1

01:13007308.9

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

-------------------------------------------------------------- x In re: : Chapter 11 : PENSON WORLDWIDE, INC., et al.,1 :

: Case No. 13-10061 (___)

Debtors. : :

(Joint Administration Requested)

------------------------------------------------------------- x

DECLARATION OF BRYCE B. ENGEL IN SUPPORT OF CHAPTER 11 PETITIONS AND REQUESTS FOR FIRST DAY RELIEF

I, BRYCE B. ENGEL, declare under penalty of perjury, pursuant to 28 U.S.C. § 1746, as

follows:

1. I am the President and Chief Operating Officer of Penson Worldwide,

Inc., a Delaware corporation and one of the above captioned debtors and debtors-in-possession in

these chapter 11 cases (each a “Debtor”). I have served in this capacity since August, 2011, and

I am familiar with the day-to-day operations, financial conditions, business affairs and books and

records of the Debtors.

2. On the date hereof (the “Petition Date”), each of the Debtors filed a

voluntary petition for relief under chapter 11 of title 11 of the United States Code, 11 U.S.C. §§

101-1532 (the “Bankruptcy Code”). The Debtors are operating their business and managing

their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy

Code. No trustee, examiner or statutory committee has been appointed in these chapter 11 cases.

1 The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number, are: Penson Worldwide, Inc. (6356); SAI Holdings, Inc. (3657); Penson Financial Services, Inc. (3990); Penson Financial Futures, Inc. (6207); Penson Holdings, Inc. (4821); Penson Execution Services, Inc. (9338); Nexa Technologies, Inc. (7424); GHP1, Inc. (1377); GHP2, LLC (1374); and Penson Futures (6207). The Debtors’ mailing address is 800 Klein Road, Suite 200, Plano, Texas 75074.

2

01:13007308.9

By motion filed concurrently herewith, the Debtors have requested the joint administration of

their cases for procedural purposes.

3. The Debtors have requested various types of relief in “first day”

applications and motions (each a “First Day Pleading”). The First Day Pleadings seek relief

aimed at, among other things, (a) preserving the value of the Debtors’ remaining assets, (b)

ensuring the continuation of the wind-down of the Debtors’ business operations, as applicable,

without disruption, and (c) establishing certain administrative procedures to facilitate a smooth

transition into chapter 11. The relief requested in the First Day Pleadings is critical to the

success of these chapter 11 cases and the Debtors’ chapter 11 efforts.

4. I submit this declaration (the “Declaration”) in support of the Debtors’

chapter 11 petitions and First Day Pleadings. I am familiar with the contents of each First Day

Pleading, and I believe that the relief sought in each such motion or application (a) is necessary

to enable the Debtors to operate in chapter 11 with minimum disruption or loss of value, (b)

constitutes a critical element in achieving a successful chapter 11 process for the Debtors, and (c)

is in the best interests of the Debtors, their estates and creditors.

5. Except as otherwise indicated, all facts set forth in this Declaration are

based upon my personal knowledge, information supplied to me by other members of the

Debtors’ management team and/or professionals retained by the Debtors, information learned

from my review of relevant documents, or my opinion based upon my experience and knowledge

of the Debtors’ operations and financial condition. If I were called upon to testify, I could and

would testify competently to the facts set forth herein.

6. Part I of this Declaration provides an overview of the Debtors and their

assets and liabilities. Part II of this Declaration discusses significant restructuring activities and

3

01:13007308.9

asset dispositions prior to the commencement of these cases. Part III of this Declaration

discusses the events precipitating these chapter 11 cases and negotiations with key stakeholders

related to these chapter 11 cases. Finally, Part IV of this Declaration discusses the relief sought

in the First Day Pleadings.

I. Overview Of The Debtors, Their Businesses And Their Financial Condition

7. Penson Worldwide, Inc. (“PWI”), through its subsidiaries (together with

PWI, “Penson”), has historically provided execution, clearing, custody, settlement, and

technology products and services to financial firms. Penson was founded in 1995 and grew from

providing clearing and execution services to three correspondent firms into one of the largest

independent securities clearing brokers in the United States, based on number of correspondents

as of December 31, 2011, and one of the top two clearing brokers overall in the United States.

Additionally, Penson’s foreign-based subsidiaries were some of the largest independent clearing

brokers in Canada and Australia and the second largest independent clearing broker in the United

Kingdom as of December 31, 2010.

8. Historically, Penson’s clients have primarily been online, institutional, and

retail brokers. Penson’s revenues have consisted of transaction processing fees earned from

clearing operations and interest income earned from margin lending, investing customers’ cash

and stock lending, as well as fees earned from non-trading activities and services, including

execution services, trade aggregation, prime brokerage foreign exchange and fixed income, and

licensing and development fees from its clients’ use of Penson’s technology solutions. In 2011,

Penson had revenue of $217.3 million, which was comprised of the following categories (by

percentage): 48% of revenue was clearing and commission fees; 28% of revenue was net

interest income; 10% of revenue was from technology products; and the remaining 14% came

from other areas.

4

01:13007308.9

9. As discussed below, over the past twelve months, Penson has undertaken

significant divestitures of both its foreign- and United States-based direct investment clearing

services business lines.

A. Corporate Structure

10. A complete corporate organization chart of PWI and its direct and indirect

subsidiaries (certain of which are non-Debtors) is attached hereto as Exhibit A.

11. PWI is a holding company incorporated in Delaware, and PWI owns

100% of the equity of SAI Holdings, Inc. (“SAI Holdings”), another holding company. PWI and

SAI Holdings have historically conducted business through their direct and indirect subsidiaries.

SAI Holdings directly owns the following entities, each of which is a Debtor in these cases:

GHP1, Inc. and GHP2, LLC, Penson Execution Services, Inc., Penson Financial Futures, Inc.,

Penson Financial Services, Inc. (“PFSI”), Penson Holdings, Inc. (“Penson Holdings”), and Nexa

Technologies, Inc. (“Nexa”). Nexa is the only Debtor with on-going business operations.

12. Penson Holdings directly owns a number of non-Debtor entities, including

Penson Asia Limited (“Penson Asia”), Penson Financial Services Canada Inc. (“Penson

Canada”), Penson Financial Services Ltd. (“Penson UK”), and Penson Financial Services

Venture, Inc.

