EXHIBIT 10.36
CLEARING AGREEMENT
This Clearing Agreement ("Agreement") is effective as of October 1, 2004, (the
"Commencement Date"), between Fiserv Securities, Inc., a Delaware corporation
(hereinafter referred to as the "Clearing Agent") and National Securities
Corporation, a Washington corporation (hereinafter referred to as the
"Introducing Firm").
In consideration of the mutual covenants hereinafter set forth and
other good and valuable consideration, the receipt of which is hereby
acknowledged, and intending to be legally bound, the parties hereto hereby
covenant and agree as follows:
I. Clearing Agent.
1. Services to be Performed by the Clearing Agent; Covenants of the
Clearing Agent.
a. Execution. The Clearing Agent shall execute orders for the
Introducing Firm's proprietary accounts and customers whose
cash or margin accounts have been accepted by the Clearing
Agent (hereinafter referred to as "Introduced Accounts"). The
Clearing Agent will execute only those orders that are properly
and timely transmitted by the Introducing Firm to the Clearing
Agent and accepted by the Clearing Agent.
b. Confirmations. The Clearing Agent will generate and prepare
trade confirmations of each purchase or sale for each of the
Introduced Accounts. Unless the Clearing Agent is notified by
Introducing Firm to the contrary, the Clearing Agent shall
deliver such confirmations to the Introduced Accounts. If the
Introducing Firm elects to mail trade confirmations,
information will be transmitted by the Clearing Agent via its
communication network in order to effect the printing of
confirmations at a location designated by the Introducing Firm.
If so agreed by the customer, such confirmations may be
provided to the customer via electronic means.
c. Statements. The Clearing Agent will prepare and have
delivered the summary monthly statements (or quarterly
statements if no activity in any Introduced Account occurs
during any month covered by such statement) to every Introduced
Account. No statements will be prepared by the Clearing Agent
with respect to an Introduced Account in which there is no cash
balance or security position and in which there has been no
other activity since the date of the last statement. The
Introducing Firm may mail or otherwise deliver or arrange for
the generation and mailing or other delivery of such statements
with the concurrence of the Clearing Agent. If so agreed by the
customer, such statements may be provided to the customer via
electronic means.
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d. Settlements. The Clearing Agent will settle contracts and
transactions in securities (including options to buy or sell
securities): (i) between the Introducing Firm and other
brokers and dealers; (ii) between the Introducing Firm and the
Introduced Accounts; and (iii) between the Introducing Firm
and persons other than the Introduced Accounts or other
brokers and dealers. For the purposes of the Agreement the
term "securities" includes stocks, bonds, notes, listed
options, commercial paper and such other instruments as the
Introducing Firm may designate with the consent of the
Clearing Agent and excludes commodities.
e. Cashiering. The Clearing Agent will engage in all
cashiering functions for the Introduced Accounts, including
the receipt, delivery and transfer of securities purchased,
sold, borrowed and loaned, receiving and distributing payment
therefor, holding in custody and safekeeping all securities
and cash so received, the handling of margin accounts, the
receipt and distribution of dividends and other distributions,
and the processing of exchange offers, rights offerings,
warrants, tender offers and redemptions. Only where the
Clearing Agent receives dividends in its nominee name and then
distributes such dividends to Introduced Accounts will the
Clearing Agent backup withhold on those Introduced Accounts
which do not have a taxpayer identification number. If the
Introducing Firm so elects, the cashiering functions with
respect to the receipt of securities and the making and
receiving of payment therefor may be relinquished to the
Introducing Firm.
f. Books and Records. The Clearing Agent will construct and
maintain prescribed books and records of all transactions
executed or cleared through it, in accordance with Section 17
of the Securities Exchange Act of 1934 (the " Exchange Act"),
including a daily record of required margin and other
information required by regulations and the stated policies or
practices of any securities exchange of which the Clearing
Agent is a member (the "Standards").
g. Lost Securities - Notice. The Clearing Agent, when notified
by the Introducing Firm, will notify the Securities
Information Center ("SIC"), regarding any lost, stolen or
missing securities. Any written notice will be made on forms
prescribed by the SIC.
h. Tax Reporting. The Clearing Agent will prepare required
annual dividend and distribution information on appropriate
IRS Form 1099 and any other information required to be
reported by federal tax laws, rules or regulations solely with
respect to activity in the Introduced Accounts occurring
subsequent to the effective date of this Agreement and prior
to the termination hereof. Such reports shall be processed,
handled and mailed at the Introducing Firm's expense by the
Clearing Agent to the Introduced Accounts.
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i. Account Transfer. Pursuant to written notification received
by the Introducing Firm and forwarded to the Clearing Agent,
any account of the Introducing Firm may choose to reject the
services to be performed by the Clearing Agent pursuant to this
Agreement and thus choose not to be serviced as an Introduced
Account pursuant hereto. Upon notice from another member
organization that an Introduced Account intends to transfer his
account thereto, the Clearing Agent shall expedite such
transfer and shall have the sole and exclusive responsibility
for compliance with Rule 412 of the Rules of the Board of
Governors of the New York Stock Exchange, Inc. ("NYSE") (the
"Rules").
j. Rule 382. The Clearing Agent shall provide the Introducing
Firm with the "exception-type" reports described in Rule 382
(e)(1) of the Rules and Clearing Agent otherwise shall comply
with its obligations under Rule 382.
k. Option Prospectus. Prior to accepting for entry the initial
order to buy options or to sell covered call options for an
Introduced Account, the Clearing Agent shall send or shall
cause to have sent to the Introduced Account a current
prospectus or other disclosure document of the Options Clearing
Corporation together with any effective supplements thereto.
l. Accounts. The Clearing Agent shall carry all Introduced
Accounts in the name of the Introducing Firm's customer with
the notation on its new account applications, monthly or
quarterly statements and/or confirmations that such Introduced
Accounts are carried by the Clearing Agent and were introduced
by the Introducing Firm. Inadvertent omission of such notations
shall not be deemed to constitute a breach of this Agreement.
Copies of sample or suggested forms covering all of the
foregoing shall be furnished by the Clearing Agent to the
Introducing Firm. For purposes of the Securities Investor
Protection Act and the financial responsibility rules of the
U.S. Securities and Exchange Commission ("SEC"), the Introduced
Accounts are Introduced Accounts of the Clearing Agent and not
the Introducing Firm. For all other purposes, the Introduced
Accounts are deemed to be Introduced Accounts of the
Introducing Firm and not the Clearing Agent.
m. Proxy Statements. The Clearing Agent shall send, or shall
cause to be sent, directly to an Introduced Account, proxy
statements received by or on behalf of the Clearing Agent
relating to securities beneficially owned by such Introduced
Account but held of record by the Clearing Agent or its
nominee.
n. Customer Complaints. In order for the Introducing Firm to
carry out its functions and responsibilities under this
Agreement, the Clearing Agent will promptly forward any written
customer complaint received regarding the Introducing Firm or
its associated persons relating to functions and
responsibilities allocated to the Introducing Firm under this
Agreement to (i) the Introducing Firm; and (ii) the Introducing
Firm's designated examining authority. The Clearing Agent will
also notify the customer who sent the written complaint that a
copy of such complaint was furnished to both the Introducing
Firm and the Introducing Firm's designated examining authority.
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o. Prospectus. If the Introducing Firm so elects, and upon
specific notice given to the Clearing Agent, the Clearing Agent
shall comply with any and all prospectus delivery requirements
relating to prospectuses to be provided to Introduced Accounts.
p. SAS 70 Reports. Upon written request of the Introducing
Firm, Clearing Agent will provide a copy of Clearing Agent's
most recent SAS 70 Report.
2. Services That Will Not be Performed by the Clearing Agent.
Unless otherwise agreed to in writing executed by the parties
hereto, the Clearing Agent will not engage in any of the
following services on behalf of the Introducing Firm:
a. Books and Records. Accounting, bookkeeping or recordkeeping,
cashiering, or any other services with respect to commodity
transactions, or any transactions not involving cash or
securities.
b. Financial Information. Preparation of the Introducing Firm's
payroll records, financial statements or any analysis or review
thereof or any recommendations relating thereto.
c. Disbursements. Preparation or issuance of checks in payment
of the Introducing Firm's expenses, other than expenses
incurred by the Clearing Agent on behalf of the Introducing
Firm pursuant to this Agreement.
d. Salaries. Payment of commissions, salaries or other
remunerations to the Introducing Firm's salesmen or any other
employees of the Introducing Firm or payment of other
obligations incurred by the Introducing Firm.
e. Other Records. Preparation and maintenance of any records
required to be prepared and maintained by the Introducing Firm.
f. Reports. Preparation and filing of reports (the "Reports")
with the SEC or any state securities commission, securities
exchange, securities association or any other regulatory or
self-regulatory body or agency with which the Introducing Firm
is associated and/or by which it is regulated. Notwithstanding
the foregoing, the Clearing Agent will, at the request of the
Introducing Firm, furnish the Introducing Firm with any
necessary information and data contained in books and records
kept by the Clearing Agent and not otherwise reasonably
available to the Introducing Firm if such information is
required in connection with the preparation and filing of
Reports by the Introducing Firm.
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g. Account Information. Verification of tax identification
numbers, changes of address or any other information with
respect to Introduced Accounts.
h. New Account Information. Obtaining and verifying new account
information, and ensuring that such information meets the
requirements of Rule 405(1) of the Rules and any other Rules or
applicable Standards.
i. Custody of Certain Securities. Holding for safekeeping
(other than in connection with its execution of an order to
sell securities and/or securities that are classified as Rule
144 stock and/or restricted stock) the securities of any
Introduced Account registered in the name of anyone other than
the nominee of the Clearing Agent.
j. Supervision and/or Compliance. Supervising , monitoring,
reviewing and/or commenting on or concerning any Introduced
Account, any transaction(s) in or concerning any Introduced
Account, and/or any of the Introducing Firm's directors,
officers, principals, registered representatives, contractors,
employees and/or agents.
k. Suitability. Reviewing or commenting on the appropriateness
and/or suitability of or concerning any transaction, strategy,
activity, investment advice or investment in any Introduced
Account or respecting any of the Introducing Firm's customers.
l. Sales Practices. Supervising, monitoring, reviewing or
commenting on or concerning any sales activities or sales
practices of or by any of Introducing Firm's directors,
officers, principals, registered representatives, contractors,
employees or agents.
m. Investment Advice and/or Recommendations. Making, suggesting
or providing any investment, strategy or investment-related
advice, suggestions or recommendations for or concerning any
Introduced Account.
3. Clearing Agent's Representations. The Clearing Agent represents
and warrants as follows:
a. The Clearing Agent is a corporation duly organized, validly
existing and in good standing under the laws of its state of
incorporation;
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b. The Clearing Agent is a member in good standing of the NYSE
and the National Association of Securities Dealers, Inc.
("NASD"), and is duly registered as a broker/dealer under the
Exchange Act and the rules and regulations of the SEC
thereunder;
c. The Clearing Agent has all the requisite authority, in
conformity with all applicable laws and regulations, to enter
into and perform this Agreement;
c. The Clearing Agent is in substantial compliance with (i) the
capital and financial reporting requirements of every
securities exchange or association of which it is a member,
(ii) the capital requirements of the SEC, and (c) the capital
requirements of every state in which it is licensed as a
broker/dealer; and
d. The Clearing Agent has completed or will promptly complete
the requirements imposed by Rule 382(e)(1) of the Rules in that
it has provided the Introducing Firm with a list of all reports
made available by the Clearing Agent to assist the Introducing
Firm to supervise and monitor its Introduced Accounts in order
for the Introducing Firm to carry out its functions and
responsibilities pursuant to this Agreement. The Clearing Agent
shall retain and preserve copies pursuant to Rule 440 of the
Rules of the specific reports requested and or supplied to the
Introducing Firm or will have the capacity to either recreate
copies of reports furnished or provide the report format and
data elements provided in the original reports and shall give
written notice on an annual basis within 30 days of July 1 of
each year to the Introducing Firm of the list of reports
offered to the Introducing Firm and specifically those actually
chosen or supplied as of the report date.
