Document:

Amended and Restated Executive Salary Protection Plan II

 Exhibit 10.4.4 
  
 UNIFIED WESTERN GROCERS, INC. 
 EXECUTIVE SALARY PROTECTION PLAN II 
  
 (Amended and Restated effective as of January 1, 2003) 
  

 TABLE OF CONTENTS 
  

					
	 	  	 	  	Page

	ARTICLE 1	  	1
		
	ARTICLE 2	  	1
		
	ARTICLE 3	  	4
		
	ARTICLE 4	  	4
	            4.1	  	Amount of Supplemental Retirement Benefit.	  	4
	            4.2	  	Reduction of Supplemental Retirement Benefit.	  	5
	            4.3	  	Alternative Forms of Benefit Payments.	  	5
	            4.4	  	Commencement of Benefit Payments.	  	6
	            4.5	  	Change of Form of Benefit Payments.	  	6
	            4.6	  	Benefit Payments to Beneficiaries.	  	6
	            4.7	  	Forfeiture of Benefits.	  	6
	            4.8	  	Benefits Unfunded	  	6
		
	ARTICLE 5	  	7
	            5.1	  	Establishment of a Trust	  	7
	            5.2	  	Interrelationship of the Plan and a Trust.	  	7
		
	ARTICLE 6	  	7
	            6.1	  	Duties of Administrator	  	7
	            6.2	  	Finality of Decisions.	  	7
		
	ARTICLE 7	  	7
	            7.1	  	Presentation of Claim.	  	7
	            7.2	  	Notification of Decision.	  	8
	            7.3	  	Review of a Denied Claim.	  	8
	            7.4	  	Decision on Review.	  	9
		
	ARTICLE 8	  	9
	            8.1	  	Amendment and Termination	  	9
	            8.2	  	Contractual Obligation.	  	9
		
	ARTICLE 9	  	10
	            9.1	  	Accelerated Distribution in Certain Events.	  	10
		
	ARTICLE 10	  	10
	            10.1	  	No Employment Rights.	  	10
	            10.2	  	Plan Binding On Successors.	  	10
	            10.3	  	Nonassignability	  	10
	            10.4	  	Assignment.	  	10
	            10.6	  	Captions.	  	11
	            10.7	  	Validity.	  	11

  

 -i- 

 ARTICLE 1 
 PURPOSE 
  
 This
Plan is designed to provide retirement benefits for certain eligible Employees and their beneficiaries. The Plan is intended to be a “top hat” plan providing benefits to a select group of management or highly compensated employees within
the meaning of Section 201(2) of ERISA. 
  
 ARTICLE 2

 DEFINITIONS 
  
 When used herein, the following terms shall have the following meanings unless a different meaning is clearly required by the context of the Plan.

  
 “Actuarial Equivalent” shall mean an amount having
equal value when computed on a basis using the Applicable Interest Rate and/or the Applicable Mortality Rate as follows: 
  
 (a) “Applicable Interest Rate” is the interest rate for immediate annuities used by the Pension Benefit Guaranty Corporation in
determining the present value of the lump sum equivalent on plan termination that is in effect on the first day of the month preceding the month in which the Participant’s distribution commences. 
  
 (b) “Applicable Mortality Table” is the same mortality table
specified under the definition of Actuarial Equivalent in the Retirement Plan. 
  
 “Administrator” shall mean the benefits committee that has been appointed by the Board to administer the Plan. 
  
 “Beneficiary” shall mean a person or persons designated by the Participant to receive the unpaid portion of the Participant’s Supplement
Retirement Benefit in the event of his or her death. If the Participant fails to designate a beneficiary, then the Participant’s spouse shall receive the unpaid portion of his or her Supplement Retirement Benefit. If the Participant did not
have a spouse on his or her death, then the Participant’s estate shall receive the unpaid portion of his or her Supplement Retirement Benefit. 
  
 “Board” shall mean the board of directors of the Company. 
  
 “Change of Control” shall mean any of the following: (i) the acquisition by any person, entity, or group within
the meaning of Section 13(d) or 14(d) of the Securities and Exchange Act of 1934, of beneficial ownership of more than 50% of the outstanding Class A Shares of the Company; (ii) if the individuals who on January 1, 2003 serve on the Board no longer
constitute a majority of the members of the Board; provided, however that any person who becomes a director subsequent to January 1, 2003 who was elected to fill a vacancy by a majority of the Company’s members shall be considered as if a
member on January 1, 2003; and (iii) a liquidation or dissolution of the Company or the sale of all or substantially all of the assets of the Company. 
  

 -1- 

 “Code” shall mean the Internal Revenue Code of 1986, as amended. 
  
 “Company” shall mean Unified Western Grocers, Inc. 
  
 “Compensation” shall have the following alternative meanings:

  
 (a) For purposes of calculating “Final Pay”, the
term “Compensation” shall mean the sum of the Participant’s annualized base salary, plus car allowance, earned by the Participant during a calendar year. A Participant’s car allowance shall be deemed to be $12,000 for the 1994
calendar year. This amount shall be increased by 4% for each year thereafter. 
  
 (b) For purposes of calculating “Final Average Pay”, the term “Compensation” shall mean the sum of the Participant’s annualized base salary, bonuses, plus car allowance, earned by the
Participant during a calendar year. A Participant’s car allowance shall be deemed to be $12,000 for the 1994 calendar year. This amount shall be increased by 4% for each year thereafter. 
  
 “Employee” shall mean any person who is classified by the Employer
as a common-law employee of the Employer. 
  
 “Employer”
shall mean the Company and/or any of its subsidiaries (now in existence or hereafter formed or acquired) that have been selected by the Board to participate in the Plan and have adopted the Plan. 
  
 “ERISA” shall mean the Employee Retirement Income Security Act of
1974, as amended. 
  
 “Final Average Pay” shall mean the
average of the Compensation that the Participant earned during any five calendar years out of the ten calendar years, including the current year, whether whole or partial years, preceding the Participant’s Termination Date that yields the
highest average. 
  
 “Final Pay” shall mean the highest
Compensation that the Participant earned during the three calendar years, including the current year, whether whole or partial years, preceding the Participant’s Termination Date. 
  
 “Normal Retirement Benefit” shall mean an amount equal to the annual benefits that would be paid to the
Participant if the Participant qualified for an accrued benefit under the Retirement Plan and he or she elected to receive such benefit in the form of a single life annuity beginning on the Participant’s 62nd birthday, even if the Participant’s actual age on his or her Termination Date is greater than age 62. 
  
 “Officer” shall mean any Employee who has been designated by the
board of directors of the Employer to be a Vice President of the Employer or higher officer of the Employer. 
  

 -2- 

 “Participant” shall mean any Employee who is entitled to receive a benefit under the Plan.

  
 “Plan” shall mean the Unified Western Grocers, Inc.
Executive Salary Protection Plan II, as amended and restated effective as of January 1, 2003. 
  
 “Supplemental Retirement Benefit” shall mean the benefit provided for in Section 4.1 below, reduced by Section 4.2, if applicable. 
  
 “Termination Date” shall mean the date on which a Participant ceases to be an Employee for any reason, including
but not limited to, lay off or death. 
  
 “Retirement
Plan” shall mean the Unified Western Grocers, Inc. Cash Balance Plan. 
  
 “Vesting Percentage” shall have the following alternative meanings: 
  
 (a) For those Participants who first became a participant in the Plan on or before January 1, 2003, the term “Vesting Percentage” shall have the
following meaning: 
  

				
	 Years of Service

	  	Vesting Percentage

	 
	 Less than 3
	  	0	%
	 3 or more
	  	100	%

  
 (b) For those
Participants who first became a participant in the Plan after January 1, 2003, the term “Vesting Percentage” shall have the following meaning: 
  

				
	 Years of Service

	  	Vesting Percentage

	 
	 Less than 3
	  	0	%
	 3 years or more but less than 4
	  	50	%
	 4 years or more but less than 5
	  	75	%
	 5 or more
	  	100	%

  
 (c) Notwithstanding
the foregoing, if a Participant incurs a Termination Date on or after attaining age 62 and had at least three Years of Service on the Termination Date, then the Participant’s Vesting Percentage shall be 100%. Also, if a Participant incurs a
Termination Date within one year following a Change of Control, then such Participant’s Vesting Percentage shall be 100%. 
  