B. The Debtors’ Businesses and Assets

Nexa Technologies 1.

13. Penson’s only operating business in the United States is its technology and

data product offerings, which are principally developed and marketed through Nexa. Nexa’s

business includes the development and marketing of customizable front-end trading platforms, a

comprehensive database of real-time and historical United States and international equities,

options and futures trade data, and order-management services. This technology embedded in

5

01:13007308.9

Nexa’s securities and futures processing infrastructure has enhanced Penson’s capacity to handle

an increasing volume of transactions without a corresponding increase in personnel. Nexa uses

proprietary technology and technology licensed from third parties to provide customized,

detailed account information to its clients.

14. Nexa’s technology revenue generally includes revenue from software

development and customization of products and features, but its technology products are

designed to generate substantial transaction and subscription-based revenue. A significant

portion of Nexa’s revenue is recurring in nature and is generated by correspondents under

contracts that generally have initial terms of two years. Nexa’s revenue in 2011 was $14.2

million, and its revenue for the first half of 2012 was $7.5 million.

15. The Debtors have recently begun the process of marketing Nexa as a

going-concern sale, and expect to consummate a sale of Nexa during these chapter 11 cases.

Broker-Dealer Business 2.

16. Penson’s broker-dealer subsidiaries historically provided clearing and

execution, custody and financing services to their securities and futures clients. Clearing is the

verification of information between two parties in a securities or futures transaction and the

subsequent settlement of that transaction, either as a book-entry transfer or through physical

delivery of certificates, in exchange for payment. Custody services are the safe-keeping and

managing of another party’s assets, such as physical securities, as well as customer account

maintenance and customized data processing services. Financing is provided through margin

lending to correspondents and their customers, and this process involves extending credit to

correspondents and their clients for a portion of the purchase price of the securities, which is

collateralized by existing securities and cash in the accounts of the correspondents and their

customers.

6

01:13007308.9

17. The broker-dealer subsidiaries historically earned interest revenue

generated from margin lending, securities lending, the reinvestment of customer funds and stock

conduit borrowing activities as well as non-interest revenues. The non-interest revenues are

generated from transaction processing and clearing fees and fees for providing other non-trading

activities and services, including execution services, trade aggregation, prime brokerage, foreign

exchange and fixed income.

United States Broker-Dealer Operations a.

18. As a result of the Apex Transaction and Knight Transaction (each of

which is defined and discussed more fully below), PFSI is no longer a registered broker-dealer,

and the Debtors no longer have any United States-based broker-dealer operations. However, as

discussed below, PFSI owns a 93.75% interest in Apex Clearing Holdings LLC (“Apex

Holdings”). On a go-forward basis, PFSI’s revenues and receipts are expected to consist

primarily of: (i) transition services fees under the Apex Transition Agreement and Knight

Transition Agreement (each as defined below); (ii) repayment of the Penson-Apex Credit

Facility (as defined below); (iii) the Knight Earn-Out (as defined below); (iv) the release of

deposits and escrows from various exchanges posted by PFSI in the conduct of its broker-dealer

business; and (v) distributions, if any, from its ownership interest in Apex Holdings.

Canadian Broker-Dealer Operations b.

19. Penson Canada continues to provide execution, clearing, and settlement

services in Canada, and it is an investment dealer registered in all provinces and territories of

Canada and a dealer member of the Investment Industry Regulatory Organization of Canada.

Penson Canada is not a debtor in these cases.

20. Penson has been exploring strategic alternatives to realize value from

Penson Canada’s broker-dealer operations since the Fourth Quarter of 2011, and engaged

7

01:13007308.9

investment bankers to explore all strategic options for Penson Canada in 2012. Unfortunately,

Penson was unable to find a going-concern buyer to acquire Penson Canada and, as a result,

Penson Canada has begun the wind-down of its business.

Intellectual Property 3.

21. Penson holds a number of patents associated with the automated purchase

and sale of financial instruments. Penson is in the process of performing due diligence on its

patent portfolio, and is hopeful that these patents will generate future revenue through, among

other things, the prosecution of patent infringement claims. To assist with these efforts, Penson

anticipates retaining a patent litigation firm.

Other Material Assets 4.

22. Penson has cash in various bank accounts in the approximate amount of

$2.1 million as of the close of business on January 10, 2013. Penson also has certain other less

liquid assets and possible revenue sources that may generate value during the pendency of these

chapter 11 cases, including municipal bonds and various estate causes of action.

C. Summary of Prepetition Indebtedness

23. PWI was previously a borrower under a $50 million senior secured

revolving credit facility (the “Senior Facility”), for which Region Bank served as Administrative

Agent. As of March 31, 2012, PWI had completely paid down its obligations under the Senior

Facility.

24. PWI is the issuer of $200 million in principal amount of 12.50% Senior

Second Lien Secured Notes due 2017 (the “Senior Notes”), with a maturity date of May 15,

2017. The Senior Notes were issued in 2010, and the proceeds from the Senior Notes issuance

were used to (i) pay down PWI’s then-existing secured indebtedness in the approximate amount

of $110 million, (ii) to enter into the subordinated Intercompany Note (defined and discussed

8

01:13007308.9

below) through a loan to PFSI, (iii) to provide working capital to support the correspondent

business acquired from Ridge (defined and discussed below), and (iv) for other general corporate

purposes.

25. U.S. Bank, N.A. (“US Bank”) serves as the Indenture Trustee for the

Senior Notes. Payment of the Senior Notes is guaranteed by SAI Holdings and Penson

Holdings, and the Senior Notes are secured by a second priority lien (junior only to the liens

securing the Senior Facility, which has been paid in full), on the equity interests in SAI

Holdings, Penson Holdings, PFSI and GHP1 and sixty-five percent (65%) of the equity interests

in Penson Canada. Interest payments on the Senior Notes are due in May and November of each

year. In May 2012, PWI made an interest payment of $12.5 million to the holders of the Senior

Notes, which was assisted by a distribution from PFSI. PWI did not make the interest payment

of $12.5 million on the Senior Notes due in November 2012.

