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EXHIBIT 10.13
Tejas Securities Group, Inc.
May 19, 2000
CLEARING AGREEMENT
This agreement, made this 19th day of May ("the Agreement") between
First Clearing Corporation, (hereinafter referred to as the "Clearing Agent" or
"Clearing Firm") and Tejas Securities Group, Inc. (hereinafter referred to as
the "Introducing Firm"),
WITNESSETH THAT:
WHEREAS, the Introducing Firm is desirous of availing itself of
clearing, execution and other services related to the securities business as
more fully set forth herein; and
WHEREAS, the Clearing Firm desires to extend the foregoing types of
services to the Introducing Firm.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth and other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereto hereby covenant and agree as follows:
I. Services
A. Services to be Performed by the Clearing Firm
(i) The Clearing Firm will execute orders for the
Introducing Firm's customers whose cash or margin
accounts have been accepted by Clearing Agent
("Introduced Accounts"), but only insofar as such
orders are transmitted by the Introducing Firm to the
Clearing Firm. For purposes of the Securities
Investor Protection Act of 1970, as amended, and the
broker-dealer financial responsibility rules
promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as
amended, the Introducing Firm's customers who have
Introduced Accounts shall be customers of the
Clearing Firm, and not of the Introducing Firm.
(ii) The Clearing Firm will generate, prepare and, to the
extent mutually agreed upon by the parties hereto,
mail confirmations respecting each of the Introduced
Accounts. Upon mutual agreement of the parties
hereto, the Clearing Firm may transmit the necessary
information via the available communication
facilities in order to effect the printing of
confirmations at the location of the Introducing
Firm.
(iii) The Clearing Firm will prepare and mail the summary
monthly statements (or quarterly statements if no
activity in any Introduced Account occurs during any
quarter covered by such statement) to every
Introduced Account.
(iv) The Clearing Firm 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
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May 19, 2000
Introducing Firm and persons other than the
Introduced Accounts or other brokers and dealers.
(v) The Clearing Firm 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 payments 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 to the extent the Clearing Firm is timely
notified of such transactions by the appropriate
third parties. The Clearing Firm will not be
responsible for errors caused by such third parties
with respect to such transactions. Upon mutual
agreement of the parties hereto, the cashiering
functions with respect to the receipt of securities
and the making and receiving payment therefore may
be relinquished to the Introducing Firm. All deposits
for Introduced Accounts, which constitute Individual
Retirement Account contributions, must be physically
received by the Clearing Firm (or deposited into the
local bank deposit account established on behalf of
the Introducing Firm's customers pursuant to this
Agreement) on the date they are due, or they may be
rejected by the Clearing Firm in its sole
discretion).
(vi) The Clearing Firm will construct and maintain books
and records of all transactions executed or cleared
through it and not specifically charged to the
Introducing Firm pursuant to the terms of this
Agreement, including a daily record of required
margin and other information required by Rule 432(a)
of the rules of the Board of Directors of the New
York Stock Exchange, Inc. (the "Rules"), or by the
constitution, articles of incorporation, by-laws (or
comparable instruments) or rules, regulations or
other instruments corresponding to the foregoing,
and the stated policies or practices of any other
securities exchange (the "Standards"), including but
not otherwise limited to any national securities
exchange registered under the Securities Exchange Act
of 1934, as amended ("National Securities Exchange").
(vii) The Clearing Firm will report all transactions
cleared and settled for Introducing Firm in Nasdaq
NMS and Small Cap securities, and convertible bonds
on behalf of Introducing Firm in accordance with NASD
rules governing the NASD Order Audit Trail System.