 “Year of Service” shall have the following alternative meanings: 
  
 (a) For those Participants who became a participant in the Plan prior to January 1, 1999, the term “Year of
Service” shall mean each full year in which the Participant was an Employee. Notwithstanding the foregoing, if a Participant ceases being an Officer, then any employment after such date shall be disregarded for purposes of determining the
Participant’s Years of Service. For purposes of this definition, a full year in which a Participant was an Employee shall be a 365 day period (or 366 day period in the case of a leap year) that, for the first year, commences on the date that
the Participant become an Employee, and that, for any 
  

 -3- 

 subsequent year, commences on an anniversary of such date. If a Participant incurs a Termination Date and is subsequently
rehired as an Employee, then any employment prior to such rehire date shall be disregarded for purposes of determining the Participant’s Years of Service. Any partial year of employment shall not be counted. For purposes of this definition, the
Participant’s Years of Service shall terminate upon the earlier to occur of the following: (i) six months following the date the Participant becomes disabled; (ii) upon commencement of a long-term disability benefit from a Company sponsored
plan; or (iii) upon a Termination Date. 
  
 (b) For those
Participants who first became a participant in the Plan on or after January 1, 1999, the term “Year of Service” shall mean each full year in which the Participant was an Officer. For purposes of this definition, a full year in which the
Participant was an Officer shall be a 365 day period (or 366 day period in the case of a leap year) that, for the first year, commences on the date that the Participant became an Officer, regardless whether such date occurs on, before or after
January 1, 1999, and that for any subsequent year, commences on an anniversary of such date. If the Participant incurs a Termination Date and is subsequently rehired as an Officer, then any employment as an Officer prior to such rehire date shall be
disregarded for purposes of determining the Participant’s Years of Service. Any partial year in which the Participant has been an Officer shall not be counted as a Year of Service. For purposes of this definition, the Participant’s Years
of Service shall terminate upon the earlier to occur of the following: (i) six months following the date the Participant becomes disabled; (ii) upon commencement of a long-term disability benefit from a Company sponsored plan; or (iii) upon a
Termination Date. 
  
 (c) Notwithstanding the foregoing, if a
Participant incurs a Termination Date within one year of a Change of Control, then such Participant shall be credited with: (i) an additional three Years of Service; or (ii) the number of years of service provided for in the Participant’s
employment agreement or severance agreement (if any), which ever is greater. 
  
 ARTICLE 3 
 ELIGIBILITY 
  
 All Employees shall become participants in the Plan as of the date on which such Employee becomes an Officer. If the
Participant ceases being an Officer, then such Participant shall cease accruing any additional Supplemental Retirement Benefits under the Plan. 
  
 ARTICLE 4 
 SUPPLEMENTAL RETIREMENT
BENEFIT 
  
 4.1 Amount of Supplemental Retirement
Benefit. A Participant’s Supplemental Retirement Benefit shall equal a 15 year certain annuity. The annual benefit amount of this annuity shall equal the following: 
  
 (a) If the Participant first became a participant in the Plan on or before January 1, 2003, then such Participant’s
annual benefit amount shall equal the greater of the amount calculated under Subsection (c) or (d) below. Notwithstanding the foregoing, if a Participant incurred a Termination Date prior to January 1, 2003, then such Participant’s benefits
shall be provided for in the prior Plan document(s). 
  

 -4- 

 (b) If the Participant first became a participant in the Plan after January 1, 2003, then such
Participant’s annual benefit amount shall equal the amount calculated under Subsection (d) below. 
  
 (c) The Participant’s annual benefit amount shall equal the product of the following: 
  
 (((Years of Service, limited to 13 x Final Pay x 5%) + (Years of Service in excess of 13 x Final Pay x 1%)) – Normal
Retirement Benefit) x Vesting Percentage 
  
 (d) The
Participant’s annual benefit amount shall equal the product of the following: 
  
 (((Years of Service, limited to 15 x Final Average Pay x 4 1/3%) + (Years of
Service in excess of 15 x Final Average Pay x 1%)) – Normal Retirement Benefit) x Vesting Percentage 
  
 4.2 Reduction of Supplemental Retirement Benefit. 
  

(a) If the Participant’s Supplemental Retirement Benefit is based on the annual benefit amount calculated pursuant to Subsection 4.1(c) above,
then such annual benefit amount shall be reduced by 3% for each year (or pro-rata for any partial year) that the Participant’s benefit commencement date occurs prior to the date on which the Participant attains age 62. 
  
 (b) If the Participant’s Supplemental Retirement Benefit is based on the
annual benefit amount calculated pursuant to Subsection 4.1(d) above, then such annual benefit amount shall be reduced by the product of the following: 
  
 (i) 75, less the sum of the Participant’s age (years and full months) on the date on which the benefits commence, and Years of
Service on the Participant’s Termination Date; and 
  
 (ii) 3%. 
  
 (c) Notwithstanding
the foregoing, if a Participant incurs a Termination Date on or after attaining age 65 and has at least three Years of Service on such Termination Date, then the Participant’s annual benefit amount shall not be reduced by this Section 4.2.

  
 4.3 Alternative Forms of Benefit Payments.

  
 (a) A Participant may elect to receive the Actuarial
Equivalent of his or her Supplemental Retirement Benefit in the form of: (i) a five year certain annuity; (ii) ten year certain annuity; or (iii) an annuity for the life of the Participant; provided, that such election is made at least 12 months
prior to the Participant’s Termination Date. Notwithstanding the foregoing, if a Participant elects, prior to (but within one year of) his or her Termination Date, to receive his or her benefits in any one of the forms as provided in (i), (ii)
and (iii) above, then the Participant’s benefits shall be paid in the form elected, but shall be reduced by 10%. 
  

 -5- 

 (b) The election in (a)(iii) above must be consented to in writing by the electing Participant’s
spouse before the election is valid. Such an election shall be made in accordance with the Administrator’s rules and procedures as may be in effect from time to time. 
  
 4.4 Commencement of Benefit Payments. The Company shall begin paying the Participant or Beneficiary (if
applicable) his or her Supplemental Retirement Benefit, less any applicable payroll, withholding or other taxes, within 90 days after the Termination Date. Notwithstanding the foregoing, the Participant may elect to defer the receipt of his or her
Supplemental Retirement Benefit to a future date; provided, that such election is made at least 12 months prior to the Participant’s Termination Date. 
  
 4.5 Change of Form of Benefit Payments. At any time following three full years following the time that a Participant commences to receive
his or her Supplemental Retirement Benefit, a Participant may elect to receive the amount yet to be paid in the form of a lump sum calculated as the Actuarial Equivalent of the benefit yet to be paid to the Participant, but further reduced by 10%.

  
 4.6 Benefit Payments to Beneficiaries.

  
 (a) In the event of the death of a Participant, after benefit
payments to the Participant have begun, the amount remaining to be paid shall be paid to the Participant’s Beneficiary in the same form, and payable at the same time, as if the Participant were still living, or the Beneficiary may elect to
receive the amount remaining in the form of a lump sum in accordance with Section 4.5 above when the three year payment requirement has been satisfied. 
  
 (b) In the event of the death of a Participant prior to such time as benefit payments have begun, then the Participant’s Beneficiary may receive the
Participant’s Supplemental Retirement Benefit in the form elected by the Participant, or the Beneficiary may elect to receive this benefit in the form of a lump sum in accordance with Section 4.5 above when the three year payment requirement
has been satisfied. 
  