26. PWI is also the issuer of $60 million in principal amount of 8.00% Senior

Convertible Notes due 2014 (the “Convertible Notes”), with a maturity date of June 1, 2014.

U.S. Bank serves as the Indenture Trustee for the Convertible Notes, which are unsecured

obligations. Interest payments on the Convertible Notes are due in June and December of each

year. In June 2012, PWI made an interest payment of $2.4 million to the holders of the

Convertible Notes, which was assisted by a $2.4 million dividend from PFSI. PWI did not make

the interest payment of $2.4 million on the Convertible Notes due in December 2012.

27. There is an intercompany note agreement dated as of May 6, 2010

between PWI, as lender, and PFSI as Broker/Dealer (the “PWI Intercompany Note”), in the

principal amount of $70 million. The $70 million loaned under the PWI Intercompany Note was

from proceeds of the Senior Notes, bears interest at 12.5% per annum, and matures on May 6,

9

01:13007308.9

2015. The PWI Intercompany Note is subordinated in payment to all claims of all other present

and future creditors of PFSI. As of the Petition Date, the principal amount outstanding under the

Intercompany Note is $70 million plus accrued interest.

28. There are also intercompany note agreements dated as of June 29, 2011, in

the principal amount of $5 million, and dated as of June 30, 2011, in the principal amount of $10

million between SAI Holdings, as an assignee through certain assignment agreements, and PFSI

(collectively, the “SAI Holdings Intercompany Notes” and together with the PWI Intercompany

Note, the “Intercompany Notes”), which matured on June 29 and June 30, 2012, respectively,

and are now payable. The SAI Holdings Intercompany Notes bear interest at 12% per annum

and are subordinated in payment to all claims of all other present and future creditors of

PFSI. As of the Petition Date, the principal amount outstanding under the SAI Intercompany

Note is $13.5 million plus accrued interest.

29. Certain creditors have disputed the validity of the Intercompany Notes.

After a series of negotiations, certain holders of the Senior Notes and the Convertible Notes and

the Debtors have agreed to treat a portion of the Intercompany Notes as allowed.

II. Prepetition Divestitures and Reorganization

30. As set forth in greater detail below, since 2011, Penson has been in the

process of winding down its businesses and liquidating its assets.

A. United States Broker-Dealer Subsidiary

31. PFSI historically provided execution, clearing, and settlement services in

the United States. In September 2011, Penson combined its United States-based securities

broker-dealer and futures businesses under PFSI. As a registered broker-dealer with the

Securities and Exchange Commission (“SEC”), a registered futures commission merchant with

the Commodities Futures Trading Commission (“CFTC”), and a member of the Financial

10

01:13007308.9

Industry Regulatory Agency (“FINRA”), PFSI was subject to certain minimum net capital

requirements, which were subject to adjustment by applicable regulators to account for PFSI’s

financial and operating condition as well as general market conditions and the overall economic

environment. For the reasons discussed in Part III below, PFSI sold both its securities and

futures divisions in May and June 2012 through the Apex Transaction (as defined below) and the

Knight Transaction (as defined below), respectively.

32. Following the closing of the Apex and Knight Transactions, PFSI

submitted a request to withdraw as a broker-dealer and resign as a member of FINRA on August

3, 2012, and also resigned as a futures commission merchant with the CFTC and as a member of

the National Futures Association. The request to withdraw as a broker-dealer was granted on

October 29, 2012.

The Apex Transaction 1.

33. In May and June 2012, PFSI and certain other parties entered into a

number of agreements (such transaction, the “Apex Transaction”) for the formation of Apex

Holdings, a limited liability company created to own Apex Clearing Corporation f/k/a Ridge

Clearing & Outsourcing Solutions, Inc. (“Apex Clearing”). PFSI (i) sold and transferred to Apex

Clearing the customer and correspondent accounts and related contractual rights of PFSI under

its securities clearing contracts and other related assets, (ii) transferred related liabilities to Apex

Clearing, and (iii) contributed net tangible assets valued under the agreements at approximately

$103 million that were counted as $90 million towards the regulatory capital of Apex Clearing

(at closing Apex Capital had a total of $130 million of regulatory capital). In addition, PFSI

agreed to certain indemnification obligations related to the Apex Transaction and contributed $2

million into an escrow account to be held for a period of five years to satisfy such indemnity

obligations, all pursuant to that certain Assignment and Assumption Agreement dated as of May

11

01:13007308.9

31, 2012 (the “Apex AAA”). In consideration for its contributions to the Apex Transaction,

PFSI received 93.75% of the membership interests in Apex Holdings.

34. The Apex AAA contains a provision providing for either the payment of

additional consideration from PFSI or the refund of consideration from Apex Clearing based on

the actual value of asset transferred under the agreement (the “NAV True-Up”). The Interim

NAV True-Up payment was to occur three days after the closing of the Apex AAA. The Interim

NAV True-Up payment was satisfied in the first few weeks after the closing of the Apex AAA

through a combination of cash paid to PFSI by Apex Clearing and funds credited to customer

accounts at Apex Clearing to satisfy obligations PFSI owed to those customers for June

settlements. PFSI has been in ongoing discussions with Apex Clearing regarding amounts it

contends it is owed under the Final NAV True-Up provision of the Apex AAA. As of the

Petition Date, PFSI believes it is owed not less than an additional $7.2 million under the Apex

AAA.

35. PFSI and certain other Debtors entered into a number of other agreements

in connection with the Apex Transaction and the transition of the securities division of its

broker-dealer business:

a. The Apex Transition Agreement: PFSI and Nexa entered into a Transition Services Agreement with Apex Holdings and Apex Clearing to provide transition services for an initial period of 12 months, which may be extended by Apex Holdings for an additional six months, to facilitate the transfer of the securities division of PFSI’s broker-dealer business to Apex Clearing (the “Apex Transition Agreement”). The amounts payable under the Apex Transition Agreement to PFSI roughly approximate the costs of providing the transition services thereunder. Additionally, PWI, PFSI and Nexa agreed to license certain intellectual property to Apex Clearing and Apex Holdings related to the transition services under the Apex Transition Agreement.

b. The Penson-Apex Credit Facility: PFSI entered into an unsecured $12 million credit facility with Apex Clearing to provide a line of credit to Apex Clearing in the post-closing period (the “Penson-Apex Credit Facility”). The line of credit under the Penson-Apex Facility is fully drawn, and matured in full on December

12

01:13007308.9

5, 2012. As of the Petition Date, Apex Clearing has not repaid the amounts borrowed under the Penson Apex Credit Facility.

c. Indemnity and Support Agreement: PWI and Nexa entered into an indemnity and support agreement, pursuant to which they have agreed to indemnify Apex Holdings, Apex Solutions (defined below) and certain of their affiliates for certain losses related to the Apex Transaction.