("OATS"). The Clearing Firm represents that it (a) is
familiar with OATS rules and the OATS Reporting
Technical Specifications; (b) completed or will
complete testing, as described in the OATS Technical
Specifications; (c) agrees to make reports to OATS in
compliance with OATS rules and Technical
Specifications, and any subsequent modifications
thereto; (d) agrees that the records of OATS data
prepared on behalf of Introducing Firm and maintained
by the Clearing Firm is property of the Introducing
Firm and will be surrendered upon the Introducing
Firm's request; (e) agrees to permit examination of
any records of OATS data prepared on behalf of
Introducing Firm and maintained by the Clearing Firm
at any time or from time to time during normal
business hours by representatives of NASD Regulation
and to promptly furnish to NASD Regulation or its
designee true, correct, complete, and current hard
copy of any of these records; (f) has processes and
procedures reasonably designed to ensure compliance
with OATS requirements; and (g) agrees to promptly
notify the Introducing Firm upon the occurrence of
any event, including physical damage to the Clearing
Firm's facilities or legal proceedings involving the
Clearing Firm that would material affect the Clearing
Firm's ability to make OATS reports on behalf of
Introducing Firm. Clearing Firm's agreement to
undertake OATS reporting on behalf of Introducing
Firm does not relieve
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Introducing Firm of its responsibilities under OATS
rules or Rules 17a-3 and 17a-4 under the Securities
Exchange Act of 1934, as amended. Clearing Firm may
in its sole and absolute discretion, upon ninety (90)
days written notice, stop performing OATS reporting
on behalf of the Introducing Firm.
(viii) Introducing Firm authorizes and directs Clearing Firm
to forward promptly any written customer complaints
received by Clearing Firm regarding the Introducing
Firm or any of its associated persons relating to any
of the functions and responsibilities allocated to
the Introducing Firm under this Agreement directly
to: (a) Introducing Firm and (b) the Introducing
Firm's examining authority designated under Section
17 of the Securities Exchange Act of 1934, as amended
("DEA"). In addition, Introducing Firm acknowledges
and understands that Clearing Firm is required to
notify any such customers in writing that Clearing
Firm has received the written complaint and that the
complaint has been forwarded to the Introducing Firm
and the Introducing Firm's DEA.
B. Services which shall not be Performed by the Clearing Firm
Unless otherwise agreed to in a writing executed by the
parties hereto, the Clearing Firm shall not engage in any of
the following services, nor be responsible for the same, on
behalf of the Introducing Firm:
(a) Accounting, bookkeeping or recordkeeping, cashiering,
or any other services with respect to any transaction
other than securities transactions.
(b) Preparation of the Introducing Firm's payroll
records, financial statements or any analysis or
review thereof or any recommendation relating
thereto.
(c) Preparation or issuance of checks in payment of the
Introducing Firm's expenses, other than expenses
(incurred by the Clearing Firm on behalf of the
Introducing Firm) pursuant to this Agreement.
(d) Payment of commissions, salaries or other
remuneration to the Introducing Firm's salesmen or
any other employees of the Introducing Firm.
(e) Preparation and filing of reports (the "Reports")
with the Securities and Exchange Commission, any
state securities commission, any National Securities
Exchange, or other securities exchange or 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 Firm 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 Firm 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.
(f) Making and maintaining reports and records required
to be kept by the Introducing Firm by the Currency
and Foreign Transactions Reporting Act of 1970 and
the regulations promulgated pursuant thereto, or any
similar law or regulations enacted or adopted
hereafter.
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(g) Obtaining and verifying new account information, and
insuring that such information meets the requirements
of Rule 405(1) of the Rules and any other Laws,
Regulations or applicable Standards as defined
herein.
(h) Maintaining a record of all personal and financial
information concerning any Introduced Account and all
orders received therefrom, and maintaining documents
and agreements executed by an Introduced Account.
(i) Accepting deposits from the Introducing Firm in the
form of coin or currency of the United States or any
other country.
II. Clearing Charges
See Appendix I attached hereto and incorporated herein by reference.
In no event shall the fees charged in this Article II for the above
services be in contravention of the Securities Act of 1933, as amended,
the Security Exchange Act of 1934, as amended, the Investment Advisers
Act of 1940, as amended, and the Employee Retirement Income Security
Act of 1974, as amended, or any rules or regulations thereunder, or any
other law, rule or regulation, federal, state or local, or any
constitution, by-law, rule, regulation or instrument corresponding to
the foregoing, or stated policy or practice of any National Securities
Exchange or other securities exchange or association or other
regulatory or self-regulatory body or agency ("Laws and Regulations").
In the event that such fees are deemed by the Clearing Firm to be in
contravention of the Laws and Regulations, they shall be replaced with
fees mutually agreed upon by the Clearing Firm and the Introducing
Firm.