II. Introducing Firm.
1. Covenants of the Introducing Firm.
a. Restricted and Control Stock. The Introducing Firm shall be
solely and exclusively responsible for determining if any
securities held in any Introduced Account are "restricted
securities" or "control stock" and ensuring that orders
executed for such securities are in compliance with applicable
laws, rules and regulations.
b. Addresses and Tax Information. The Introducing Firm shall be
solely and exclusively responsible for maintaining at all times
proper addresses, correct titles (reflecting correct
ownership), correct tax identification numbers and other
information required by the Tax Equity and Fiscal
Responsibility Act for each Introduced Account, and Introducing
Firm Shall communicate same to the Clearing Agent.
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c. Rule 408. The Introducing Firm shall be solely and
exclusively responsible for the handling and supervisory review
of any Introduced Accounts over which the Introducing Firm's
partners, officers or employees have discretionary authority,
as required by Rule 408 of the Rules and any other applicable
laws and regulations. The Introducing Firm shall furnish the
Clearing Agent with such documentation with respect thereto as
may be requested by the Clearing Agent.
d. Rule 407. The Introducing Firm shall have the sole and
exclusive responsibility for the handling and supervisory
review of any Introduced Account for an employee or officer of
any member organization, self-regulatory organization, bank,
trust company, insurance company or other organization engaged
in the securities business, and for compliance with Rule 407 of
the Rules relating thereto. The Introducing Firm shall furnish
the Clearing Agent with such documentation with respect thereto
as may be requested by the Clearing Agent.
e. Conduct of Business without State Registration. The
Introducing Firm shall be solely and exclusively responsible
for any loss, liability, damage, cost or expense (including but
not otherwise limited to fees and expenses of legal counsel)
sustained or incurred by either the Introducing Firm or the
Clearing Agent, arising out of or resulting from any orders the
Introducing Firm has taken from Introduced Accounts residing or
domiciled in jurisdictions in which the Introducing Firm was
not, is not or is no longer, permitted to do so.
f. Payment Responsibility. In all cash accounts and with
respect to all cash transactions, as between the Introducing
Firm and the Clearing Agent, the Introducing Firm shall be
responsible for purchases for Introduced Accounts until final
payment therefor has been received by the Clearing Agent. The
Introducing Firm shall be responsible for all sales until
acceptable deliveries to the Clearing Agent, or to a national
clearing organization mutually agreed upon by the Clearing
Agent and the Introducing Firm, of the securities have been
made. The Introducing Firm shall be solely and exclusively
responsible to the Clearing Agent for any loss or liability
whatsoever in the event any check or draft given to the
Clearing Agent by any of the Introduced Accounts is returned to
the Clearing Agent unpaid. The Introducing Firm shall also be
solely and exclusively responsible for the payment and delivery
of all "when issued" or "when distributed" transactions which
the Clearing Agent may accept, forward or execute for
Introduced Accounts.
g. Order Approval or Rejection. The Introducing Firm shall be
solely and exclusively responsible for approving all orders for
the Introduced Accounts and for establishing procedures to
ensure that such approved orders are transmitted properly to
the Clearing Agent for execution. The Clearing Agent, in its
reasonable business judgment, reserves the right to reject any
order which the Introducing Firm may transmit to the Clearing
Agent for execution and to promptly notify the Introducing Firm
of such rejection.
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h. Order Review. The Introducing Firm shall be solely and
exclusively responsible for the supervisory review of all
orders for the Introduced Accounts and shall ensure that any
orders and instructions given by it or any of its employees to
the Clearing Agent pursuant to the terms of this Agreement
shall have been properly authorized in advance and do not
create or result in a violation of any applicable laws and
regulations.
i. Rule 405(2). The Introducing Firm shall have the sole and
exclusive responsibility for the review of all Introduced
Accounts and for substantial compliance with any supervisory
responsibility under Rule 405(2) of the Rules, including but
not otherwise limited to matters involving the investment
objectives of the Introduced Accounts, the suitability of the
investments made by the Introduced Accounts, the reasonable
bases for recommendations made to Introduced Accounts, and the
frequency of trading in the Introduced Accounts, whether or not
such transactions are instituted by the Introducing Firm, its
partners, officers, employees or any registered investment
advisor.
j. Rule 342. The Introducing Firm shall be responsible for
substantial compliance with any supervisory procedures under
Rule 342 of the Rules and, to the extent applicable, any other
provisions of any applicable laws and regulations, including
but not otherwise limited to supervising the activities and
training of its registered representatives, as well as all of
its other employees in the performance of functions
specifically allocated to it pursuant to the terms of this
Agreement.
k. Customer Notification of Relationship. The Introducing Firm
shall be solely and exclusively responsible for determining the
extent to which it will inform its customers, in writing, of
its relationship with the Clearing Agent, the form and
substance of which will be mutually agreed upon. Any new
customers of the Introducing Firm shall also be so informed
prior to such customers becoming Introduced Accounts. The
Introducing Firm shall be solely and exclusively responsible
for the payment of all costs incurred in connection with the
preparation and mailing of such customer correspondence.
l. Discretionary Accounts. The Introducing Firm covenants that
with regard to any orders or instructions given by the
Introducing Firm with respect to discretionary accounts, its
partners, officers or employees shall have been fully and
properly authorized relative thereto and that the execution of
such orders shall not be in violation of any applicable laws
and regulations.
m. Over-the-Counter Trades by Introducing Firm. On all
over-the-counter transactions executed for Introduced Accounts
by the Introducing Firm, the Introducing Firm shall furnish the
Clearing Agent with the names of the respective purchasing and
selling broker-dealers, the names of the purchasing and selling
customers, and the wholesale and retail purchase and sale
prices. Clearing Agent reserves the right, at any time, to
place a limit (of either dollars or numbers of securities) on
the size of transactions that Clearing Agent in these
circumstances will accept for clearance. If, after Introducing
Firm has received notice of such limitation, it executes an
order in excess of the limit established by Clearing Agent,
Clearing Agent shall have the right to notify the other parties
and brokers involved in that transaction and further otherwise
publish or broadcast in Clearing Agent's sole subjective
discretion that it will not accept the transaction for
clearance and settlement. In the event any claim is asserted
against Clearing Agent by the other broker because of such
action by Clearing Agent, Introducing Firm agrees to indemnify
and hold Clearing Agent harmless from any loss, liability,
damage, cost, or expense arising directly or indirectly
therefrom. The Clearing Agent may impose on the Introducing
Firm additional charges for any such trades or may at its
discretion decline to handle such introduced trades in the
normal course of business.
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n. Reports to Regulators. The Introducing Firm shall provide
the Risk Management Officer of the Clearing Agent with, and
establish Clearing Agent as additional recipient of, copies of
all financial information and reports filed by the Introducing
Firm with all stock exchanges of which it is a member, the
NASD, and the SEC (including but not otherwise limited to
monthly and quarterly Financial and Operational Combined
Uniform Single Reports, i.e., "FOCUS" Reports and amendments to
Form BD including any regulatory investigations and/or
restrictions imposed upon Introducing Firm as well as
information relating to new registered representatives of
Introducing Firm including Forms U-4 ) within ten (10) calendar
days of filing therewith.
o. Financial Reports of Introducing Firm. The Introducing Firm
shall annually submit to the Risk Management Officer of the
Clearing Agent a certified copy of Introducing Firm's annual
audited financial statement.
p. Customer Inquiries, Complaints and Correspondence. The
Introducing Firm shall inform its customers that all inquiries
and correspondence relating to the services provided pursuant
to this Agreement should be directed to the Introducing Firm.
All customer correspondence shall be reviewed and responded to
by the party responsible for the specific area to which the
inquiry or complaint relates pursuant to the terms of this
Agreement. In the event such correspondence is not directed to
such party originally, the Introducing Firm or Clearing Agent
shall expeditiously forward such correspondence to the
appropriate party.
q. Security Deposit. The Introducing Firm shall deposit with
the Clearing Agent, concurrent with its execution of this
Agreement, a cash security deposit in the amount of Two Hundred
Fifty Thousand Dollars ($250,000). Should the security deposit
at any time during the term of this Agreement fall below this
amount, the Introducing Firm will be notified as to the
deficient amount and within ten (10) days of said notice, the
Introducing Firm will deposit additional funds sufficient to
reach the required minimum. The Clearing Agent will pay the
Introducing Firm interest monthly on such deposit based on the
13 week T-xxxx rate in effect on the first trading day of the
brokerage month. Such deposit shall be returned to the
Introducing Firm within thirty (30) days after termination of
this Agreement and the deconversion of the Introducing Firm,
and shall be subject to the Clearing Agent's right from time to
time to offset sums due to the Clearing Agent by the
Introducing Firm pursuant to the terms of the Agreement. With
regard to arrearages of payments related to this Agreement,
Clearing Agent may, at its sole option debit Introducing Firm's
deposit in the amount of that arrearage and Introducing Firm
will be responsible, as set forth in this section, for
depositing funds sufficient to reach the required minimum. This
security deposit does not represent any ownership interest in
the Clearing Agent.
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r. Clearing Deposit. The Introducing Firm shall deposit with
the Clearing Agent, immediately upon the completion of the
conversion of all of the Introduced Accounts of the Introducing
Firm to Clearing Agent, an equity deposit equal to Two Hundred
Fifty Thousand Dollars ($250,000) to secure the trading
activity of the Introducing Firm (the "Clearing Deposit"). The
Clearing Deposit will be applied to the daily "margin"
requirement related to the Introducing Firm's proprietary
trading activity. The minimum equity requirement shall be
maintained at $250,000. Should the Clearing Deposit at any time
during the term of this Agreement fall below this amount, the
Introducing Firm will be notified as to the deficient amount
and within ten (10) days of said notice in the case of a
"non-margin" requirement or, within three (3) days of said
notice in the case of a "margin" requirement, the Introducing
Firm shall deposit additional equity sufficient to reach the
required minimum. It may be necessary to increase the Clearing
Deposit to meet the Introducing Firm's daily "margin"
requirement based on the Introducing Firm's proprietary trading
activity. The Clearing Agent will pay the Introducing Firm
interest monthly on that portion of the Clearing Deposit which
exceeds the Introducing Firm's position cost, based on the
prevailing credit interest rate paid by the Clearing Agent on
the first trading day of the brokerage month. Such deposit
shall be returned to the Introducing Firm within thirty (30)
days after termination of this Agreement and the deconversion
of the Introducing Firm, and shall be subject to the Clearing
Agent's right from time to time to offset sums due to the
Clearing Agent by the Introducing Firm pursuant to the terms of
the Agreement. This clearing deposit does not represent any
ownership interest in the Clearing Agent.
s. Preparation of Statements, Xxxxxxxx or Confirmations. The
Introducing Firm shall not generate and/or prepare any
statements, xxxxxxxx or confirmation with respect to any
Introduced Account unless agreed to in writing by the Clearing
Agent and the Introducing Firm.
