Exhibit 10.262
EQUITIES ORDER HANDLING AGREEMENT
dated as of October 29, 2004
by and among
UBS Securities LLC,
Schwab Capital Markets L.P.,
Xxxxxxx Xxxxxx & Co., Inc.,
and
The Xxxxxxx Xxxxxx Corporation
__________
Asterisk (**) Indicates information omitted pursuant to a confidential treatment
request. A complete version of this exhibit has been filed separately with the
Securities and Exchange Commission.
Table of Contents
Page
ARTICLE I. DEFINITIONS.........................................................1
Section 1.1 Certain Definitions.................................1
Section 1.2 Additional Definitions..............................7
ARTICLE II. ORDER FLOW.........................................................9
Section 2.1. Direction and Routing of Orders.....................9
Section 2.2. Daily Settlement and Order Tracking................10
Section 2.3. Automated Settlement System and Help Desk..........11
Section 2.4. Execution Quality..................................11
Section 2.5. Customer Disclosure, Segregation and
Responsibility.....................................12
Section 2.6. Order Transmission Procedures and
Requirements.......................................13
ARTICLE III. PAYMENTS.........................................................13
Section 3.1. Order Handling Costs...............................13
Section 3.2. Reports............................................14
Section 3.3 Manner of Payments.................................14
Section 3.4 Interest on Late Payments..........................14
Section 3.5 Books of Account...................................14
ARTICLE IV. CONFIDENTIAL INFORMATION..........................................14
Section 4.1 Confidential Information...........................14
Section 4.2 Communications with Regulators.....................15
Section 4.3. Identification of Schwab Customers.................16
ARTICLE V. REPRESENTATIONS AND WARRANTIES; COVENANTS;
LIMITATION ON LIABILITY.........................................16
Section 5.1. Representations and Warranties.....................16
Section 5.2. Limitation on Liability............................17
Section 5.3. Disclaimer Of Warranties...........................18
Section 5.4. Covenants..........................................18
Section 5.5 Liquidated Damages.................................19
Section 5.6 Non-Assumption Event...............................23
Section 5.7 No Penalty; Maximum Damages........................23
Section 5.8 Unforeseen Circumstances...........................24
Section 5.9 CyberTrader(R) Integration.........................24
ARTICLE VI. INDEMNIFICATION...................................................25
Section 6.1. Company Indemnification............................25
Section 6.2. Schwab Indemnification.............................25
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Section 6.3. Procedures Relating to Third Party Claims..........25
Section 6.4. Survival...........................................26
Section 6.5. Limitation on Recovery.............................26
Section 6.6. Exclusive Remedy...................................26
ARTICLE VII. SECURITY........................................................ 26
Section 7.1. In General.........................................26
Section 7.2. Security Breaches..................................26
Section 7.3. Storage of Customer Information....................27
ARTICLE VIII. TERM AND TERMINATION............................................27
Section 8.1. Term...............................................27
Section 8.2. Termination........................................27
Section 8.3. Effects of Termination on Accrued Rights...........29
Section 8.4. Continuation of Routing Service....................29
Section 8.5. Survival...........................................29
ARTICLE IX. MISCELLANEOUS.....................................................29
Section 9.1. Use of Names/Marks.................................29
Section 9.2. Entire Agreement...................................30
Section 9.3. Descriptive Headings; Certain Interpretations......30
Section 9.4. Notices............................................30
Section 9.5. Counterparts; Fax Signatures.......................32
Section 9.6. Benefits of Agreement..............................32
Section 9.7. Amendments and Waivers.............................32
Section 9.8. Assignment.........................................32
Section 9.9 Governing Law......................................32
Section 9.10. Dispute Resolution.................................32
Section 9.11 Registration and Filing of this Agreement..........33
Section 9.12. Force Majeure......................................33
Section 9.13. Waiver.............................................34
Section 9.14. Relationship of the Parties........................34
Section 9.15. Bona Fide Customers................................34
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EQUITIES ORDER HANDLING AGREEMENT
This Equities Order Handling Agreement, dated as of October 29, 2004 (this
"Agreement"), by and among UBS Securities LLC, a Delaware Limited Liability
Company ("UBS"), Schwab Capital Markets L.P., a New Jersey limited partnership
("SCM," and together with UBS, the "Company"), Xxxxxxx Xxxxxx & Co., Inc., a
California corporation ("Schwab"), The Xxxxxxx Xxxxxx Corporation, a Delaware
corporation ("Parent") (each individually a "Party" and together the "Parties").
Whereas, UBS and Parent have entered into that certain Purchase Agreement,
dated as of August 31, 2004, as amended by the First Amendment thereto, dated as
of even date herewith (the "Purchase Agreement"), by and among Parent, CS
Capital Markets & Co., a Delaware corporation ("GP"), Schwab Associates & Co., a
Delaware corporation ("LP"), UBS and UBS Americas Inc., a Delaware corporation,
which provides for the sale of the Business (as defined in the Purchase
Agreement) to the Company; and
Whereas, Parent, GP, LP and the Company have agreed in the Purchase
Agreement, as an inducement for UBS' agreement to enter into the Purchase
Agreement, that Parent, Schwab and the Company would enter into this Agreement
which sets forth the terms upon which Schwab and its Affiliates will route
Orders to the Company and the Company will provide to Schwab routing and
execution services for such Orders.
Now, Therefore, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Purchase Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, the Parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
Section 1.1. Certain Definitions. In this Agreement, the following words
and phrases shall have the following meanings:
(a) "Adverse Reputational Event" shall mean, with respect to a Person,
(i) a conviction of such Person for a felony or a plea of guilty or nolo
contendere to a felony by such Person, which in either case is final and
non-appealable, or a disqualification or bar imposed on such Person by the
Securities and Exchange Commission or any SRO for misconduct that prohibits
such Person from acting generally as a Broker-Dealer, if such
disqualification or bar continues for more than 90 days or (ii) a plea or
consent to the entry of an order by the Securities and Exchange Commission,
a court of competent jurisdiction, an SRO or a state securities regulator
that includes a finding that such Person engaged in fraud (with scienter)
in the execution of customer orders as a market maker or order router.
(b) "Affiliate" of a Person shall mean any Person that directly, or
indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with, such Person.
(c) "After-Hours Order" shall mean an Order for execution after the
4 p.m. Eastern Time market close or prior to the 9:30 a.m. Eastern Time
market open.
(d) "Agency IOR" shall mean algorithmic logic that (i) is owned by, or
licensed to, Schwab, (ii) is operated by Schwab and (iii) relies on
real-time market data to route orders for execution on an agency basis to
the best available market at the time of routing.
(e) "Block Share Amount" shall mean, with respect to an Equity
Security, such number of shares of such Equity Security as may be mutually
reasonably agreed by Schwab and the Company based upon trading and
liquidity considerations for such Equity Security.
(f) "Broker-Dealer" shall mean a Person registered as a broker or
dealer under the Securities Exchange Act.
(g) "Change of Control" shall mean an event where:
(i) with respect to Parent,
(A) any other Person (including such other Person's Affiliates)
or "group" (as such term is defined under Section 13(d) of
the Securities Exchange Act) gains "control" (as such term
is defined of Regulation 1-02 of Regulation S-X of the
Securities Exchange Act) of or acquires a "controlling"
position with respect to Parent (such Person or "group", a
"Controlling Person"), whether pursuant to a merger,
consolidation, reorganization, sale of assets or stock or
similar transaction or series of related transactions,
(B) Parent consummates a merger, consolidation, reorganization
or similar transaction or series of related transactions,
whether direct or indirect, with another Person, including
such other Person's Affiliates (an "Acquiring Person"), in
which fifty percent (50%) or more of the voting power of the
outstanding voting securities of the combined company with
respect to the election of directors following such
transaction is held by Persons who were shareholders of the
Acquiring Person prior to such transaction, or
(C) the sale by Parent to any other Persons(s) (including such
Person's Affiliates) (a "Purchasing Person") in one or more
transactions properties or assets representing at least
fifty percent (50%) of (i) Parent's total assets as
reflected on its
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most recent annual audited financial statement or (ii)
Parent's operating income for its most recent fiscal year as
reflected on its most recent annual audited financials
statements; or
(ii) with respect to Schwab, any transaction that would require
the approval of the NASD under NASD Rule 1017 (without regard to
exceptions in such rule relating to the NYSE) (any other party to such
a transaction, a "1017 Person").
(h) "Confidential Information" shall mean all information disclosed in
connection with, or arising out of a Party's obligations under, this
Agreement including (i) technology and intellectual property, such as
systems, source code, databases (including their design), hardware,
software, programs, applications, engine protocols, routines, manuals,
displays, designs, descriptions, procedures, formulas, discoveries,
inventions, specifications, drawings, sketches, models, samples, codes,
improvements, concepts, ideas and past, present and future research and
development; (ii) any unpublished information concerning research
activities and plans, marketing or sales plans, pricing or pricing
strategies, operational techniques, strategic plans, and unpublished
financial information, including information concerning revenues, profits
and profit margins; (iii) this Agreement including its terms; and
(iv) Customer Information.
(i) "Covered Order" shall mean any Order other than an Excluded Order.
(j) "Customer Information" shall mean (i) all information disclosed by
or to the Company, on the one hand, to or by Schwab, on the other hand, in
connection with this Agreement, which is identifiable to Schwab Customers
or the Company's customer(s), including account numbers, or (ii) any
information collected by the Company or Schwab through the routing and
order handling services described herein, which identifies customer(s)
individually or in the aggregate, including any data regarding Covered
Orders, individually or in the aggregate.
(k) "Direct Execution Order" shall mean any of the following Covered
Orders: (i) a Directed Order, (ii) a Covered Order with special
instructions as a result of which the Company is not permitted to
participate on a principal basis (including an agency "not held" Order),
(iii) a VWAP Order or (iv) any other category of Covered Order that Schwab
and the Company mutually agree should be treated as a "Direct Execution
Order".
(l) (**)
(m) "Directed Order" shall mean a Covered Order where the Schwab
Customer or Registered Representative placing such Covered Order
specifically instructs (through electronic, telephonic or other means) that
such Covered Order be routed to a particular venue for execution (e.g., an
Exchange, Nasdaq or a Broker-Dealer) or be routed pursuant to Agency IOR.
(n) "Discretionary Paid Order" shall mean an Excluded Order that is
routed to the Company for execution, other than a SI Prime Brokerage Order.
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(o) "DNC Order" shall mean a Directed Order that is executed away from
the Company, to the extent such Order is not a Directed Order as a result
of a breach of Section 5.4(c) by Parent or the Company (in which case such
Order shall be a "Directed Order" but not a "DNC Order").
