<PAGE>
Filed by Board of Trade of the City of Chicago, Inc. (CBOT)
Subject Company -- Board of Trade of the City of Chicago, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
File No. 132-01854
* * * *
The following complaint was filed on October 17, 2000 and is currently available
on CBOT members and membership interest holders in the Office of the General
Counsel.
Atty No. 90443
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT, CHANCERY DIVISION
___________________________________________
)
Board of Trade of the City of Chicago, Inc.)
)
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 its becoming a for-profit stock corporation pursuant to "step two" 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, by letter dated June 20, 2000, and in a recent filing with the
Securities and Exchange Commissions, the CBOE declared its intent to breach the
1992 contract if the CBOT implements its planned restructuring initiatives.
Plaintiff, the CBOT, complains against defendant, the CBOE, as
follows:
INTRODUCTION
------------
<PAGE>
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 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 in the midst 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 has been carefully planned
to comport with the terms of the 1992 Agreement and thus preserve the Exercise
Right.
2
<PAGE>
5. The CBOT's current restructuring effort involves two overall
"steps." Step one, approved by the Chicago Board of Trade's members on June 28,
2000, resulted in the CBOT becoming a Delaware non-stock, not-for-profit
corporation - the same corporate structure as the Chicago Board Options
Exchange. As part of step one, the CBOT also created a wholly owned subsidiary
(eCBOT), which is intended to run the CBOT's electronic trading business.
6. Prior to the implementation of step one, the CBOE declared that
it would breach the 1992 contract if the CBOT changed its state of incorporation
to Delaware. The CBOT filed a Complaint seeking a declaratory judgment and
injunctive relief in this Court on June 30, 2000. At the August 3, 2000 hearing
on the CBOE's motion to dismiss the CBOT's Complaint, the CBOE reversed course
and agreed that it would take no action to extinguish the Exercise Right solely
as a result of step one. This Court proceeded to dismiss the Complaint on the
ground that, given CBOE's judicial admission, there was no justiciable
controversy.
7. The CBOE did not, however, agree that the CBOT's merger with and
into a Delaware not-for-profit corporation did not violate the 1992 Agreement.
It simply agreed that it would take no action to extinguish the Exercise Right
based on implementation of step one alone. Thus, the CBOE continues to maintain
that step one "result[ed] in the disappearance of the Illinois corporation that
is now the Board of Trade . . . [and] when the Illinois Board of Trade
disappears, the exercise right disappears with it." (June 20, 2000 information
circular, Ex. A) According to the CBOE, once the CBOT takes any other step
towards restructuring, the move to Delaware pursuant to step one constitutes a
basis upon which to extinguish the Exercise Right.
3
<PAGE>
8. Step two of the CBOT's restructuring will result in another
change in the CBOT's corporate structure. The CBOT, now a Delaware not-for-
profit corporation, will become a Delaware for-profit stock corporation. The
current CBOT membership will become member stockholders in the for-profit
corporation.
9. In its June 20, 2000 information circular issued to its
membership and sent to the CBOT, the CBOE declared that step two also violates
the 1992 Agreement. First, the CBOE claims that "[a]s a stock corporation, the
CBOT would no longer have members but instead would have stockholders, and thus
would not satisfy the requirements of clauses (ii) and (iii) of Section 3(d)."
(Ex. A at 3) Second, the CBOE claims that creation of an electronic trading
subsidiary violates the Agreement because it "would be extremely dilutive of
CBOE trading rights, since CBOT members would for the first time be able to
trade all products now traded on CBOT (via access to the new electronic
exchange) even if they have exercised their rights to become members of CBOE."
(Ex. A at 2)
10. Even more recently, in an Amended Proposed Rule Change filed with
the Securities and Exchange Commission, the CBOE contends that "once the right
to trade all CBOT products is made available to persons who are not CBOT members
(or stockholders), then CBOE interprets the exercise right as being
extinguished, because CBOT will no longer have members and because CBOT
stockholders no longer will possess all of the trading rights and privileges
appurtenant to membership." (Ex. D at 11)
11. At every turn, the CBOE has sought to prevent the CBOT's
restructuring, arguing that the Chicago Board of Trade will violate the 1992
Agreement and extinguish the
4
<PAGE>
Exercise Right if it acts to (i) change its state of incorporation by merging
with and into a Delaware not-for-profit corporation; (ii) become a for-profit
corporation; or (iii) create an electronic trading subsidiary. The CBOT has
completed actions (i) and (iii) and is in the process of completing action (ii).