III. Interest
Interest income earned through charges on debit balances in any
Introduced Account shall be proprietary to and fully retained by the
Clearing Firm. No interest shall be paid or credit given for any credit
balances which from time to time may be left on deposit with the
Clearing Firm, unless otherwise mutually agreed upon by the Clearing
Firm and the Introducing Firm.
IV. Notations on Statements, Confirmations and Other Written Material
The Clearing Firm shall carry all Introduced Accounts in the name of
the Introducing Firm's customer, with a notation on its books and
records and on all monthly or quarterly statements, and confirmation
that such Introduced Accounts were introduced by the Introducing Firm.
The role of the Clearing Firm is to perform only the clearing functions
and related services expressly set forth herein, and the Introducing
Firm will continue as broker for the Introduced Accounts. Inadvertent
omission of such notations shall not be deemed to constitute a breach
of this Agreement. Copies of the forms covering all of the foregoing
shall be furnished by the Clearing Firm to the Introducing Firm.
V. Opening of Accounts
A. At the time of the opening of each Introduced Account, the
Introducing Firm shall furnish the Clearing Firm with all
financial and personal information concerning such Introduced
Accounts as the Clearing Firm may reasonably require including
but not limited to the tax identification number for each
Introduced Account. At the time of the opening of Introduced
Accounts that are margin accounts, the Introducing Firm shall
furnish the Clearing Firm with executed customers' agreements,
hypothecation agreements and consents to loans of securities
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(collectively, the "margin agreement"). With respect to Introduced
Accounts which are Individual Retirement Accounts for which the
clearing agent serves as custodian, the Introducing Firm shall furnish
such documentation and information as may be required by the Clearing
Agent. The Clearing Firm shall supply the Introducing Firm with "new
account" and margin agreement forms regarding margin accounts in
sufficient quantities. If any Introduced Account may have been opened
without the Clearing Firm having previously received the foregoing
information or, in the case of a margin account, without the Clearing
Firm having previously received properly executed margin agreements,
failure of the Clearing Firm to receive such information or margin
agreements shall not be deemed to be a waiver of the information
requirements set forth herein. The Introducing Firm shall make and
maintain copies of all agreements executed by or related to Introduced
Accounts, including but not limited to tax identification number and
appropriate certification thereof. Upon the written and oral request
of the Clearing Firm, the Introducing Firm shall furnish the Clearing
Firm with any other documents and agreements executed by the
Introduced Account on forms which shall be supplied by the Clearing
Firm in sufficient quantities and which may reasonably be required by
the Clearing Firm in connection with the opening, operating or
maintaining of Introduced Accounts. The Clearing Firm may, at its
option, mail margin agreements and/or option agreements directly to
the Introduced Accounts upon notification to the Introducing Firm
and/or require completion of its own margin agreement or new account
form and, if required, option account agreement for an Introduced
Account. The Introducing Firm shall promptly provide the Clearing Firm
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 Firm to discharge its service obligations
hereunder.
B. All transactions in any Introduced Account are to be considered cash
transactions until such time as the Clearing Firm has received margin
agreements, duly and validly executed in respect of such Introduced
Account. Nevertheless, it is intended that the Introducing Firm will
obtain executed margin agreements within 15 days after the opening of
Introduced Accounts that are margin accounts. In the event that the
Clearing Firm has not received an executed margin agreement within 15
days of opening, the Clearing Firm has the right to place limitations
on the trading of the account, including, but not limited to,
restricting the account to a cash basis. In the event credit is
inadvertently extended with respect to such Introduced Accounts, the
Introducing Firm shall indemnify and hold the Clearing Firm harmless
from and against all loss, liability, damage, cost and expense
(including, but not otherwise limited to fees and expenses of legal
counsel arising therefrom).
C. At the time of the opening of any agency Introduced Account, including
any account for which the Introducing Firm is acting pursuant to
discretionary authority or a power of attorney, the Introducing Firm
shall obtain appropriate written authority from the Introduced Account
and upon request shall furnish the Clearing Firm with the name of any
principal for whom the Introducing Firm is acting as agent, and
written evidence of such authority. With respect to Delivery vs.