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t. Cash and Securities of Customers. The Introducing Firm will
turn over promptly to the Clearing Agent any and all cash
remittances and securities which the Introducing Firm receives
from its customers. Concurrently with the delivery of such
funds or securities to the Clearing Agent, the Introducing Firm
shall furnish the Clearing Agent with such information as may
be relevant or necessary to enable the Clearing Agent to record
promptly and properly such cash remittances and securities in
the respective Introduced Accounts.
u. Examination of Statements and Reports. Introducing Firm
shall promptly examine all monthly statements of Accounts,
monthly settlement statements of clearing services, customer
confirmations and any reports provided by Clearing Agent.
Unless Introducing Firm notifies Clearing Agent within a
reasonable time of any mistakes or discrepancies in the
above-described reports or information, Clearing Agent shall,
as between Clearing Agent and Introducing Firm and to the
extent Clearing Agent suffers monetary loss arising from any
such delay, be entitled to consider all the information
supplied to Introducing Firm as correct.
v. Compliance with Clearing Agent's Operational and Other "Back
Office" Policies and Procedures. The Introducing Firm shall
comply with Clearing Agent's operational and other "back
office" policies and procedures, including any and all
amendments and modifications thereto made from time to time by
Clearing Agent in Clearing Agent's sole commercially reasonable
discretion. From time to time and upon request by Introducing
Firm, Clearing Agent shall provide to Introducing Firm copies
of and/or reasonable access to all of the same.
w. Market Making Activities. Upon execution of this Agreement,
Introducing Firm shall promptly provide to the Risk Management
Officer of Clearing Agent a complete list of all securities in
which Introducing Firm makes a market as such is defined and
understood in the industry. Subsequent to that initial
submission, Introducing Firm shall submit to the Risk
Management Officer quarterly updates of any such securities and
shall promptly communicate to the Risk Management Officer any
changes to, additions to, or deletions from such list as they
occur.
x. Minimum Revenue. The Introducing Firm agrees to maintain and
otherwise agrees to pay Clearing Agent minimum Clearing Fees in
an amount equal to One Hundred Thousand Dollars ($100,000) per
calendar month for a period equal to the Initial Term and any
Renewal Terms. Notwithstanding the foregoing, if the
Introducing Firm terminates this Agreement for any reason,
other than for an Event of Default, during its Initial Term,
the Introducing Firm agrees to maintain and otherwise agrees to
pay to Clearing Agent minimum Clearing Fees in an amount equal
to the following:
(I) Three Hundred Thousand Dollars ($300,000) per
calendar month for the four (4) months prior
to the date this Agreement is terminated, if
this Agreement is terminated on or before the
second anniversary of the Commencement Date.
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(II) Three Hundred Thousand Dollars ($300,000) per
calendar month for the last three (3) months
prior to the date this Agreement is
terminated, if this Agreement is terminated on
or before the third anniversary of the
Commencement Date.
(III) Three Hundred Thousand Dollars ($300,000) per
calendar month for the last two (2) months
prior to the date this Agreement is
terminated, if this Agreement is terminated on
or before the fourth anniversary of the
Commencement Date; or
(IV) Three Hundred Thousand Dollars ($300,000) per
calendar month for the last month prior to the
date of this Agreement is terminated, if this
Agreement is terminated before the fifth
anniversary of the Commencement Date.
For the purpose of this Section II(1)(x), Section XIII(3) and
Section XI(5) of this Agreement, the term "Clearing Fees" shall
be deemed to include all fees charged to the Introducing Firm
by the Clearing Agent, except for "pass through" charges.
y. Obligation for the production of documents. The Introducing
Firm shall produce, at the request of the Clearing Agent, any
documents or information pertaining to its Introduced Accounts
for the purpose of aiding the Clearing Agent in the
investigation, defense, litigation or arbitration of a matter
involving an Introduced Account. The Introducing Firm shall
provide the requested information within a reasonable time.
z. Margin Disclosure Statement. The Introducing Firm shall be
responsible for providing its customer with the margin
disclosure statement at the time of the opening of the account
in accordance with NASD Rule 2341.
aa. Exclusivity. The Introducing Firm covenants that Clearing
Agent shall be the exclusive provider to Introducing Firm of
the products and services contemplated by and set forth
specifically in this Agreement during the term of this
Agreement, such products and services shall be deemed not to
include any services which the Clearing Agent is unable or
unwilling to perform.
2. Introducing Firm's Representations. The Introducing Firm
represents and warrants as follows:
a. The Introducing Firm is a corporation duly organized,
validly existing and in good standing under the laws of its
state of incorporation;
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b. The Introducing Firm is a member in good standing of the
NASD;
c. The Introducing Firm is duly registered or licensed and is
in good standing as a broker/dealer under all applicable laws
and regulations. The Introducing Firm will promptly notify the
Clearing Agent of its becoming a member or affiliate of any
exchange in addition to those memberships and affiliations
existing on the date of this Agreement. The Introducing Firm
shall also comply with whatever non-member access rules have
been promulgated by any securities exchange of which it is a
member or any other securities exchange of which it is not a
member;
d. The Introducing Firm has all the requisite authority in
conformity with all applicable laws and regulations to enter
into this Agreement and to retain the services of the Clearing
Agent in accordance with the terms hereof;
e. The Introducing Firm is in substantial compliance with: (i)
the capital and financial reporting requirements of every
securities exchange and/or securities association of which the
Introducing Firm is a member; (ii) the capital requirements of
the SEC; and (iii) the capital requirements of every state in
which the Introducing Firm is licensed as a broker/dealer. The
Introducing Firm will immediately notify the Clearing Agent
when: (a) its Aggregate Indebtedness Ratio (as defined in Rule
15c3-3 of the Exchange Act) reaches or exceeds 10 to 1; or (b)
the Introducing Firm has elected to operate under paragraph (f)
of Rule 15c3-1 of the Exchange Act when its net capital is less
than 5% of aggregate debit items computed in accordance with
Rule 15c3-3;
f. The Introducing Firm has minimum net capital in an amount no
less than 120% of the net capital requirements of Rule 15c3-1
and will promptly notify Clearing Agent in the event the
minimum net capital falls below such a limit; and
g. The Introducing Firm has completed the requirements imposed
by Rule 382(e)(1) of the Rules in that it has provided written
notice to the Clearing Agent of those specific reports offered
by the Clearing Agent that the Introducing Firm requires to
supervise and monitor Introduced Accounts; and the Introducing
Firm has complied with the requirements of Rule 382(f) of the
Rules by maintaining and enforcing supervisory procedures to
the satisfaction of the Clearing Agent with respect to the
issuance of negotiable instruments to Introduced Accounts, for
which the Clearing Agent is the maker or drawer.
III. Mutual Covenants of Clearing Agent and Introducing Firm.
1. Press Release and Advertising. Upon execution of this
Agreement, the parties may, at their discretion, issue a press
release regarding the relationship between the parties and the
products and services to be provided by Clearing Agent to
Introducing Firm during the term of the Agreement.
Notwithstanding the foregoing, the parties will not release any
press release or place an advertisement in any newspaper,
publication or other media which makes reference to the other
party and the services to be provided to the Introducing Firm
in this Agreement without the prior consent of that party.
15
2. Confidentiality. All confidential information (as defined
below) relating to a party shall be held in confidence by the
other party to the same extent and in at least the same manner
as such party protects its own confidential or proprietary
information. Neither party shall disclose, publish, release,
transfer or otherwise make available Confidential Information
of the other party in any form to, or for the use or benefit
of, any person or entity without the other party's consent.
Each party shall, however, be permitted to disclose relevant
aspects of the other party's Confidential Information to its
officers, agents, subcontractors and employees to the extent
that such disclosure is reasonably necessary for the
performance of its duties and obligations under this Agreement
and such disclosure is not prohibited by Xxxxx-Xxxxx-Xxxxxx Act
of 1999 (Public Law 106-102, 113 Stat. 1138) which amends the
Exchange Act ("GLBA"), as it may be amended from time to time,
the regulations promulgated thereunder or other applicable law;
provided, however, that such party shall take all reasonable
measures to ensure that Confidential Information of the other
party is not disclosed or duplicated in contravention of the
provisions of this Agreement by such officers, agents,
subcontractors and employees. The obligations in this Section
shall not restrict any disclosure by either party pursuant to
any applicable law, or by order of any court or government
agency (provided that the disclosing party shall give prompt
notice to the non-disclosing party of such order) and shall not
apply with respect to information which (1) is developed by the
other party without violating the disclosing party's
proprietary rights, (2) is or becomes publicly known (other
than through unauthorized disclosure), (3) is disclosed by the
owner of such information to a third party free of any
obligation of confidentiality, (4) is already known by such
party without an obligation of confidentiality other than
pursuant to this Agreement or any confidentiality agreements
entered into before the effective date between the parties or
(5) is rightfully received by a party free of any obligation of
confidentiality. If the GLBA, the regulations promulgated
thereunder or other applicable law now or hereafter in effect
imposes a higher standard of confidentiality to the
Confidential Information, such standard shall prevail over the
provisions of this Section.
a. Confidential Information of a party shall mean all data and
information submitted to the other party or obtained by the
other party in connection with the services, including but not
limited to, information relating to a party's customers,
technology, operations, facilities, consumer markets,
products, capacities, systems, procedures, security practices,
research, development, business affairs, ideas, concepts,
innovations, inventions, designs, business methodologies,
improvements, trade secrets, copyrightable subject matter and
other proprietary information.
16
b. Excluding paragraph 2(c), this Section shall survive the
termination of this Agreement.
c. The Introducing Firm shall be responsible for providing its
customer with the Clearing Agent's Reg S-P Privacy disclosure
statement at the time of the opening of the account in
accordance with GLBA.
3. Non-Solicitation. Neither party will engage in negotiations with a
view to hire or hire personnel of the other without that party's prior
written consent for the term of this Agreement and for a period of one
(1) year thereafter.