 4.7 Forfeiture of Benefits.
If a Participant engages, directly or indirectly (either as principal, agent, employee, consultant, stockholder, partner, or in any other individual or representative capacity), in any business activity within the Company’s area of business
which is competitive with any business conducted by the Company as of the Participant’s Termination Date, and if in the opinion of the Administrator, the Participant would reasonably be expected to utilize any confidential information (such as
Company trade secrets including business records, actual and prospective customer and supplier lists, and the like) concerning the Company in connection with such business activity, then any payments due to the Participant from the Plan shall be
forfeited, and as a result neither the Company, the Administrator, nor the trustee of a trust shall be liable to pay the Participant, or any Beneficiary, any benefit under the Plan. 
  
 4.8 Benefits Unfunded. The benefits payable under the Plan shall be paid by the Company out of its general
assets and shall not be otherwise specifically funded in any manner. Nothing herein contained shall preclude the creation of a bookkeeping or other reserve for benefits payable through the use of a trust. 
  

 -6- 

 ARTICLE 5 
 TRUST 
  
 5.1
Establishment of a Trust. The Company shall establish a trust, and shall transfer over to such trust such assets as it determines, in its sole discretion, are necessary to provide for the Company’s future liabilities created under
this Plan. 
  
 5.2 Interrelationship of the Plan and a
Trust. The provisions of the Plan shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of such trust shall govern the rights of the Participants and the creditors of the Company to the assets
transferred to such trust. The Company shall at all times remain liable to carry out its obligations under the Plan. The Company’s obligations under the Plan may be satisfied with trust assets distributed pursuant to the terms of such trust,
and any such distribution shall reduce the Company’s obligations under this Plan. 
  
 ARTICLE 6 
 ADMINISTRATION 
  
 6.1 Duties of Administrator. The Plan shall be administered by the Administrator in accordance with its terms
and purposes. The Administrator shall determine the amount and manner of payment of the benefits due to or on behalf of each Participant from the Plan and shall attempt to cause them to be paid by the Company accordingly. 
  
 6.2 Finality of Decisions. The decisions made by and the
actions taken by the Administrator in the administration of the Plan shall be final and conclusive as to all persons, and the Administrator shall not be subject to individual liability with respect to the Plan. Without limiting the generality of
this Section, the Administrator shall have the discretionary authority to determine the amount of the benefits and to construe the terms of the Plan. 
  
 ARTICLE 7 
 CLAIMS PROCEDURES

  
 7.1 Presentation of Claim. Any Participant
or Beneficiary of a deceased Participant or duly authorized representative of either (such Participant or Beneficiary or duly authorized representative being referred to below as a “Claimant”) may deliver to the Administrator a written
claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by
the Claimant. The claim must state with particularity the benefit determination desired by the Claimant. 
  

 -7- 

 7.2 Notification of Decision. The Administrator shall consider a Claimant’s claim
within a reasonable time, but not later than 90 days after receipt of the claim by the Plan, unless the Administrator determines that special circumstances require an extension of time for processing the claim. If the Administrator determines that
an extension of time for processing is required, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial 90-day period. In no event shall such extension exceed a period of 90 days from the end of
such initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Administrator expects to render the benefit determination. Once the benefit determination is made in
accordance with the foregoing, the Administrator shall notify the Claimant in writing: 
  
 (a) that the Claimant’s requested benefit determination has been made, and that the claim has been allowed in full; or 
  
 (b) that the Administrator has reached a conclusion adverse, in whole or in part, to the Claimant’s requested benefit determination. The
Administrator’s notice of adverse benefit determination must be written in a manner calculated to be understood by the Claimant, and it must contain: 
  
 (i) the specific reason(s) for the adverse benefit determination; 
  
 (ii) reference to the specific provisions of the Plan upon which such adverse benefit determination was
based; 
  
 (iii) a description of any additional
material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary; and 
  
 (iv) a description of the Plan’s claim review procedures set forth in Section 7.3 below and the time limits applicable to such
procedures, including a statement of the Claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review. 
  
 7.3 Review of a Denied Claim. Within 60 days after receiving a notice from the Administrator of an adverse
benefit determination, a Claimant may file with the Board a written request for a review of such adverse determination. Thereafter, but not later than 30 days after the review procedure began, the Claimant: 
  
 (a) may submit written comments, documents, records, and other information
relating to the claim for benefits; 
  
 (b) shall be provided,
upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant’s claim for benefits; and/or 
  
 (c) may request a hearing, which the Board, in its discretion, may grant. 
  
 The Board shall take into account all comments, documents, records, and other information
submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. 
  

 -8- 

 7.4 Decision on Review. The Board shall render its decision on review within a reasonable
time, and not later than 60 days after the receipt of the Claimant’s review request, unless a hearing is held or other special circumstances require additional time, in which case the Board’s decision must be rendered within 120 days after
the receipt of the Claimant’s review request. If the Board determines that an extension of time for processing is required, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial 60-day
period. In no event shall such extension exceed a period of 60 days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Board expects to render
the benefit determination on review. The Board’s decision must be written in a manner calculated to be understood by the Claimant, and it must contain: 
  
 (a) specific reasons for the decision; 
  
 (b) reference to the specific Plan provisions upon which the decision was based; 
  
 (c) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies
of, all documents, records, and other information relevant to the Claimant’s claim for benefits; 
  
 (d) a statement of the Claimant’s right to bring an action under ERISA Section 502(a) concerning an adverse benefit determination; and 
  
 (e) such other matters as the Board deems relevant. 
  
 For purposes of this Article, a document, record, or other information shall be considered
“relevant” to a Claimant’s claim if such document, record, or other information was relied upon in making the benefit determination; was submitted, considered, or generated in the course of making the benefit determination, without
regard to whether such document, record, or other information was relied upon in making the benefit determination; or demonstrates compliance with the administrative processes and safeguards required under ERISA in making the benefit determination.

  
 ARTICLE 8 
 AMENDMENT AND TERMINATION 
  
 8.1 Amendment and Termination. While the Company intends to maintain the Plan for as long as necessary, the Company reserves the right to
amend and/or fully or partially terminate the Plan at any time for whatever reasons the Company may deem appropriate. 
  
 8.2 Contractual Obligation. Notwithstanding Section 8.1 above, the Company hereby makes a contractual commitment to pay the benefits accrued
under the Plan. 
  

 -9- 

 ARTICLE 9 
 ACCELERATED PAYMENTS 
  
 9.1 Accelerated Distribution in Certain Events. 
  
 (a) If, for any reason, all or any portion of a Participant’s benefit under this Plan becomes taxable to the Participant prior to receipt, a Participant may petition the Administrator for a distribution of that portion of his benefit
that has become taxable. Upon the grant of such a petition, the Participant shall receive an amount equal to the taxable portion of his or her benefit which amount shall not exceed a Participant’s unpaid benefits under the Plan. If the petition
is granted, the tax liability distribution shall be made within 90 days of the date when the Participant’s petition is granted. Such a distribution shall affect and reduce the benefits to be paid under this Plan. 
  
 (b) If a trust terminates and benefits are distributed from a trust to a
Participant in accordance with such trust, the Participant’s benefits under this Plan shall be reduced to the extent of such distributions. 
  
 ARTICLE 10 
 MISCELLANEOUS

  
 10.1 No Employment Rights. Nothing contained
in the Plan shall be construed as a contract of employment between the Employer and an Employee, or as a right of any Employee to be continued in the employment of the Employer, or as a limitation of the right of the Company to discharge any of its
Employees, with or without cause. 
  
 10.2 Plan Binding On
Successors. The Plan shall be binding upon and inure to the benefit of any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company), and
such successor shall assume and agree to perform this Plan in the same manner and to the same extent that the Company would be required to perform as if no such succession had occurred. 
  
 10.3 Nonassignability. Neither a Participant nor any other person shall have any right to commute, sell,
assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are
expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate
maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency. 
  