Also in connection with the Apex Transaction, PFSI entered into a Mutual Release and

Termination Agreement (the “Broadridge Release”) by and among Broadridge Financial

Solutions, Inc. (“Broadridge Financial”), Ridge Clearing & Outsourcing Solutions, Inc.

(“Ridge”) and Broadridge Financial Solutions (Canada), Inc. (“Broadridge Canada,” and

together with Broadridge Financial and Ridge, “Broadridge”), PWI, PFSI and Penson Canada,

which is discussed more fully in Part II (E) of this Declaration. In connection with the Apex

Transaction, Broadridge contributed its ownership interest (excluding certain retained assets and

liabilities) in Ridge’s Broker/Dealer (which is now known as Apex Clearing), to Apex Holdings.

Broadridge Financial also entered into a new master services agreement with Apex Clearing for

it to provide substantially the same services to Apex Clearing as it provided to the securities

division of PFSI.

36. Apex Clearing Solutions LLC (“Apex Solutions”), a subsidiary of Peak6

Investments, L.P. (“Peak6”), contributed $5 million in cash in consideration for 5.21% of the

membership interests in Apex Holdings. Apex Solutions also provided $35 million in

subordinated loans to Apex Clearing, which qualified as regulatory capital for Apex Clearing,

and provided Apex Clearing with a $10 million line of credit for post-closing financing. Apex

Solutions has the option to purchase all or a portion of PFSI’s interest in Apex Holdings for

consideration equal to 120% of the then current value of PFSI’s capital account. Further, Apex

Solutions is the managing member of Apex Holdings pursuant to the terms of Apex Holding’s

limited liability company agreement, and Apex Solutions is entitled to an annual management

13

01:13007308.9

fee of 20% of the first $10 million of the consolidated net profits of Apex Holdings and 30% of

the consolidated net profits in excess of such amounts. None of the other members of Apex

Holdings, including PFSI, have any voting, consent or approval rights, including the right to

demand distributions from Apex Holdings or to replace Apex Solutions as the managing member

of Apex Holdings or appoint its successor.

37. Apex Holdings had two other members as at the closing of the Apex

Transaction, which together contributed $1 million in cash in consideration for 1.04% of the

membership interests in Apex Holdings.

The Knight Transaction 2.

38. On May 28, 2012, PFSI entered into an asset purchase agreement (the

“Knight APA”) with Knight Execution & Clearing Services LLC (“Knight”) pursuant to which

(i) PFSI sold certain assets of its futures clearing business, including but not limited to, customer

contracts, segregated customer account assets, assets relating to the foreign currency exchange

business, certain membership seats and licenses for clearing exchanges, and other related assets

(the “FCM Business”) to Knight; and (ii) Knight assumed, subject to specified exceptions,

certain liabilities and obligations under customer contracts related to the FCM Business (the

“Knight Transaction”). The initial cash purchase price in the Knight Transaction was $5 million,

and PFSI is also entitled to an earn-out based on total revenues earned in the three years

immediately after the closing of the Knight Transaction (the “Knight Earn-Out”). The Knight

Earn-Out is payable 45 days after the first, second and third anniversary of the closing of the

Knight Transaction and is calculated as 1.25% of the total revenue for every $1 million of

revenue that is in excess of $20 million in each trailing twelve month period. The Knight

Transaction closed on May 31, 2012.

14

01:13007308.9

39. In connection with the Knight Transaction, PFSI entered into a Transition

Services Agreement with Knight (the “Knight Transition Agreement”), pursuant to which PFSI

agreed to provide Knight with all services, functions, products, software and intellectual property

primarily used to support the FCM Business following the closing of the Knight Transaction,

including services relating to regulatory compliance and reporting requirements. PFSI is entitled

to certain fees from Knight for these transition services, and it expects that such fees will cover

the costs for providing these services. The Knight Transition Agreement terminated by its own

terms on December 31, 2012.

B. Australian Broker-Dealer Subsidiary

40. On November 30, 2011, Pershing Group LLC, an affiliate of BNY

Mellon, acquired Penson’s Australian broker-dealer subsidiary, Penson Financial Services

Australia Pty Ltd, in a stock sale for a purchase price of $33.2 million.

C. United Kingdom Broker-Dealer Subsidiary

41. Penson UK previously provided execution, clearing, and settlement

services in the United Kingdom. On December 16, 2011, Penson announced that it would cease

its United Kingdom based operations in 2012, and completed the closure of this business line in

the second quarter of 2012 by transferring all of its correspondents to alternative providers. In

connection with an August 2011 amendment to the Broadridge MSA (defined below), Penson

was able to avoid any termination fee associated with Penson UK’s wind-down of its business

and termination of its applicable schedule to the Broadridge MSA. Penson estimated that the

cessation of its U.K. broker-dealer business would result in savings of approximately $6 million,

and the closure of Penson UK saw the release of approximately $11 million in capital against $8

million in expenses associated with the exit from that business line.

15

01:13007308.9

D. Asian Broker-Dealer Subsidiary

42. Penson Asia opened its Hong Kong office in 2007 and its Tokyo office in

2008, which focused primarily on marketing technology products to correspondents in Asia. In

September 2011, Penson commenced the closing of Penson Asia and paid certain costs

(aggregating less than $1 million) related to employee severance and contract terminations

associated with the closure of Penson Asia. Penson has concluded all of its Asia operations.

E. Termination of the Broadridge MSA and Broadridge Release

43. In June 2010, PWI closed on the acquisition (the “Ridge Acquisition”) of

the clearing and execution business of Ridge from Ridge and its parent, Broadridge Financial.