Payment Accounts, it is the responsibility of the Introducing Firm to
obtain a written assurance from the client that all trades will be
settled pursuant to Section 64 of the NASD Uniform Practices Code and
Section 387 of the New York Stock Exchange.
D. The Introducing Firm shall have the sole and exclusive responsibility
for 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 Firm as a potential Introduced Account. The Clearing
Firm, in its reasonable business judgement, reserves the right to
reject any account which the Introducing Firm may tender to the
Clearing Firm as a potential Introduced Account. The
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Clearing Firm also reserves the right to terminate any account
previously accepted by it as an Introduced Account.
E. Pursuant to written notification received by the Introducing Firm and
forwarded to the Clearing Firm, any account of the Introducing Firm
may choose to reject the services to be performed by the Clearing Firm
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 Firm shall expedite such transfer and
shall have the sole and exclusive responsibility for compliance with
Rule 412 of the Rules.
F. 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 therefor, in
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 to an Introduced Account shall be the sole and exclusive
responsibility of the Introducing Firm.
G. 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 Firm with such documentation with respect thereto
as may be requested by the Clearing Firm. The Introducing Firm hereby
agrees to indemnify and hold the Clearing Firm harmless against any
loss, liability, damage, cost or expense (including but not otherwise
limited to fees and expenses of legal counsel) suffered or incurred by
the Clearing Firm directly or indirectly as a result of any
liabilities or claims arising from the exercise by the Introducing
Firm, its partners, officers or employees of discretionary authority
over Introduced Accounts. The Introducing Firm hereby warrants that
with regard to any order or instructions given by the Introducing Firm
with respect to such 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 the Laws and Regulations. Furthermore, the Introducing
Firm hereby agrees to indemnify and hold the Clearing Firm harmless
against any loss, liability, damage, cost or expense (including but
not otherwise limited to fees and expenses of legal counsel) suffered
or incurred by the Clearing Firm directly or indirectly as a result of
any breach of the Introducing Firm's said warranty. The Introducing
Firm hereby agrees and warrants that it will maintain appropriate
blanket brokers bond insurance policies covering any and all acts of
its employees, agents and partners adequate to fully protect and
indemnify the Clearing Firm against any loss, liability, damage, cost
or expense (including but not otherwise limited to fees and expenses
of legal counsel) which the Clearing Firm may suffer or incur,
directly or indirectly, as a result of any act of the Introducing
Firm's employees, agents or partners.
H. 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 Firm with such documentation with respect
thereto as may be requested by the Clearing Firm.
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I. The Introducing Firm shall have the sole and exclusive responsibility
to insure that those of its customers who become Introduced Accounts
hereunder shall not be minors or subject to those prohibitions
existing under the Laws and Regulations generally relating to the
incapacity of any Introduced Account or any conflict of interest
relating to such Introduced Account.
J. The Introducing Firm shall be solely and exclusively responsible for
the loss, liability, damage, cost or expense (including but not
otherwise limited to fees and expense of legal counsel) sustained
or incurred by either the Introducing Firm or the Clearing Firm,
arising out of or resulting from any orders the Introducing Firm has
taken from Introduced Accounts residing or being domiciled in
jurisdictions in which the Introducing Firm or its representatives
have not been or are no longer authorized or registered to do
business.
K. It shall be the sole and exclusive responsibility of the Introducing
Firm to comply with any and all prospectus delivery requirements in
connection with Introduced Accounts which are option accounts.
L. In addition to the previous requirements for opening accounts, the
following conditions govern the conversion of the Introducing Firm's
existing Introduced Accounts onto the Clearing Firm's systems and
records. The Introducing Firm shall obtain from such customers
executed copies of the Clearing Firm's Margin and Automatic Cash
Investment Agreements (and such other agreements which the Clearing
Firm shall reasonably require in connection with such conversion
process). Further, the Introducing Firm certifies and warrants with
respect to such converted Introduced Accounts that it has obtained
with respect to each Introduced Account the correct taxpayer
identification number for the Introduced Account to the extent
required by section 3406 and the regulations thereunder together with
the certifications required by section 3406 and the regulations
thereunder. The Introducing Firm shall indemnify the Clearing Firm for
any loss, liability, damage, cost or expense (including but not
limited to fees and expenses of legal counsel) sustained or incurred
as a result of the Introducing Firm's failure to fulfill its
obligations under this section. The Clearing Firm shall provide the
Introducing Firm sufficient quantities of such Agreements. Unless
specifically requested to the contrary by Clearing Firm, Introducing
Firm shall provide Clearing Firm with copies of all Introduced
Accounts' taxpayer identification number certifications immediately
upon conversion.