 10.4 Assignment. The benefits payable under this Plan to any Participant or Beneficiary are not subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance and are not subject to any claim, attachment, garnishment or levy by any creditor. 
  

 -10- 

 10.5 Law Applicable. Subject to ERISA, this Plan shall be governed by the laws of the State
of California without regard to its conflicts of law principles. 
  
 10.6 Captions. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 
  
 10.7 Validity. In case any provision of this Plan shall be
illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein. 
  
 IN WITNESS WHEREOF, the Company, by its duly authorized officers, have
executed this Plan effective as of January 1, 2003. 
  

					
	 	 	UNIFIED WESTERN GROCERS, INC
			
	 	 	By:	 	  

	Dated:                     , 2003	 	 	 	Alfred A. Plamann, President & Chief Executive Officer
			
	 	 	By:	 	  

	Dated:                     , 2003	 	 	 	Robert M. Ling, Jr. Executive Vice President & General Counsel

  

 -11-U.S. Securities and Exchange Commission Order

  
 Exhibit 10.1

  
 UNITED STATES OF AMERICA 
 before the 
 SECURITIES AND EXCHANGE COMMISSION

  
 SECURITIES EXCHANGE ACT OF 1934 
 Release No. 
  
 ADMINISTRATIVE PROCEEDING 
 File No. 
  

			
	 	 	:
	In the Matter of	 	: ORDER INSTITUTING
	 	 	: ADMINISTRATIVE AND CEASE-AND-
	 	 	: DESIST PROCEEDINGS, MAKING
	 	 	: FINDINGS AND
	Knight Securities L.P.,	 	: IMPOSING REMEDIAL
	 	 	: SANCTIONS PURSUANT TO
	Respondent	 	: SECTIONS 15(b)(4) AND 21C OF THE
	 	 	: SECURITIES EXCHANGE ACT OF 1934
	 	 	:

  
 I. 

 
 The Securities and Exchange Commission (“Commission”) deems it
appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted pursuant to Sections 15(b)(4) and 21C of the Securities Exchange Act of 1934 (“Exchange Act”) against Knight Securities, L.P.
(“Knight” or the “Firm”). 
  
 II.

  
 In anticipation of the institution of these proceedings,
Knight has submitted an Offer of Settlement (the “Offer”), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the
Commission is a party, and without admitting or denying the findings herein, except as to the Commission’s jurisdiction over Knight and the subject matter of these proceedings, which Knight admits, Knight consents to the issuance of this Order
Instituting Administrative and Cease-And-Desist Proceedings, Making Findings and Imposing Remedial Sanctions Pursuant to Sections 15(b)(4) and 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below. 
  

 III. 
  
 FINDINGS 
  
 On the basis of this Order and Respondent’s Offer, the Commission finds that1: 
  

	A.	OVERVIEW 

  
 From January 1999 through November 2000, Knight defrauded its institutional customers by extracting excessive profits out of its customers’ “not
held” orders2 while failing to meet the Firm’s duty to provide “best execution”3 to the institutions that placed those orders.4 
  
 On numerous occasions during the relevant time period, Knight, upon receipt of an institutional customer order, would acquire a substantial position in the Firm’s proprietary account. Rather than fill the order
promptly on terms most favorable to the customer, Knight would wait to see if its proprietary position increased in value during the trading day. By delaying execution with the customer, Knight executed stock to the customer when the prevailing
market price had moved significantly away from its acquisition cost – thereby yielding Knight greater profit at the expense of its customer. When the market moved unfavorably in relation to the position Knight had established pursuant to the
institution’s order, Knight executed trades with the customer at prices that still generated a profit for Knight. By engaging in these trading practices, Knight improperly realized 

	1	The findings herein are made pursuant to Knight’s Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.

  

	2	In “not held” institutional orders, an institutional customer grants the
broker-dealer the discretion with respect to the time and price of the transaction. 

  

	3	The duty of best execution requires a broker-dealer to seek to obtain for its customer’s
order the most favorable terms reasonably available under the circumstances. See, e.g., Newton v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 135 F.3d 266, 270 (3d Cir. 1998). The duty of best execution requires broker-dealers to execute customers’ trades at the
best reasonably available price. Id. Other terms in addition to price are also relevant to best execution. In determining how to execute a customer’s order, a broker-dealer must take into account order size, trading characteristics of
the security, speed of execution, clearing costs, and the cost and difficulty of executing an order in a particular market. Id. citing Payment for Order Flow, Exchange Act Release No. 33,026, 58 Fed. Reg. 52934, 52937-38 (Oct. 13, 1993).

  

	4	The NASD, in its Notice to Members 97-57, states that once the customer has granted the
broker-dealer the discretion to work a “not held” order, the broker-dealer, as agent, has a clear responsibility to work to obtain the best fill considering all of the terms agreed to with the customer and the market conditions surrounding
the order. According to The Report of the Special Study of Securities Market, “The integrity of the industry can be maintained only if the fundamental principle that a customer should at all times get the best available price which can
reasonably be obtained for him is followed.” H.R. Doc. No. 95, 88th Cong., 1st Sess. Pt. II, 624 (1963). See, In re E.F. Hutton & Co. (“Manning”), Securities Exchange Act Release No. 25887 (July 6,
1988). See also, Payment for Order Flow, Exchange Act Release No. 34902, (Oct. 27, 1994), 59 FR 55006 (Nov. 2, 1994) and Order Execution Obligations, Securities Exchange Act Release No. 37619A, (Sept. 6, 1996), 61 FR 48290 (Sept 12, 1996).

  

 2 

 from its institutional customers tens of millions of dollars, in excessive per share profits on transactions that
involved effectively no risk to Knight. 
  
 Throughout the time
period, Knight failed reasonably to supervise Knight’s former leading sales trader who was primarily responsible for Knight’s fraudulent trading (“Leading Sales Trader”), with a view to preventing his violations of the federal
securities laws by failing to establish procedures to prevent him from aiding and abetting Knight’s fraud against its institutional customers. The Leading Sales Trader managed the vast majority of Knight’s largest institutional accounts,
handled approximately 50 percent of the trade volume on the institutional desk and generated the highest profits per share of any trader at Knight. 
  
 Moreover, from January 2000 through December 2001, Knight failed reasonably to supervise Knight’s institutional sales traders, including
Knight’s Leading Sales Trader, who repeatedly misused ACT trade modifiers.5 Knight’s sales traders’
misuse of ACT trade modifiers limited Knight’s customers’ ability to assess the execution quality they were receiving from Knight. Knight’s failure to prevent the traders from repeatedly misusing the ACT trade modifiers also limited
the ability of the Firm’s institutional customers to detect the fact that Knight was extracting excessive profits at their expense — and resulted in Knight’s institutional orders trading ahead of certain limit orders placed by
Knight’s customers. 
  
 Knight also violated the books and
records provisions of the federal securities laws from January 2000 through May 2002. Specifically, Knight did not retain email communications relating to its business. In addition, Knight’s purchase and sales blotter (also referred to as a
trading blotter) contained inaccurate information regarding time of execution of certain trades. Finally, Knight failed to include required information on some order tickets and failed to maintain certain order tickets for the time period required
by the federal securities laws. 
  

	B.	RESPONDENT 

  
 Knight Securities, L.P., now know as Knight Equity Markets, L.P., is a registered broker-dealer headquartered in Jersey City, New Jersey. Knight is a
subsidiary of Knight Trading Group, Inc., a Delaware corporation headquartered in Jersey City, New Jersey. The common stock of Knight Trading Group, Inc. is registered with the Commission pursuant to Exchange Act Section 12(g) and trades on the
NASDAQ National Market (“NASDAQ”). During 1999 through 2001 Knight was one of the largest NASDAQ market makers. 

	5	“ACT” refers to the automated system owned and operated by The Nasdaq Stock Market, Inc. which, among other things, transmits reports of transactions to
the National Trade Reporting System for dissemination to the public and the industry. 