The consideration paid in the Ridge Acquisition consisted of 2.5 million shares of PWI (then

valued at approximately $14.6 million) and an approximately $20.5 million promissory note

issued to Broadridge (the “Broadridge Note”) that was contractually subordinate in payment to

PWI’s secured revolving credit facility and the Senior Notes. In connection with the Ridge

Acquisition, PWI and Broadridge entered into a Master Services Agreement (as amended, the

“Broadridge MSA”), pursuant to which Ridge would provide certain securities processing and

back-office services to Penson, and the Broadridge MSA included schedules executed by each of

PFSI, Penson Canada and Penson UK setting forth the pricing and terms for such services

44. In connection with the Apex Transaction, PWI and Broadridge entered

into the Broadridge Release on June 5, 2012. Among other things, the Broadridge Release

provides for Broadridge to release Penson from all claims under the Broadridge MSA (other than

those relating to Penson Canada) equal to an amount not less than $87 million and the

termination and discharge of the Broadridge Note without payment. The Broadridge Release

specifically preserves claims that Broadridge may have against Penson Canada in connection

16

01:13007308.9

with the termination of the MSA and related documents, subject to a limitation on the aggregate

amount of such claims of $20 million.

F. The SAMCO Transaction

45. On April 25, 2012, SAI Holdings entered into an Asset Purchase

Agreement (the “SAMCO APA”) with PNK (SA), LLC and SAMCO Capital Markets, Inc.

(together “SAMCO”) to sell certain assets related to Retama Development Corporation (“RDC”)

consisting of (a) certain promissory notes issued by RDC in the aggregate original principal

amount of $800,000 secured by a Deed of Trust, Security Agreement and Fixture Filing executed

by RDC; and (b) certain assets acquired pursuant to the public foreclosure auctions of collateral

securing certain RDC-related assets, including (i) SAI’s holdings of RDC revenue bonds, (ii) a

certain funding agreement between RDC and Call Now, Inc., a company affiliated with a former

insider of PWI, and (iii) certain assets and interests related to the RDC (collectively, the “RDC

Assets”). The total purchase price under the SAMCO APA was approximately $6.95 million

cash, and Penson recorded a write down of approximately $15.6 million in the value of the RDC

Assets as well as bad debt expenses related to its disposition of the RDC Assets. Roger J.

Engemoen, the former Chairman of the PWI Board of Directors, is the Chairman and a

controlling shareholder of SAMCO.

III. Events Leading to the Debtors’ Chapter 11 Filing

A. Declines in Financial Performance of Broker-Dealer Business

46. In the past, the revenue and profitability of Penson was tied to the strength

of the global economy and the functioning of global markets. The past several financial quarters

have seen a weakened global economy, including substantial economic uncertainty and

prolonged volatility in the world’s financial markets. These factors led to investor-flight from

the public markets, which was compounded by other anomalous events, such as the May 2010

17

01:13007308.9

“Flash Crash” that saw the Dow Jones Industrial Average lose approximately 9% of its value and

then recover that loss within a matter of minutes. For example, average daily trading volume in

equities fell by 5% in 2010 and 8% in 2011, and short selling continued to fall in each of the

years from 2009 through 2011. This decrease in market participation and activity had a direct,

negative impact on Penson’s commission and interest revenues which were closely correlated to

activity in the financial markets. Events increasing market volatility also negatively impacted

Penson because its broker-dealer subsidiaries were often subjected to increased regulatory capital

requirements that created liquidity issues and inhibited Penson from closing and settling

transactions.

47. Penson has also faced increased competition in the clearing industry which

led to downward pressure on the per transaction revenue Penson could realize. Further, the

continued period of low short-term interest rates had a negative impact on the spread, and

corresponding revenue, Penson could earn in its margin lending business.

48. Moreover, in August 2011, TD Ameritrade, Inc., one of PFSI’s largest

clients, deconverted accounts with PFSI to its own systems. While this resulted in an

improvement to the excess regulatory capital position of PFSI, it also eliminated a significant

source of clearing transactions revenue and daily interest earning assets available for lending.

B. Cost-Savings Initiatives

49. Prior to the sale and transfer of most of the assets of its United States-

based broker-dealer business, Penson engaged in a number of initiatives to streamline its

business operations and improve its liquidity position and increase financial and operating

results. These initiatives included combining the securities and futures divisions into one entity,

which led to an enhancement of the combined entities’ regulatory capital position by $25.1

million, amending the Broadridge MSA to outsource an additional $8 million worth of services

18

01:13007308.9

by July 2013, the internal streamlining of operations which were anticipated to provide up to $6

million in annual cost reductions, and the pay down of the Senior Facility, which eliminated

approximately $2 million in interest expenses.

50. These efforts, however, were not enough to stem losses in the fourth

quarter of 2011 and the first three quarters of 2012.

C. Spring 2012 Out-of-Court Restructuring Efforts

51. On March 13, 2012, Penson entered into a Restructuring Support

Agreement (the “March RSA”) with (i) holders of more than 50% of the Senior Notes, (ii)

holders of more than 70% of the Convertible Notes, and (iii) Broadridge, to restructure Penson’s

existing long-term debt obligations. The March RSA proposed an exchange offer (the

“Exchange Offer”) that would exchange PWI’s existing long-term indebtedness for $105 million

of new 12.5% Senior Secured Notes, $120 million of new Series A Preferred Stock in PWI, $35

million of new Series B Preferred Stock in PWI, and 61.5% of the common stock in post-

restructuring PWI. The Exchange Offer was subject to acceptance by 95% of the holders of both

the Senior Notes and Convertible Notes. In connection with the March RSA, Broadridge also

agreed to restructure certain terms of the Broadridge MSA.

52. The March RSA provided that it would automatically terminate if the

Exchange Offer was not launched by May 14, 2012. After entry into the March RSA, Penson

discussed the terms of the Exchange Offer with holders of a substantial amount of Penson’s debt,

but Penson and these holders were unable to reach a satisfactory agreement on the terms of a

potential restructuring. As a result, without sufficient support from its debt-holders, Penson did

not launch the Exchange Offer by May 14, 2012, and the March RSA automatically terminated

by its own terms. Nonetheless, as discussed below, Penson has continued to negotiate with

significant holders of its debt regarding the wind-down of Penson’s business.