Judicial resolution of this contract is ripe now.
PARTIES
-------
12. Plaintiff, the CBOT, is a futures exchange with its principal
place of business at 141 West Jackson Boulevard, Chicago, Illinois. The CBOT is
a Delaware non-stock, not-for-profit corporation.
13. 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 non-stock, not-for-profit corporation.
JURISDICTION AND VENUE
----------------------
14. 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.
15. 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.
BACKGROUND
THE CBOT TODAY
--------------
16. The CBOT was organized in 1848 as a voluntary, unincorporated
association. In 1859, the Illinois General Assembly granted the association a
special charter that
5
<PAGE>
incorporated the CBOT. On August 8, 2000, the CBOT became a Delaware non-stock
not-for-profit corporation, owned and operated by its members.
17. 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.
18. 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.
19. 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 holds a ten percent
interest. 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.
20. 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 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 registered for the benefit of a
member firm.
6
<PAGE>
21. 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.
22. 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"
-------------------------
23. 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 B)
24. 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 Certificate of Incorporation provides that every present
and future member of the CBOT would
7
<PAGE>
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.
25. 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
------------------
26. On September 1, 1992, the exchanges entered into an agreement to
resolve those ongoing disputes. (Exhibit C)
27. 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."
28. 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.
8
<PAGE>
29. 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 each of 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.
30. 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 or her 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 or their delegates have exercised their right to
trade at the Chicago Board Options Exchange.
31. 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
---
9
<PAGE>
C (P) 3(d)). Notably, the Agreement does not restrict the Chicago Board of Trade
---
from (i) changing its state of incorporation pursuant to step one; (ii) becoming
a for-profit corporation; or (iii) forming a wholly-owned electronic trading
subsidiary intended to take over Ceres' electronic trading operations.
THE CBOT'S RESTRUCTURING PLAN
-----------------------------
32. 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.
33. 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 the New York Mercantile Exchange has already approved a
demutualization plan.
34. The Chicago Board of Trade's current mutual, not-for-profit
structure is oriented towards supporting member opportunities, and has
occasionally made it difficult for the
10
<PAGE>
exchange to efficiently make necessary business decisions focused on technology
investments and operational economy.
35. In addition, the Board of Trade faces pressure from a variety of
potential electronic trading competitors. Cantor/eSpeed has already introduced
an electronic trading platform for CBOT products such as U.S. Treasury futures,
and numerous electronic communication networks already exist for trading
financial products worldwide.
36. 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.
37. Step one of the restructuring, now complete, resulted in the CBOT
becoming a Delaware not-for-profit corporation (as opposed to its former status
as a specially chartered Illinois not-for-profit corporation). As part of step
one, the CBOT also formed eCBOT, a wholly-owned subsidiary incorporated in
Delaware intended to operate the CBOT's electronic trading business, most of
which is currently operated not by the CBOT but by Ceres, of which the CBOT is
---
the sole general partner. The rights and privileges of Chicago Board of Trade
members, including their trading rights and privileges, were not affected by the
move to Delaware or the formation of the wholly-owned subsidiary. Today, Full
Members are able to trade all CBOT products via open outcry (in the trading
pits) or electronically through the a/c/e System (the electronic trading system
of the Alliance/Chicago Board of Trade/Eurex).
11
<PAGE>
38. 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. The current CBOT membership will become member
stockholders in the for-profit corporation. The 1,402 Full Members will be
issued a special class of shares that will continue to allow the holder to trade
as principal and broker for others in all Chicago Board of Trade contracts.
---
Only Full Members will have full trading rights and privileges in all CBOT
contracts.
39. Moving to a streamlined, for-profit corporate structure pursuant
to step two 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.
THE CBOT'S RESTRUCTURING PLAN
COMPORTS WITH THE AGREEMENT
---------------------------
40. Understanding that the Exercise Right embedded in Full
Memberships is a significant source of value to its Full Members, the proposed
changes to the Chicago Board of Trade's corporate structure have been designed
to expressly comport with the terms of the 1992 Agreement. In fact, preserving
the Exercise Right has been one of the requirements of the restructuring plan.