(p) "DTCC" shall mean the Depository Trust and Clearing Corporation, a
Delaware corporation, and its Subsidiaries, including National Securities
Clearing Corporation.
(q) (**)
(r) "Equity Security" shall mean any of the types of equity securities
for which SCM offers electronic order routing services as of the date of
the Purchase Agreement and any other type of security mutually agreed by
the Company or Schwab pursuant to Section 2.1(c).
(s) "Exchange" shall mean any national securities exchange registered
under Section 6 of the Securities Exchange Act.
(t) "Excluded Order" shall mean: (i) any SI Prime Brokerage Order; or
(ii) an Order placed by, for, or on behalf of (w) any "investment company"
that is registered under the Investment Company Act of 1940, as amended,
that is advised or managed by Schwab or any of its Affiliates, (x) accounts
of CyberTrader, Inc. ("CyberTrader(R)") (including an Order for execution
placed on the CyberTrader platform to the extent CyberTrader(R) is
consolidated into Schwab and operated as a separately identifiable business
unit or division of Schwab using the CyberTrader(R) platform) (y) an Order
for a Schwab Customer serviced by the SI Business using the CyberTrader(R)
platform or (z) US Trust Corporation and its Subsidiaries that in each of
(i) and (ii), is consistent with the types of Orders placed by such Persons
as of the date of the Purchase Agreement.
(u) "Execution Quality Service Levels" shall mean the service levels
set forth on Schedule A (which is attached hereto and incorporated herein
by reference), as may be amended by the Parties in accordance with Section
2.4(a)(ii).
(v) "Governmental Entity" shall mean any court, administrative agency
or commission or other governmental, prosecutorial or regulatory authority
or instrumentality or SRO.
(w) "Insolvency Event" shall mean any of the following: (i) a court or
Governmental Entity having jurisdiction shall have entered a decree or
order for relief in respect of a Party in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or shall have appointed a receiver, liquidator, trustee (or similar
official) for a Party or for any substantial part of its or their property
or ordered the winding up or liquidation of its affairs, or (ii) there
shall have been commenced against a Party an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or any case, proceeding or other action for the appointment of a
receiver, liquidator, trustee (or similar official) for a Party or for any
substantial part of its or their property or for the winding up or
liquidation of its or their affairs, and such involuntary case or
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other case, proceeding or other action shall remain undismissed or
undischarged for a period of sixty (60) consecutive calendar days of filing
or (iii) a Party shall have commenced a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consented to the entry of an order for relief in an involuntary case under
any such law, or consented to the appointment or taking possession by a
receiver, liquidator, trustee (or similar official) for a Party or for any
substantial part of its or their property or make any general assignment
for the benefit of creditors.
(x) "Legal Proceeding" shall mean any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Entity or
any arbitrator or arbitration panel.
(y) "Legal Requirements" shall mean any present or future national,
state, local or similar laws (whether under statute, rule, regulation or
otherwise); requirements of regulatory agencies (including any requirement
imposed by the Securities and Exchange Commission or any self-regulatory
organization of which a Party is a member); federal and state privacy,
confidentiality, consumer protection, advertising, electronic mail and data
security laws and regulations, whether in effect now or in the future; and
requirements under permits, orders, decrees or directives that are binding.
(z) "Locked or Crossed Orders" shall mean any Premium Execution Order
executed by the Company at a time when the national best bid for such
security is equal to or greater than the national best offer.
(aa) "Nasdaq" shall mean The Nasdaq Stock Market, Inc.
(bb) "Non-Nasdaq OTC Security" shall mean an Equity Security that is
(i) quoted and settled in U.S. dollars, (ii) not listed on an Exchange and
(iii) not quoted on Nasdaq.
(cc) "NYSE" shall mean the New York Stock Exchange, Inc.
(dd) "Operations and Technology Service Levels" shall mean the service
levels set forth on Schedule B (which is attached hereto and incorporated
herein by reference), as may be amended by the Parties in accordance with
Section 2.4(b)(ii).
(ee) "Order" shall mean an instruction to buy or sell (including to
sell short) Equity Securities listed on an Exchange, quoted on Nasdaq or
that are non-Nasdaq OTC Securities that is placed with Schwab or an
Affiliate of Schwab by, for or on behalf of a Schwab Customer.
(ff) "Paid Order" shall mean an Order that (i) is not a Directed Order
and is (w) executed in a single-price auction at the market open or the
market close (x) executed by the Company in stocks listed on an Exchange or
quoted on Nasdaq on behalf of CyberTrader(R),(y) an After-Hours Order or(z)
a Locked or Crossed Order, provided, however, that "Paid Orders" that are
Locked or Crossed Orders shall include only that number of shares of
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Locked or Crossed Orders in any calendar month that exceeds (1) the Locked
or Crossed Percentage multiplied by (2) the aggregate number of shares
represented by all Premium Execution Orders during such calendar month,
(ii) (**) or (iii) such other types of Orders as may be reasonably mutually
agreed by the Company and Schwab with regard to whether the Company incurs
fees in executing such Orders and whether there is an opportunity for the
Company to execute such Order as principal.
(gg) "Person" shall mean any individual, corporation, partnership,
limited liability company, association, joint venture, trust, Governmental
Entity or other entity or organization.
(hh) "Premium Execution Order" shall mean any Covered Order that is
not a Direct Execution Order.
(ii) "Registered Representative" shall mean a registered
representative of a Broker-Dealer.
(jj) "Schwab Customer" shall mean a customer or client of Schwab or an
Affiliate of Schwab, including any investment advisor with accounts
custodied at Schwab.
(kk) "Securities Exchange Act" shall mean the Securities Exchange Act
of 1934, including the rules and regulations thereunder, as amended from
time to time.
(ll) "Service Level Agreements" shall mean the Execution Quality
Service Levels and the Operations and Technology Service Levels.
(mm) "SI Business" shall mean the provision of execution, custody
and/or related services for accounts of independent investment advisers and
accounts that such advisors manage on behalf of their individual and
institutional clients, including Xxxxxx'x Services to Investment Manager's
business, to the extent conducted in a manner consistent with the manner in
which such business in conducted as of the date of the Purchase Agreement.
(nn) "SI Prime Brokerage Order" shall mean Orders from advisors
serviced by the SI Business (e.g., a step-out order), which are executed
through brokers other than Schwab on a prime brokerage basis, to the extent
conducted in a manner consistent with the manner in which such business in
conducted as of the date of the Purchase Agreement.
(oo) "SRO" shall mean any domestic securities, Broker-Dealer,
investment advisor or insurance industry self-regulatory organization.
(pp) "Subsidiary" shall mean any Person (a) of which another Person
(i) owns, directly or indirectly, fifty percent (50%) or more of the
outstanding voting securities or equity interests or (ii) is a general
partner or managing member or (b) securities or other ownership interests
of which having by their terms the power to elect a majority of the board
of directors of such Person or other persons performing similar functions
are owned or controlled, directly or indirectly, by another Person.
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(qq) (**)
(rr) "VWAP Order" shall mean an Order whose price is determined based
on the actual executed price with a target price equal to the volume
weighted average price for an Equity Security over a certain trading day.
Section 1.2. Additional Definitions. In addition, the following defined
terms have the meaning set forth in the indicated Section:
Term Location
Acquiring Person Section 1.1(g)(i)(B)
Acquisition Section 5.5(c)(i)
Acquisition Percentage Section 5.5(c)(vi)(A)
Acquisition Recapture Amount Section 5.5(c)(vi)(B)
(**) (**)
Agreement Preamble
Breaching Party Section 8.2(c)
Change of Service Level Notice Schedule X.XX.
Company Preamble
Company Execution Channel Section 5.4(c)(i)(B)
Company Indemnified Parties Section 6.2
Controlling Person Section 1.1(g)(i)(A)
CPR Section 9.10(b)
Cumulative Net Subject Volume Section 5.5(c)(vi)(C)
Cure Period Section 8.2(a)
CyberTrader(R) Section 1.1(t)
Daily Settlement Section 2.2(a)
(**) (**)
Disclosing Party Section 4.1(a)
Disposition Section 5.5(c)(i)
Disposition Liquidated Damages Payment Section 5.5(c)(iii)(C)
Dispute Committee Section 9.10(a)
Disputes Section 9.10(a)
(**) (**)
DSO Section 2.3(c)
End Date Section 8.4
Execution Quality Committee Section 2.4(a)(iii)
(**) (**)
(**) (**)
Force Majeure Section 9.12
GP Recitals
Indemnification Notice Section 6.3
Indemnified Parties Section 6.2
Indemnifying Party Section 6.3
Initial Liquidated Damages Section 5.5(a)
Initial Liquidated Damages Period Section 5.5(a)
Initial Term Section 8.1
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Term Location
Liquidated Damages Benchmark Section 5.5(a)
Locked or Crossed Percentage Schedule E-3
Losses Section 6.1
LP Recitals
Material Industry Shift Section 5.8(a)
Material Legal Shift Section 5.8(a)
Net Disposition Percentage Section 5.5(c)(vi)(D)
Non-Assumption Event Section 5.6
(**) (**)
Other Parties Section 9.12
Parent Preamble
Parties Preamble
Party Preamble
Payment Event Section 5.8(b)
Purchase Agreement Recitals
Purchasing Person Section 1.1(g)(i)(C)
Receiving Party Section 4.1(a)
Renewal Term Section 8.1
Schwab Preamble
Schwab Cure Period Section 8.2(b)
Schwab Indemnified Parties Section 6.1
SCM Preamble
SCM Order Detail Section 5.1(b)(i)
(**) (**)
Security Breach Section 7.2
Subject Volume Section 5.5(c)(i)
Subsequent Liquidated Damages Section 5.5(b)
Subsequent Liquidated Damages Period Section 5.5(b)
0000 Xxxxxx Xxxxxxx 1.1(g)(ii)
Term Section 8.1
Terminating Party Section 8.2(c)
Termination Date Schedule X.XX
(**) (**)
Third Party Claim Section 6.3
Trade Dispute Section 2.3(c)
UBS Preamble
Unamortized Liquidated Damages Amount Section 5.5(c)(vi)(E)
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ARTICLE II.
ORDER FLOW
Section 2.1. Direction and Routing of Orders. Parent and Schwab shall, and
shall cause their Affiliates to, route all Covered Orders to the Company for
order handling as follows:
(a) Premium Execution Orders.