M. Clearing Firm Acting as Executing Broker.
If the Clearing Firm agrees in its sole discretion to act as an
"Executing Broker" as such term is understood in that certain letter
dated January 25, 1994 from the Division of Market Regulation of the
Securities and Exchange Commission, as the same may be amended,
modified or supplemented from time to time (the "No-Action Letter"),
then all terms herein shall have the same meaning as ascribed thereto
either in this Agreement or in the No-Action Letter as the sense
thereof shall require.
The Clearing Firm may, from time to time, execute trades for Prime
Brokerage Accounts in compliance with the requirements of the
No-Action letter. The No-Action Letter requires, inter alia, that a
contract be executed between the Executing Broker and the Prime Broker
and the Prime Broker and Prime Brokerage Customer prior to the
transaction of any business hereunder. Introducing Broker agrees to
arrange for execution by the Prime Broker, and the Prime Brokerage
Customer, of any contracts prepared by and provided by the Clearing
Broker.
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Introducing Broker shall promptly notify Clearing Broker of any trades
to be cleared hereunder, and such notification shall be given not
later than 5:00 p.m. Eastern standard time on the day when the trade
was executed on an exchange or other market (the "Trade Date").
Notification shall be given in a mutually acceptable fashion, in
sufficient detail for Clearing Broker to be able to report and
transfer any trade executed by Introducing Broker on behalf of a Prime
Brokerage Account to the appropriate Prime Broker.
Introducing Broker understands and agrees that if Prime Broker shall
disaffirm or "DK" any trade executed by Introducing Broker on behalf
of a Prime Brokerage Account, Introducing Broker shall open an account
for such Prime Brokerage Account in its range of accounts and shall
transfer or deliver the trade to such account at the risk and expense
of Introducing Broker to the same extent as for any account introduced
by Introducing Broker pursuant to this Agreement.
Introducing Broker understands and agrees that all Prime Brokerage
Accounts shall be conducted in accordance with the requirements of the
No-Action Letter and any relevant agreement between Introducing Broker
and a Prime Brokerage Customer, or between Clearing Broker and the
relevant Prime Broker. Introducing Broker further agrees to supply
Clearing Broker with such documents and information which, from time
to time, may be required by Clearing Broker to carry out the intention
of this Paragraph.
Introducing Broker agrees that it "shall know its customer," obtain
appropriate documentation, including new account forms, conduct its
own credit check with respect to the Prime Brokerage Customer, and
determine the availability of shares for any short sales. Introducing
Broker shall make arrangements, by written contract, for the clearance
of any disaffirmed trades.
N. Clearing Firm Acting as Prime Broker.
If, in its sole discretion, the Clearing Broker agrees to act, in
accordance with the requirements of the No-Action Letter, as a Prime
Broker on behalf of the Introducing Broker or on behalf of a customer
of the Introducing Broker (the "Prime Broker Customer"), the Prime
Broker Customer agrees to execute and comply with a separate Customer
Prime Broker Agreement provided for execution by the Clearing Broker,
which is incorporated by reference herein. In addition, the
Introducing Broker shall execute, or shall arrange for its Prime
Broker Customer, to execute, any other documents required by the
Clearing Broker, or by the No-Action Letter, in order to carry out the
intention of this Article or shall provide any information which may
be required in that connection either by the Clearing Broker or by the
No-Action Letter.
