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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
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The following presentation was given to CBOT members and membership interest
holders on November 2, 2000.
Chicago Board of Trade
[LOGO]
CBOE Exerciser Rights
Kirkland & Ellis
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CBOE Exerciser Rights
CBOE's SEC Filing
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Source of Exerciser Rights
- CBOE Certificate of Incorporation
- Article Fifth(b) provides.
- "every present and future member" of the Board of Trade
- "shall be entitled to be a member of" CBOE
- "without acquiring such membership for consideration or value"
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CBOE MUST TREAT EXERCISER MEMBERS
LIKE ALL OTHER MEMBERS
- Article Fifth(b) guarantees that all Exerciser Members will
- Be "subject to fees, dues, assessments and other like charges" of CBOE
membership
- Be "vested with all rights and privileges and subject to all obligations
of [CBOE] membership as provided in [CBOE's] by-laws."
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CBOE Cannot Amend Article Fifth(b)
Without 80% Class Vote of Exerciser
Members
- Article Fifth(b) specifically provides that it cannot be amended without the
"prior approval of not less than 80% of (i) the members of the Corporation
admitted pursuant to this paragraph (b) and (ii) the members of the
Corporation admitted other than pursuant to this paragraph (b), each such
category of members voting as a separate class. . ."
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CBOE's Prior Positions
- Changing the Board of Trade's state of incorporation from Illinois to Delaware
extinguished the Exercise Right.
- CBOE now says "it will not take any action to limit the exercise right if
CBOT implements no more than this step of restructuring."
- Changing the Board of Trade from a membership to a stock corporation would
extinguish the Exercise Right.
- CBOE now says "Notwithstanding that the change from a membership to a
stock corporation would provide a sound basis for considering the exercise
right to be extinguished, CBOE does not interpret the exercise right as
having been extinguished if CBOT only takes this single reorganizational
step."
- NOTE: BY ITS TERMS, EACH OF THESE CBOE CONCESSIONS IS LIMITED TO A SINGLE
SPECIFIC STEP IN ISOLATION. NEITHER CONCESSION STATES THAT IMPLEMENTING BOTH
STEPS WOULD NOT AFFECT THE EXERCISE RIGHT.
- CBOE'S SEC FILING INDICATES, HOWEVER, THAT IF THE BOARD OF TRADE TAKES ONLY
BOTH THESE ACTIONS -- MOVING TO DELEWARE AND GOING FOR PROFIT -- CBOE WILL NOT
DISTURB THE EXERCISE RIGHT.
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CBOE FILED WITH THE SEC A RULE CHANGE
PROPOSAL ON AUGUST 30, 2000 AND REFILED AND
AMENDED IT ON OCTOBER 10, 2000
- CBOE's SEC filing would amend the Exerciser Right by imposing three new
conditions on the Exerciser Right.
- Each condition would limit the Board of Trade's restructuring or normal
business operations or both.
- For example, CBOE asserts "The proposed restructuring of CBOT and the
proposed modification of the way in which agricultural products are
traded will extinguish the exercise right, whether implemented together
or separately."
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CBOE's FIRST NEW CONDITION
- After the Board of Trade restructures, its stockholder-members must retain all
stock in for-profit CBOT to retain Exercise Right.
- If a CBOT stockholder-member sells a portion or all of his stock, the member
loses the Exercise Right.
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CBOE'S SECOND NEW CONDITION
- The Exercise Right terminates "immediately for all CBOT Full Members" if "CBOT
changes its trading rules and procedures so as to extend the right to trade
all CBOT products to non-members."
- According to CBOE,
- Open electronic access would violate this condition since "CBOT members no
longe would enjoy exclusive access to trade CBOT products."
- "[N]on-members would have equivalent access to trade CBOT products that
previously could be traded by and through members."
- Side-by-side electronic trading of agricultural products at CBOT would
violate this condition.
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CBOE'S THIRD NEW CONDITION
- The Exercise Right terminates "immediately" if CBOT members are able "to trade
directly on CBOT at the same time as they are trading on" CBOE as Exercisers.