(i) The Company shall provide order handling services for
each Premium Execution Order routed to the Company as follows:
(1) For a Premium Execution Order of an Equity Security
that is traded on an Exchange or on Nasdaq and for which the
Order size does not exceed the Block Share Amount for such
Equity Security, such Premium Execution Order shall be
executed by the Company pursuant to a proprietary
intelligent routing and trading technology that uses
available real-time market data to identify the best
available price in the national market and execute such
Order as principal or agent in each case in accordance with
Section 2.4(a) (Execution Quality Service Levels), it being
understood that the Company may execute such Order as
principal or agent; and
(2) For all other Premium Execution Orders (including
Orders for Equity Securities that are Non-Nasdaq OTC
Securities or for which the Order size equals or exceeds the
Block Share Amount for such Equity Security) the Company
shall have the right, but not the obligation, to route such
Order pursuant to a proprietary intelligent routing and
trading technology that uses available real-time market data
to identify the best available price in the national market
and execute such Order as principal or agent, in any case in
accordance with Section 2.4 (Execution Quality Service
Levels), it being understood that the Company shall, in its
sole discretion, determine whether to execute such Premium
Execution Orders either as principal or by routing the Order
to another market center as riskless principal or agent.
(ii) All Premium Execution Orders shall be executed by the
Company on a principal, riskless principal or agency basis
without commission or commission equivalent.
(b) Direct Execution Orders.
(i) The Company shall, in its sole discretion, determine to
execute Direct Execution Orders either as principal or by acting
as riskless principal or agent, including, where applicable,
determining the market center for execution of such Direct
Execution Orders, in any case in accordance with Section 2.4(a)
(Execution Quality Service Levels); provided, however, if any
such Direct Execution Order is a Directed Order, the Company
shall execute such Directed Order at the venue for execution
specified by such Directed Order.
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(ii) Subject to Section 3.1(c), all such Direct Execution
Orders shall be executed by the Company on a principal, riskless
principal or agency basis without commission or commission
equivalent.
(c) Orders and Securities Types. The Company shall provide order
handling services for those types of Covered Orders and types of
securities that are handled by SCM as of the date of the Purchase
Agreement and for such other types of orders and types of securities
as the Parties may mutually agree from time to time, it being
acknowledged that the Company shall not be required to provide order
handling services for any other types of Covered orders or types of
securities except as expressly set forth in this sentence.
(d) Back-Up Connectivity. Schwab may maintain back-up
connectivity for trading of Equity Securities to an Exchange, Nasdaq
or another Broker-Dealer for contingency purposes, in which case
Schwab shall be permitted to route to such Exchange, Nasdaq or other
Broker-Dealer the minimum number of Orders for Equity Securities
needed to maintain such connectivity (**). The composition of Equity
Securities for such back-up routing shall be a neutral sample
representative of the broad cross section of all Equity Securities.
(e) The Company covenants and agrees to provide to Schwab such
information as it requires to prepare and publish its disclosures
required by Rule 11Ac1-6 of the Securities Exchange Act with respect
to the routing of Covered Orders to the Company, it being understood
that the Company does not, as of the date of this Agreement, have full
system capability to execute securities trades in an agency capacity.
Further, the Company and Schwab shall cooperate to design their
respective Order routing and reporting processes such that the venues
where Covered Orders (or portions thereof) are ultimately executed can
be identified and reported on Xxxxxx'x required disclosures pursuant
to Rule 11Ac1-6 of the Securities Exchange Act consistent with Legal
Requirements.
(f) The Company shall maintain a good-till-cancelled Order book
for open Orders that remain in effect until executed or cancelled.
(g) This Section 2.1 shall not be deemed to require Schwab to
route any DNC Order to the Company.
(h) The Company may agree to provide routing services to Schwab
for, and Schwab may agree to route to the Company, any Discretionary
Paid Order or type of Discretionary Paid Order, upon mutually agreed
fees.
Section 2.2. Daily Settlement and Order Tracking.
(a) On an end of trading day basis, in connection with orders
executed by the Company as principal or riskless principal, the
Company agrees to submit to DTCC for clearance a QSR file locking in
trades on a net aggregated basis (the "Daily Settlement").
(b) In connection with Covered Orders routed by the Company to an
Exchange of which Schwab is not a member, the Company agrees to
execute and submit for clearance all such orders in its own name, and
subsequently submit to DTCC a file substituting Schwab for the Company
for clearance (i.e., "flipping the positions") on an end of day basis.
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(c) Each Party shall pay any fees charged to it by DTCC in
connection with the Daily Settlement or "flip."
Section 2.3. Automated Settlement System and Help Desk.
(a) Each of the Company and Schwab shall develop its own Order
and execution tracking system for automated reconciliation of Orders
and executions thereof and shall cooperate to ensure such systems are
interoperable for purposes of effecting Daily Settlement. Such system
shall allow each of the Company and Schwab to effect the Daily
Settlement through electronic reconciliation of Orders and executions
thereof.
(b) The Company shall maintain and staff a help desk to assist
Schwab with resolving any problems or concerns related to Orders or
Daily Settlement to the extent specified in the Operational and
Technical Service Levels.
(c) The Company and Schwab shall each designate in writing to the
other one or more officers who have responsibility to settle any
disputes relating to the Daily Settlement and the placement or
execution of Orders (each, a "DSO"). In the event of any dispute
relating to the placement or execution of an Order (a "Trade
Dispute"), the Company shall cause a Company DSO, and Schwab shall
cause a Schwab DSO, to use their respective good faith efforts to
resolve a Trade Dispute. A Company DSO and a Schwab DSO may agree to a
resolution of such Trade Dispute that will be binding on the Company
and Schwab. The Company or Schwab may, respectively, at any time or
from time to time, remove, replace or appoint an additional DSO to
represent it by written notice to the other, provided, however, that
any resolution of a Trade Dispute made by either a Company DSO or a
Schwab DSO prior to his or her removal or replacement shall be binding
on the Company or Schwab, respectively, regardless of such removal or
replacement.
Section 2.4. Execution Quality.
(a) Execution Quality Service Levels.
(i) The Company shall use reasonable diligence to identify
the best available market for Orders to fulfill the Execution
Quality Service Levels set forth in Schedule A as may be modified
pursuant to Section 2.4(a)(ii).
(ii) The Company and Schwab may mutually agree in writing on
changes to the Execution Quality Service Levels; provided,
however, that any such agreement shall, if applicable, include an
allocation of the direct or indirect costs of such revised
Execution Quality Service Levels between the Company and Schwab,
it being understood that where such changes are required for
competitive reasons, negotiations will be conducted with a view
to Schwab bearing the majority of such costs, and where such
changes are required due to changes in Legal Requirements
(including as a consequence of changes in industry practice),
negotiations will be conducted with a view to the Company bearing
the majority of such costs.
(iii) In addition to the execution quality and order routing
review processes maintained by each of Schwab and the Company,
the Company and Schwab shall establish an advisory committee (the
"Execution Quality Committee") to provide a forum
- 11 -
for discussion regarding routing and execution practices and
resolution of disputes with respect to Covered Orders and to
discuss such matters relating to this Agreement as they from time
to time agree. The Execution Quality Committee shall meet (in
person or telephonically) on a not less than quarterly basis at a
time and place mutually agreed to by the Company and Schwab.
Initially the Execution Quality Committee shall be comprised of
three (3) representatives of the Company and three (3)
representatives of Schwab, which representatives shall be
employees or officers of the such Parties or of such Parties'
Affiliates and may be replaced from time to time by each of the
respective Parties by giving notice to the other Party. In no
event will the Execution Quality Committee have the power to bind
any Party (including the power to amend or otherwise alter the
terms of this Agreement).
(iv) Schwab shall assess routing and execution in accordance
with the methodology set forth in Schedule A in conformance with
its duty of best execution.
(b) Operations and Technology Service Levels.
(i) The Company and Schwab shall each use their respective
commercially reasonable efforts to fulfill the Operations and
Technology Service Levels set forth in Schedule B.
(ii) Either Schwab or the Company may propose reasonable
changes to the Operations and Technology Service Levels, and the
other Party shall consider such proposals in good faith. Any
amendment to the Operations and Technology Service Levels must be
mutually agreed in writing by Schwab and the Company provided,
however, that neither the Company nor Schwab shall unreasonably
withhold agreement to any change reasonably proposed by the other
if such proposed change does not impose a greater than de minimis
direct or indirect cost (including opportunity cost) or
administrative or other burden on the other Party's or any of
such other Party's Affiliates.
Section 2.5. Customer Disclosure, Segregation and Responsibility.
(a) The Parties shall not publish or make any communication or
take any other action that would reasonably lead a Schwab Customer to
conclude that such Schwab Customer is a customer of the Company or any
of its Affiliates.
(b) As between Schwab and the Company, when Schwab or an
Affiliate routes an Order to the Company,
(i) the Order shall be originated by, and for the account
of, a Schwab Customer or other account holder of Schwab;
(ii) for purposes of all Legal Requirements (except as
otherwise expressly provided therein), the accounts for which
Orders are transmitted are "customers" of Schwab or an Affiliate
thereof and not of the Company; and
(iii) Schwab shall be solely responsible for all obligations
relating to the opening and maintenance of customer accounts,
including compliance with "know your customer" and anti-money
laundering requirements.
- 12 -
Section 2.6. Order Transmission Procedures and Requirements.
(a) Schwab shall transmit Orders to the Company using existing
data formats, transmission protocols and methods, except as otherwise
mutually agreed in writing by Schwab and the Company.
(b) Schwab shall be solely responsible for all acts and omissions
of persons transmitting Orders on its behalf and shall be bound by the
terms of all Orders transmitted to the Company.
(c) Schwab acknowledges that it is its responsibility to ensure
that any Order transmitted to the Company complies with all Legal
Requirements (including short sale rules under the Securities Exchange
Act and applicable self regulatory rules) and policies or
interpretations thereof. Schwab shall be responsible for properly
designating any short sale as "short" and for obtaining a "locate" or
affirmative determination of securities for delivery prior to
transmitting any Order.
(d) Except to the extent expressly provided for by the Transition
Services Agreement (as defined in the Purchase Agreement), Schwab
shall be solely responsible for the cost of hardware, software
communications equipment and communications lines, including any data
lines or internet access necessary to maintain connectivity to the
Company's systems for receipt of Orders. The Company shall be solely
responsible for the cost of hardware, software, communications
equipment and communications lines, including any data lines or
internet access necessary to operate the Order routing and executions
system for Orders received by the Company and to maintain connectivity
to Exchanges and other market centers.
ARTICLE III.
PAYMENTS
Section 3.1. Order Handling Costs.
(a) Premium Execution Orders. Other than with respect to any
Premium Execution Order that is a Paid Order, the Company shall
execute all Premium Execution Orders without commission or commission
equivalent, regardless of whether the Company executes such Premium
Execution Orders as principal, riskless principal or agent.
(b) Schwab shall reimburse the Company for fees related to
execution of Paid Orders as set forth on Schedule C, as the same may
be amended by the Company and Schwab from time to time.