4. Indemnification. Each party shall indemnify and hold the other party
harmless from and against any losses, claims, damages, liabilities or
expenses including without limitation those asserted by Introduced
Accounts (which shall include, but not be limited to, all costs of
defense and investigation and all reasonable attorneys' fees) to which
the indemnified party may become subject, insofar as such losses,
claims, damages, liabilities or expenses arise out of or are based upon
any of the following:
a. Introducing Firm shall indemnify Clearing Agent with regard
to:
i. any breach of any representation or warranty made
by the Introducing Firm under this Agreement or any
failure of the Introducing Firm to perform,
undertake, honor or comply with any of its
responsibilities or covenants under this Agreement;
ii. the negligence or willful misconduct of the
Introducing Firm or its employees in providing the
services contemplated hereunder, including the
unreasonable failure to obtain relevant information
from customers as requested by the Clearing Agent or
required by this Agreement;
iii. the loss of securities or cash prior to the
actual receipt by the Clearing Agent or an
appropriate national clearing organization of such
securities from the Introducing Firm or after actual
receipt of such securities by the Introducing Firm
from the Clearing Agent or an appropriate national
clearing organization;
iv. failure of the Introducing Firm to collect margin
from its customers after instruction by the Clearing
Agent to collect such margin;
v. failure of the Introducing Firm to provide the
Clearing Agent with a customer's correct tax
identification number or address;
vi. with respect to any Introduced Account, errors,
misunderstandings, controversies or failure of any
customer to satisfy his or her obligations, unless
such losses, claims, damages, liabilities or expenses
are the result of the Clearing Agent's error,
negligence or willful misconduct;
17
vii. the exercise by the Introducing Firm, its
partners, officers or employees of discretionary
authority over Introduced Accounts;
viii. any attempt of the Introducing Firm to hold
itself out as, advertise or in any way represent that
it is the agent of the Clearing Agent, or has apparent
authority to act as an agent of the Clearing Agent or
agency by estoppel; or
ix. the Introducing Firm executes its own
over-the-counter order or designates the counter party
and the over-the-counter dealer with whom the
Introducing Firm dealt or whom it designated fails to
honor its part of the transaction.
b. The Clearing Agent shall indemnify the Introducing Firm with
regard to:
i. any breach of any representation or warranty
made by the Clearing Agent under this Agreement
or any failure of the Clearing Agent to
perform, undertake, honor or comply with any of
its responsibilities or covenants under this
Agreement;
ii. the negligence or willful misconduct of the
Clearing Agent or its employees in providing
the services contemplated hereunder;
iii. the loss of securities or cash after actual
receipt by the Clearing Agent from the
Introducing Firm or an appropriate national
clearing organization or prior to the actual
receipt of such securities or cash by the
Introducing Firm or an appropriate national
clearing organization from the Clearing Agent.
c. Claims - Legal Authority. To the extent any legal challenge
by a regulatory body or any other entity or individual is
brought which seeks to declare or is based in whole or in part
on a claim that the Introducing Firm or the Clearing Agent is
without authority to offer or provide the services
contemplated by this Agreement to its customers or the
Introduced Accounts, or has violated or will violate any
statute, regulation or other rule of law in connection with
the offering of or providing of such services, each party
hereto shall bear its own cost and expenses related hereto.
18
d. Notification. Promptly after receipt by an indemnified
party under this paragraph of notice of the commencement of
any action proceeding, investigation, or inquiry, the
assertion of any claim, the happening of any event(s)
triggering any indemnification obligation(s) hereunder, or the
reasonable threat of same (collectively "action"), such
indemnified party will, notify the indemnifying party of the
commencement thereof. Notwithstanding the foregoing, the
failure, omission or delay so to notify the indemnifying party
will not relieve it from any liability which it may have to
the indemnified party otherwise than under this paragraph. In
case any such action is brought against any indemnified party,
and it notified the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to
participate in and, to the extent that it may wish, to assume
the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such
indemnified party under this paragraph for any legal or other
expenses subsequently incurred by such indemnified party. The
indemnified party shall have the right to employ separate
counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not
be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action.
e. Reserves. In connection with any claim that does or could
give rise to a claim for indemnification under this Section
III for Clearing Agent, Clearing Agent may, in its discretion,
in addition to any and all other rights and remedies under
this Agreement, reserve and retain any money, securities or
other property of Introducing Firm pending a determination of
such claim. The money, securities or other property of
Introducing Firm set aside in such a reserve shall be subject
to Clearing Agent's standard lien and security interest
described in Section XIII(6).
f. Survival of Indemnification after Termination. The
indemnification provision in this Section shall remain
operative and in full force and effect, regardless of the
termination of this Agreement, and shall survive any such
termination.
5. Schedule B Products and Services. Introducing Firm desires, and
Clearing Agent shall provide, such products and services selected by Introducing
Firm and designated by election on Schedule B to this Agreement, subject to the
terms and conditions relative to each product or service set forth in the
corresponding exhibit to Schedule B and attached hereto. Clearing Agent and
Introducing Firm agree to be bound by and comply with the terms and conditions
set forth in those exhibits, including but not limited to the corresponding
pricing and fee schedules included in each exhibit or otherwise incorporated
from Schedule A. Schedule B and the corresponding attached exhibits are
incorporated by reference into this Agreement as if included in their entirety
herein. Schedule B and the corresponding exhibits may be modified and amended
from time to time pursuant to Section XV(2) of this Agreement.
6. Material Adverse Information. Introducing Firm shall promptly
provide Clearing Agent with any information that is or may be material to the
ability of either party or its officers or principals to perform its obligations
under this Agreement, including but not limited to any pending or proceeding
regulatory investigations, indictments, arrests, censures, litigation,
arbitrations, or other administrative or judicial proceedings.
19
IV. Opening of Accounts.
It is recognized and agreed that the Introducing Firm is solely
responsible and liable for the due and proper opening and approval of all
Introduced Accounts in compliance with all applicable laws, rules and
regulations. Similarly, it is recognized and agreed that the Introducing Firm is
solely responsible and liable for the handling, operation, supervision, and
monitoring for all Introduced Accounts in compliance with all applicable laws,
rules and regulations. Without any further inquiry, independent investigation or
further action, Clearing Agent may rely on the validity, accuracy and
completeness of all customer-related and Introduced Account-related information
and/or data provided to the Clearing Agent by the Introducing Firm, whether in
connection with the Introducing Firm's opening of any Introduced Account or at
any other time(s).
1. The following procedures are to be followed in opening, approving,
handling and maintaining all Introduced Accounts:
a. Account Information. At the time of opening each Introduced
Account, the Introducing Firm shall furnish the Clearing Agent
with all financial and personal information concerning such
Introduced Accounts as the Clearing Agent may reasonably
require.
b. Margin Account Agreements. At the time of opening
Introduced Accounts which are margin accounts, the Introducing
Firm shall furnish the Clearing Agent with executed customers'
agreements, hypothecation agreements and consents to loan of
securities (hereinafter referred to collectively as the
"Margin Agreements").
c. Account Forms, Documents and Agreements. The Clearing Agent
shall supply the Introducing Firm with the format for "new
account" forms and Margin Agreements to be submitted to the
Clearing Agent upon their completion by the Introducing Firm.
The Clearing Agent will mail to each margin Introduced Account
a written statement at the time of opening of a margin account
in accordance with Rule 10b-16 under the Exchange Act from
time to time. Upon the written or oral request of the Clearing
Agent, the Introducing Firm shall furnish the Clearing Agent
with any other documents and agreements executed by the
Introduced Account.
d. Waiver of Agreements. If an Introduced Account has been
opened without the Clearing Agent having previously received
the foregoing information or, in the case of a margin account,
without the Clearing Agent having previously received properly
executed Margin Agreements, failure of the Clearing Agent to
receive such information or Margin Agreements shall not be
deemed to be a waiver of the information requirements set
forth herein.
20
e. Account Agreements - Customer Contact. The Clearing Agent
may upon notice to the Introducing Firm, mail Margin
Agreements or new account forms directly to the Introduced
Accounts upon notification by the Introducing Firm, and/or
require completion of its own margin agreements or new account
forms and, if required, option account agreements for the
Introduced Accounts.
f. Account Information to Clearing Agent. The Introducing Firm
shall promptly provide the Clearing Agent with basic data and
copies of documents relating to each of the Introduced
Accounts, including, but not otherwise limited to, copies of
records of any receipts of the Introduced Accounts' funds
and/or securities received directly by the Introducing Firm,
as shall be necessary for the Clearing Agent to discharge its
services hereunder.
g. Cash Transactions. All transactions in any Introduced
Account are to be considered cash transactions until such time
as the Clearing Agent has received Margin Agreements duly and
validly executed in respect of such Introduced Account.
h. Agency Accounts. At the time of the opening of any agency
Introduced Account, the Introducing Firm shall furnish the
Clearing Agent with the name of any principal for whom the
Introducing Firm is acting as agent, and written evidence of
such authority.
2. Account Compliance.
a. Rule 405(3). The Introducing Firm shall have the sole and
exclusive responsibility for substantial compliance with Rule
405(3) of the Rules and shall specifically approve the opening
of any new account before forwarding such account to the
Clearing Agent as a potential Introduced Account. The Clearing
Agent, in its reasonable business judgment, shall have the
right to reject any account which the Introducing Firm may
tender to the Clearing Agent as a potential Introduced
Account. The Clearing Agent shall also have the right to
terminate any account previously accepted by it as an
Introduced Account and notify the Introducing Firm of such
termination. Failure of the Clearing Agent to so notify the
Introducing Firm, however, shall not affect the effectiveness
of such termination.
b. Tax Identification Numbers. The Introducing Firm will
verify and furnish to the Clearing Agent tax identification
numbers, signatures and such other information as are
requested by the Clearing Agent for the opening and carrying
of Introduced Accounts on such forms as may have been approved
from time to time by the Clearing Agent and the Introducing
Firm. The Introducing Firm shall be responsible for any
penalty or fine assessed as a result of its failure to provide
tax identification numbers or its providing incorrect tax
identification numbers.
21
c. Account Documentation. If the documents necessary to enable
the Clearing Agent to comply with account documentation
requirements of any applicable laws and regulations have not
been received by the Clearing Agent, the Clearing Agent may
notify the Introducing Firm that no further orders will be
accepted for the Introduced Accounts involved. In the event
that inadvertent orders are placed for such accounts after
such notice is received, all commissions collected from such
orders will be retained by the Clearing Agent. Upon receipt of
the necessary documents, this restriction will be lifted with
respect to future commissions, and any commissions collected
by the Clearing Agent prior to its receipt of such documents
will be paid to the Introducing Firm.
d. Rule 405(1). It shall be the sole and exclusive
responsibility of the Introducing Firm to make every
reasonable effort to ascertain the essential facts relative to
any Introduced Account and any order therefore, in substantial
compliance with Rule 405(1) of the Rules, including but not
otherwise limited to ascertaining the authority of all orders
for Introduced Accounts, and the genuineness of all
certificates, papers and signatures provided by each
Introduced Account. Any investment advice furnished by the
Introducing Firm to an Introduced Account shall be the sole
and exclusive responsibility of the Introducing Firm.
e. Customer Incapacity. The Introducing Firm shall have the
sole and exclusive responsibility to ensure that those of its
customers who become Introduced Accounts hereunder shall not
be minors or subject to those prohibitions existing under any
laws and regulations generally relating to the incapacity of
any Introduced Account or any conflict of interest relating to
such Introduced Account.
f. Copies of Account-Related Documents and/or Agreements.
Introducing Firm shall be exclusively responsible for
maintaining all cash account documents related to the
Introduced Accounts. Upon the written or oral request of the
Clearing Agent, the Introducing Firm shall promptly furnish
the Clearing Agent with true, correct, legible copies of all
documents and/or agreements related to any Introduced Account.
Introducing Firm agrees to comply with any such request within
forty-eight (48) hours of the receipt of such request by the
Introducing Firm. Any such request or receipt of such copies
by the Clearing Agent, or any comments by the Clearing Agent
respecting any of the same, shall not alter or amend any of
the duties, obligations, liabilities or responsibilities of
either party as specified in this Agreement.
22
V. Margin Transactions.
1. Regulation T. With respect to Introduced Accounts which are
margin accounts, the Clearing Agent is responsible for
compliance with Regulation T, 12 C.F.R. Part 220 [the federal
margin regulation promulgated by the Board of Governors of the
Federal Reserve System (the "Board")], and interpretive
rulings issued by the Board, letter rulings of the Federal
Reserve Bank of New York, Rules, interpretations of the NYSE
and any other applicable margin and margin maintenance
requirements. The Introducing Firm is responsible to the
Clearing Agent for the collection of the margin required to
support each transaction for, and to maintain a position in,
each Introduced Account, in conformity with the above margin
and margin maintenance requirements. After initial margin
relating to each transaction has been received, maintenance
margin calls shall be generated by the Clearing Agent or by
the Introducing Firm at the instruction of the Clearing Agent.