19

01:13007308.9

D. Regulatory Pressure to Dispose of United States Broker-Dealer Business

53. As a result of concerns about continuing operating losses, the lack of

progress in restructuring Penson’s long-term debt obligations, and regulatory and correspondents

concerns, PFSI began to explore strategic alternatives for its broker-dealer business. This

included engaging in discussion with Knight regarding a transaction related to the futures

division of the United States broker-dealer business. These actions were hastened by actions

taken by the Chicago Mercantile Exchange (“CME”), the primary futures regulator, and FINRA,

which threatened taking regulatory action against PFSI if it did not dispose of its broker-dealer

operations.

54. Shortly after receiving notice from CME, PFSI entered into a letter of

intent with Knight on May 21, 2012 which culminated in the Knight Transaction. Additionally,

after a series of correspondence with FINRA that raised regulatory concerns regarding its

securities division, PFSI entered into an agreement with FINRA to enter into a strategic

transaction. PFSI then entered into the Apex Transaction to dispose of its securities division.

E. NASDAQ Delisting

55. On May 1, 2012, PWI received notice from The NASDAQ Stock Market

(“NASDAQ”) that its share price had failed to obtain a bid price for its stock above $1.00 for the

prior 30 consecutive days as required for listing on The NASDAQ Global Select Market. PWI

was provided a 180-day grace period (or until October 29, 2012) to regain compliance with the

minimum bid requirement for a minimum of ten consecutive business days. On July 27, 2012,

PWI received a separate notice from NASDAQ that it was not in compliance with the $5 million

minimum market value of publicly held shares (“MMVPHS”) requirement. PWI was again

provided a 180-day grace period (or until January 22, 2013) to regain compliance with the

20

01:13007308.9

MMVPHS requirement for a minimum of ten consecutive business days. Finally, on August 20,

2012, PWI received a letter from NASDAQ indicating that the Company had not maintained a

minimum of $10 million in stockholders’ equity for continued listing on The NASDAQ Global

Select Market, and PWI had 45 calendar days to submit a plan to regain compliance.

56. On September 26, 2012, PWI issued a press release stating that it would

voluntarily terminate its listing on The NASDAQ Global Select Market on or about October 8,

2012, and on October 18, 2012, PWI was delisted by NASDAQ.

F. Significant Prepetition Litigation and Regulatory Actions

SEC Comment Letters 1.

57. The staff of the Division of Corporate Finance of the SEC has issued

letters to PWI setting forth comments and questions with respect to the company’s Annual

Report on Form 10-K for the year ended December 31, 2010 and Quarterly Reports on Form 10-

Q for the quarterly periods ended March 31, 2011 and September 30, 2011, as well as comments

to the company’s Annual Report on Form 10-K for the year ended December 31, 2011

(collectively, the “SEC Comment Letters”). Among other things, the SEC Comment Letters

question the timing of an impairment charge taken by PWI with respect to certain of its non-

accrual receivables related to the RDC Assets for which the company reported a $43 million bad

debt charge in the second quarter of fiscal year 2011. The SEC’s query into the accounting

treatment for this impairment charge remains unresolved. PWI has deregistered its common

stock under the Securities Exchange Act of 1934 and is no longer in discussions with the SEC.

Purported Class Action and Derivative Actions brought 2.by PWI’s Shareholders

58. PWI, certain of its officers and directors and certain of its advisors have

been named as defendants in a putative class action commenced (the “Putative Class Action”) in

21

01:13007308.9

the United States District Court for the Northern District of Texas (the “Northern Texas District

Court”), and three shareholder derivative actions, two of which are pending in Texas state court

and the remaining action is pending in the Northern Texas District Court (collectively, the

“Shareholder Actions”). The Putative Class Action alleges that PWI overstated its assets,

income, and EBITDA, and that its financial statements were not prepared in accordance with

GAAP. The Putative Class Action alleges a class period of March 30, 2007 through August 4,

2011. The Shareholder Actions allege causes of action for, among other things, breaches of

fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of

corporate assets.

59. Following a mediation related to the Putative Class Action, the parties to

the Putative Class Action entered into a Stipulation of Settlement dated as of December 28, 2012

to resolve the Putative Class Action (the “Class Action Stipulation”). The Class Action

Stipulation provides, among other things, that a payment of $6 million will be made on behalf of

the Debtors and the individual defendants into a settlement fund administered pursuant to the

terms of the Class Action Stipulation, and this payment will be made from the proceeds of the

Debtors’ directors and officers insurance program. The Class Action Stipulation is subject to

approval by the Northern Texas District Court and the Bankruptcy Court. On December 28,

2012, a motion was filed in the Northern Texas District Court to approve the Class Action

Stipulation. The Debtors will be filing a motion in the Bankruptcy Court to approve the Class

Action Stipulation, including the use of insurance proceeds to fund the Class Action Stipulation

on behalf of the Debtors and the individual defendants, within thirty (30) days of the Petition

Date, as required by the Class Action Stipulation.

22

01:13007308.9

SAMCO Arbitration 3.

60. In August, 2012, PFSI brought an arbitration proceeding before FINRA

against SAMCO and Roger J. Engemoen, the Chairman and a controlling shareholder of

SAMCO, the former Chairman of the Board of Directors of PWI and certain of its subsidiaries,

and a director of certain of PWI’s other subsidiaries (the “SAMCO Claims”). The SAMCO

Claims seek to recover unpaid interest advances believed to total approximately $3 million made

over a period of many years. Upon being informed that PFSI intended to bring the SAMCO

Claims, Mr. Engemoen resigned from his positions as Chairman of the Board of Directors of

PWI and certain of its subsidiaries and director of certain of PWI’s other subsidiaries on July 16,

2012, in light of the potential conflict of interest created by the SAMCO Claims.

61. The Debtors are also parties to other litigation, including a number of

proceedings that arise from the ordinary course conduct of Penson’s settlement and clearing

operations. PWI and Nexa were also previously parties to an action in the United States District

Court for the Eastern District of Texas alleging claims of patent infringement, and this action has

been consolidated with a second action pending in the United States District Court for the

Southern District of New York, to which PWI and Nexa were not previously parties. PWI and

Nexa have been dismissed from the consolidated action at this stage, but they may face claims of

contractual liability under a standstill agreement depending on the outcome of claims against

certain of the remaining parties in the consolidated action.