(c) Payment for Direct Execution Orders. (**)
(d) Reporting. Subject to Article IV, the Company shall provide
to Schwab, on the one hand, or Schwab shall provide to the Company, on
the other hand, such data as Schwab or the Company, as the case may
be, reasonably requests to confirm the calculations
- 13 -
with respect to Premium Execution Orders, Direct Execution Orders, DNC
Orders and Paid Orders pursuant to the provisions of this Agreement.
Section 3.2. Reports. The Company shall use its commercially reasonable
efforts to provide to Schwab such reports, data or data access as set forth in
the Service Level Agreements.
Section 3.3. Manner of Payments. Each of Schwab and the Company shall
invoice the other for any amount due within thirty (30) days of each calendar
month's end; provided, however, that the failure of Schwab or the Company to
invoice the other in a timely manner shall not relieve the invoiced Party of
liability for payment except to the extent the invoiced Party is materially
prejudiced by such delay. All sums due to any Party under this Article III shall
be paid on or prior to the tenth day following delivery of an invoice for such
amounts to the other, and shall be paid in U.S. Dollars by bank wire transfer in
immediately available funds to such bank account(s) as such Party shall
designate from time to time by giving notice to the other Party.
Section 3.4. Interest on Late Payments. If any Party shall fail to make a
timely payment pursuant to this Article III, such late payment shall bear
interest, to the greatest extent permitted by applicable law, at the prime rate
(as published in the New York edition of the Wall Street Journal or a comparable
publication if not reported in the New York edition of the Wall Street Journal
for the date the payment was due), effective for the first date on which payment
was delinquent and calculated on the number of days such payment is overdue.
Section 3.5. Books of Account. Each of the Company and Schwab shall
maintain true and complete books of account containing an accurate record of all
data necessary for reports due hereunder and for the proper computation of
payments due from it or charges made by it under this Agreement.
ARTICLE IV.
CONFIDENTIAL INFORMATION
Section 4.1. Confidential Information.
(a) In furtherance of this Agreement, Schwab may disclose
Confidential Information, including Customer Information, to the
Company, and the Company and its Affiliates may disclose Confidential
Information to Schwab. Confidential Information will be deemed
confidential and proprietary to the Party disclosing the Confidential
Information (the "Disclosing Party"), regardless of whether such
information was disclosed intentionally or unintentionally or marked
as "confidential" or "proprietary." Confidential Information,
including permitted copies, shall be deemed to be the exclusive
property of the Disclosing Party. The Disclosing Party's disclosure of
Confidential Information will not constitute an express or implied
grant to the Party receiving the Confidential Information (the
"Receiving Party") of any
- 14 -
rights to or under the Disclosing Party's patents, patent
applications, copyrights, trade secrets, trademarks or other
intellectual property rights.
(b) The Receiving Party covenants that it shall not use the
Confidential Information, including Customer Information, for any
purpose other than in performance of this Agreement or with respect to
the Company's operations and shall not disclose the same to any other
Person other than to such of its Affiliates, employees, agents,
advisers, representatives, consultants and counsel who have a need to
know such Confidential Information as it relates to the purpose or
subject matter of this Agreement. Each Party shall bear responsibility
for a breach of confidentiality obligations contained in this Article
IV by its Affiliates, employees, agents, representatives or
consultants. The Receiving Party shall be entitled to retain copies of
Confidential Information to the extent required to comply with
applicable Legal Requirements or to the extent consistent with the
Receiving Party's standard internal record retention policies. Upon
termination of this Agreement, or earlier if so requested in writing
by the Disclosing Company, except as permitted in the previous
sentence, and except with respect to email, the Receiving Party shall
return or destroy all Confidential Information and any documents,
paper, tapes or other media or material which may contain (or such
portions of the foregoing containing) Confidential Information in its
possession.
(c) Confidential Information shall not include any information or
material, or any element thereof, to the extent that any such
information or material, or any element thereof:
(i) is in the public domain at the time of disclosure
hereunder or subsequently comes within the public domain other
than in violation of this Agreement or any other confidentiality
obligation that the party is aware of;
(ii) has been or is hereafter rightfully obtained by the
Receiving Party from a third Person without restriction on
disclosure and without a breach of duty of confidentiality to the
Disclosing Party;
(iii) has been independently developed by the Receiving
Party without using the Confidential Information of the
Disclosing Party; or
(iv) is required to be disclosed in connection with a Legal
Proceeding or pursuant to applicable Legal Requirements, provided
that the Receiving Party shall provide prior notice of such
disclosure to the extent practicable.
Section 4.2. Communications with Regulators. Any Party may disclose the
existence or terms of this Agreement and the identity of the other Parties
thereto to the Securities and Exchange Commission and any SRO of which it is a
member, to which it has applied for membership or to which it is otherwise
subject to jurisdiction, provided that such Party shall have used its
commercially reasonable efforts to seek, to the greatest extent possible, any
confidential treatment that may be available.
- 15 -
Section 4.3. Identification of Schwab Customers.
(a) Unless the Company consents in writing, Schwab shall not
provide the Company with any information that would reveal the
identity of the underlying Schwab Customer except to the extent
required to resolve a Trade Dispute or in connection with a Legal
Proceeding; provided, however, that Schwab shall provide for each
Order (i) a unique descriptor code (that may be a coded or scrambled
account number) allowing recognition of the Schwab Customer placing
such Order in a manner that does not reveal any information relating
to the identity of such Schwab Customer and (ii) a category descriptor
that allows the Company to determine what class of account and account
range is assigned to such Schwab Customer; provided, however, to the
extent that Schwab does not, as of the date of the Purchase Agreement,
provide the information specified in clause (ii) to SCM, Schwab shall,
to the extent reasonably practicable, use its commercially reasonable
efforts to provide such information specified in clause (ii) to the
Company following the date hereof.
(b) If the Company receives any Customer Information of Schwab,
or Schwab receives any Customer Information of the Company, it shall
not use such Customer Information to target or solicit customers of
the other (including investment advisors with accounts custodied at
Schwab), as such, on behalf of itself or any third party. Neither the
Company, on the one hand, nor Schwab, on the other hand, shall sell,
distribute, share, rent or otherwise transfer any Customer Information
of the other except for distribution, sharing or transferring to its
Affiliates, employees, agents, advisers, representatives, consultants
or counsel thereof who have a need to know such Customer Information
as it relates to the purpose or subject matter of this Agreement.
Nothing contained herein shall preclude either the Company or Schwab
or any of their respective Affiliates from providing services to any
Person who independently contacts the Company or Schwab or any of
their respective Affiliates, as the case may be, or who is responding
to a general solicitation not targeted at any specific Person, or who
is contacted by the Company or Schwab or any of their respective
Affiliates based on information independently derived by such Person
and/or its Affiliates without the use of any Customer Information.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES; COVENANTS; LIMITATION ON LIABILITY
Section 5.1. Representations and Warranties.
(a) Each Party acknowledges that the Parties have entered into
this Agreement in reliance upon the representations and warranties
made in the Purchase Agreement.
(b) Parent and Schwab jointly and severally represent and warrant
as follows:
- 16 -
(i) Schedule H sets forth a true and complete description of
Orders routed by SCM for the eight months ended August 31, 2004
specifying, for each such month, (i) the numbers of shares and
executed orders of Equity Securities handled by SCM in respect of
(x) Orders for Equity Securities routed from Schwab and
Affiliates of Schwab (other than CyberTrader(R)), on the one
hand, and nonaffiliates of Schwab and CyberTrader(R), on the
other hand), and (ii) for each such Order source category, the
number of shares handled in respect of (v) Direct Execution
Orders, (w) Premium Execution Orders, (x) DNC Orders, (y) Orders
that meet the criteria set forth in the definition of "Paid
Orders" herein and (z) Locked or Crossed Orders (the "SCM Order
Detail"). The SCM Order Detail does not include or reflect any
orders that meet the criteria set forth in the definition of
Excluded Orders. Since June 30, 2004, (i) there has occurred no
material diminution in the amount of Order flow of Equity
Securities routed to SCM or in the composition of SCM's Equity
Securities flow (measured on a volume of shares routed basis),
subject to any (x) seasonal variation of Orders flow that does
not materially vary from ordinary variations due to seasonality
experienced over the preceding three (3) years and (y)
diminutions in Order flow occurring due to market conditions, to
the extent any such diminution due to market conditions does not
disproportionately affect SCM relative to other entities engaged
in similar businesses to the Business (as defined in the Purchase
Agreement) and (ii) no material correspondent customer has
advised SCM or any of its Affiliates of an intention to reduce
the amount or composition of Order flow routed to SCM.
(ii) The Execution Quality Service Levels and the Operations
and Technology Service Levels set forth a true and complete
summary of SCM's current execution quality service levels and
operations and technology service levels as of the date of the
Purchase Agreement; provided, however, that in the case of Equity
Securities listed on an Exchange, Schedule F sets forth a true
and complete summary of SCM's execution quality service levels as
of the date of the Purchase Agreement.
(iii) Since July 31, 2003, SCM has at all times
substantially met or exceeded the service levels specified in the
Operations and Technology Service Levels.
(iv) Since July 31, 2003, SCM has at all times substantially
met or exceeded the service levels specified in the Execution
Quality Service Levels for all securities quoted on Nasdaq. With
respect to securities listed on an Exchange, Schwab and the
Company will agree at closing on interim Execution Quality
Service Levels to be applied for an initial six-month period in
lieu of those in Schedule A that are consistent with SCM's
execution quality service levels for Equity Securities listed on
an Exchange as in effect as of the date of the Purchase
Agreement. Thereafter, the Execution Quality Service Levels in
Schedule A will apply unless Schwab and the Company reasonably
agree otherwise.
Section 5.2. Limitation on Liability. Notwithstanding anything in this
Agreement to the contrary, in no event shall any Party be liable to any other
Party for, and each Party shall procure that none of its Affiliates shall make
any claim against any other Party (or any of its Affiliates) for, any lost
profits, diminution in value, loss of business, loss of contracts, diminished
goodwill, diminished reputation, or consequential, indirect, incidental, special
or punitive damages arising under or in connection with this Agreement, whether
under Article VI or otherwise. This Section 5.2 shall not be construed to limit
a Party's right to indemnification for payments required to be made by it to
third parties in respect of damages (of any kind or type,
- 17 -
including, but not limited to, direct or consequential) for third party claims
which are subject to indemnification under Article VI.
