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The first letter is below, and the response follows.

Chairman's Office By Federal Express; Facsimile & U.S. Mail Mr. Philip D. DeFeoAugust 26, 1999 Chief Executive Officer Pacific Exchange, Inc. 301 Pine Street San Francisco, CA 94104 Dear Mr. DeFeo: It has come to our attention that The Pacific Exchange, Inc. ("Pacific") intends to begin use of a new Automated Opening Rotation ("AOR") procedure, which it developed after learning the operating details of the Rapid Opening System ("ROS") implemented by the Chicago Board Options Exchange ("CBOE"). The CBOE disclosed the principles, functions and operating details of ROS to Pacific personnel only after Pacific executed a June 11, 1998 Confidentiality Agreement, as part of the efforts that the CBOE and Pacific made to explore a potential merger last year. The Confidentiality Agreement required that each party use the confidential information disclosed to it "solely for the purpose of evaluating whether some form of business combination is feasible and beneficial to it." Among the most sensitive confidential information that the CBOE disclosed to Pacific were the detailed descriptions and demonstrations of the CBOE's ROS. Pacific personnel responded to CBOE's ROS presentation by acknowledging that Pacific had developed nothing like ROS as of that time. We understand that Pacific used its internal personnel, including those who had become most familiar with ROS, to develop the AOR. It is apparent from the Pacific rule filings and from other sources that they did so by using the confidential information disclosed to Pacific in the course of the merger negotiations. CBOE disclosed the principles, functions and operating details of ROS to Pacific only because of Pacific's commitment o abide by the Confidentiality Agreement. Pacific's decision to convert CBOE's confidential and trade secret information for Pacific's own commercial purposes appears to represent a willful violation of CBOE's statutory and contractual rights. Pacific's threatened use and disclosure of that information presents CBOE with irreparable harm, for which there is no adequate remedy at law. We hereby request that Pacific notify us by close of business on Monday, August 30, 1999 that it has discontinued plans to implement its AOR. CBOE reserves all rights to take the steps necessary to protect its trade secret and confidential information, including pursuit of emergency injunctive relief. Sincerely, Charles J. Henry

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August 30, 1999 Mr. Charles J. Henry President and Chief Operating Officer CBOE 400 South LaSalle Street Chicago, Illinois 60605 Dear Mr. Henry: I have received your letter of August 26. Your allegations are without merit. The Pacific Exchange respects and honors its agreements. Our Confidentiality Agreement with the CBOE is no exception. The PCX has complied in all respects with that Agreement and continues to do so. Our automated opening system has been an identified project for a long time. It is, we believe, markedly different from the CBOE's system. You say, in your letter, that we developed our system using confidential information you disclosed in our merger talks. We invite the CBOE to explain what that information is and how the Pacific used it. Further, if your efforts disrupt the introduction of our system, the PCX will hold the CBOE fully responsible for the consequences. Sincerely, Philip DeFeo

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