VI. Financial Responsibility
A. Hypothecation of Customer Securities
Clearing Firm will maintain possession and control of Introducing
Firm's customer funds and securities in accordance with the
broker-dealer financial responsibility rules promulgated under the
Securities Exchange Act of 1934, as amended and other applicable laws,
rules or regulations. Within limitations imposed by applicable laws,
rules and regulations, securities and other property in Introducing
Firm's customer and proprietary accounts may be pledged and
hypothecated by Clearing Firm from time to time, without notice to
Introducing Firm. Clearing Firm may do so without retaining in its
possession or under its control for delivery a like amount of similar
securities or other property.
B. PAIB Reserve Computation
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(i) Clearing Firm agrees to perform a computation for Proprietary
Accounts of Introducing Firm assets ("PAIB reserve computation")
in accordance with the customer reserve computation set forth in
Rule 15c3-3 ("customer reserve formula") modified as follows:
(a) Any credit (including a credit applied to reduce a debit)
that is included in the customer reserve formula cannot be
included as a credit in the PAIB reserve computation;
(b) Note E(3) to Rule 15c3-3a which reduces debit balances by 1%
under the basic method and subparagraph (a)(1)(ii)(A) of
Rule 15c3-1 under the Securities Exchange Act of 1934 which
reduces debit balances by 3% under the alternative method
will not apply; and
(c) Neither Note E(1) to Rule 15c3-3a nor NYSE Interpretation
/04 to Item 10 of Rule 15c3-3a regarding securities
concentration charges is applicable to the PAIB reserve
computation.
(ii) Clearing Firm agrees that all PAIB assets will be kept separate
and distinct from customer assets under the customer reserve
formula in Rule 15c3-3;
(iii) Clearing Firm agrees that the PAIB reserve computation will be
prepared within the same time frame as those prescribed by
Rule 15c3-3 for the customer reserve formula;
(iv) Clearing Firm agrees to establish and maintain a separate
"Special Reserve Account for the Exclusive Benefit of Customers"
with a bank in conformity with paragraph (f) of Rule 15c3-3
("PAIB Reserve Account"). Cash and/or qualified securities as
defined in the customer reserve formula must be maintained in the
PAIB reserve requirement;
(v) Clearing Firm and Introducing Firm agree that if the PAIB reserve
computation results in a deposit requirement, the requirement can
be satisfied to the extent of any excess debit in the customer
reserve formula on the same date;
(vi) Introducing Firm agrees that commission receivable and other
receivables of Introducing Firm (excluding clearing deposits)
that are otherwise allowable assets under Rule 15c3-1 will not be
included in the PAIB reserve computation, and to identify them as
receivables on the books and records of Introducing Firm and as
payables on the books of Clearing Firm;
(vii) Clearing Firm and Introducing Firm agree that the proprietary
account of Introducing Firm that is a guaranteed subsidiary of a
clearing firm or who guarantees a clearing firm is to be excluded
from the PAIB reserve computation; and
(viii) Introducing Firm understands and agrees that upon discovery that
any deposit made to the PAIB Reserve Account did not satisfy its
deposit requirement, Clearing Firm will be facsimile or telegram
will immediately notify its designated examining authority and
the Securities and Exchange Commission. Unless a corrective plan
is found acceptable by the Securities and Exchange Commission and
the designated examining authority, Clearing Firm will provide
written notification within 5 business days of the date of
discovery to Introducing Firm that PAIB assets held by Clearing
Firm will not be deemed
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allowable assets for net capital purposes. These assets will
become non-allowable on the last day of the subsequent month
unless a deposit is remedied.
VII. Concentration of Positions
Introducing Firm will ensure that its net aggregate proprietary and
customer Introducing Firm's positions for any particular security (and/or
options or warrants thereon) ("net aggregate position of Introduced
Accounts") carried by the Clearing Firm for Introducing Firm will not
exceed such limits as may be set by Clearing Firm ("concentration
limits") in a schedule of concentration limits, as amended by Clearing
Firm from time to time and communicated in writing to the Introducing
Firm. The Clearing Firm may at any time refuse to execute, clear and/or
settle transactions that would otherwise increase the Introducing Firm's
net aggregate position of Introduced Accounts in excess of the applicable
concentration limit. The Clearing Firm also may at any time require the
Introducing Firm to promptly take steps to reduce the Introducing Firm's
net aggregate position of Introduced Accounts below the applicable
concentration limit. If such position is not so reduced by the
Introducing Firm in a timely manner as determined by the Clearing Firm
and promptly communicated to the Introducing Firm, the Clearing Firm in
its sole and absolute discretion and without further notice, is
authorized to sell or otherwise dispose of (in the case of a net
aggregate long position), or purchase or otherwise acquire (in the case
of a net aggregate short position) such securities (and/or options or
warrants thereon) in an amount and manner sufficient to reduce the net
aggregate position of Introduced Accounts below the applicable
concentration limit. Introducing Firm agrees to indemnify and hold the
Clearing Firm harmless from and against any loss, liability, damage, cost
or expense, penalties or taxes, (including but not otherwise limited to
fees and expenses of legal counsel) arising out of or resulting from
Introducing Firm's failure to comply with the terms of this Article VII.