  

 3 

	C.	FACTS 

  

	 	1.	Knight Defrauded Institutional Customers by Failing to Provide Best Execution 

  

	 	a.	The Flow of Institutional Orders Through Knight 

  
 From 1999 through 2001, Knight’s institutional sales traders were responsible for the relationship between Knight and its institutional customers.
For example, sales traders at Knight (i) solicited business directly from institutional customers, (ii) served as the liaisons between Knight and the institutions, and (iii) directly took buy or sell orders from the institutional customers.

  
 Nearly all institutional orders Knight’s sales traders
received during the 1999-2001 time period were handled on a “not held” basis. In “not held” institutional orders, the institutional customer grants the broker-dealer the discretion to work the order. Because “not held”
orders are worked on a discretionary basis, the orders did not — by their terms — require execution at any specific time or price. 
  
 Once Knight’s sales traders received “not held” orders from their institutional customers, the sales traders communicated those orders to
the traders in Knight’s market-making group (“market-makers”). Knight’s market-makers then proceeded to either fill those orders with stock in Knight’s own inventory accounts or acquire a position in the market (through
other market-makers or Electronic Communications Networks). Although Knight’s market-makers were responsible for establishing the Firm’s positions in the stock to fill an institutional order, Knight’s sales traders were responsible
for the execution of institutional customer transactions and had discretion as to when — and at what price — to execute the stock to the customer (i.e. pass the stock along to the customer). 
  
 Knight’s institutional customers expected Knight to work their orders to
obtain “best execution” on their behalf. While the institutional customers were sophisticated firms that could view general components of the market — such as the inside bid and ask quotes, the volume traded and the average price
during the life of the order — they could not see the size of Knight’s position in the stocks that were the subject of their orders, the timing of Knight’s positioning in the stocks and Knight’s cost basis, all of which limited
the customers’ ability to ascertain execution quality. Knight took advantage of its customers’ inability to view the timing, size and cost of Knight’s positions and, as a result, made excessive profits at their expense. 
  
 Additionally, Knight’s sales traders misused modifiers when reporting
trades — which camouflaged the disparity between Knight’s execution price and the current market price. This affected the ability of the firm’s institutional customers to monitor the quality of the execution they received from Knight.
Knight’s sales traders often executed trades to Knight’s institutional customers at prices that were significantly away from the market 

  

 4 

 
price. By misusing the ACT trade modifiers, Knight sales traders reported those trades to ACT as executed at a different point in time — often a point
when the market price more closely correlated to the prices actually given to Knight’s customers. Further, by misusing ACT trade modifiers and changing the execution times of customer trades, Knight’s sales traders avoided limit order
protection protocols and filled more profitable institutional “not held” orders before certain resting limit orders. 
  

	 	b.	The “Best Execution” Fraud 

  
 From January 1999 through November 2000, Knight engaged in a pattern of fraud by trading for its institutional customers in a manner that involved
effectively no risk to Knight for the purpose of deceptively generating excessively high profits. By working “not held” orders in a manner designed to yield Knight the greatest possible profits, Knight failed to meet its duty to provide
“best execution” for orders placed by the firm’s institutional customers. 
  
 Knight, through certain institutional sales desk personnel, engaged in fraud for the purpose of improperly generating excessive profits in the following manner: after receipt of the institutional orders, but prior to
executing the orders, Knight’s sales desk had Knight’s market makers acquire long or short positions in the market pursuant to the customer’s order. In instances where the market was moving in a favorable direction in relation to the
value of Knight’s position in the stock, certain members of Knight’s sales desk executed relatively small portions of the position to the customer, while retaining the rest of the position. Knight’s sales desk delayed executing the
customer’s order — ultimately filling the order at prices substantially greater than Knight’s own costs. Knight thereby maximized its own profit at the expense of the Firm’s institutional customers. 
  
 In the instances where the market was moving in an unfavorable direction in
relation to Knight’s position in the stock, certain members of Knight’s sales desk reduced the Firm’s position by executing its remaining positions in the order to the customer at prices that generated a profit for Knight —
thereby virtually eliminating the risk that Knight would incur losses on the execution of a customer’s order. 
  
 Knight defrauded its institutional customers on thousands of occasions during the relevant time period. Knight’s handling of the following three
institutional orders exemplifies the manner in which it defrauded its institutional customers by improperly working both buy and sell orders to deny institutional customers “best execution.” 
  

	 	i.	April 4, 2000 Buy Transaction: Applied Micro Circuits Corporation 

  
 On April 4, 2000, Knight pocketed a profit of over $1.1 million — or an average of $3.94 per share — over a period of less than 90
minutes by executing a market not-held order on behalf of an institutional customer to purchase 290,000 shares of Applied Micro Circuits Corporation (AMCC)6 that involved effectively no risk to Knight. 

	6	AMCC traded on the NASDAQ. 

  

 5 

 At approximately 12:49 p.m., Knight received the first part of the market not-held order from the
customer with instructions to buy 250,000 shares of AMCC, which was later increased to an order to buy 500,000 shares.7 At the time Knight received the first part of the order, Knight was short 1,239 shares of AMCC in its proprietary account. Knight began purchasing shares of AMCC almost immediately upon receipt of the institutional order. Over the
next 18 minutes, Knight acquired a long position of approximately 147,000 shares at an average cost of approximately $91.00 per share. 
  
 Rather than promptly selling the 147,000 shares to the institutional customer at Knight’s own cost basis of $91.00 plus a reasonable amount of
compensation,8 Knight sold them to the customer over a period of time at an approximate average price of $93.00 per
share — yielding Knight an average profit of approximately $2.00 per share.9 Throughout the day, Knight
continued to hold a significant position in the stock in anticipation of filling the institutional customer’s order. However, instead of passing those shares on to the institutional customer to fill its order at or around the price Knight had
acquired the shares, Knight continued to sell portions of its AMCC position to the institutional customer at prices significantly higher than Knight’s own costs. In fact, at one point in working the order, Knight sold shares to the
institutional customer at a profit of over $8.00 per share. Knight finally executed the last part of the order at 14:10:59.10 

	7	However, Knight only filled 290,000 shares of the 500,000 share order to buy AMCC. The balance of the order was cancelled by the customer. 

 

	8	During the relevant time period, Knight generally traded with its institutional customers on a “net basis.” A firm trades “net” with an
institution when the firm accumulates a position at one price and executes the offsetting trade with an institutional customer at another price, so that the firm’s compensation for trades are embedded in the price that institutional customers
paid for trades. In accordance with the custom and expectation in the industry, Knight’s institutional customers believed that the net prices they paid for trades with Knight were based upon Knight’s cost in acquiring (or selling) shares
pursuant to their orders, plus a reasonable amount of compensation. Knight’s profit per share during the relevant time period was far in excess of its customers’ expectations. 

  

	9	While handling the AMCC order, Knight was at times reporting executions improperly through the misuse of ACT modifiers —giving the customer the impression that
the executions took place at a different point in time — a point when the market price more closely correlated to the prices actually given to Knight’s customer. For example, during the AMCC order there was a period of time in which the
market moved against Knight’s position. Knight was able to profit even as the share price went down by attaching ACT modifiers and executing to the customer based on prices at an earlier time. 

  

	10	The table below sets forth the relevant data underlying Knight’s executions for the AMCC buy order described above. 

  

											
	 Time Trade Reported to
ACT

	 	 Time Trade
 Executed

	 	 Quantity
 of Shares Executed to
Customer

	 	 Execution Price

	 	 Knight’s Buy Avg. Cost

	 	 Knight’s Profit per
Share

	 13:07:24
	 	12:49:00	 	35,000	 	94.06	 	91.56	 	2.49
	 13:10:53
	 	13:00:00	 	75,000	 	93.25	 	91.56	 	1.68
	 13:13:26
	 	13:02:00	 	55,000	 	92.75	 	90.75	 	1.99

  

 6 

 
Knight’s average profit per share for the institutional customer’s order was approximately $3.94 per share — for a total of over $1.1 million
in profit on a transaction for which Knight bore effectively no risk of loss. 
  

	 	ii.	January 18, 2000 Sell Transaction: ViroPharma, Inc. (VPHM) 

  
 On January 18, 2000, Knight pocketed a profit of over $350,000 — or an average of $4.81 per share — by executing a market not-held order on
behalf of an institutional customer to sell 72,700 shares of ViroPhama Inc. (VPHM)11 that involved effectively no
risk to Knight. 
  