G. Renewed Discussion with Note Holders and New Restructuring Support Agreement

62. Following termination of the March RSA, Penson has continued to

negotiate with significant holders of its Senior Notes (the “Senior Noteholders Committee”) and

Convertible Notes (the “Convertible Noteholders Committee”) regarding a potential consensual

23

01:13007308.9

wind-down of its business. After months of good faith and arm’s length negotiations, on January

10, 2013, the Debtors entered into a restructuring support agreement with the members of the

Senior Noteholders Committee and the Convertible Noteholders Committee (collectively, the

“Consenting Noteholders”), pursuant to which the Consenting Noteholders have agreed, subject

to certain terms and conditions, to support a consensual orderly liquidation of Penson’s business,

and to vote in favor of the Joint Liquidation Plan of Penson Worldwide, Inc. and Its Affiliated

Debtors (the “Plan”) filed on the Petition Date, when solicited to do so. The Debtors have

commenced these cases to implement the terms of the Plan, which will result in the liquidation of

the Debtors’ remaining businesses in a consensual and orderly manner.

IV. First Day Motions

63. The First Day Pleadings are designed to allow the Debtors to preserve and

maximize the value of their remaining assets, to ensure that the Debtors can continue to realize

value from the pre-petition divestitures of certain business lines, and to provide for an orderly

wind-down of the Debtors’ affairs. I have reviewed each of the First Day Pleadings and believe

that the relief requested therein is necessary to achieve a successful chapter 11 process and,

accordingly, is in the best interest of the Debtors and their stakeholders. I adopt and affirm the

factual statements set forth in each of the First Day Pleadings, subject to the same limitations

with respect to statements of facts set forth above.

A. Motion to Approve Joint Administration of Debtors’ Cases

64. The Debtors have filed a motion with this Court seeking approval of the

joint administration of these chapter 11 cases for procedural purposes only. The Debtors believe

that many of the motions, applications, hearings and orders that will arise in these chapter 11

cases will jointly affect each Debtor. Under the circumstances, the Debtors believe that the

interests of the Debtors, their creditors, and other parties-in-interest would best be served by the

24

01:13007308.9

joint administration of these chapter 11 cases for procedural purposes only. The Debtors further

believe that joint administration of the chapter 11 cases will ease the administrative burden on

the Court and all parties-in-interest, as the relief requested will permit the Clerk of the Court to

utilize a single docket for all of the chapter 11 cases, and to combine notices to be provided to

creditors and parties-in-interest. Consequently, I believe that the joint administration of the

chapter 11 cases, and the consolidation thereof for procedural purposes only, is in the best

interest of the Debtors’ estates, creditors and parties-in-interest.

B. Motion to Retain Claims, Noticing and Balloting Agent (“Claims Agent Application”)

65. The Debtors have filed an application pursuant to 28 U.S.C. § 156(c),

section 105(a) of the Bankruptcy Code and Local Rule 2002-1(f) for an order appointing

Kurtzman Carson Consultants LLC (“KCC”) as the claims and noticing agent in order to assume

full responsibility for the distribution of notices and the maintenance, processing and docketing

of proofs of claim filed in the Debtors’ cases. The Debtors’ selection of KCC to act as the claims

and noticing agent has satisfied the Court’s Protocol for the Employment of Claims and Noticing

Agents under 28 U.S.C. § 156(c), in that the Debtors have obtained and reviewed engagement

proposals from at least two other court-approved claims and noticing agents to ensure selection

through a competitive process. Based on all engagement proposals obtained and reviewed by the

Debtors, KCC’s rates were competitive and reasonable, especially given KCC’s quality of

services and expertise. By separate application, and as more fully described below, the Debtors

are also seeking to retain KCC as administrative advisor in these chapter 11 cases.

66. Although the Debtors have not yet filed their schedules of assets and

liabilities, they anticipate that there will be hundreds of entities to be noticed at some point in

these cases. In view of the number of anticipated claimants and the complexity of the Debtors’

25

01:13007308.9

businesses, the Debtors submit that the appointment of a claims and noticing agent is both

necessary and in the best interests of the Debtors’ estates and their creditors. Further, by

appointing KCC as the claims and noticing agent in these cases, the distribution of notices and

the processing of claims will be expedited, and the clerk’s office will be relieved of a significant

administrative burden.

67. For these reasons and the reasons set forth in the Claims Agent

Application, I believe that the retention of KCC as the Court-appointed claims and noticing agent

for these chapter 11 cases is in the best interests of the Debtors, their estates and creditors.

C. Motion to Continue Cash Management System and Obtain Related Relief (“Cash Management Motion”)

68. In the ordinary course of their business, the Debtors maintain an integrated

cash management system that provides well established mechanisms for the collection,

concentration, management and disbursement of funds used in their operations. Pursuant to the

Cash Management Motion, the Debtors seek authority to continue to use their Cash Management

System. The Debtors’ efforts in these chapter 11 cases will be substantially disrupted if they are

not authorized to continue their cash management procedures and systems.

69. Given the general demands of the chapter 11 process, it would be unduly

burdensome to require the Debtors to establish an entirely new system for the management of the

Debtors’ cash. By contrast, preserving a “business as usual” atmosphere and avoiding the

unnecessary distractions that inevitably would be associated with any substantial disruption of

the Cash Management System will facilitate the Debtors’ ability to realize on their remaining

assets and complete the wind-down of their businesses. Accordingly, the Debtors believe that it

is essential that their current Cash Management System remain in place. In addition, the Debtors

are seeking authority to continue post-petition intercompany transfers in the ordinary course of

26

01:13007308.9

business, and will maintain all receipts of disbursements and records of all transfers within the

Cash Management System during the post-petition period.