- "CBOT members must choose at any given time to use their CBOT membership to
trade either on CBOT or (by exercise) on CBOE but not on both exchanges at the
same time."
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WHY DOES CBOE SAY IT NEEDS TO IMPOSE
THESE NEW CONDITIONS NOW?
- Unless these conditions are imposed, according to CBOE's SEC filing, all 1402
CBOT Full Members "probably" would exercise to become CBOE members.
- That would inflict "serious harm" on CBOE since
-- it "would undermine CBOE's ability to maintain a fair and orderly
market."
-- it would "dilute the value of CBOE memberships substantially in a
way that has never been contemplated or allowed since the time the
exercise right was first established."
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CBOE'S ATTEMPT TO EXTINGUISH THE
EXERCISER RIGHT IS CONTRARY TO LAW
- Fails to comply with CBOE's own rules and the 80% class vote requirement.
- Breaches CBOE's fiduciary duties to its Exerciser Members.
- Violates the 1992 Agreement.
- Deviates from CBOE's past practice and conduct under the Agreement.
- Imposes an unwarranted burden on competition, contravenes the public interest
and permits unfair discrimination against members in disregard of federal
securities law.
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1992 CBOE-Board of Trade Agreement
- To resolve interpretive disputes relating to the term "member" in Article
Fifth(b)
- Did it include delegates?
- Did it include members who had leased their evening trading privileges?
- Did it include members who had exercised and wanted to lease their CBOE
memberships?
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1992 CBOE-Board of Trade Agreement
- CBOE exercise rights maintained for:
- "Eligible CBOT Full Members"
- "Eligible CBOT Full Member Delegates"
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"Eligible CBOT Full Member"
- "an individual who at the time is the holder of one of the 1402 existing CBOT
Full Memberships."
- and "who is in possession of all trading rights and privileges appurtenant to
such CBOT Full Membership" [@1(a)]
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"Trading Rights and Privileges"
- the right to trade as principal and broker
- in all contracts traded on the CBOT whether by open outcry or electronically
- during any segment of the trading day
- and every other trading right assigned to Full Members as a class [@1(c)]
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Nothing Will Change with Restructuring
- 1402 Full Members will retain their full trading rights and privileges and
their CBOE exerciser rights
- no increase or decrease in the number of eligible exercisers; i.e., no
dilution of CBOE membership values
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1992 Ballot Materials Are Explicit
- 1992 Board of Trade ballot materials, in the Q&A's, state:
- "Q - Regarding GLOBEXr, must the GLOBEXr screen trading right be in the
possession of the CBOT Full Member in order for him to exercise on the CBOE?
A - Yes."
- CBOE approved these materials in 1992
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1992 Ballot Materials Are Explicit
- 1992 Board of Trade ballot materials, in the Q and A's, state:
- "Q - Will Ceres Trading LP interests also be subject to the Exercise
Agreement?
A - No, the Ceres Trading LP interests are not trading rights or
privileges and therefore are not subject to the Agreement. "
- CBOE approved these materials in 1992
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1992 Agreement Provides for Damages if
CBOE Breaches
- "The parties mutually agree that either party to this Agreement may bring suit
(on its own behalf or on behalf of its members, or both) to enforce the terms
of this Agreement and to recover damages for any breach of this Agreement."
- Section 6(c)
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Chicago Board of Trade
[LOGO]
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.
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The following memorandum was distributed to CBOT members and membership
interest holders on November 2, 2000 and is currently available on the CBOT's
intranet site, MemberNet.
November 2, 2000
The informational meeting for all members on Thursday, November 2, at 2:00 p.m.,
will be held in the soybean pit on the agricultural floor, instead of in the 5th
Floor Theater of the CBOT.
John Stassen and Garrett Johnson of Kirkland & Ellis will give a brief
presentation on and answer questions concerning the dispute over the CBOE
Exercise Right. This meeting will include a discussion of the "interpretation"
which the CBOE recently filed with the SEC for approval.
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 CBOTr 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.
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