Section 5.3. Disclaimer Of Warranties. EXCEPT FOR THE EXPRESS WARRANTIES
SET FORTH IN THIS AGREEMENT AND THE PURCHASE AGREEMENT, NO PARTY MAKES ANY OTHER
WARRANTIES, EXPRESS OR IMPLIED, REGARDING THIS AGREEMENT, THE PERFORMANCE OF ITS
OBLIGATIONS OR THE PRODUCTS OR SERVICES THAT IT PROVIDES HEREUNDER. IN
PARTICULAR, EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN THIS AGREEMENT AND
THE PURCHASE AGREEMENT, EACH PARTY EXPRESSLY AND SPECIFICALLY DISCLAIMS AND
WAIVES ALL OTHER WARRANTIES EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION,
THE IMPLIED WARRANTIES OF TITLE, MERCHANTABILITY, AND FITNESS FOR A PARTICULAR
PURPOSE.
Section 5.4. Covenants.
(a) Each of the Parties hereby agrees that during the Term, it
shall not, and shall ensure that its Affiliates shall not, enter into
any agreement with a third party that will limit its ability to
perform hereunder.
(b) Each of the Parties hereby agrees that it shall provide such
information and cooperation as may be reasonably requested of it by
another party in connection with, customer complaints and inquiries,
and arbitrations and Legal Proceedings brought against such Person by
a Third Party that arises out of or relates to Covered Orders, unless
the sharing of such information or cooperation would be reasonably
likely to void any legal privilege.
(c) (i) Parent and Schwab shall not, and shall cause their
Affiliates not to, take any actions that are intended, designed or
that would reasonably be expected to circumvent the terms or intention
of this Agreement, including:
(A) transferring or reclassifying accounts; and
(B) employing policies, practices or procedures intended,
designed or that would reasonably be expected, to
discourage the use of execution channels that rely on
Company routing and execution services ("Company
Execution Channels"), including reducing the
prominence, visibility or accessibility of Company
Execution Channel.
(ii) (**)
(iii) (**)
(d) Schwab shall provide to the Company the reports described in
Section 5.1(b)(i) for each quarter following the date hereof.
(e) Schwab agrees to cooperate with Company to investigate,
address and prevent activity on the part of Schwab customers or Schwab
personnel that is inconsistent
- 18 -
with the terms of this Agreement, including activity intended to take
inappropriate advantage of Company services or circumvent any
limitation or requirements under this Agreement (e.g., to break up
large order into small ones).
Section 5.5. Liquidated Damages.
(a) Initial Liquidated Damages. If, during any twelve (12) month
period ending on the calendar month's end falling on or immediately
after the first, second or third anniversary of the date of this
Agreement (each, an "Initial Liquidated Damages Period"), Schwab
routes to the Company for order handling less than 95% of the total
Premium Execution Orders placed by, for or on behalf of Schwab
Customers during such twelve (12) month period (measured by the total
dollar volume of shares represented by such Premium Execution Orders),
excluding any Non-Nasdaq OTC Orders that were routed to Broker-Dealers
other than the Company for purposes of maintaining Xxxxxx'x back-up
connectivity to the extent permitted by Section 2.1(d) (the
"Liquidated Damages Benchmark"), then Parent shall, within fifteen
(15) days following the end of such Initial Liquidated Damages Period,
deliver to the Company a notice stating that the Liquidated Damages
Benchmark has not been met during such Initial Liquidated Damages
Period. Within one hundred twenty (120) days of UBS' receipt of such
notice, UBS, in its sole discretion, may elect to send a notice to
Parent requiring that Parent pay to the Company, not later than sixty
(60) days following Parent's receipt of UBS' notice, the sum of
$58,500,000 (the "Initial Liquidated Damages"), in which case Parent
shall pay to the Company the Initial Liquidated Damages within such
sixty (60) day period. Upon payment of Initial Liquidated Damages by
Parent to the Company as provided in this Section 5.5, this Agreement
shall terminate in accordance with Section 8.2(i). For purposes of
this Section 5.5(a), any Covered Order that is executed away from the
Company as a result of a breach of Section 5.4(c) by Parent or Schwab
shall be included in the calculation of the total Premium Execution
Orders placed by, for or on behalf of Schwab Customers during such
twelve (12) month period.
(b) Continuing Liquidated Damages. If, during any twelve (12)
month period ending on a calendar month's end that falls on or
immediately after the fourth, fifth, sixth, seventh or eighth
anniversary of the date of this Agreement (each such twelve (12) month
period, a "Subsequent Liquidated Damages Period"), Schwab routes to
the Company for order handling less than the Liquidated Damages
Benchmark, then Parent shall pay to the Company, not later than sixty
(60) days following the end of such Subsequent Liquidated Damages
Period $4,875,000 (each such payment, "Subsequent Liquidated
Damages"). Subsequent Liquidated Damages shall be payable in respect
of each Subsequent Liquidated Damages Period in respect of which the
Liquidated Damages Benchmark is not met. The maximum amount payable by
Parent to Company under this clause (ii) shall not exceed $24,375,000.
For purposes of this Section 5.5(b), any Covered Order that is
executed away from the Company as a result of a breach of Section
5.4(c) by Parent or Schwab shall be included in the calculation of the
total Premium Execution Orders placed by, for or on behalf of Schwab
Customers during such twelve (12) month period.
(c) Liquidated Damages upon Disposition of Accounts.
(i) For each sale or disposition of accounts by Schwab or an
Affiliate of Schwab (other than disposition of individual
accounts made in the ordinary course of
- 19 -
business consistent with past practice) or acquisition or
purchase of accounts from a third party by Schwab (each, an
"Acquisition" or "Disposition", as the case may be), Schwab shall
propose to the Company an annualized dollar trading volume of
Covered Orders attributable to the accounts being
acquired/purchased or sold/disposed (the "Subject Volume" which,
in the case of Acquisitions, shall be Xxxxxx'x good faith best
estimate based on information available to Schwab at the time of
such Acquisition), and shall furnish the Company with such data
as is necessary for the Company to evaluate Xxxxxx'x proposal,
including historical trading data for such accounts and the
purchase or sale price. If Schwab and the Company do not agree on
the Subject Volume, the Subject Volume shall be determined by the
procedures set forth in Section 9.10.
(ii) The parties shall maintain a current record of the
Cumulative Net Subject Volume.
(iii) If, after giving effect to any Disposition, the
Cumulative Net Subject Volume is less than zero, the following
procedures shall apply.
(A) Schwab shall calculate the Net Disposition Percentage
and notify the Company in writing of the Net
Disposition Percentage, including the method of its
calculation and the supporting data.
(B) If the Net Disposition Percentage is less than 5%, no
further action is required to be taken by either party.
(C) If the Net Disposition Percentage is equal to or
greater than 5%, then Schwab shall pay to the Company,
not later than sixty (60) days following the completion
of such transaction, an amount equal to the Unamortized
Liquidated Damages Amount multiplied by the Net
Disposition Percentage (each such payment, a
"Disposition Liquidated Damages Payment").
(iv) If, within six months after the date of a Disposition
requiring Schwab to make a Disposition Liquidated Damages
Payment, Schwab or an Affiliate completes an Acquisition, and the
Acquisition Percentage is equal to or greater than 5%, then the
Company shall pay to Schwab, not later than sixty (60) days
following the completion of such transaction, the Acquisition
Recapture Amount. If any Disposition Liquidated Damages Payment
is due from Schwab to the Company, the Company at its election
may offset its payment obligation in respect of the Acquisition
Recapture Amount against the amounts due from Schwab in lieu of
making payment.
(v) In no event shall the sum of all Acquisition Recapture
Amounts payable by the Company to Schwab exceed the sum of all
Disposition Liquidated Damages Payments payable by Schwab to the
Company.
(vi) For purposes of this section 5.5(c), the following
terms shall have the indicated meanings:
- 20 -
(A) "Acquisition Percentage" shall mean the Subject Volume
of an Acquisition expressed as a percentage of the
total dollar trading volume of all Covered Orders
attributable to accounts carried by Schwab and
Affiliates during the 12 calendar months preceding the
prior Disposition that gave rise to a Disposition
Liquidated Damages Payment (i.e., the denominator for
this percentage is the same as the denominator for
determining the related Net Disposition Percentage);
provided, however, that, if the Subject Volume of an
Acquisition is not substantially equivalent in the type
and quality of orderflow to the Subject Volume of
Dispositions (for example, and without limitation, it
includes a lower percentage of Premium Execution Orders
or the type of investors entering Premium Execution
Orders differs sufficiently to result in a noticeable
difference in the quality of Premium Execution Orders),
the parties will agree upon a lower percentage as the
Acquisition Percentage intended to give effect to the
variation in type and quality of orderflow.
(B) "Acquisition Recapture Amount" shall mean the amount
determined by:
(1) dividing the Acquisition Percentage by the Net
Disposition Percentage as calculated with respect to the
last preceding Disposition; if the result of the division is
larger than 1, the result shall be deemed to be 1;
(2) multiplying the number obtained in clause (1) by
the amount of the Disposition Liquidated Damages Payment;
and
(3) subtracting from the product obtained in clause (2)
an amount equal to the product of the Disposition Liquidated
Damages Payment multiplied by a fraction, the numerator of
which is the number of months elapsed between the
Disposition and the subsequent Acquisition, and the
denominator of which is 36 (if the Acquisition occurs during
the 36 months following the execution of this Agreement), or
60 (if Acquisition occurs during the 37th month following
the execution of this Agreement or thereafter).
(C) "Cumulative Net Subject Volume" shall mean the sum of
the Subject Volume of all Acquisitions since the date
of this Agreement, reduced by the sum of the Subject
Volume of all Dispositions since the date of this
Agreement, provided that (i) after any Disposition that
creates an obligation to make a Disposition Liquidated
Damages Payment under clause (c)(iii) above, the
Cumulative Net
- 21 -
Subject Volume shall be reset to zero after the
calculations called for by clause (c)(iii) have been
made, and (ii) the Cumulative Net Subject Volume shall
not be increased as a result of any Acquisition that
creates an obligation to pay an Acquisition Recapture
Amount.
(D) "Net Disposition Percentage" shall mean the absolute
value of the Cumulative Net Subject Volume expressed as
a percentage of the total dollar trading volume of all
Covered Orders attributable to accounts carried by
Schwab and Affiliates during the 12 calendar months
preceding a Disposition.
