, the CBOE
waited to take that position until eight days before the Chicago Board of Trade
voted on Step One.
15
<PAGE>
COUNT I
CBOE's Breach of Section 4(d) of the 1992 Agreement
---------------------------------------------------
57. Plaintiff repeats and realleges the allegations contained in
paragraphs 1 through 56.
58. The 1992 Agreement between the parties was executed following
extensive negotiations between the two exchanges. In Section 4(d) the parties
mutually agreed that CBOE would interpret Article Fifth (b) in accordance with
the provisions of this Agreement.
59. In the June 20 Circular, the CBOE has stated that it reads
Article Fifth (b) to mean that the Chicago Board of Trade will "disappear"
should it change its state of incorporation. The CBOE has therefore declared
that the Exercise Right will be extinguished as soon as the Chicago Board of
Trade effects the merger to change its corporate structure to a Delaware
not-for-profit corporation.
60. This tortured reading of Article Fifth (b) is inconsistent with
the meaning and spirit of the 1992 Agreement, and thus violates Section 4(d) of
that Agreement. The 1992 Agreement specifically provided for the preservation of
the Exercise Right in the event the Chicago Board of Trade merged with another
entity, as contemplated by Step One. Nowhere does that Agreement suggest that
the Chicago Board of Trade cannot change its corporate structure or its state of
incorporation when it merges without endangering the Exercise Right. Changing
the CBOT's state of incorporation is not one of the three conditions Section
3(d) of the 1992 Agreement imposes for the continuation of the Exercise Right
should the CBOT merge with another entity. No other provision in the 1992
Agreement imposes the condition CBOE would read into the Agreement to govern the
Exercise Right.
16
<PAGE>
COUNT II
For A Declaration that Step One Does Not
Violate the 1992 Agreement and for An Injunction
Prohibiting the CBOE from Extinguishing the Exercise Right
----------------------------------------------------------
61. Plaintiff repeats and realleges the allegations contained in
paragraphs 1 through 60.
62. Under the terms of the 1992 Agreement, the CBOT and the CBOE
agreed that, even in the event that the CBOT "merges or consolidates with or is
acquired by or acquires another entity," the Exercise Right would continue as
long as the surviving entity meets the three requirements of the 1992 Agreement.
63. As explained above, Step One of the CBOT's Restructuring Plan,
approved by the members on June 28, 2000, will result in the CBOT becoming a
Delaware not-for-profit corporation. This change in legal status does nothing to
invalidate the 1992 Agreement or the right granted by Article Fifth (b).
64. Both Delaware and Illinois law specifically provide that in the
event of a merger, the resulting corporation possesses all the rights and
privileges of the merging corporations. Specifically, Delaware law provides that
in the event of merger or consolidation, "the constituent corporations shall
become a new corporation, or be merged into 1 of such corporations, as the case
may be, possessing all the rights, privileges, powers and franchises as well of
a public as of a private nature. . . ." 8 Del. C. (S) 259. Illinois law
similarly provides that when the merger is effected, the new or surviving
corporation "shall thereupon and thereafter possess all the rights, privileges,
immunities and franchises, of a public or private nature, of each of the merging
or consolidating corporations. . . ." 805 ILCS 105/111.50.
17
<PAGE>
65. Nonetheless, the CBOE has declared that at the time the CBOT
merger becomes effective and the Chicago Board of Trade merges with and into a
Delaware not-for-profit corporation, the Exercise Right will "disappear."
66. As a result of the foregoing, there exists an actual controversy
between the parties concerning the rights and obligations of the parties under
the 1992 Agreement.
67. By the terms of (S)2-701 of the Illinois Code of Civil Procedure,
735 ILCS 5/2-701, this Court has the power to construe the 1992 Agreement in
order to determine whether Step One of the CBOT Restructuring Plan comports with
the 1992 Agreement, and to make a binding declaration that the 1,402 CBOT Full
Memberships will retain their Exercise Rights after the Chicago Board of Trade
becomes a Delaware not-for-profit corporation. This Court's determination of
this contractual issue will terminate the dispute between the parties and avoid
future litigation as to Step One of the restructuring.
68. If such a determination of rights under the 1992 contract is not
made by this Court, the Chicago Board of Trade and its members will suffer
irreparable harm, jeopardizing the CBOT's rights under the 1992 Agreement to
restructure while still maintaining the Exercise Right.
PRAYER FOR RELIEF
-----------------
WHEREFORE, plaintiff Board of Trade of the City of Chicago
respectfully requests that this Court enter a judgment:
a. Interpreting the 1992 Agreement and declaring that:
1. Step One of the CBOT's proposed Restructuring Plan comports
with the Agreement; and
18
<PAGE>
2. the 1,402 Full Memberships of the CBOT will retain their
Exercise Right after Step One is implemented and the CBOT
becomes a Delaware not-for-profit corporation; and
b. Issuing an injunction that prohibits the CBOT from extinguishing
the Exercise Right as a result of the CBOT's implementation of
Step One of the restructuring; and
c. Ordering such further relief as this Court may deem necessary or
appropriate.