41. 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
12
<PAGE>
the conditions require that the Chicago Board of Trade either remain a specially
chartered Illinois corporation or maintain its not-for-profit status. And all
three conditions were satisfied by the CBOT's merger with and into a Delaware
not-for-profit corporation pursuant to step one, and are satisfied by the CBOT's
move to a for-profit structure pursuant to step two.
42. 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 Delaware CBOT is an exchange that provides a
market in commodity futures or options, securities and other financial
instruments, and will continue to be after it becomes a for-profit corporation.
43. 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
retained the rights and privileges of membership in the surviving Delaware CBOT,
and will retain all the rights and privileges of membership as member
stockholders in the for-profit corporation.
44. 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
have full trading rights and privileges in all contracts traded on the surviving
Delaware CBOT, and will continue to possess full trading rights and privileges
in the for-profit corporation.
45. Nor does the 1992 Agreement in any way prohibit the creation of a
wholly-owned subsidiary intended to run the electronic trading business.
13
<PAGE>
THE CBOE'S INTENTION TO EXTINGUISH
THE EXERCISE RIGHT IN BREACH OF THE 1992 AGREEMENT
--------------------------------------------------
46. 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.
47. 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 takes any more steps to implement its
restructuring.
48. On June 20, 2000, just days before the CBOT membership vote on
step one of the restructuring, the CBOE issued an Information Circular
announcing that the Chicago Board of Trade's restructuring plan would extinguish
the Exercise Right. Among other reasons, the CBOE declared that when the CBOT
changed its state of incorporation the Illinois CBOT would "disappear" and the
"exercise right disappears with it." (Ex. A at 1) Although the CBOE agreed
before this Court to take no action based on this step alone, it continues to
-----
maintain that if the CBOT takes any other steps toward restructuring, this
change in the CBOT's state of incorporation will allow it to breach the 1992
Agreement and unilaterally extinguish the Exercise Right.
49. The CBOE also declared that CBOT's becoming a for-profit stock
corporation would invalidate the 1992 Agreement: "[a]s a stock corporation, CBOT
would no longer have members, but instead would have stockholders, and thus
would not satisfy the requirements of clauses (ii) and (iii) of Section 3(d)."
(Exhibit A, at 3) To the contrary, CBOT's
14
<PAGE>
1,402 Full Members will continue to be member stockholders in the new
corporation, by virtue of the fact that they will each receive a share of Class
B-1 stock which carries with it all of the trading rights and privileges on the
surviving exchange. Only the current 1,402 Full Members will receive Class B-1
stock, and thus, like today, only those 1,402 Full Members will have full
trading rights and privileges in all contracts traded at the CBOT.
50. Finally, the CBOE made clear that in its view any action by the
CBOT that results in a "dilution" of CBOE membership rights is "entirely
inconsistent with the intent of Article FIFTH, as was made clear in the 1992
Agreement between CBOT and CBOE" and will therefore invalidate that Agreement.
(Ex. A at 2) The CBOE maintains that the CBOT's creation of an electronic
trading subsidiary "for the first time" allows CBOT Full Members to trade at the
CBOE via the Exercise Right while continuing to trade CBOT products. CBOE
believes this dilutes the value of CBOE membership in violation of the 1992
Agreement.
51. The CBOE recently filed an Amended Proposed Rule Change with the
Securities and Exchange Commission, in an attempt to have this straightforward
contractual dispute resolved by the SEC, instead of following the 1992
Agreement's provisions contemplating a judicial resolution. In it, the CBOE
takes issue with the CBOT's electronic trading subsidiary arguing that
"[t]hrough this reformulated electronic trading platform, nonmembers would have
equivalent access to trade CBOT products that previously could be traded only by
and through members. The reformulated electronic trading facility apparently
also would afford CBOT members (or their delegates) the ability to trade CBOT
products at the same time as they are trading on CBOE pursuant to the exercise
right." (Ex. D at 6-7)
15
<PAGE>
52. In its amended SEC filing, the CBOE also states that "whether
occurring when or after CBOT becomes a stock corporation, once the right to
trade all CBOT products is made available to persons who are not CBOT members
(or stockholders), then CBOE interprets the exercise right as being
extinguished, because CBOT will no longer have members and because CBOT
stockholders no longer will possess all of the trading rights and privileges
appurtenant to membership. Moreover, even if CBOT does not restructure as a
stock corporation, the exercise right will be extinguished once CBOT members
lose this privilege of exclusive access to trade CBOT products." (Ex. D at 11)
53. To the contrary, nothing in the 1992 Agreement prohibits a CBOT
Full Member from exercising the right to trade at the CBOE and, at the same
time, trading CBOT's products electronically. In fact, CBOT Full Members have
been able to do just that for many years, by trading CBOT products first on
GLOBEX Systems, then on the Project A System and, since August 28, 2000, on the
a/c/e(TM) System.