 At approximately 9:10 a.m., on January 18,
2000, Knight received a market not-held order from an institutional customer to sell 72,700 shares of VPHM. Knight’s proprietary position in VPHM at the time it received the order was long about 300 shares. Within minutes of the opening, Knight
built a short position of 102,380 shares at an average sell cost of almost $80.00 per share. Knight’s first execution with its institutional customer was a purchase from the customer of 41,000 shares. Even though Knight — with the
customer’s sell order in hand — sold VPHM stock for almost $80.00 per share, the Firm covered its short position by purchasing stock from the institutional customer at $75.00 per share.12 In approximately 25 minutes, Knight made three purchases from the institutional customer, all at the same execution price of $75.00. 13 Knight’s average profit per share for the entire order was $4.81.14 

  

											
	 13:38:43
	 	13:31:00	 	50,000	 	99.75	 	94.55	 	5.20
	 13:39:52
	 	13:33:00	 	15,000	 	101.13	 	94.55	 	6.57
	 13:43:53
	 	13:43:52	 	20,000	 	109.50	 	100.77	 	8.73
	 14:10:59
	 	14:10:59	 	40,000	 	119.50	 	112.31	 	7.19

  

	11	VPHM traded on the NASDAQ. 

  

	12	Knight misused modifiers throughout the VPHM order — which again camouflaged the disparity between Knight’s execution price and the current market price
— making it difficult for the customer to assess the quality of execution they were receiving from Knight. 

  

	13	The table below sets forth the relevant data underlying Knight’s executions for the VPHM sell order described above. Knight initially reported the following
executions to ACT at an earlier point in time. However, the chart below reflects data contained in a subsequent report submitted to ACT by Knight. 

  

											
	 Time
 Trade
 Reported
 to ACT

	 	 Time
 Trade
 Executed

	 	 Quantity
 of Shares
 Executed
 to Customer

	 	 Execution
 Price

	 	 Knight’s
 Sell
 Avg.
 Cost

	 	 Knight’s
 Profit per
 Share

	 10:02:07
	 	9:30:00	 	41000	 	75	 	79.81	 	4.81
	 10:09:46
	 	9:33:00	 	11700	 	75	 	79.81	 	4.81
	 10:09:55
	 	9:35:35	 	20000	 	75	 	79.81	 	4.81

  

	14	Knight again misused modifiers on a number of occasions throughout the ETEK order —
reporting execution times improperly and hindering the customer’s ability to monitor the quality of the execution they received from Knight. 

  

 7 

	 	iii.	March 16, 2000 Sell Transaction: E-Tek Dynamics, Inc. (ETEK) 

  
 On March 16, 2000, Knight pocketed a profit of over $971,000 — or an average of $7.00 per share — by executing a market not-held order on behalf
of an institutional customer to sell 138,800 shares of E-Tek Dynamics (ETEK)15 that involved effectively no risk to
Knight. 
  
 At approximately 9:20 a.m., Knight received a market
not-held order from an institutional customer to sell 138,800 shares of ETEK. At the time of the order, Knight’s proprietary account was long 20,000 shares of ETEK. Knight quickly reduced its position from long 20,000 shares to flat within the
first 5 minutes of trading as it sold ETEK aggressively. Knight sold approximately 75,000 shares of ETEK at an average sell cost of $239.51 per share, to establish a short position of about 55,000 shares — within about 50 minutes after
receiving the order. Over the next two hours, Knight continued to sell to the market while incrementally purchasing shares from the institutional customer. Even though Knight — with the customer’s sell order in hand — sold ETEK for an
average sell cost of approximately $239.51 per share, Knight covered its initial short position by purchasing the stock from the institutional customer at prices that ranged from $229.00 per share to $239.00 per share. At one point in the ETEK
order, Knight was purchasing stock from its customer at a profit to Knight of $19.72 per share. Knight executed the last part of the order at 11:44:00 a.m., more than two hours after receiving the order to sell. 16 Knight’s average profit for the sell order was approximately $7.00 per share — an excessively high profit for handling an order that
involved effectively no risk to Knight. 

	15	ETEK traded on the NASDAQ. 

  

	16	The table below sets forth the relevant data underlying Knight’s executions for the ETEK sell order described above. 

  

											
	 Time Trade
Reported to ACT

	  	 Time Trade
 Executed

	  	Quantity of Shares
Executed to Customer

	  	Execution Price

	  	Knight’s Sell Avg. Cost

	  	Knight’s Profit per
share

	 10:11:56
	  	10:11:56	  	25000	  	239.00	  	239.51	  	0.51
	 10:17:44
	  	10:17:44	  	15000	  	235.00	  	238.68	  	3.68
	 10:18:45
	  	10:18:44	  	8800	  	230.00	  	238.68	  	8.69
	 10:21:23
	  	10:21:22	  	15000	  	229.00	  	238.68	  	9.69
	 10:33:12
	  	10:33:11	  	10000	  	227.25	  	235.92	  	8.67
	 11:04:26
	  	11:04:23	  	15000	  	218.00	  	222.82	  	4.81
	 11:06:17
	  	11:00:00	  	10000	  	207.00	  	218.50	  	11.51
	 11:07:21
	  	11:07:19	  	1200	  	206.94	  	217.11	  	10.18
	 11:14:35
	  	11:00:00	  	2500	  	204.00	  	215.45	  	11.46
	 11:40:15
	  	11:31:00	  	12500	  	215.25	  	221.72	  	6.47
	 11:41:24
	  	10:55:00	  	8000	  	202.00	  	221.72	  	19.72
	 12:42:58
	  	12:42:39	  	5000	  	229.13	  	233.48	  	4.35
	 14:53:10
	  	11:44:00	  	10800	  	224.86	  	234.68	  	9.82

  

 8 

	 	iv.	Additional Examples of Defrauding Institutional Customers 

  
 While the transactions described above typified Knight’s fraudulent trading practices during 1999-2000, they were just three orders among many in
which Knight’s customers were defrauded. Other examples of orders in which certain Knight sales desk personnel fraudulently failed to provide “best execution” to their institutional customers in order to generate excessive profits
included: (1) a 250,000 share order of Coronet Metals, Inc. (CRFH:NASDAQ) executed by Knight on March 8, 2000 in which Knight took in an average profit per share of $2.92 and realized a total profit of $730,000.00; (2) a 25,000 share order of
Adaptive Broadband Corp (ADAP:NASDAQ) in which Knight’s average profit per share was $9.63 and realized a total profit of $240,750.00; and (3) a 200,000 share order of Digex Inc (DIGX:NASDAQ) executed by Knight on April 4, 2000 in which Knight
pocketed an average profit per share of $6.22 and realized a total profit of $1,244,000.00. In each instance, the institutional customers had no expectation that Knight was taking such excessive profits and profits per share out of their
institutional orders. 
  

	 	c.	Knight Failed to Reasonably Supervise Its Leading Sales Trader  

	 	    	With a View Towards Preventing the Best Execution Fraud 

  
 From January 1999 though November 2000, Knight failed to establish procedures to prevent its Leading Sales Trader from intentionally depriving
institutional customers of “best execution” and thereby taking excessive profits from these customers’ orders. Specifically, Knight failed to maintain an effective review system in the form of exception reports or some other mechanism
to reasonably monitor and prevent the violations caused by its Leading Sales Trader and its institutional sales business. 
  