19
<PAGE>
Dated: June 30, 2000 Respectfully submitted,
/s/ Emily Nicklin
_______________________________
Garrett B. Johnson
Emily Nicklin
Donna M. Welch
Attorney No. 90443
KIRKLAND & ELLIS
200 East Randolph Drive
Chicago, Illinois 60601
(312) 861-2000
(312) 861-2200 (Facsimile)
ATTORNEYS FOR PLAINTIFF,
BOARD OF TRADE OF THE CITY OF CHICAGO
Carol A. Burke
Board of Trade of the City of Chicago
141 West Jackson Boulevard, 6th Floor
Chicago, Illinois 60604
(312) 435-3726
(312) 341-3392 (Facsimile)
Edward T. Joyce
Edward T. Joyce & Associates PC
11 South LaSalle Street, Suite 1600
Chicago, Illinois 60603-1211
(312) 641-2600
(312) 641-0360 (Facsimile)
William J. Harte
William J. Harte, Ltd.
111 West Washington Street, Suite 1100
Chicago, Illinois 60602
(312) 726-5015
(312) 641-2445 (Facsimile)
Of Counsel
20
<PAGE>
The CBOT urges its members and membership interest holders to read the
Registration Statements on Form S-4, including the proxy statement/prospectus
contained within the Registration Statements, regarding the CBOT restructuring
referred to herein or in connection herewith, when it becomes available, as well
as the other documents that the CBOT has filed or will file with the Securities
and Exchange Commission, because they contain or will contain important
information. CBOT members and membership interest holders may obtain a free copy
of the proxy statement/prospectus, when it becomes available, and other
documents filed by the CBOT at the Commission's web site at www.sec.gov, or from
the CBOT by directing such request in writing or by telephone to: Board of Trade
of the City of Chicago, 141 W. Jackson Blvd., Chicago, Illinois 60604-2994,
Attention: Office of the Secretary, Telephone: (312) 435-3605, Facsimile: (312)
347-3827. This communication shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of securities in
any state in which offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such state. No
offering of securities shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as amended.
21
* * * *
<PAGE>
Atty No. 90443
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT, CHANCERY DIVISION
------------------------------------------
)
Board of Trade of the City of Chicago, )
)
Plaintiff, ) In Chancery
) Declaratory Judgment
v. ) Judge Boharic
) Civil Action No. 00CII 9725
Chicago Board Options Exchange, Inc., )
)
Defendant. )
)
------------------------------------------
EX PARTE MOTION FOR LEAVE TO HAVE
PROCESS SERVED BY A PRIVATE PERSON OVER AGE 18
----------------------------------------------
Plaintiff, the Chicago Board of Trade appears ex parte and asks this
Court for leave to have a process served by a private person over the age of 18,
pursuant to 735 ILCS 5/2-202(a). In support of its motion, the Chicago Board of
Trade states the following:
1. Today, June 30, 2000, the Chicago Board of Trade filed the
attached Complaint against the Chicago Board Options Exchange. The CBOT seeks a
declaration from the Court that its reincorporation as a Delaware not-for-profit
corporation does not invalidate a 1992 Agreement between the parties and does
not affect the Exercise Right granted to its Full Members embodied in that
contract. The CBOT also seeks an injunction, prohibiting the CBOE from taking
action to extinguish the Exercise Right based on the CBOT's reincorporation in
Delaware.
2. The CBOT's reincorporation as a Delaware not-for-profit
corporation, referred to as "Step One" of its restructuring strategy, was
approved by a vote of over 90% of the CBOT's membership on June 28, 2000.
Implementation of Step One began yesterday, June 29, 2000, and will culminate in
the CBOT's election to move to Delaware. The election to move to
<PAGE>
Delaware is expected to take place at a special membership meeting scheduled on
July 7, 2000. The merger could become effective within days of that election.
3. The CBOT requests that this Court approve service by a private
person over 18 years of age pursuant to 735 ILCS 5/2-202.
<PAGE>
Dated: June 30, 2000 Respectfully submitted,
/s/ Donna M. Welch
Garrett B. Johnson
Emily Nicklin
Donna M. Welch
Attorney No. 90443
KIRKLAND & ELLIS
200 East Randolph Drive
Chicago, Illinois 60601
(312) 861-2000
(312) 861-2200 (Facsimile)
ATTORNEYS FOR PLAINTIFF,
BOARD OF TRADE OF THE CITY OF CHICAGO
Carol A. Burke
Executive Vice President and General Counsel
Board of Trade of the City of Chicago
141 West Jackson Boulevard, 6th Floor
Chicago, Illinois 60604
(312) 435-3726
(312) 341-3392 (Facsimile)
Edward T. Joyce
Edward T. Joyce & Associates PC
11 South LaSalle Street, Suite 1600
Chicago, Illinois 60603-1211
(312) 641-2600
(312) 641-0360 (Facsimile)
William J. Harte
William J. Harte, Ltd.
111 West Washington Street, Suite 1100
Chicago, Illinois 60602
(312) 726-5015
(312) 641-2445 (Facsimile)
Of Counsel
<PAGE>
The CBOT urges its members and membership interest holders to read the
Registration Statements on Form S-4, including the proxy statement/prospectus
contained within the Registration Statements, regarding the CBOT restructuring
referred to herein or in connection herewith, when it becomes available, as well
as the other documents that the CBOT has filed or will file with the Securities
and Exchange Commission, because they contain or will contain important
information. CBOT members and membership interest holders may obtain a free
copy of the proxy statement/prospectus, when it becomes available, and other
documents filed by the CBOT at the Commission's web site at www.sec.gov, or from
the CBOT by directing such request in writing or by telephone to: Board of Trade
of the City of Chicago, 141 W. Jackson Blvd., Chicago, Illinois 60604-2994,
Attention: Office of the Secretary, Telephone: (312) 435-3605, Facsimile: (312)
347-3827. This communication shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of securities in
any state in which offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such state. No
offering of securities shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as amended.
* * * *