70. I have been advised that the chapter 11 operating guidelines issued by the

United States Trustee for Region 3 pursuant to 28 U.S.C. § 586 (the “United States Trustee

Guidelines”) require chapter 11 debtors to cease using their existing bank accounts and checks,

and to open or begin use of new accounts and checks. In order to avoid disruptions, and to

ensure as smooth a transition into chapter 11 as possible, the Debtors have sought permission to

continue to maintain the existing Bank Accounts and, if necessary, to open new accounts and

close existing accounts in the normal course of business operations. Similarly, the Debtors have

also requested that they be authorized to continue to use all check stock in existence as of the

Petition Date without the “debtors-in-possession” designation. Parties doing business with the

Debtors undoubtedly will be aware of the Debtors’ status as debtors-in-possession. The Debtors

believe that it would be costly and disruptive to cease using their existing check stock. However,

once the Debtors’ existing check stock is depleted, the Debtors have agreed to insert the

designation of “debtor-in-possession” on all newly-purchased checks.

71. Further, the Debtors are seeking a limited waiver of section 345(b) of the

Bankruptcy Code with respect to their deposit and investment practices. Given the relative

security of the Cash Management Systems and the financial institutions with whom the Bank

Accounts’ are maintained (some or all of which may, in fact, be authorized depositories), I

believe that cause exists to grant such an extension. If the Debtors determine that they are unable

to comply with the requirement of section 345 within that sixty day period, the Debtors intend to

file a motion seeking further relief from such requirements.

27

01:13007308.9

72. I believe that the relief requested in this motion is necessary and in the

best interest of the Debtors’ estates and creditors.

D. Motion to Continue Employee Practices and Programs and to Satisfy Prepetition Employee Obligations (“Employee Wages Motion”)

73. Pursuant to the Employee Wage Motion, the Debtors are seeking the entry

of an order (i) providing immediate authority to (a) pay all prepetition employee wages, salaries,

and certain other payments owed to Employees; (b) reimburse all prepetition employee business

expenses; (c) make all contributions to prepetition benefit programs and continue such programs;

(d) honor workers’ compensation obligations; (e) make all payments for which prepetition

payroll withholding deductions (including, but not limited to, payroll taxes) were made; (f) pay

all processing costs and administrative expenses relating to the foregoing payments and

contributions; and (g) make all payments to third parties incident to the foregoing payments and

contributions; (ii) authorizing, but not directing, the Debtors to continue payment of wages,

compensation, and employee benefit programs in the ordinary course of business and to pay

other costs and expenses relating to the foregoing as described more fully below; and (iii)

authorizing and directing applicable banks and other financial institutions to honor and pay all

checks and transfers drawn on the Debtors’ payroll and employee benefits accounts to make the

foregoing payments, on an immediate basis.

74. In addition, the Debtors are requesting entry of an order authorizing (but

not directing) the Debtors to (i) continue their Severance Plan and make payments thereunder to

all non-insider employees and (ii) make cash payments with respect to outstanding PTO

Obligations owing to any Employee as of the date of Employee’s termination, after such request

is served upon parties in interest with an opportunity to object.

28

01:13007308.9

75. Pursuant to the Employee Wage Motion, the Debtors are seeking authority

to pay prepetition wages to Employees subject to the limitation under section 507(a)(4) of the

Bankruptcy Code on payments to individual employee on account of prepetition wages of

$11,725. As discussed more fully in the Employee Wage Motion, the Debtors are also seeking

authority to honor benefits and other programs, such as paid time off and medical coverage, in

the ordinary course of business.

76. The vast majority of the Employees rely exclusively on their full

compensation, benefits and reimbursement of their expenses to continue to pay their daily living

expenses, and the Employees will be exposed to significant financial difficulties if the Debtors

are not permitted to pay the unpaid employee obligations. The Debtors believe that if they are

unable to honor all such obligations immediately, employee morale and loyalty will be

jeopardized at a time when such support is critical. Further, the Severance payments the Debtors

seek to make will only be made to non-insider employees and, I am advised by counsel, are not

prohibited by section 503(c) of the Bankruptcy Code.

77. The success of these chapter 11 cases is dependent upon a stable work

force, and the Debtors believe that any significant number of employee departures or

deterioration in morale at this time will immediately and adversely impact the Debtors’

liquidation and wind-down efforts and result in immediate and irreparable harm to the Debtors’

estates and creditors. There is a real, immediate risk that if the Debtors are not authorized to

continue to honor their prepetition employee obligations in the ordinary course, the employees

would no longer support and maintain the wind-down process, thereby endangering the prospects

of a successful chapter 11 process and plan confirmation. Consequently, the Debtors strongly

believe, and I agree, that it is critical that they be permitted to pay their employees their

29

01:13007308.9

prepetition wages and continue with their ordinary course personnel policies, programs and

procedures that were in effect prior to the Petition Date

E. Motion to Establish Procedures with respect to Providing Adequate Assurance to Utility Providers (“Utilities Motion”)

78. Pursuant to the Utilities Motion, the Debtors are seeking entry of interim

and final orders pursuant to section 366 of the Bankruptcy Code (a) prohibiting the Debtors’

utility providers from altering, refusing, or discontinuing utility services on account of

prepetition invoices, (b) deeming the Debtors’ utility service providers adequately assured of

future performance, and (c) establishing procedures for determining additional adequate

assurance of future payment and authorizing the Debtors to provide adequate assurance of future

payment to the Utility Companies. The Utility Companies provide Utility Services to the

Debtors’ offices, and are therefore necessary to the Debtors’ efforts to wind-down their affairs.

The Debtors propose establishing a segregated account containing an amount equal to

approximately 50% of the Debtors’ average aggregate monthly cost of utility service (which the

Debtors estimate to be approximately $5,000) in order to provide the Utility Companies adequate

assurance of the Debtors’ future payment of their utility bills.

79. Termination of Utility Services provided to the Debtors (even temporarily)

could result in the disruption of the Debtors’ wind-down efforts and affect the ability of the

Debtors to preserve and maximize the value of their estates. Thus, the relief requested herein is

necessary and in the best interests of the Debtors’ estates and their creditors.

30

01:13007308.9

V. Conclusion

Accordingly, for the reasons states herein and in each of the First Day Pleadings,

the Debtors request that the relief sought in the First Day Pleadings be approved.

Dated: January 11, 2013 /s/ Bryce B. Engel Bryce B. Engel Penson Worldwide, Inc., on behalf of itself and its affiliated Debtors

31

01:13007308.9

EXHIBIT A

Corporate Organization Chart for Penson Worldwide, Inc. and its Subsidiaries