 During the same period, Knight’s Leading Sales Trader was directly supervised by his brother, the head of the institutional sales desk who had
overall supervisory responsibility for the desk (the “Desk Supervisor”). In addition to being his brother and supervisor, the Desk Supervisor had a unique financial interest in the Leading Sales Trader’s trading. From January 1999
through at least April 2000, the brothers had a profit-sharing arrangement, approved by Knight’s CEO and senior management, by which the Desk Supervisor received half of the Leading Sales Trader’s payout on profits generated by his trading
with institutional customers. As the head of the institutional sales desk, one of the Desk Supervisor’s designated responsibilities was to assign institutional customer accounts to the sales traders within the institutional sales desk. As a
result, the Desk Supervisor assigned most of Knight’s largest institutional customers’ accounts to his brother. Their relationship, their positions and responsibilities within the Firm and their profit-sharing arrangement created an
inherent conflict of interest that contributed to a substantial breakdown in the supervision over Knight’s Leading Sales Trader. 
  

 9 

	 	2.	Knight’s Misuse of ACT Trade Modifiers 

  

	 	a.	Books and Records Violations Relating to Knight’s Sales Traders’ 

	 	    	Inaccurate Use of ACT Trade Modifiers 

  
 During 2000-2001, Knight’s sales traders generally used two types of ACT trade modifiers to identify late trade reports and executions:
“.SLD” (‘Sold’ Late) modifiers and “.PRP” (Prior Reference Price) modifiers. The National Association of Securities Dealers (“NASD”) requires that firms use .SLD trade report modifiers when transactions are
reported to ACT “late” (i.e. if the transactions were not reported within 90 seconds after execution). The NASD requires that firms use the .PRP trade report modifiers when they execute a transaction that, although, reported to ACT timely,
actually related to an obligation to trade that arose at an earlier point in the day or that referred to a prior reference price. At Knight, the sales traders were responsible for attaching the .SLD and .PRP trade modifiers to specific transactions
and manually entering the execution time. 
  
 Throughout the
relevant time period, Knight’s sales traders misused the .SLD and .PRP modifiers in connection with over 12,000 trades. Knight’s sales traders routinely reported transactions late with the .SLD trade report modifier even in cases where the
execution time was within 90 seconds of the report time. In addition, during the same period, a number of Knight’s sales traders improperly reported transactions with a .PRP trade modifier, indicating that the execution was supposed to have
occurred earlier, based upon the price at the prior time, when in fact, there was no such obligation. By misusing the ACT trade modifiers, Knight sales traders were able to improperly input trades into Knight’s trading system at prices that
were different from the inside market at the time the trades were reported. Further, through the misuse of modifiers, Knight’s sales traders avoided limit order protection protocols and filled institutional “not held” orders before
certain resting limit orders placed by Knight’s customers. 
  
 The misuse of the modifiers by Knight’s sales traders resulted in inaccurate and untimely reporting of its trades to ACT. This resulted in the recording of inaccurate execution times on Knight’s purchase and sale blotters. Thus,
as a result of Knight’s sales traders’ misuse of the .SLD and .PRP modifiers during this period, Knight’s sales traders were recording inaccurate execution times on Knight’s books and records (specifically, on Knight’s
purchase and sale blotters). Accordingly, Knight violated the books and records provisions of the securities laws. 
  

	 	b.	Knight’s Failure to Supervise and Books and Records Violations  

	 	    	Relating to the Sales Traders’ Modifier Misuse 

  
 During 2000-2001, Knight had no written procedures, no adequate systems in place and no supervisory personnel to prevent Knight’s sales traders from
misusing ACT modifiers. The misuse of ACT modifiers led to the sales traders’ recording inaccurate execution times on the firm’s trading blotters. During the relevant time period, Knight did not take reasonable steps to establish or
implement a system to prevent the misuse of 

  

 10 

 
modifiers and the recording of inaccurate execution times on the firm’s trading blotters. Additionally, Knight’s inadequate supervisory system
failed to provide for follow-up when Knight’s personnel became aware that the institutional sales traders were repeatedly misusing the modifiers and recording inaccurate execution times on the firm’s trading blotters. Knight failed to
supervise reasonably its sales traders in order to prevent or detect the traders’ conduct in connection with the firm’s books and records violations. 
  

	 	3.	Knight Failed to Properly Retain E-mails and Order Tickets 

  
 From January 2000 through May 2002, Knight stored employees’ e-mails on a back-up tape drive for a period of only 30 days — notwithstanding the
fact that the federal securities law required the Firm to retain e-mails for a three-year period. After the 30-day period passed. Knight re-used the tape drive and wrote-over the prior e-mails. The e-mail data was not otherwise retained. In
addition, Knight’s backup system only captured e-mails that were present at the time of the backup and thus would not capture any e-mails that might have been deleted during the day. 
  
 In the period from 2000 through 2002, Knight also failed to retain certain order tickets generated from its institutional
sales desk and, of the order tickets Knight did retain, numerous order tickets failed to contain information required by rule including the order receipt time, execution time, terms and conditions and modifications related to specific orders.

  
 IV. 
  
 VOLUNTARY UNDERTAKING 
  
 In determining whether to accept the Offer, the Commission has considered
Knight’s voluntary retention of an Independent Compliance Consultant (“Independent Consultant”). The Independent Consultant’s review includes, but is not limited to, a comprehensive review of (i) Knight’s policies and
procedures designed to ensure compliance with federal securities laws and the NASD rules with respect to best execution obligations, trade reporting requirements, limit order requirements, and books and records requirements; (ii) Knight’s
procedures for implementing such policies and procedures, and systems; and (iii) Knight’s supervisory and compliance structure. 
  
 V. 
  
 VIOLATIONS 
  
 As a result of the conduct described above, the Commission finds that: 
  
 Knight willfully violated Section 15(c)(1)(A) of the Exchange Act as defined in Rule 15c1-2, in that it, while acting as a broker-dealer, effected transactions in the purchase and sale of securities by means of
manipulative, deceptive, and other fraudulent devices 

  

 11 

 
or contrivances.17
Specifically, Knight fraudulently failed to give its institutional customers “best execution” on those orders, thereby generating excessive profits for the firm. 
  
 Knight failed reasonably to supervise its Leading Sales Trader pursuant to Section 15(b)(4)(E) of the Exchange Act with a
view towards preventing him from aiding and abetting Knight’s violation of Section 15(c)(1)(A) of the Exchange Act against its institutional customers. Specifically, Knight failed to maintain an effective review system in the form of exception
reports or some other mechanism to reasonably monitor and prevent the violations caused by Knight’s Leading Sales Trader and its institutional sales business. Knight also failed to establish a system for applying procedures that would
reasonably be expected to prevent and detect violations by its Leading Sales Trader. Specifically, Knight designated the Leading Sales Trader’s brother to supervise him, while allowing the brother to share in half of all of the net proceeds
derived by the Leading Sales Trader from his institutional trading. 
  
 Knight failed reasonably to supervise its institutional sales traders pursuant to Section 15(b)(4)(E) of the Exchange Act while they were systematically misusing ACT modifiers. Knight had no established procedures or system in place to
prevent its sales traders from consistently misusing the modifiers over a two-year period. As a result of Knight’s failure to reasonably supervise its sales traders on the use of ACT modifiers, Knight’s sales traders routinely recorded
inaccurate execution times on the Firm’s daily trading blotters, and thereby aided and abetted Knight’s violation of Section 17(a) of the Exchange Act and Exchange Act Rule 17a-3(a)(1). Exchange Act Rule 17a-3(a)(1) requires that a
broker-dealer make and keep current, among other things, blotters (or other records of original entry) containing an itemized daily record of all purchases and sales of securities.18 
  
 Knight willfully violated Section 17(a) of the Exchange Act and Exchange Act Rule 17a-4(b)(4) by failing to maintain originals of all communications received and copies of all communications sent by the broker-dealer
relating to its business as such for a period of not less than three years. Specifically, Knight failed to retain e-mails relating to its business for three years as required pursuant to Rule 17a-4(b)(4). 
  