The Clearing Agent shall have the right to modify, in its sole
discretion, the margin requirements of any Introduced Account
from time to time. All margin Introduced Accounts shall be
subject to the Clearing Agent's "house margin requirements"
which shall be delivered to the Introducing Firm on the
Introducing Firm's request. The Clearing Agent will not xxxx
up any fees or charges imposed directly by any regulatory body
with regard to Regulation T call extensions granted by the
Clearing Agent pursuant to written requests from a principal
of the Introducing Firm.
2. Payment Responsibility. On all transactions, the Introducing
Firm shall be responsible to the Clearing Agent for any loss,
liability, damage, cost or expense (including but not
otherwise limited to fees and expenses of legal counsel)
incurred or sustained by the Introducing Firm or the Clearing
Agent as a result of the failure of any Introduced Account to
make timely payment for the securities purchased by it or
timely compliance by it with margin or margin maintenance
calls (provided that the Clearing Agent has timely issued such
call and given notice thereof to the Introducing Firm),
whether or not any margin extension has been granted by the
Clearing Agent pursuant to the request of the Introducing
Firm.
3. Assistance. At the Clearing Agent's request, and without
altering or amending any duties, obligations, liabilities or
responsibilities specified in this Agreement, Introducing Firm
promptly and fully shall assist the Clearing Agent in respect
of all necessary or desirable actions to demand, secure and/or
collect all sums due in respect of any margin Introduced
Account.
VI. Self-Directed Individual Retirement Accounts Program.
1. Services Performed. The Self-Directed Individual Retirement
Accounts Program (the "SDIRA Program") includes, without
limitation, a brokerage account by Clearing Agent and one or
23
more liquid asset investment options. Clearing Agent provides
the various processing services described in this Section on
behalf of the Introducing Firm, in connection with such SDIRA
program. Unless otherwise agreed to in writing, Clearing Agent
will act as a Custodian of Assets of the SDIRA. A Custodian of
Assets will be defined as a bank or a non-bank organization
who applied for custodian approval with the Internal Revenue
Service (IRS) and received such approval and has met all the
requirements of IRS Regulationsss.1.401-12(n).
2. Responsibilities of the Parties.
a. The parties will develop the application form and other
forms to be used by Introduced Accounts who participate in the
SDIRA Program (the "SDIRA Introduced Account").
b. Introducing Firm and Clearing Agent will be responsible for
processing the application forms with regard to approving a
SDIRA Introduced Account application and shall approve, deny
or otherwise handle the application forms in accordance with
applicable law, including without limitation receipt,
evaluation and retention of the application form and legal
documentation required to open an Account. Introducing Firm
will retain a copy of the application form and related
documentation and materials as may be required by applicable
law. Upon request, Introducing Firm will either provide the
Clearing Agent with a copy of the application form or allow
Clearing Agent access to Introducing Firm's application forms.
c. The following responsibilities will be undertaken by the
Clearing Agent regarding the SDIRA program:
i. Clearing Agent will perform all required tax
reporting;
ii. Clearing Agent will identify receipts into the SDIRA
Introduced Account and disbursements from the SDIRA
Introduced Account by transaction type and tax year.
Clearing Agent will store this transaction
information and produce the proper tax reporting, on
Forms 5498 and 1099R; and
iii. The maintenance of the annual fee billing system
which includes (i) the generation and mailing of fee
due notices; (ii) support of various fee incentive or
waiver programs; and (iii) the ability to debit the
SDIRA Introduced Account for the required fee amount.
3. Form Approval and Inventory. Introducing Firm will provide,
at its cost, all forms necessary to open, operate and close
SDIRA Introduced Accounts. The use of such forms and all
revisions thereto will be subject to the prior approval of
Clearing Agent, but Clearing Agent's review and approval shall
not be unreasonably withheld.
24
If any reprinting is required by a change in law applicable to
the parties, or any party hereto, or the SDIRA Program
services offered by Introducing Firm, the cost of reprinting
and distributing revised forms will be borne by Introducing
Firm. If a change requiring forms reprinting is requested,
other than as required by a change in law applicable to the
parties hereto or to the SDIRA Program services offered by
Introducing Firm, then all creative, printing, inventory,
distribution and other costs incurred as a result of such
reprinting shall be borne solely by the party requesting such
change. Clearing Agent shall have no responsibility for any
creative, inventory, distribution or any other costs incurred
as a result of replacing an inventory of forms maintained by,
or for, Introducing Firm that exceeds the supply reasonably
expected to be used in a three-month period unless Clearing
Agent shall have previously consented in writing to the
printing and distribution of more than a three month's supply
of such forms.
4. No Third Party Beneficiaries. The parties agree that there
are no intended or incidental third party beneficiaries of the
SDIRA Program other than those customers who are SDIRA
Introduced Accounts.
5. Fees. Clearing Agent will invoice Introducing Firm in
January for all charges associated with the SDIRA Program set
forth in Schedule A hereto. Such invoices shall be payable in
full within ten (10) days of receipt by Introducing Firm.
6. Reference to Each Other. Each party agrees, with respect to any
and all SDIRA Program forms, notices, agreements, advertising and
promotional materials to be used in connection with the SDIRA
Program and which make reference to any other party and/or mention
any other party's products, service or benefits, that it will
submit the same to such other party for review and comment
relating to the reference or mention and that no such form,
notice, agreement, advertising or promotional materials will be
mailed to customers or distributed to the public by that party
without the prior consent of such other party or parties, which
consent will not be unreasonably withheld.
VII. Prime Brokerage.
1. Introducing Firms Responsibilities.
a. Execution Brokerage Services:
i. The Introducing Firm may, from time to time, execute
trades (either directly or through the Clearing
Agent) as "Executing Broker" as such term is used in
the SEC No Action Letter on Prime Brokerage dated
January 25, 1994 from the Division of Market
25
Regulation of the SEC with respect to the provision
of prime brokerage services, as the same may be
amended, modified or supplemented from time to time
(the "SEC Letter") for the accounts of specified
customers of the Introducing Firm that have requested
prime brokerage services from the Introducing Firm
("Executing Brokerage Accounts") in compliance with
the requirements of the SEC Letter. The Introducing
Firm shall set up an Executing Brokerage Account with
Clearing Agent in the customer account range in which
the account is used for receiving in and delivering
of trades versus payment transactions on the
settlement date ("DVP/RVP Accounts") and follow all
applicable procedures provided to Introducing Firm by
Clearing Agent related to the Prime/Executing
Brokerage Services. In addition, Introducing Firm
shall obtain and provide to Clearing Agent a fully
executed Securities Industry Association Form 151
Agreement (or Clearing Agent's modified version) from
Introducing Firm's customer entered between Clearing
Agent, on behalf of Executing Broker (Introducing
Firm), which has a Prime Brokerage Relationship with
another broker-dealer firm.
ii. The Introducing Firm understands and agrees that if a
Prime Broker, as defined in the SEC Letter, shall
disaffirm or "dk" any trade executed by the
Introducing Firm on behalf of a Prime Brokerage
Account, which is held by the contra-party of the
trade, the Introducing Firm shall open a margin
account for such Prime Brokerage Account in its range
of accounts with the Clearing Agent and shall
transfer or deliver the trade to such account at the
risk and expense of the Introducing Firm to the same
extent as for any trade in any account introduced by
the Introducing Firm pursuant to the Clearing
Agreement. A margin agreement shall be opened by the
Introducing Firm's customer signing the Securities
Industry Association Form 151 Agreement, or Clearing
Agent's modified version, and, if necessary, any
other documents required by Clearing Agent.
iii. The Introducing Firm understands and agrees that all
Prime Brokerage Accounts shall be conducted in
accordance with the requirements of the SEC Letter.
The Introducing Firm further agrees to supply the
Clearing Agent with such documents and other
information, from time to time, as are reasonably
required by the Clearing Agent to carry out the
intention of this provision.
26
iv. Introducing Firm shall review on a daily basis all
daily reports provided to them by Clearing Agent
related to the Executing Brokerage Services.
b. Prime Brokerage Services:
i. Introducing Firm shall submit a request to the
Clearing Agent to approve a Prime Brokerage
relationship between Clearing Agent and Introducing
Firm's account holder of Introduced Account.
ii. Upon approval by Clearing Agent of the Prime
Brokerage relationship, Introducing Firm shall
provide Clearing Agent with a fully executed Clearing
Agent's Prime Broker Agreement, a margin account
agreement fully executed by Introducing Firm's
customer, and any other documents necessary to open a
Prime Brokerage Account as required by Clearing
Agent.
iii. The Introducing Firm shall promptly notify the
Clearing Agent, but in no event later than 5:00 P.M
New York City time on trade date, in a mutually
acceptable fashion, of such trades in sufficient
detail for the Clearing Agent to be able to report
and transfer any trade executed by the Introducing
Firm on behalf of a Prime Brokerage Account to the
relevant Prime Broker.
2. Clearing Agent's Responsibilities.
a. Executing Brokerage Services:
i. Clearing Agent shall open an Executing ("RVP/DVP")
Account in the name of the customer of the
Introducing Firm and the name of the Prime Broker
clearing transactions in said account. Clearing Agent
shall act upon the trade execution information as
provided to the Clearing Agent from Introducing Firm.
ii. Clearing Agent shall settle all affirmed trades on
settlement day. Clearing Agent shall use its best
efforts to settle unaffirmed trades on settlement
date; however, Clearing Agent shall not take
responsibility in such trades that are not settled
within said time frame.
iii. Clearing Agent shall charge a fee to Introducing
Broker at an interest rate of Broker Call + 300 basis
points, which Clearing Agent may change from time to
time, for any trades that are identified as being
"dk". Such fee is based on the number of days that
the trade remained unsettled.
27
iv. Clearing Agent shall provide reports to the
Introducing Firm on a daily basis to assist the
Introducing Firm in reviewing its executed trades
related to the Executing Brokerage Services.
b. Prime Brokerage Services:
i. Upon Clearing Agent's approval of the Prime Brokerage
Account, Clearing Agent shall create a linked
account(s) between the Prime Brokerage Account and
the Executing Broker (the contra-party of the trade).
ii. Clearing Agent shall be responsible for affirming all
matched trades. All unmatched trades shall be
indicated "dk" by the Clearing Agent and it shall be
the responsibility of the Introducing Firm and its
customer named in the Prime Brokerage Account to
resolve the "dk" status of the trade with the
Executing Broker.
iii. Clearing Agent shall settle all trades authorized by
the Introducing Firm and/or its customer using the
Prime Brokerage Services.
iv. Clearing Agent shall reject any trades that it
identifies, in its sole judgment, as being an invalid
trade or any trades that the customer and/or
Introducing Firm identifies as being invalid.
Clearing Agent shall not be responsible for any
damages, losses and/or liabilities related to such
identified trades.
v. The Introducing Firm hereby agrees to indemnify and
hold the Clearing Agent harmless from and against any
loss, liability, damage, cost or expense (including
but not otherwise limited to fees and expenses of
legal counsel), as incurred, sustained or incurred in
connection with any of the prime brokerage
activities.
VIII. FSI Professional.
1. Description of Services. In the event that the product, which
the Introducing Firm shall use to manage their investment
portfolios breaks down or is unusable, the registered
representatives of the Introducing Firm may use FSI
Professional to manage their investment portfolios.