(E) "Unamortized Liquidated Damages Amount" shall mean
(i) during the 36 months following the execution of
this Agreement, the sum of $58,500,000 (1) reduced by
any amounts that have previously been paid by Schwab
pursuant to this Section 5.5(c) as a result of a
Disposition and (2) increased by any Acquisition
Recapture Amounts that have previously been paid by the
Company pursuant to this Section 5.5(c); and (ii) at
any time after the thirty-sixth month following the
execution of this Agreement, (A) the lesser of (x) the
Unamortized Liquidated Damages Amount at the end of the
thirty-sixth month following the execution of this
Agreement (giving effect to any amounts payable under
this provision within 60 days thereafter) and (y) the
amount set forth in the following table, in either case
(B) (1) reduced by any amounts paid pursuant to this
Section 5.5(c) after the thirty-sixth month following
the execution of this Agreement or (2) increased by any
Acquisition Recapture Amounts that have previously been
paid by the Company pursuant to Section 5.5(c) after
the thirty-sixth month following the execution of this
Agreement (other than any amounts payable under this
provision within 60 days after the end of such
thirty-sixth month):
--------------------------------------------------------------------------------
Months after date of Agreement Amount Under Clause (E)(ii)(y)
--------------------------------------------------------------------------------
37-48 (4th year) $ 24,375,000
49-60 (5th year) 19,500,000
61-72 (6th year) 14,625,000
73-84 (7th year) 9,750,000
85-96 (8th year) 4,875,000
- 22 -
Section 5.6. Liquidated Damages Upon Non-Assumption Event. If (i) Parent or
Schwab announces it has entered into one or more definitive agreements pursuant
to which a Change of Control could occur, and, within thirty (30) days of such
announcement, Parent and Schwab (and any of their respective successors) and any
other party to such definitive agreements that would be a 1017 Person,
Controlling Person, Acquiring Person or Purchasing Person if the transactions
contemplated by such definitive agreement(s) were to be consummated, does not
jointly deliver to the Company a notice in writing that they will cause Parent's
and Xxxxxx'x (and any of their respective successors') continued performance of
its covenants under this Agreement; or (ii) a Change of Control occurs and,
within five (5) business days thereof, Parent and Schwab (and any of their
respective successors) and any 1017 Person, Controlling Person, Acquiring Person
or Purchasing Person, as applicable, does not submit to the Company an
instrument in writing binding all of them to cause the continued compliance with
the terms of, and performance of covenants under, this Agreement by Parent and
Schwab (and any of their respective successors); ((i) or (ii) being a
"Non-Assumption Event"), the Company may, in its sole discretion, elect to
deliver to Parent a notice stating that a Non-Assumption Event has occurred, in
which case, (A) if such Non-Assumption Event occurs during an Initial Liquidated
Damages Period, Parent shall pay to the Company, not later than ten (10) days
following the delivery of such notice, the sum of $58,500,000, and (B) if such
Non-Assumption Event occurs during a Subsequent Liquidated Damages Period, then
Parent shall pay to the Company, not later than ten (10) days following the
delivery of such notice, an amount as determined in accordance with the
following table:
--------------------------------------------------------------------------------
If a Non-Assumption Event occurs Parent shall pay the Company
during the 12-month period ending on: the following amount:
--------------------------------------------------------------------------------
October 29, 2008 (4th anniversary) $ 24,375,000
October 29, 2009 (5th anniversary) 19,500,000
October 29, 2010 (6th anniversary) 14,625,000
October 29, 2011 (7th anniversary) 9,750,000
October 29, 2012 (8th anniversary) 4,875,000
Section 5.7. No Penalty; Maximum Damages.
(a) The Parties agree that the Company's actual damages in the
event of the occurrence of any of the types of situations set forth in
Section 5.5 or Section 5.6 would be extremely difficult or
impracticable to determine. After negotiation, the Parties have agreed
that, considering all the circumstances existing on the date of this
Agreement, the amounts of the payments set forth in the above sections
represent a reasonable estimation of the damages that the Company
would incur if any such events were to occur. None of the payments set
forth in Section 5.5 or Section 5.6 are intended as a penalty. Each of
the Parties agrees to the accuracy of the statements made in this
paragraph, the reasonableness of the amount of liquidated damages
agreed upon, and the fact that each Party was represented by counsel
who explained, at the time this Agreement was made, the consequences
of the foregoing provisions.
- 23 -
(b) The remedies set forth under Sections 5.5 and 5.6 shall be
cumulative; provided, however, in no event shall Parent be liable to
the Company for more than $58,500,000 in the aggregate from one or
more of its obligations under Sections 5.5 and 5.6.
Section 5.8. Unforeseen Circumstances.
(a) Subject to Section 5.8(b), in the event that either UBS or
Schwab reasonably concludes that (a)(i) there has been a fundamental
and material industry-wide structural change in pricing (e.g., a
general industry-wide shift to a commission paid basis for order
handling services) or execution (a "Material Industry Shift") or
(ii) Legal Requirements prohibit or materially restrict or materially
limit the routing or execution of Covered Orders or any other term of
this Agreement (including the ability of the Company to execute
Covered Orders as principal) (a "Material Legal Shift"), since the
date of the Purchase Agreement then UBS or Schwab, as the case may be,
shall send written notice to the other setting forth such conclusion,
and stating the reasons therefor, and the proposed amendments or
modifications to this Agreement that it believes are required (e.g.,
in the case of a general industry-wide shift to a commission paid
basis for order handling services, the payment by Schwab of
commissions in connection with orders routed to the Company), and
requesting that the Dispute Committee enters into negotiations
regarding such changes. Promptly following delivery of such notice,
UBS and Schwab shall cause the Dispute Committee to negotiate in good
faith and to agree to such amendments and modifications to this
Agreement as may be necessary to mitigate to the extent possible such
Material Industry Shift or Material Legal Event. If UBS and Schwab
fail to reach agreement, then such failure to agree shall be deemed a
dispute between the Company and UBS and shall be resolved in
accordance with the procedures set forth in Section 9.10.
(b) The provisions of Section 5.8(a) shall be subject to the
liquidated damages provisions set forth in Section 5.5 and Section
5.6. To the extent an event has occurred that could cause a payment of
Initial Liquidated Damages, Subsequent Liquidated Damages, all or a
portion of the Unamortized Liquidated Damages Amount or an amount in
connection with a Non-Assumption Event, as the case may be, to become
due and payable (each, a "Payment Event"), the amount payable by
Parent to the Company in respect of such Payment Event shall be due
and payable in all circumstances, notwithstanding the provisions of
Section 5.8(a), and regardless of whether a Material Industry Shift or
Material Legal Shift is or is not the cause of such Payment Event.
Section 5.9. CyberTrader(R) Integration. In the event that Schwab and
CyberTrader(R) are integrated, the Company shall have the right to request
reports from time to time as to trading activity by Schwab Customers, broken
down by categories of order flow (e.g., volume, trades, channels, number of
accounts in each category) in order to determine whether there has been
substantial migration of account types from those generating Covered Orders to
those generating Excluded Orders. If the Company believes that such a
substantial migration has occurred or is occurring, the Company and Schwab will
negotiate in good faith to determine a basis on which to reclassify certain of
the Excluded Orders as DNC Orders.
- 24 -
ARTICLE VI.
INDEMNIFICATION
Section 6.1. Company Indemnification. The Company hereby agrees to
indemnify, defend and hold harmless Schwab and its Affiliates, directors,
officers, general partners, managers, members, employees and other agents and
representatives (the "Schwab Indemnified Parties") from and against any and all
claims for liabilities, judgments, claims, settlements, losses, reasonable fees
(including attorneys' fees, fees and disbursements of experts, and arbitration
and court fees and costs), liens, taxes, penalties, obligations, expenses and
any required payments made to third parties (collectively, "Losses") incurred or
suffered by any Schwab Indemnified Party arising from, by reason of or in
connection with (i) any dishonest, fraudulent, grossly negligent or criminal act
or omission on the part of the Company's officers, directors, employees or
agents or (ii) without limiting clause (i), any breach of any covenant (other
than those set forth in Section 2.4, except to the extent an express remedy is
provided for by the terms of Schedule A or Schedule B) made by the Company
pursuant to this Agreement.
Section 6.2. Schwab Indemnification. Parent and Schwab jointly and
severally agree to indemnify, defend and hold harmless the Company and its
Affiliates, directors, officers, general partners, managers, members, employees
and other agents and representatives (the "Company Indemnified Parties" and
together with the Schwab Indemnified Parties, the "Indemnified Parties") from
and against any and all claims for Losses incurred or suffered by any such
person or entity arising from, by reason of or in connection with (i) any
dishonest, fraudulent, grossly negligent or criminal act or omission on the part
of Xxxxxx'x or its Affiliates' officers, directors, partners, employees or
agents, (ii) all investigations, claims and damages arising out of the acts and
trading activities of Schwab Customers or any Legal Proceeding brought against
the Company or its Affiliates by a Schwab Customer, other than as a result of a
dishonest, fraudulent, grossly negligent or criminal act or omission on the part
of the Company's officers, directors, employees or agents or (iii) any breach of
the representations and warranties set forth in Section 5.1(b) or of any
covenant made by Parent or Schwab pursuant to this Agreement. This Section 6.2
shall not limit any obligations the Company may have to Schwab under the express
remedies provided in Schedule A and Schedule B.
Section 6.3. Procedures Relating to Third Party Claims. An Indemnified
Party shall give reasonably prompt notice to the Party from whom such
indemnification is sought (the "Indemnifying Party") of the assertion of any
claim or assessment, or the commencement of any action, suit or proceeding, by a
third party in respect of which indemnity may be sought hereunder (a "Third
Party Claim") and will give the Indemnifying Party such information with respect
thereto as the Indemnifying Party may reasonably request, but no failure to give
such notice shall relieve the Indemnifying Party of any liability hereunder
(except to the extent the Indemnifying Party has been actually prejudiced
thereby). The Indemnifying Party shall have the right, exercisable by written
notice (the "Indemnification Notice") to the Indemnified Party within thirty
(30) days of receipt of notice from the Indemnified Party of commencement of or
assertion of any Third Party Claim, to assume the defense of such Third Party
Claim using counsel of its choice, and the Indemnified Party may participate in
such defense at the Indemnified Party's expense, which shall include counsel of
its own choice. If the Indemnifying
- 25 -
Party elects not to defend the Indemnified Party against such Third Party Claim,
whether by failure of the Indemnifying Party to provide the Indemnification
Notice or otherwise, or the Indemnified Party provides a written legal opinion
to the Indemnifying Party that under applicable standards of professional
responsibility a conflict will arise in the event both the Indemnified Party and
the Indemnifying Party are represented by the same counsel with respect to the
Third Party Claim, then the Indemnified Party, without waiving any rights
against the Indemnified Party, may employ counsel of its own choice and at the
expense of the Indemnifying Party. The Indemnifying Party may not settle any
matter (in whole or in part) without the consent in writing of the Indemnified
Party (which shall not be unreasonably withheld), unless such settlement does
not involve any relief other than the payment of monetary damages, includes a
complete and unconditional release of the Indemnified Party, does not admit
liability on the part of or attribute fault to any Party or its Affiliates, and
contains a provision requiring confidentiality with respect to the facts and
circumstances of the dispute and of the existence and amount of the settlement.