 Knight willfully violated Section 17(a) of the Exchange Act and Exchange Act
Rules 17a-4(b)(1) and 17a-3(a)(7) by failing to properly maintain order tickets and by failing to record certain required information on its order tickets. Rule 17a-4(b)(1) requires that, 

	17	Rule 15c1-2 under the Exchange Act provides that the term “manipulative, deceptive or other fraudulent device or contrivance,” as used in Section
15(c)(1)(A) of the Exchange Act, is defined to include “any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.” 

  

	18	Information contained in any required record, filing or report must be accurate. U.S. v. Sloan. 389 F.Supp. 526, 528 (S.D.N.Y.1975); Merrill Lynch, Pierce,
Fenner & Smith, Inc., Exchange Act Rel. No. 33367 (Dec. 22,1993), 55 SEC Docket 2281. 

  

 12 

 among other things, a broker-dealer preserve for a period of not less than three years, the first two years in an
accessible place, all records required to be made pursuant to Rule 17a-3(a)(7). Rule 17a-3(a)(7) requires that certain information be recorded on order tickets including order receipt time, order execution time, and the terms and conditions and
modifications relating to an order. Knight failed to preserve a number of order tickets from the 2000 through 2002 time period and, of the order tickets Knight did preserve, a number of the tickets failed to contain order receipt time, execution
time, terms and conditions and modifications related to the orders. 
  
 Knight willfully violated Section 17(a) of the Exchange Act and Exchange Act Rule 17a-3(a)(1) by recording inaccurate execution times on the Firm’s daily trading blotters. Exchange Act Rule 17a-3(a)(1) requires that a broker-dealer
make and keep current, among other things, blotters (or other records of original entry) containing an itemized daily record of all purchases and sales of securities. Information contained in any required record, filing or report must be accurate.
19 
  
 VI. 
  
 SANCTIONS 
  
 In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions agreed in Respondent Knight’s Offer. 
  
 Accordingly, it is hereby ORDERED that: 
  
 A. Pursuant to Section 21C of the Exchange Act, Knight shall cease and desist from committing or causing any violations and
any future violations of Sections 15(c)(1) and 17(a) of the Exchange Act and Rules 17a-3(a)(1), 17a-3(a)(7), 17a-4(b)(1) and 17a- 4(b)(4) thereunder. 
  
 B. Knight is hereby censured pursuant to Section 15(b)(4) of the Exchange Act. 
  
 C. Monetary Relief 
  
 1. Knight shall pay disgorgement in the total amount of $41,146,663.50, representing disgorgement of ill-gotten gains obtained by Knight
as a result of the conduct described in Section III, above; 
  
 2. Knight shall pay prejudgment interest on its disgorgement obligation, in the amount of $13,195,068.00; 
  
 3. Knight shall pay a civil money penalty in the amount of $12,500,000.00; 

	19	Id. 

  

 13 

 4. Knight acknowledges, pursuant to Knight’s agreement with the NASD in a related
proceeding, that Knight shall pay a fine in the amount of $12,500,000.00 to the NASD; 
  
 5. There shall be, pursuant to Section 308(a) of the Sarbanes Oxley Act of 2002, a Fair Fund established for the funds described in
Section VI.C.1, 2 and 3. Regardless of whether any such Fair Fund distribution is made, amounts ordered to be paid as civil money penalties pursuant to this Order shall be treated as penalties paid to the government for all purposes, including all
tax purposes. To preserve the deterrent effect of the civil penalty, Knight agrees that it shall not, in any Related Investor Action, benefit from any offset or reduction of any investor’s claim by the amount of any Fair Fund distribution to
such investor in this proceeding that is proportionately attributable to the civil penalty paid by Knight (“Knight Penalty Offset”). If the court in any Related Investor Action grants such an offset or reduction, Knight agrees that it
shall, within 30 days after entry of a final order granting the offset or reduction, notify the Commission’s counsel in this action and pay the amount of the Knight Penalty Offset to the United States Treasury or to a Fair Fund, as the
Commission directs. Such a payment shall not be deemed an additional civil penalty and shall not be deemed to change the amount of the civil penalty imposed against Knight in this proceeding. For purposes of this paragraph, a “Related Investor
Action” means a private damages action brought against Knight by or on behalf of one or more investors based on substantially the same facts as those set forth in the Order; 
  
 6. Distribution of Disgorgement, Penalty and Interest 
  
 a. Knight has agreed to retain, within 30 days of the date
of entry of the Order, the services of an Independent Distribution Consultant not unacceptable to the staff of the Commission. The Independent Distribution Consultant’s compensation and expenses shall be borne exclusively by Knight. Knight
shall cooperate fully with the Independent Distribution Consultant and shall provide the Independent Distribution Consultant with access to its files, books, records, and personnel as reasonably requested for the review. Knight shall require that
the Independent Distribution Consultant develop a Distribution Plan for the distribution of the disgorgement, penalty and interest set forth in Section VI.C.1., 2. and 3., according to a methodology developed in consultation with Knight and
acceptable to the staff of the Commission. 
  
 b.
Knight shall require that the Independent Distribution Consultant submit a Distribution Plan to Knight and the staff of the Commission no more than 100 days after the entry of the Order. The Distribution Plan developed by the Independent
Distribution Consultant shall be binding unless, within 130 days after the date of entry of the Order, Knight or the staff of the Commission advises, in writing, the Independent Distribution Consultant of any determination or calculation from the
Distribution Plan that it considers to be inappropriate and states in writing the reasons for considering such determination or calculation inappropriate. 
  

 14 

 c. With respect to any determination or calculation with which Knight or the staff of the
Commission do not agree, such parties shall attempt in good faith to reach an agreement within 160 days of the date of entry of the Order. In the event that Knight and the staff of the Commission are unable to agree on an alternative determination
or calculation, the determinations and calculations of the Independent Distribution Consultant shall be binding. 
  
 d. Knight shall require that within 175 days of the date of the entry of the Order, the Independent Distribution Consultant submit the
Distribution Plan for the administration and distribution of disgorgement and penalty funds pursuant to Rule 1101 of the Commission’s Rules of Practice [17 C.F.R. §201.1101]. Following a Commission order approving a final plan of
disgorgement as provided in Rule 1104 of the Commission’s Rules of Practice [17 C.F.R. §201.1104], Knight shall require that the Independent Distribution Consultant, with Knight, take all necessary and appropriate steps to administer the
final plan for distribution of disgorgement and penalty funds. 
  
 c. Knight shall require that the Independent Distribution Consultant, for the period of the engagement and for a period of two years from completion of the engagement, not enter into any employment, consultant,
attorney client, auditing or other professional relationship with Knight, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity as such. Knight shall require that any firm with which the
Independent Distribution Consultant is affiliated in performance of his or her duties under the Order not, without prior written consent of the staff of the Commission, enter into any employment, consultant, attorney client, auditing or other
professional relationship with Knight, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity as such for the period of the engagement and for a period of two years after the engagement; and

  
 7. Knight shall, within 20 days of the entry
of this Order, pay the disgorgement, prejudgment interest and civil penalty described in Section VI.C.l., 2 and 3 into an interest bearing escrow account at a federally insured banking institution with deposits of not less than $100 billion pursuant
to an escrow agreement not unacceptable to the staff of the Commission. Such agreement shall, among other things: (1) require that all funds in escrow be invested as soon as reasonably possible and to the extent practicable in short-term U.S.
Treasury securities with maturities not to exceed six months; (2) name an escrow agent who shall be appropriately bonded; and (3) provide that escrowed funds be disbursed only pursuant to an order of the Commission. Respondent shall be responsible
for all costs associated with the escrow agreement. 
  
 By the Commission. 
  
 Jonathan G. Katz

 Secretary 
  

 15

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