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2. Provision of FSI Professional. The parties agree that Clearing
Agent will provide to Introducing Firm the FSI Professional
according to the following terms and conditions:
a. Clearing Agent will provide the following:
i. Delayed Quotes for the New York, NASDAQ,
OPRA and American Exchanges;
ii. Account Information access including account
balance, history, open orders, completed
orders, and current positions;
iii. Full trading functionality including the
ability to trade stocks, options and mutual
funds; and
iv. The FSI Professional may also include
value-added services such as Standard and
Poor's Research Reports. The value added
services will be provided at a service
charge as set forth in Schedule A.
b. Introducing Firm will:
i. Provide access to FSI Professional through
the Internet to its employees; and
ii. Not provide the FSI Professional to any
party or parties other than its registered
representatives, it being understood that
Introducing Firm's employees are to be the
end users of the FSI Professional.
Introducing Firm shall not provide access to
FSI Professional to any party or parties
that it knows or has reason to know are
engaged in reselling or redistributing the
information made available through the FSI
Professional.
3. Advertising. Without the prior consent of Clearing Agent,
which consent shall not be unreasonably withheld, Introducing
Firm will not agree to place or actually place any
advertisement in any newspaper, publication or other media
which makes reference to Clearing Agent, its trade name or
trademark and the FSI Professional to be provided to
Introducing Firm.
4. Limitation of Authority. Clearing Agent shall limit its
services pursuant to the terms of this Agreement to those
described herein and the related services expressly set forth
herein and Introducing Firm shall not hold itself out as an
agent of Clearing Agent or any of the subsidiaries or
companies controlled directly or indirectly by or affiliated
with Clearing Agent.
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5. Limitation of Liability. Neither Clearing Agent nor any of the
information sources providing stock quote and other
information disseminated through the Introducing Firm
guarantees the timeliness, sequence, accuracy or completeness
of any of the last sale, stock or option information, or other
market information supplied through the FSI Professional.
Except for such claims or damages arising from Clearing
Agent's negligence or willful misconduct, neither Clearing
Agent nor any of such information sources shall be liable in
any way to recipients of FSI Professional or any other person
for any claims or damages, consequential or otherwise, which
may arise from any inaccuracies, errors in, or omissions of,
any of the information provided through the FSI Professional,
or in the transmission or delivery thereof, or for any damage
arising therefrom or occasioned thereby.
6. Upgrades. Clearing Agent from time to time may upgrade FSI
Professional.
7. Warranty. Clearing Agent warrants that, to the best of its
knowledge, that the FSI Professional is free of programming
and encoding errors, and shall perform and operate in the
manner described and accurately produce the results
represented.
8. Right to Alter or Discontinue. If the FSI Professional and/or
any programs associated with the FSI Professional used by
Introducing Firm are, or, in Clearing Agent's opinion, are
likely to be, the subject of a copyright, trademark or patent
infringement claim, Clearing Agent may:
i. Obtain the right to continue using the FSI
Professional and/or any programs associated with the
FSI Professional; or
ii. Replace or alter the FSI Professional and/or any
programs associated with the FSI Professional to make
them non-infringing.
If, in Clearing Agent's opinion, neither of these
alternatives is reasonably available, Clearing Agent may
discontinue the license for the FSI Professional and/or any
programs associated with the FSI Professional upon written
notice to Introducing Firm.
IX. G-14 Customer Transaction Municipal Securities Rulemaking Board Reporting .
1. Pursuant to Municipal Securities Rulemaking Board ("MSRB")
Rule G-14, it is
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hereby agreed between Introducing Firm and Clearing Agent that
Clearing Agent shall report to the MSRB on behalf of
Introducing Firm.
2. Clearing Agent represents that it is familiar with MSRB Rule
G-14. Clearing Agent represents that it has completed testing
with the MSRB. Clearing Agent represents that it has processes
and procedures reasonably designed to ensure compliance with
G-14 requirements.
3. Unless otherwise directed in writing by Introducing Firm,
Clearing Agent will record and transmit to the MSRB, on
Introducing Firm's behalf, all municipal securities
transactions with customers that are required to be recorded
pursuant to MSRB Rule G-14. Clearing Agent will also record
and transmit to the MSRB information that is received via the
SIS platform system by Clearing Agent in connection with
modification or cancellation of any transaction previously
entered into the system.
4. Clearing Agent agrees that any records of MSRB Rule G-14 data
prepared on behalf of Introducing Firm and maintained by
Clearing Agent are the property of Introducing Firm and shall
be surrendered promptly upon Introducing Firm's request.
Clearing Agent agrees to permit examination of any records of
MSRB Rule G-14 data prepared on behalf of Introducing Firm and
maintained by Clearing Agent from time to time during business
hours by representatives of NASD Regulations or the MSRB and
to promptly furnish to NASD Regulation or its designee true,
correct, complete, and current hard copy of any or all of any
part of these records.
5. Clearing Agent agrees to promptly notify Introducing Firm upon
the occurrence of any event, including physical damage to
Clearing Agent's facilities or legal proceedings involving
Clearing Agent that would materially affect Clearing Agent's
ability to make MSRB Rule G-14 reports on behalf of
Introducing Firm for an extended period of time.
6. For transactions not entered on the SIS system for execution,
Introducing Firm is responsible for providing information
necessary for Clearing Agent to report on Introducing Firm's
behalf. Introducing Firm agrees that Clearing Agent may pass
any out-of-pocket costs associated with development and/or
maintenance of this system onto Introducing Firm and that
Introducing Firm will be assessed a Fifty Dollars ($50.00) fee
for every trade in which Introducing Firm provides the trade
information to Clearing Agent after our daily transmission to
National Securities Clearing Corporation ("NSCC") of the MSRB
trade.
7. Introducing Firm acknowledges and agrees that Clearing Agent
shall not be responsible for any municipal transaction that is
not received by Clearing Agent. Notwithstanding the foregoing,
if the Introducing Firm does not trade municipal securities,
the Introducing Firm must acknowledge in written to the
Clearing Agent that the firm does not engage in municipal
trades.
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8. Introducing Firm shall become a member of MSRB and provide
Clearing Agent with its MSRB symbol within thirty (30) days
from the date of the Clearing Agreement.
9. Introducing Firm shall be responsible for any applicable
regulatory fines and/or penalties assessed against the
Clearing Agent for municipal trades of the Introducing Firm in
which the Introducing Firm uses the MSRB symbol of the
Clearing Agent instead of the MSRB symbol of the Introducing
Firm.
10. Clearing Agent shall charge Introducing Firm Fifty Dollars
($50.00) per municipal trade in which the Introducing Firm
uses the MSRB symbol of the Clearing Agent for its municipal
trades. Such fee may be increased by Clearing Agent every
Twelve (12) months upon Thirty (30) days written notice.
11. Notwithstanding the foregoing, nothing contained herein shall
relieve Introducing Firm of its obligations under MSRB Rule
G-14.
X. TRADE REPORTING AND COMPLIANCE ENGINE ("TRACE").
1. Clearing Agent herein agrees to report on behalf of
Introducing Firm any and all secondary market transactions for
eligible fixed income securities information ("Order
Information") to the NASD as required by and in compliance
with the TRACE Rules and the TRACE Reporting Technical
Specifications, and any subsequent modification thereto as
they relate to TRACE reporting.
2. Introducing Firm shall provide to Clearing Agent in a timely
fashion any and all information required under NASD Rules
6200-6260 arising from any TRACE eligible security transaction
into the Clearing Agent's system. This information will be
provided in a format as agreed upon by the parties.
3. Clearing Agent herein represents and warrants that it:
a. Is familiar with the TRACE Rules and the TRACE
Reporting Technical Specifications;
b. Has completed or will complete all requisite testing
to remain in compliance with the TRACE Reporting
Technical Specifications;
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c. Has in place processes and procedures designed to
ensure compliance with the TRACE Rules and TRACE
Reporting Technical Specifications, and any
subsequent modifications thereto; and
d. Agrees to make reports to NASD in compliance with
TRACE Rules and TRACE Reporting Technical
Specifications, and any subsequent modifications
thereto.
4. Clearing Agent herein agrees that any records of TRACE data
prepared on behalf of the Introducing Firm and maintained by
Clearing Agent are the property of the Introducing Firm and
shall be surrendered promptly upon written request from a duly
authorized officer of the Introducing Firm.
5. Upon reasonable notice, Clearing Agent herein agrees to permit
examination of any records of TRACE data prepared on behalf of
the Introducing Firm and maintained by Clearing Agent at any
time during regularly scheduled business hours by
representatives of NASD Regulation and shall promptly furnish
to NASD Regulation or its designee true, correct, complete and
current hard copy of any or all of any part of these records.
6. Clearing Agent herein agrees to promptly notify the
Introducing Firm upon the occurrence of any event, including
but not limited to, physical damage to Clearing Agent's
transmitting facilities, that would materially affect Clearing
Agent's ability to make TRACE reporting on behalf of the
Introducing Firm.
7. In the event that Clearing Agent is unable or unwilling to
store any records of TRACE data prepared on behalf of the
Introducing Firm, Clearing Agent will promptly notify the
Introducing Firm and deliver such records within thirty (30)
days from the date of the notice to the address of the
Introducing Firm designated in the Notices section of the
Agreement or to a location mutually agreed by both parties.
8. As directed by the NASD, Clearing Agent and/or Introducing
Firm will resubmit trades rejected by the NASD as it relates
to TRACE Reporting for systematic issues.
9. Introducing Firm will report to the NASD via a web interface
any corrections, cancellation, cancel/rebill and rejected
trades due to NASD criteria of TRACE reportable trades.
10. Introducing Firm will provide any necessary information to
Clearing Agent in order for Clearing Agent to perform its
duties set forth in this Agreement.
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11. Introducing Firm will review any and all reports related to
TRACE trades rejected by NASD and shall make necessary
adjustments to the firm's business practices to prevent future
rejects. Introducing Firm shall be liable for any fines and/or
penalties assessed by the NASD for such rejects.
12. The Introducing Firm shall be charged a monthly fee that is
based on the reasonable costs and expenses incurred by
Clearing Agent in reporting on behalf the Introducing Firm.
XI. Compensation, Charges and Credits.
1. Customer Charges. The Clearing Agent shall charge to
and collect from each Introduced Account the charges
which the Introducing Firm directs it to make for
each transaction. If specific instructions are not
received with respect to a specific transaction in
the time period required by the Clearing Agent to
implement same, the Clearing Agent shall charge the
Introduced Account the amount prescribed in the
Introducing Firm's basic rate schedule as then in
effect. The basic schedule may be amended from time
to time by written instructions from the Introducing
Firm to the Clearing Agent, provided that the
proposed terms are within the usual capabilities of
the Clearing Agent's data processing and operations
systems.
2. Compensation. As compensation for services provided
hereunder by the Clearing Agent, the Introducing Firm
shall pay to the Clearing Agent:
a. The amounts set forth in Schedule A attached
hereto, as the same may be amended from time
to time by agreement of the Introducing Firm
and the Clearing Agent except as otherwise
specifically set forth in this Agreement;
b. The Clearing Agent's charges, as invoiced,
set forth in Schedule B hereto as the same
may be amended from time to time by
agreement of the Introducing Firm and the
Clearing Agent;
c. The interest charges made with respect to
debit balances in margin Introduced Accounts
in accordance with Schedule A hereto, as the
same may be amended from time to time by the
Clearing Agent on thirty (30) days prior
written notice, in the event that the cost
of funds to the Clearing Agent increases, or
from time to time by agreement of the
Clearing Agent and the Introducing Firm.