COUNT I
CBOE's Breach of Section 4(d) of the 1992 Agreement
---------------------------------------------------
54. Plaintiff repeats and realleges the allegations contained in
paragraphs 1 through 53.
55. 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.
16
<PAGE>
56. The CBOE has stated that it reads Article Fifth (b) to mean that
the CBOT cannot (i) change its state of incorporation; (ii) become a for-profit
corporation; or (iii) form an electronic subsidiary to operate its electronic
trading business. The CBOE has therefore declared that, under its
interpretation of Article Fifth (b), the Exercise Right will be extinguished as
soon as the Chicago Board of Trade implements step two of its restructuring.
57. 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 reorganized or
merged with another entity, as contemplated by the CBOT's restructuring.
Nowhere does that Agreement suggest that the Chicago Board of Trade cannot
modernize its corporate structure without endangering the Exercise Right.
Section 3(d) of the 1992 Agreement does not require the CBOT to maintain its
status as an Illinois corporation, or as a not-for-profit corporation. Nor does
the Agreement prohibit a CBOT Full Member from exercising the right to trade at
the CBOE and, at the same time, trading CBOT's products electronically. In
fact, no provision in the 1992 Agreement imposes the conditions CBOE would read
into the Agreement to govern the Exercise Right.
COUNT II
For A Declaration that Becoming a Delaware For-Profit
Corporation and Creating a Wholly Owned Electronic Trading Subsidiary
Do Not Violate the 1992 Agreement and for An Injunction
Prohibiting the CBOE from Extinguishing the Exercise Right
----------------------------------------------------------
58. Plaintiff repeats and realleges the allegations contained in
paragraphs 1 through 57.
17
<PAGE>
59. 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.
60. As explained above, step two of the CBOT's Restructuring Plan
will result in the CBOT becoming a Delaware for-profit stock corporation.
Neither this change in legal status, nor the CBOT's move to Delaware pursuant to
step one, do anything to invalidate the 1992 Agreement or the right granted by
Article Fifth (b).
61. 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.
62. Nonetheless, the CBOE has declared that when the CBOT takes
another step in its restructuring by becoming a for-profit stock corporation,
the Exercise Right will disappear.
18
<PAGE>
63. 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.
64. 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 two 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 for-profit stock corporation. This Court's determination of
this contractual issue will terminate the dispute between the parties and avoid
future litigation as to step two of the restructuring.
65. 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. Steps one and two of the CBOT's proposed Restructuring Plan
comport with the Agreement; and
2. the 1,402 Full Memberships of the CBOT will retain their
Exercise Right after step two is implemented and the CBOT
becomes a Delaware for-profit stock corporation; and
19
<PAGE>
b. Issuing an injunction that prohibits the CBOT from extinguishing
the Exercise Right as a result of the CBOT's implementation of
step two of the restructuring; and
c. Ordering such further relief as this Court may deem necessary or
appropriate.
20
<PAGE>
Dated: October 17, 2000 Respectfully submitted,
_______________________________
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, Inc.
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
21
<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.
* * * *
22
<PAGE>
The following letter was distributed to CBOT members and membership interest
holders on October 18, 2000 and is currently available on the CBOT's intranet
site, MemberNet.
October 17, 2000
Dear Fellow Member,
I would like to update you on the events surrounding the CBOE Exercise Right
that occurred today.
On August 3, Judge Stephen Schiller extracted from the CBOE a judicial admission
that it would take no action to extinguish the Exercise Right, now or in the
future, based solely on Step One of the CBOT's restructuring. Based on that
binding admission, the Court dismissed the Step One lawsuit against the CBOE as
no longer involving a justiciable controversy.