The Indemnified Party shall make its employees available and furnish such
information regarding itself or the claim in question as the Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and Legal Proceeding resulting
therefrom.
Section 6.4. Survival. The provisions of this Article VI shall survive the
expiration or termination of this Agreement.
Section 6.5. Limitation on Recovery. The Parties acknowledge that this
Article VI is modified by Section 5.2, in accordance with its terms.
Section 6.6. Exclusive Remedy. This Article VI shall provide the exclusive
remedy for any of the matters addressed herein or other claims arising out of
this Agreement, other than for fraud and other than for the remedies of specific
performance, injunctive relief or other non-monetary equitable remedies.
ARTICLE VII.
SECURITY
Section 7.1. In General. The Company and Schwab shall each maintain and
enforce safety and physical security procedures with respect to access to and
maintenance of Customer Information that are in accordance with industry
acceptable information security practices. Without limiting the generality of
the foregoing, each of the Company and Schwab shall secure and defend its
location and equipment against "hackers" and others who may seek, without
authorization, to modify its systems or access the information found therein in
accordance with industry acceptable information security practices, using any
combination of access lists, unique user identifiers and credentials,
authentication procedures, and/or other safeguards as it reasonably believes are
appropriate.
Section 7.2. Security Breaches. Each of the Company and Schwab shall use
its commercially reasonable efforts in accordance with industry acceptable
information security
- 26 -
practices to monitor its systems for Security Breaches. For purposes of this
Section 7.2, a "Security Breach" shall mean an event that may lead to
unauthorized disclosure, access, corruption, or destruction of Customer
Information, including an insider accessing information inappropriately, an
outsider penetrating or attempting to penetrate security controls, and a virus
(or other piece of malware or destructive software). Each of the Company and
Schwab shall report to the other promptly any Security Breach of its systems of
which it becomes aware relating to the other Party's systems or Confidential
Information and shall use its commercially reasonable efforts in accordance with
industry acceptable information security practices to remedy such Security
Breach in a timely manner.
Section 7.3. Storage of Customer Information. Each of the Company and
Schwab shall use its commercially reasonable efforts to implement and follow, a
plan to store Customer Information in accordance with industry acceptable
information security practices, which may include the following:
(A) Properly configured firewalls;
(B) Unique user identifiers and credentials;
(C) Creation and review of audit trails;
(D) Physical security of servers and backup media; and
(E) Network encryption for any remote access.
ARTICLE VIII.
TERM AND TERMINATION
Section 8.1. Term. Unless earlier terminated pursuant to Section 8.2, this
Agreement shall expire on October 31, 2012 (the "Initial Term"); provided,
however, that this Agreement shall automatically be extended for successive
terms of twelve months (each, a "Renewal Term," and together with the Initial
Term, the "Term"), unless either Schwab or the Company provides written notice
to the other of termination at least six (6) months prior to the expiration of
the Initial Term or the applicable Renewal Term to the extent such termination
is in accordance with the provisions of this Agreement.
Section 8.2. Termination. This Agreement may (or, in the case of
Section 8.2(i) only, will) be terminated in the following circumstances:
(a) Material Breach by the Company. By Schwab, in the event that
the Company commits a material breach of this Agreement (other than a
breach of payment obligations under this Agreement or a breach of
Section 2.4), and (i) the breach is incurable or (ii) the Company
fails to cure such breach within ninety (90) days of receiving a
notice of default from Schwab (or such longer period as Schwab may
reasonably agree if said breach is incapable of cure within such
ninety (90) days) (the "Cure Period"), by giving a notice of
termination
- 27 -
to the Company within thirty (30) days of first becoming aware of such
breach (if such breach is incurable) or in the thirty (30) day period
commencing at the end of the Cure Period, with termination of this
Agreement to become effective upon delivery of the notice.
(b) Material Breach by Schwab. By the Company, in the event that
Schwab commits a material breach of this Agreement (other than a
breach of payment obligations under this Agreement) and (i) the breach
is incurable or (ii) Schwab fails to cure such breach within ninety
(90) days of receiving a notice of default from the Company (or such
longer period as the Company may reasonably agree if said breach is
incapable of cure within such ninety (90) days) (the "Schwab Cure
Period"), by giving a notice of termination to Schwab within thirty
(30) days of first becoming aware of such breach (if such breach is
incurable) or in the thirty (30) day period commencing upon of the end
of the Schwab Cure Period, with termination of this Agreement to
become effective upon delivery of the notice.
(c) Material Breach of Payment Obligations. By either the Company
or Schwab (the "Terminating Party") in the event that the other (the
"Breaching Party") is in material breach of a payment obligation under
this Agreement, the Terminating Party has provided written notice to
the Breaching Party specifying such material breach, the Breaching
Party does not in good faith dispute whether the amounts alleged to be
unpaid are due and payable pursuant to this Agreement and the
Breaching Party fails to cure such breach within ninety (90) days of
receiving written notice of such breach from the Terminating Party, by
the Terminating Party giving a notice of termination to the Breaching
Party within ten (10) days of the end of such Cure Period, with
termination of this Agreement to become effective upon delivery of the
notice.
(d) Company Insolvency. By Schwab, in the event the Company
experiences an Insolvency Event, by giving notice to the Company, with
termination of this Agreement to become effective upon delivery of the
notice.
(e) Parent or Schwab Insolvency. By the Company, in the event
Parent or Schwab experiences an Insolvency Event, by giving notice to
Parent and Schwab, with termination of this Agreement to become
effective upon delivery of the notice.
(f) Material Misconduct. By either the Company or Schwab, if the
other has suffered an Adverse Reputational Event that has or would be
reasonably likely to have a material adverse effect on (i) the
financial condition, properties, prospects, business or results of
operations of the Party seeking to effect such termination or (ii) the
reputation, brand, goodwill or image of the Party seeking to effect
such termination.
(g) Change of Control of the Company. By Schwab, in the event
that UBS disposes of more than 50% of the assets of the Order routing
and execution business for Covered Orders (i) to a Person (other than
an Affiliate of UBS) that is a direct competitor of Schwab (including
with respect to commission structure) or (ii) to a Person (other than
an Affiliate of UBS) that is not of sound financial standing and
business reputation and, as a result, such disposition would have a
material adverse effect on Parent and Schwab.
- 28 -
(h) Service Levels. By Schwab, under the circumstances described
in Schedule A.
(i) Payments. Automatically, in the event an Initial Liquidated
Damages Payment has been made.
Section 8.3. Effects of Termination on Accrued Rights. Termination of this
Agreement shall be without prejudice to:
(A) The rights of the Parties to any payments due under
this Agreement to the date of termination;
(B) Any remedies which either Party may then have arising
out of or relating to this Agreement; and
(C) Either Party's right to obtain performance of any
obligations provided for in this Agreement which
survive termination by their express terms.
Section 8.4. Continuation of Routing Service. Upon termination pursuant to
Section 8.2 (other than termination pursuant to Section 8.2(d) (Company
Insolvency), Section 8.2(e) (Schwab Insolvency) or Section 8.2(f) (Material
Misconduct)); Schwab may elect, by written notice to the Company, to have the
Company provide (in which case the Company shall provide) usual and customary
routing and execution services from the date of termination to a date specified
in such notice (the "End Date"), which End Date shall in no event be later than
six (6) months after the date of termination, upon usual and customary fees
prevailing in the industry.
Section 8.5. Survival. The following provisions shall survive termination
of this Agreement: Article IV (Confidential Information), Section 5.3
(Disclaimer of Warranties), Article VI (Indemnification), Section 8.3 (Effects
of Termination on Accrued Rights), Section 8.4 (Continuation of Routing
Service), this Section 8.5 (Survival) and Article IX (Miscellaneous). All other
provisions of this Agreement shall terminate effective upon the notice of
termination.
ARTICLE IX.
MISCELLANEOUS
Section 9.1. Use of Names/Marks. No Party shall acquire the right to use,
and shall not use, without the other Party's prior written consent, the names,
trade names, trademarks, service marks, artwork, designs, or copyrighted
materials, of the other Party, its related or subsidiary companies, parent,
employees, directors, shareholders, assigns, successors or licensees: (a) in any
advertising, publicity, press release, client list, presentation or promotion;
(b) to express or to imply any endorsement of the other Party or the other
Party's services; or (c) other than as expressly permitted in accordance with
this Agreement. Further, no Party shall
- 29 -
use, without the other Parties' prior written consent, the terms or existence of
this Agreement: (a) in any advertising, publicity, press release, client list,
presentation or promotion; (b) to express or to imply any endorsement of any
other Party or such other Party's services; or (c) other than as expressly
permitted in accordance with this Agreement.
Section 9.2. Entire Agreement. This Agreement and the Schedules hereto and
the Purchase Agreement contain the entire agreement among the Parties with
respect to the transactions contemplated by this Agreement and supersede all
prior agreements or understandings among the Parties.
Section 9.3. Descriptive Headings; Certain Interpretations.
(a) Descriptive headings are for convenience only and shall not
control or affect the meaning or construction of any provision of this
Agreement.
(b) Except as otherwise expressly provided in this Agreement, the
following rules of interpretation apply to this Agreement: (i) "or"
and "any" are not exclusive and "include" and "including" are not
limiting; (ii) a reference to a law includes any amendment or
modification to such law and any rules or regulations issued
thereunder and (iii) a reference to a person or entity includes its
permitted successors and assigns.
(c) Unless the context of this Agreement otherwise requires,
(i) words of one gender include the other gender, (ii) words using the
singular or plural number also include the plural or singular number,
respectively, (iii) the terms "hereof," "herein," "hereby," and
derivative or similar words refer to this entire Agreement and
(iv) the terms "Article" and "Section" refer to the specified Article
and Section of this Agreement. Whenever this Agreement refers to a
number of days, unless otherwise specified, such number shall refer to
calendar days. References to this "Agreement" shall mean this
Agreement and any annexes, exhibits, schedules or attachments hereto.
References to the "date of the Purchase Agreement" shall mean August
31, 2004.
(d) The Parties agree that they have been represented by counsel
during the negotiation, preparation and execution of this Agreement
and, therefore no rule of construction providing that ambiguities in
an agreement or other document shall be construed against the party
drafting such agreement or document shall apply to this Agreement.