Such interest income shall be proprietary to
and fully retained by the Clearing Agent,
subject to certain credits provided to the
Introducing Firm as set forth in Schedule A
attached hereto, as the same may be amended
from time to time by agreement of the
Clearing Agent and the Introducing Firm.
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3. Returned Deliveries. In the event that any Introduced Account
or its agent (including, but not otherwise limited to, its
custodian bank) rejects a valid "delivery against payment" (as
this phrase is customarily used in the securities industry)
made by the Clearing Agent, the Clearing Agent reserves the
right to charge the Introduced Account interest, based upon
the then current brokers' call loan rate, with respect to the
total payment due the Clearing Agent from the date of such
rejection until such time as such valid delivery is accepted
and payment received therefore. Any interest charged pursuant
to this provision may be deducted by the Clearing Agent from
net commission revenues then due and owing the Introducing
Firm pursuant to the provisions of this Agreement. The
Introducing Firm agrees that all COD clients and/or their
agents will use the facilities of a securities depository for
the confirmation, acknowledgment and book entry settlement of
all depository eligible transactions, subject to the
exceptions set forth under Rule 387(a)(5) of the Rules;
4. Additional Charges. The charges set forth herein
notwithstanding, additional reasonable charges for specific
services rendered but not otherwise contemplated by this
Agreement may be charged to the Introducing Firm as may be
mutually agreed to by the parties. The parties agree to
negotiate in good faith to reach an agreement on such
additional charges.
5. Payments. Except as otherwise specifically set forth herein,
payment of commission revenue due the Introducing Firm shall
be made by the Clearing Agent to the Introducing Firm twice a
month. The mid-month payment will be based on trade activity
to date of payment less any Clearing Fees due to the Clearing
Agent. The end-of month payment, to be paid in the following
month, shall be an adjusted amount after deduction of all
clearing and other charges, costs and expenses due the
Clearing Agent in accordance with the terms of the Agreement
and all amounts due and owing the Clearing Agent by the
Introducing Firm arising from any losses, liabilities or
damages in accordance with the terms of the Agreement which
are not in dispute. Such end-of month payment shall be
accompanied by a settlement statement which will reflect the
deduction of all clearing and other charges, costs or expenses
due the Clearing Agent in accordance with the terms of the
Agreement and all amounts due and owing the Clearing Agent by
the Introducing Firm arising from any losses, liabilities or
damages in accordance with the terms of this Agreement which
are not in dispute. The Introducing Firm may request, and the
Clearing Agent shall pay to Introducing Firm, up to two (2)
additional payments per month from the commission revenue due
to it minus any Clearing Fees due to the Clearing Agent.
6. Conversion Assistance Payment. As an inducement for
Introducing Firm to enter into this Agreement, Clearing Agent
agrees to pay to Introducing Firm Eight Hundred Thousand
Dollars ($800,000) (the "Conversion Assistance Payment"). The
Clearing Agent shall pay to the Introducing Firm the
Conversion Assistance Payment as follows: $250,000 concurrent
with the execution of this Agreement, $250,000 on the day
which is the midway point between the date this Agreement is
executed by both parties and the date chosen by the Clearing
Agent as the conversion date and $300,000 immediately upon the
completion of the conversion of all of the Introduced Accounts
of the Introducing Firm to the Clearing Agent.
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XII. Conversions.
The following provisions shall apply to the Introducing Firm in the
event the Introducing Firm is converting Introduced Accounts maintained
with another broker/dealer:
1. Accounts Not Converted. As of the effective date of this
Agreement the Clearing Agent will not convert to its records
as Introduced Accounts those customer accounts of the
Introducing Firm which are partially or totally unsecured;
have securities in the name of the Introducing Firm's
customers; or have legal transfer securities (securities in
the name of estates, trust, joint ownership, foreign ownership
and such).
2. Open Orders. The Clearing Agent shall have the power to place
open orders as instructed by the Introducing Firm as of the
effective date of this Agreement, and appropriate adjustments
shall be made by the Clearing Agent to reflect that the
Clearing Agent has acted as broker on the open orders with
specialists on any securities exchange.
3. Adjustments - Dividends. The Clearing Agent shall have the
power to effect appropriate adjustments with respect to
pending dividends and other distributions from the effective
date of this Agreement through the last payable date of such
pending dividends.
4. Adjustments - Other. The Clearing Agent shall have the power
to allocate and make appropriate adjustments for fails,
reorganization accounts, other work in process accounts, and
overages relating to accounts of the customers of the
Introducing Firm that have become Introduced Accounts pursuant
to the terms of this Agreement.
5. Assumption of Liability. The Introducing Firm shall assume all
liabilities in connection with uncompared principal trades.
The Introducing Firm shall also assume all liabilities in
connection with the bad debts of all Introduced Accounts.
Unsecured debits in the Introduced Accounts shall be paid
within thirty (30) days of their origin date, and it shall be
the responsibility of the Introducing Firm to collect such
payments from its customers and transmit them to the Clearing
Agent within such thirty (30) day period. If any unsecured
debit balances remain outstanding beyond such thirty (30) day
period, the Clearing Agent is authorized to apply as payment
of such debit balances commission fees owed to the Introducing
Firm in connection with transactions pursuant to this
Agreement.
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6. Introduced Accounts to be Excluded from Conversion. It will be
the exclusive responsibility of the Introducing Firm to notify
the Clearing Agent in writing of any Introduced Accounts that
are not to be included as part of a conversion of Introducing
Firm's Introduced Accounts. Clearing Agent will not be
responsible for the inclusion of any such Introduced Account
in a conversion absent such written notification.
7. Activity Before Conversion. No transfers of securities
relating to Introduced Accounts shall be affected during the
period commencing ten (10) business days prior to the
conversion date.
8. Conversion from Clearing Agent.
a. Fees Associated with a Conversion. The Introducing
Firm will be subject to standard conversion fees.
b. Post-Conversion Obligations. It is the responsibility
of the Introducing Firm to maintain information with
regard to the client's account once Clearing Agent
has converted the account. Clearing Agent shall
comply with any timely ACAT request and is not under
any obligation to notify the Introducing Firm with
respect to such request. Clearing Agent reserves the
right to discontinue Introducing Firm's systematic
access to client account information.
XIII. Termination of Agreement; Events of Default; Remedies.
1. Term. The term of this Agreement shall be for an initial period of
five (5) years commencing on the date set forth on the initial page of
the Agreement and continuing until the close of business on the final
business day of the initial period (the "Termination Date") (the
"Initial Term"). Either Party must provide written notice no later than
one hundred twenty (120) days prior to Termination Date, if it intends
not to renew this Agreement. Failure to do so will result in this
Agreement being renewed for successive one-year periods (each year
being a "Renewal Term"). During any Renewal Term, either party must
provide written notice to the other party no later than one hundred
twenty (120) days prior to the last day of such Renewal Term, if it
intends not to renew this Agreement. Except as otherwise provided
herein, at no time during the Initial Term or any Renewal Term of this
Agreement shall either Introducing Firm or Clearing Agent cancel this
Agreement except for an Event of Default.
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2. Events of Default. Each of the following events shall
constitute an event of default (an "Event of Default") under
this Agreement:
a. Compliance with Agreement, Covenants. If either the
Clearing Agent or the Introducing Firm shall fail to
perform, undertake, observe or comply with any term,
covenant, responsibility or condition to be
performed, undertaken, observed or complied with by
it hereunder, or any representation or warranty made
by either the Clearing Agent or the Introducing Firm
herein shall prove to be false or misleading in any
material respect and such failure or
misrepresentation, if curable, shall continue
unremedied for a period of thirty (30) days after
written notice from the non-defaulting party is
transmitted to the defaulting party specifying the
failure or misrepresentation and demanding that the
same be remedied; or
b. Bankruptcy/SIPC. A receiver, liquidator or trustee of
either the Clearing Agent or the Introducing Firm, or
of any property held by either party, is appointed by
court order and such order remains in effect for more
than thirty (30) days; or either the Clearing Agent
or the Introducing Firm is adjudicated bankrupt or
insolvent; or any of its property is sequestered by
court order and such order remains in effect for more
than 30 days; or a petition is filed against either
the Clearing Agent or the Introducing Firm under any
bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law
of any jurisdiction, whether now or hereafter in
effect, and is not dismissed within thirty (30) days
after such filing. In the event that the Introducing
Firm is the subject of the issuance of a protective
decree pursuant to the Securities Investor Protection
Act of 1970 (15 USC 78aaa-lll), any claim by Clearing
Agent for payment of a termination fee shall be
subordinate to claims of the Introducing Firm's
customers that have been approved by the Trustee
appointed by the Securities Investor Protection
Corporation pursuant to the issuance of such
protective decree; or
c. Creditor Relief. Either the Clearing Agent or the
Introducing Firm files a petition in voluntary
bankruptcy or seeking relief under any provisions of
any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or
hereafter in effect, or consents to the filing of any
petition against it under any such law; or
d. Insolvency. Either the Clearing Agent or the
Introducing Firm makes an assignment for the benefit
of its creditors, or admits in writing its inability
to pay its debts generally as they become due, or
consents to the appointment of a receiver, trustee or
liquidator of either the Clearing Agent or the
Introducing Firm, or of any property held by either
party; or
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e. False Representation. The Introducing Firm in any way
attempts to hold itself out as, advertise or in any
way represents that it is the agent of the Clearing
Agent; or
f. Payment Default. The Introducing Firm shall fail to
satisfy fully and timely any liability to Clearing
Agent, or Introducing Firm shall fail to pay fully
and timely any payment to Clearing Agent, as required
by this Agreement; or
g. Regulatory Action. Introducing Firm fails to provide
Clearing Agent with written notice of any regulatory
investigation, indictment, arrest or censure within
ten (10) days from such information becoming publicly
available.
Upon the occurrence of any such Event of Default, the
non-defaulting party may, at its option, by notice to the
defaulting party, declare that the Agreement shall be hereby
terminated and such termination shall be effective as of the
date such notice has been sent or communicated to the
defaulting party.
3. Change of Control. If during the Initial Term Clearing Agent
sells substantially all of its assets (by way of merger or
otherwise) to a nonaffiliated third party (a "Change of
Control") and the Clearing Agent's successor does not agree to
assume the rights and obligations of the Clearing Agent
hereunder, Clearing Agent shall: (i) waive the XXX termination
fees set forth in Schedule A attached hereto and (ii) pay to
the Introducing firm an amount equal to the lesser of $500,000
or thirty percent (30%) of the total Clearing Fees paid by the
Introducing Firm to the Clearing Agent for the six (6) months
prior to the date this Agreement is terminated. Clearing Agent
shall provide written notice of a Change of Control to
Introducing Firm no later than six (6) months prior to the
consummation of such Change of Control.
4. Continuation of Certain Responsibilities. Termination of this
Agreement however caused shall not release the Introducing
Firm or the Clearing Agent from any liability or
responsibility to the other with respect to transactions
effected prior to the effective date of such termination,
whether or not claims relating to such transactions shall have
been made before or after such termination. If no arrangements
have been made regarding the conversion of Introduced Accounts
within thirty (30) days after termination of this Agreement,
the Clearing Agent may maintain such accounts in its own name.
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5. Release of Information. In the event of termination of the
Agreement, the Clearing Agent shall release to the Introducing
Firm, at the Introducing Firm's request and upon payment by
the Introducing Firm to the Clearing Agent of a reasonable
charge for conversion expenses incurred by the Clearing Agent
at the request of the Introducing Firm, all information the
Introducing Firm may reasonably require to continue servicing
such Introduced Accounts.