Because the CBOE had declared that it would nonetheless breach the 1992
Agreement if the CBOT moved forward with Step Two of its restructuring, the CBOT
moved for leave to amend the complaint already before Judge Schiller to include
the pending dispute regarding Step Two. Today, Judge Schiller ruled that he did
not have jurisdiction to grant the CBOT's motion to amend - - meaning simply
that the CBOT must file a new Step Two complaint in Illinois state court, which
it did today. The new complaint (virtually identical to the amended complaint
before Judge Schiller) seeks a declaration that implementation of Step Two does
not extinguish the Exercise Right, and asks the Court to Prevent the CBOE from
taking any action to the contrary. A copy of the Complaint will be made
available in the legal department.
As I've stated before, I am disappointed we were not able to resolve this issue
in talks with the CBOE. I remain hopeful that a resolution can still be reached
if talks are re-opened. We remain confident that, just as the parties agreed in
1992, an Illinois Court will resolve this dispute and preserve the exercise
right if we cannot reach agreement with the CBOE on this issue.
Sincerely,
/s/David P. Brennan
David P. Brennan
<PAGE>
The CBOT urges its members and membership interest holders to read the
Registration Statement on Form S-4, including the proxy statement/prospectus
contained within the Registration Statement, 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, Inc., 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>
The following letter was distributed to CBOT members and membership interest
holders on October 18, 2000 and is currently available on the CBOT's intranet
site, MemberNet.
October 18, 2000
Dear Fellow Member:
The Board of Directors yesterday discussed a petition submitted by several
members regarding a proposed member fee preference that would apply to the
trading of all CBOT products. The Restructuring Report that was issued in
connection with the June 28, 2000 ballot proposed a three-year member fee
preference. Since then, the Executive Committee has listened carefully to the
views expressed by many members on this subject, and met yesterday with several
representatives of the petitioners in order to better understand their precise
intent given certain ambiguities in the language of the petition.
The Executive Committee concluded that the petition failed to make clear: 1)
whether member firms as well as members trading in their individual capacity
would be entitled to the preference; and 2) whether delegates would be entitled
to the preference.
As a result, and in light of those ambiguities, the Board of Directors yesterday
rejected the petition as written. Instead, the Board adopted at yesterday's
meeting a regulation which fundamentally captures the intent of the petition:
Regulation 450.05 - Members and member firms will be granted lower fees
than non-members.
The Board of Directors will shortly provide to the membership further guidance
as to the acceptable attributes of a member firm or proprietary trade and has
affirmed that delegates will remain subject to higher trading fees than members
but lower fees than non-members.
In connection with the Board of Director's adoption of the foregoing regulation,
the Board has undertaken to include a corresponding provision in the Articles of
Incorporation that will be appended to the demutualization proposal that will be
submitted for member approval once the SEC declares our registration statement
effective. Under Delaware law, the Articles of Incorporation can only be
modified with both Board and member approval.
I will keep you informed of further developments as they occur.
Sincerely,
/s/David P. Brennan
David P. Brennan
<PAGE>
The CBOT urges its members and membership interest holders to read the
Registration Statement on Form S-4, including the proxy statement/prospectus
contained within the Registration Statement, 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, Inc., 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>
The following publication was distributed to CBOT members and membership
interest holders on October 18, 2000.
The Board of Directors of the Chicago Board of Trade at its regular meeting on
Tuesday, October 17, 2000 took the actions summarized below.
- - -
Received and accepted the Chief Financial Officer's reports on the financial
statements of the Exchange and of Ceres Trading Limited Partnership for the nine
months ended September 30, 2000.
- - -
Based on recommendations of the Finance and Executive Committees, unanimously
approved, for membership ballot vote, a proposed new Rule 450.00 provision which
would establish a surcharge of $0.10 per contract/per side for member and non-
member "Exchange for Physicals" (EFP) transactions.
This proposal supersedes one which was approved at the June 13, 2000 Board
meeting to establish EFP surcharges (per contract/per side) of $0.30 for member
transactions and $0.75 for non-member transactions.
Subject to membership ballot approval, the $0.10 EFP surcharge would become
effective January 1, 2001.
Ballot details will be forthcoming.