Section 9.4. Notices. All notices, requests and other communications to any
party hereunder shall be in writing and sufficient if delivered personally, sent
by telecopy (with telephone confirmation of receipt or followed by overnight
delivery service) or by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If to UBS, SCM or the Company: UBS Securities LLC
000 Xxxxxxxxxx Xxxxxxxxx
Xxxxxxxx, XX 00000
Attention: Xxxx Xxxxxxxx
Telecopy: (000) 000-0000
- 30 -
with copies to: UBS Securities LLC
000 Xxxxxxxxxx Xxxxxxxxx
Xxxxxxxx, XX 00000
Attention: Legal Department -
Equities Section
Telecopy: (000) 000-0000
and
Xxxxxxxx & Xxxxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxxxxxx X. Xxxxx
Xxxxxxxxx Xxxxxxxx
Telecopy: (000) 000-0000
If to Schwab or Parent: The Xxxxxxx Xxxxxx Corporation
000 X. XxXxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxx XxXxxxxxx
Telecopy: (000) 000-0000
with copies to: The Xxxxxxx Xxxxxx Corporation
000 Xxxxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxxxxxx XxXxxxxxx
Telecopy: (000) 000-0000
The Xxxxxxx Xxxxxx Corporation
000 Xxxxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxx Xxxxxxx
Telecopy: (000) 000-0000
Howard, Rice, Nemerovski,
Canady, Xxxx & Rabkin, A
Professional Corporation
Three Embarcadero, 0xx Xxxxx
Xxx Xxxxxxxxx, XX 00000-0000
Attention: Xxxxxxxx X. Xxxxxx,
Esq.
Telecopy: (000) 000-0000
or to such other address or telecopy number as the Party to whom notice is to be
given may have furnished to the other Parties in writing in accordance herewith.
Each such notice, request or communication shall be effective when received or,
if given by mail, when delivered at the address specified in this Section 9.4.
- 31 -
Section 9.5. Counterparts; Fax Signatures. This Agreement may be executed
by telecopy and in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument. Any
signature page delivered by a telecopy machine shall be binding to the same
extent as an original signature page, with regard to this Agreement or any
amendment hereto. A Party who delivers such a signature page agrees to later
deliver an original counterpart to the other Party upon request.
Section 9.6. Benefits of Agreement. Subject to Section 9.8, all of the
terms and provisions of this Agreement shall be binding upon and inure to the
benefit of the Parties hereto and their permitted successors and assigns. This
Agreement is for the sole benefit of the Parties hereto and not for the benefit
of any third party.
Section 9.7. Amendments and Waivers. No modification, amendment or waiver
of any provision of, or consent required by, this Agreement, nor any consent to
any departure herefrom, shall be effective unless it is in writing and signed by
UBS and Schwab. Such modification, amendment, waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Section 9.8. Assignment. This Agreement and the rights and obligations
hereunder shall not be assignable or transferable by the Parties hereto without
the prior written consent of the other Parties; provided, however, that either
the Company or Schwab may assign its rights hereunder to an Affiliate, but no
such assignment shall relieve the assigning party of its obligations or
liabilities hereunder; and provided, further, that SCM may assign all or a
portion of its rights and obligations hereunder to UBS at any time. Any
instrument purporting to make an assignment in violation of this Section 9.8
shall be void ab initio.
Section 9.9. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS TO BE ENTERED INTO AND ENTIRELY PERFORMED WITHIN SUCH STATE.
Section 9.10. Dispute Resolution.
(a) The Parties shall use commercially reasonable efforts to
resolve amicably all disputes, claims or controversies relating to,
arising out of, or in connection with this Agreement, including any
question regarding its formation, existence, validity, enforceability,
performance, interpretation, breach, or termination ("Disputes"). In
order to facilitate the resolution of Disputes, each of Schwab and the
Company shall establish a committee to consider and resolve any
Dispute (the "Dispute Committee") arising under this Agreement. The
Dispute Committee shall be comprised of two (2) senior executives of
the Company and two (2) senior executives of Schwab. If either the
Company or Schwab gives written notice to the other that a Dispute has
arisen and the Dispute Committee is unable within fifteen (15) days of
such written notice to resolve the Dispute, then either Party may
submit the Dispute to non-binding mediation in accordance with
Section 9.10(b). All negotiations pursuant to this clause are
confidential and shall be treated as compromise and settlement
negotiations for purposes of applicable rules of evidence.
- 32 -
(b) If the Parties are unable to resolve the Dispute within
fifteen (15) days of the disputing Party's notice in accordance with
Section 9.10(a), then either Party may submit the Dispute to
non-binding mediation under the then-current Center for Public
Resources ("CPR") Mediation Procedure. Unless otherwise agreed, the
Parties will select a mediator from the CPR Panels of Distinguished
Neutrals.
(c) Any Dispute which remains unresolved forty-five (45) days
after appointment of a mediator (or seventy-five (75) days after the
notice of the Dispute given pursuant to Section 9.10, whichever occurs
first) shall be finally resolved by (i) if arbitration is required to
be undertaken by the Parties hereto by an applicable rule of an SRO to
which each of the Company and Schwab is a member, by binding
arbitration, which shall be conducted before and under the rules of
the NYSE then in effect, unless some other rules are chosen by mutual
consent of the Parties or applicable Legal Requirements require
arbitration to be conducted in accordance with the rules of another
exchange or SRO or (ii) in the event arbitration is not so required,
in accordance with Sections 11.9, 11.10 and 11.11 of the Purchase
Agreement. Any arbitration shall be conducted before three
arbitrators, all of whom shall be from the securities industry, and
the decision of the arbitrators shall be binding and non-appealable,
and the prevailing Party may enforce such decision in any court of
competent jurisdiction. If such an arbitration is conducted, the
Parties shall cooperate with each other in causing the arbitration to
be held in as efficient and expeditious a manner as practicable and,
in this connection, use commercially reasonable efforts to furnish
such documents and make available such persons within their control as
the arbitrators may request. All proceedings and decisions of any
arbitrators shall be maintained in confidence, to the extent legally
permissible, and shall not be made public by any Party or the
arbitrators without the prior written consent of all Parties to the
arbitration, except as may be required by applicable Legal
Requirements. Notwithstanding anything herein to the contrary, any of
the Parties may seek a temporary restraining order or a preliminary
injunction from any court of competent jurisdiction in order to
prevent immediate and irreparable injury, loss or damage.
Section 9.11. Registration and Filing of this Agreement. To the extent, if
any, that any Party concludes in good faith that it is required by applicable
Legal Requirements to file or register this Agreement or a notification thereof
with any governmental or self-regulatory authority, including the U.S.
Securities and Exchange Commission, such Party shall inform the other Parties
thereof and the Parties shall cooperate with one another each at its own expense
in such filing or notification and shall execute all documents reasonably
required in connection therewith. In such filing or registration, the Parties
shall request confidential treatment of sensitive provisions of this Agreement,
to the extent permitted by applicable Legal Requirements. The Parties shall
promptly inform one another as to the activities or inquiries of any such
governmental authority relating to this Agreement, and shall cooperate to
respond to any request for further information therefrom on a timely basis.
Section 9.12. Force Majeure. Without limiting any right that any Party may
have under Section 8.2, the occurrence of an event which materially interferes
with the ability of a Party to perform its obligations or duties hereunder which
is not within the reasonable control of the Party affected and not due to
malfeasance ("Force Majeure"), including, but not limited to, an injunction,
order or other action by a governmental authority, fire, accident, labor
difficulty, strike, riot, civil commotion, act of God or change in law, shall
not excuse such Party from the
- 33 -
performance of its obligations or duties under this Agreement, but shall merely
suspend such performance during the continuation of Force Majeure. The Party
prevented from performing its obligations or duties because of Force Majeure
shall promptly notify the other Parties hereto (the "Other Parties") of the
occurrence and particulars of such Force Majeure and shall provide the Other
Parties, from time to time, with its best estimate of the duration of such Force
Majeure and with notice of the termination thereof. The Party so affected shall
use reasonable efforts to avoid or remove such causes of nonperformance. Upon
termination of Force Majeure, the performance of any suspended obligation or
duty shall promptly recommence. If a Force Majeure event occurs that materially
interferes with the Company's ability to route Orders for execution, Schwab may
elect to route any Covered Orders that would otherwise be required to be routed
to the Company pursuant to Section 2.1 to a Broker-Dealer or execution venue
other than the Company during the term of the Force Majeure event.
Section 9.13. Waiver. Any term or condition of this Agreement may be waived
at any time by the Party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the Party waiving such term or condition. No waiver by any
Party of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by law or otherwise afforded, will be cumulative and not
alternative.
Section 9.14. Relationship of the Parties. Nothing in this Agreement shall
constitute the Company as an employee, or general representative of Schwab. This
Agreement shall not constitute any Party as the legal representative of any
other Party, nor shall any Party have the right or authority to assume, create
or incur any liability or any obligation of any kind, express or implied,
against, or in the name of or on behalf of, any other Party. This Agreement
shall not constitute, create or in any way be interpreted as a joint venture,
partnership or formal business organization of any kind.
Section 9.15. Bona Fide Customers. Parent and Schwab agree that, without
the Company's written consent, they shall not, and shall cause their Affiliates
not to, sell or otherwise make available the routing services for Covered Orders
contemplated by this Agreement to third parties except to third parties that are
bona fide brokerage customers of Schwab or its Affiliates.
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In Witness Whereof, each of the Parties has caused this Agreement to be
duly executed and delivered as of the day and year first above written.
Xxxxxxx Xxxxxx & Co., Inc.
By: /s/ Xxxxxxx Xxxxxxx
---------------------------
Name: Xxxxxxx Xxxxxxx
Title: EVP
UBS Securites LLC
By: /s/ Xxxxxx Xxxxxxx
----------------------------
Name: Xxxxxx Xxxxxxx
Title: Managing Director
By: /s/ Xxxxx Xxxxx
----------------------------
Name: Xxxxx Xxxxx
Title: Executive Director
Legal & External
Affairs
Schwab Capital Markets, L.P.
By: /s/ Xxxxxxxx Xxxxxxxxx
----------------------------
Name: Xxxxxxxx Xxxxxxxxx
Title: Senior Managing
Director
The Xxxxxxx Xxxxxx Corporation
By: /s/ Xxxxxxxxxxx X. Xxxxx
----------------------------
Name: Xxxxxxxxxxx X. Xxxxx
Title: EVP
Schedule A
Execution Quality Service Levels
(**) - Ten (10) pages have been omitted.
A-1
Schedule B
Operations and Technology Service Levels
(**) - Seven (7) pages have been omitted.
B-1
Schedule C
Fee Schedule Related to Paid Orders
(**) - One (1) page has been omitted.
C-1
Schedule D
Execution Guaranty
(**) - Fourteen (14) pages have been omitted.
D-1
Schedule E
Rates
(**) - One (1) page has been omitted.
E-1
Schedule F
SCM Execution Quality Service Levels for Exchange-listed Equity Securities
(**) - Two (2) pages have been omitted.
F-1
Schedule G
Alternate Rate
(**) - One (1) page has been omitted.
G-1
Schedule H
SCM Order Detail
(**) - Fourteen (14) pages have been omitted.
H-1