6. Right of Offset. In the event that the Introducing Firm's acts
or omissions result in an Event of Default, the Clearing Agent
shall offset any and all liabilities, costs or expenses due it
from the Introducing Firm which remained unpaid as of the date
of such Event of Default against the commission revenue then
in the possession of the Clearing Agent, and if insufficient
then against the Introducing Firm's security deposit or
Clearing Deposit with the Clearing Agent set forth herein.
Should this continue to be insufficient, the Clearing Agent
shall offset, deduct, setoff, recoup, and/or use and apply all
or any portion of any of Introducing Firm's revenue and/or any
other monies, property, securities, contracts and commercial
paper (and the proceeds and products of any of the foregoing,
collectively with such proceeds and products, the
"Collateral"), then in possession, custody or control of
Clearing Agent (whether held in an account or otherwise). In
furtherance and confirmation of the foregoing, Introducing
Firm hereby grants, transfers, assigns and conveys to the
Clearing Agent a first and prior lien and security interest in
the Collateral, including without limitation any
after-acquired Collateral which is now or subsequently in the
possession, custody, or control of the Clearing Agent.
Introducing Firm further agrees that Clearing Agent may,
during an Event of Default, debit any cash balance in any of
its accounts with Clearing Agent, and/or liquidate any
securities in any such accounts, and credit the proceeds to
the Clearing Agent. Any remaining liability shall not be
extinguished thereby. Introducing Firm hereby acknowledges and
agrees that any rights set forth herein shall be in addition
to all other remedies available to Clearing Agent by law,
equity or this Agreement, all of which remain available to the
Clearing Agent.
XIV. Action Against Customers.
1. Withholding Payment or Delivery. The Clearing Agent shall be
obligated to follow the Introducing Firm's written
instructions to withhold payment for securities sold or to
withhold delivery of securities purchased for Introduced
Accounts after the Introducing Firm makes such a request based
upon failure of an Introduced Account to pay for a purchase of
securities or upon failure of an Introduced Account to deliver
securities sold.
2. Remedial Action. The Clearing Agent reserves the right (i) to
give prior oral or written notice to the Introducing Firm and
to any Introduced Account for failure to make timely
settlement and of the Clearing Agent's intention to take
remedial action and (ii) to take such remedial action which
the Clearing Agent in its sole judgment deems necessary or
appropriate.
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3. Account Responsibility. In the case of all transactions placed
by the Introducing Firm on behalf of Introduced Accounts, the
Introducing Firm assumes the risk of loss associated with
Introduced Accounts' obligations to pay for securities
purchased and to deliver securities sold and for other
defaults of customers. Nothing in this Agreement shall relieve
Introduced Accounts of responsibility for their obligations.
In the event any obligation of an Introduced Account shall not
be satisfied by the Introducing Firm, the Clearing Agent shall
have the right at all times, in its sole discretion (but shall
not be obliged) to institute and prosecute in its name, any
action or proceeding against any of the Introduced Accounts as
to any controversy or claim arising out of the Clearing
Agent's transactions with the Introducing Firm or with the
Introduced Accounts, and nothing contained in the Agreement
shall be deemed or construed to impair or prejudice such right
in any way whatsoever, nor shall the institution or
prosecution of any such action or proceeding relieve the
Introducing Firm of any liability or responsibility which the
Introducing Firm would otherwise have or have had under this
Agreement. If the Introducing Firm shall pay or satisfy an
obligation of an Introduced Account, the Introducing Firm
shall be subrogated to the rights of the Clearing Agent
against such Introduced Account.
XV. Miscellaneous.
1. Limitation of Authority. The Clearing Agent shall limit its
services pursuant to the terms of this Agreement to that of
clearing functions and the related services expressly set
forth herein and the Introducing Firm shall not hold itself
out as an agent of the Clearing Agent or any of the
subsidiaries or companies controlled directly or indirectly by
or affiliated with the Clearing Agent.
2. Modification of Agreement. Except as otherwise provided
herein, this Agreement may be modified only by a writing
signed by both parties to this Agreement. Such modification
shall not be deemed a cancellation of this Agreement. Schedule
B may be modified by execution by both parties of a new
Schedule B designating all exhibits to be incorporated into
this Agreement and the attachment of such exhibits hereto.
3. Regulatory Review. This Agreement may be submitted to and/or
approved by any securities exchange or other regulatory and
self-regulatory bodies vested with the authority to review
and/or approve this Agreement or any amendment or
modifications hereto. In the event any such regulatory body
disapproves of any provision of this Agreement, the parties
hereto agree to bargain in good faith to achieve the requisite
approval.
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4. Disputes. Any dispute, controversy or claim arising out of
this Agreement or the performance or breach hereof which the
parties have not been able to settle amicably within a
reasonable period of time shall be settled exclusively by
arbitration in accordance with the NASD Code of Arbitration
Procedure by arbitrators appointed in accordance with such
Code. The parties further agree that the venue for any such
arbitration shall be Philadelphia, Pennsylvania.
5. Investigation of Facts. The Clearing Agent will not be bound
to make any investigation into the facts surrounding any
transaction that it may have with the Introducing Firm on a
principal or agency basis or that the Introducing Firm may
have with its Introduced Accounts or other persons. The
Clearing Agent will not be under any responsibility for
compliance by the Introducing Firm with any laws or
regulations which may be applicable to the Introducing Firm.
6. Assignment. This Agreement shall be binding upon all
successors, assigns or transferees of both parties hereto,
irrespective of any change with regard to the name of or the
personnel of the Introducing Firm or the Clearing Agent. Any
assignment of the Agreement shall be subject to the requisite
review and/or approval of any regulatory or self-regulatory
agency or body whose review and/or approval must be obtained
prior to the effectiveness and validity of such assignment. No
assignment of this Agreement shall be valid unless the
non-assigning party consents to such an assignment in writing,
such consent shall not however be unreasonably withheld by
either party. Assignment shall be necessary in the event of
merger or acquisition of either party where such party is not
the surviving entity. Neither this Agreement nor any operation
hereunder is intended to be, shall not be deemed to be, and
shall not be treated as a general or limited partnership,
association or joint venture or agency relationship between
the Introducing Firm and the Clearing Agent.
7. Choice of Law. The construction and effect of every provision
of this Agreement, the rights of the parties hereunder and any
questions arising out of this Agreement, shall be subject to
the statutory and common law of the Commonwealth of
Pennsylvania without regard to the conflict of law principles
thereof.
8. Change in Management. Each party shall notify the other of any
change in that party's senior management or any other changes
in the party's corporate structure material to that party's
ability to perform under this Agreement.
9. Construction of Agreement. This Agreement has been negotiated
by the respective parties hereto and their legal counsel and
the language hereof will not be construed for or against any
party. The Section headings used or contained in this
Agreement are for convenience and reference only and shall not
affect the construction of this Agreement. References herein
to Sections and Schedules mean and refer to Sections of, and
Schedules to, this Agreement, unless otherwise specified.
Words in the singular include the plural, and words in the
plural include the singular. Words in the masculine gender
include the neuter and feminine genders, words in the feminine
gender include the neuter and masculine genders and words in
the neuter gender include the masculine and feminine genders.
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10. No Ties. This Agreement shall cover only the types of services
set forth herein and is in no way intended nor shall it be
construed to bestow upon the Introducing Firm any special
treatment regarding any other arrangements, agreements or
understandings which presently exist between the Introducing
Firm and the Clearing Agent or which may hereinafter exist.
The Introducing Firm shall be under no obligation whatsoever
to deal with the Clearing Agent or any of its subsidiaries or
any companies controlled directly or indirectly by or
affiliated with the Clearing Agent, in any capacity other than
as set forth in this Agreement. Likewise, the Clearing Agent
shall be under no obligation whatsoever to deal with the
Introducing Firm or any of its affiliates in any capacity
other than as set forth in this Agreement.
11. Remedies Cumulative. The enumeration herein of specific
remedies shall not be exclusive of any other remedies. Any
delay or failure by any party to this Agreement to exercise
any right, power, remedy or privilege herein contained, or now
or hereafter existing under any applicable statute or law,
shall not be construed to be a waiver of such right, power,
remedy or privilege or to limit the exercise of such right,
power, remedy or privilege. No single, partial or other
exercise of any such right, power, remedy or privilege shall
preclude the further exercise thereof or the exercise of any
other right, power remedy or privilege.
12. Time is of the Essence. The parties agree that, with respect
to the time deadlines stated in this Agreement, Exhibits or
documents incorporated by reference herein, time is of the
essence.
13. Exhibits. The terms and conditions of the Exhibits to this
Agreement are incorporated herein by this reference and shall
constitute part of this Agreement as if fully set forth
herein.
14. Severability. In the event any one or more of the provisions
of this Agreement shall for any reason be held to be invalid,
illegal or unenforceable, the remaining provisions of this
Agreement shall be unimpaired, and the invalid, illegal or
unenforceable provision shall be replaced by a mutually
acceptable provision, which, being valid, legal and
enforceable, comes closest to the intention of the parties
underlying the invalid, illegal, or unenforceable provision.
If this Agreement or any provision hereof are held to be
invalid, illegal or unenforceable under the laws of a
particular state or jurisdiction, it is the intention of the
parties that all of the provisions of this Agreement shall
remain in full force and effect in all other states and
jurisdictions.
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15. Force Majeure. No party shall be liable for delay or failure
in performance hereunder due to causes beyond its control,
including acts of God, fires, strikes, acts of war or
intervention by any governmental authority, and each party
shall take steps to minimize any such delay.
16. Entire Agreement. The terms and conditions stated herein
constitute the entire agreement between Clearing Agent and
Introducing Firm as to the subject matter of this Agreement.
18. Recording of Telephone Calls. The parties recognize and agree
that telephone calls between the Introducing Firm and the
Clearing Agent may be recorded.
19. Notices. Any notice or request required or permitted to be
given under this Agreement shall be sufficient if in writing
and sent by hand or by certified mail, in either case, return
receipt requested, to the parties at the following addresses:
As to the Introducing Firm:
Xx. Xxxx Xxxxxxxxxx, Chief Executive Officer
National Securities Corporation
000 Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, XX00000
With a copy to:
Xx. Xxxx Xxxxxxx, Director of Operations
National Securities Corporation
000 Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Xx. Xxxxxxx Xxxxxxx, President
National Securities Corporation
0000 0xx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
As to the Clearing Agent:
Xx. Xxxx Xxxxxx, President & CEO
Fiserv Securities, Inc.
One Commerce Square
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
With a copy to:
Mr. Xxx Xxxxxxxxx, Sr. Vice President, General Counsel
& Secretary Fiserv Securities, Inc. One Commerce Square
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
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As to Risk Management Officer to:
Xx. Xxxxxx Xxxxxxx, Vice President
Fiserv Securities, Inc.
One Commerce Square
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
20. Approval. This Agreement shall be subject to approval by the New
York Stock Exchange ("NYSE") and by any other self-regulatory
organization vested with the authority to review or approve it.
Clearing Agent shall submit this Agreement to the NYSE and Introducing
Firm shall submit this Agreement to any other such organization from
which Introducing Firm is required to obtain approval. In the event of
disapproval, the parties shall bargain in good faith to make the
changes necessary to achieve the requisite approval.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have made and executed this
Agreement as of the dates set forth below.
Introducing Firm Fiserv Securities, Inc.
By: _________________________ By: ________________________
Name: _________________________ Name: _______________________
Title: _________________________ Title: _______________________
Date: _________________________ Date: _______________________
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