- - -
Based on a recommendation from the Finance Committee, and by a vote of 18 "Aye"
and 3 "Nay", approved revisions to the current Exchange program of providing
discounts to member firms for Exchange quotation services. Previously, the
discount per terminal/per month was established at $18 for clearing member
firms, $15 for non-clearing member firms, and parents and subsidiaries of member
firms. The revised program provides for a discount of $10 per terminal/per month
for clearing and non-clearing member firms only. The revision will be scheduled
for implementation during the first quarter of 2001, in accordance with the
program's provisions.
Details will be forthcoming.
- - -
- MORE -
10/17/00
<PAGE>
-2-
Considered a member petition (bearing 39 validated Full Member signatures) which
requested that a vote of the membership be taken on a proposition to add the
following paragraph to the current CBOT Bylaws, Article II - Members and Other
Interest Holders, Section 1. Terms and Conditions:
"The trading rights and privileges of members shall include member fee
preferences similar in preference to those that have historically existed at
old CBOT (the lowest charged and lower than any nonmember), such preferences
to exist for members and their lessees in their individual capacities. Such
preferences shall be included by the Corporation as a condition for
permitting trade in Corporation products by other entities."
The Board took the following actions with respect to this petition proposal:
- Adopted the following new regulation:
"450.05 - Members and member firms will be granted lower fees than
non-members."
In this regard, the Board will shortly provide further guidance as to the
acceptable attributes of a member firm or proprietary trade and has affirmed
that delegates will remain subject to higher trading fees than members but lower
fees than non-members.
Furthermore, the Board will undertake to include a provision corresponding to
Regulation 450.05 in the Certificate of Incorporation of the proposed,
demutualized Board of Trade of the City of Chicago, Inc. ("CBOT, Inc."). This
Certificate of Incorporation will be appended to the demutualization proposal
that will be submitted for member approval once the SEC declares the
registration statement for CBOT, Inc. to be effective. (Under Delaware law, the
Certificate of Incorporation may be amended only by action of the corporation's
Board of Directors with the consent of the shareholders.)
The Board approved the foregoing actions by a vote of 11 "Aye" and 8 "Nay",
recorded as follows:
Director Cahnman Nay Director Manning Nay
Cashman Aye McMillin Aye
Cermak Nay Niciforo Nay
Corvino Aye Sorkin Aye
Hamada Nay Wallace Aye
Kurzydlo Aye Walter Nay
Lavender Aye Weems Aye
Lee Nay Zagotta Aye
Levin Nay
Second Vice Chairman Ryan Aye
First Vice Chairman Carey Aye
- MORE -
10/17/00
<PAGE>
-3-
- Based on the actions taken in the preceding vote, adopted a motion to
disapprove the referenced member petition. The vote on this motion was 19
"Aye" and 1 "Nay", recorded as follows:
Director Cahnman Aye Director Manning Aye
Cashman Aye McMillin Aye
Cermak Aye Niciforo Aye
Corvino Aye Sorkin Aye
Hamada Aye Wallace Aye
Kurzydlo Aye Walter Aye
Lavender Aye Weems Aye
Lee Nay Zagotta Aye
Levin Aye
Second Vice Chairman Ryan Aye
First Vice Chairman Carey Aye
The CBOT urges you to read the Registration Statement on Form S-4, including the
proxy statement/prospectus contained within the Registration Statement,
regarding the CBOT restructuring, when it becomes available, as well as the
other documents that the CBOT has filed or will file with the SEC, 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
website 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, Inc., 141 W. Jackson
Blvd., Chicago, Illinois 60604, 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 by 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.
- - -
Confirmed the holiday-related trading schedules for the a/c/e/ electronic
trading platform in connection with Thanksgiving and Christmas, 2000 and New
Year's Day, 2001. The complete CBOT holiday schedule (open outcry and electronic
trading) for the remainder of this year is available from the Secretary's
Office.
- - -
Based on a recommendation of the Financial Compliance Committee, revised the
Exchange policy concerning institutions which are acceptable to issue letters of
credit in connection with the issuance of commodity shipping certificates. Under
this revised policy, banks which are members of the Federal Farm Credit System,
and which have a net worth in excess of $1 billion, will be acceptable letter of
credit institutions.
- - -
Approved the following changes in committee appointments:
Futures Commission Merchant (FCM) Committee
Add: Joseph J. Murphy
Soybean Oil Pit Committee
Add: Paul W. Santi
10/17/00
* * * *