VIII. Transactions and Margin
A. It is understood that with respect to Introduced Accounts which
are margin accounts the Clearing Firm 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 any interpretive
ruling issued by the Board, and letter rulings of the Federal
Reserve Bank of New York, Rules and Interpretations of the New
York Stock Exchange, Inc. and any other applicable margin and
margin maintenance requirements of the Laws and Regulations. The
Introducing Firm is responsible to the Clearing Firm for the
collection of the margin required to support each transaction
for, and to maintain margin in, each Introduced Account, in
conformity with the above margin and margin maintenance
requirements. After such initial margin on each transaction has
been received, maintenance margin calls shall be generated by
the Clearing Firm and made by the Clearing Firm. The Clearing
Firm shall have the right to modify, in its sole discretion, any
margin requirements of any Introduced Account from time to time
so that the Clearing Firm may call for additional margin.
Therefore, the Clearing Firm shall be the sole judge as to the
amount of margin to be required of and maintained by Introduced
Accounts, which may be imposed by security or specific
Introduced Accounts and need not be of general application. The
Clearing Firm shall impose no fees on the Introducing Firm, other
than any fees or charges imposed directly by an regulatory body
with regard to margin extensions granted by the Clearing Firm
pursuant to written requests from a principal of the Introducing
Firm.
B. On all transactions, the Introducing Firm shall be solely and
exclusively responsible to the Clearing Firm 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 Firm as a
result of the failure of any Introduced Account to make timely
payment for
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the securities purchased by it or timely and good delivery of
securities sold for it, or timely compliance by it with margin or
margin maintenance calls (provided that the Clearing Firm has timely
issued under its then current policies such call and given notice
thereof to the Introducing Firm), whether or not any margin extensions
have been granted by the Clearing Firm pursuant to the request of the
Introducing Firm, except that no interest will be charged by the
Clearing Firm for cash shorts in Introduced Accounts. The Introducing
Firm agrees to be solely and exclusively responsible to the Clearing
Firm for any loss or liability whatsoever should any check or draft
given to the Clearing Firm by any of the Introduced Accounts be
returned to the Clearing Firm unpaid. The Introducing Firm furthermore
agrees to be solely and exclusively responsible for the payment and
delivery of all "when issued" or "when distributed" transactions which
the Clearing Firm may accept, forward or execute for Introduced
Accounts.
C. On all over-the-counter transactions for Introduced Accounts, the
Introducing Firm shall furnish the Clearing Firm with the names of the
respective purchasing and selling broker/dealers (except as otherwise
provided in Section D of this Article VIII, as set forth below), the
names of the purchasing and selling customers, and the wholesale and
retail purchase and sale prices and any other information required by
the Clearing Firm.
D. Should the Introducing Firm give an order in an over-the-counter
security to the Clearing Firm and the counter party is left to the
Clearing Firm's discretion, the Clearing Firm will assume the
responsibility of paying the Introducing Firm that which the counter
party has failed to pay pursuant to the over-the-counter transaction
("del credere risk"). In case the Introducing Firm executes its own
over-the-counter order or designates the counter party, it shall be
understood that in the event the over-the-counter dealer with whom the
Introducing Firm dealt or whom it designated fails to live up to its
part of the transaction, the Introducing Firm will assume the del
credere risk and reimburse the Clearing Firm for any loss sustained
thereby.
E. The Introducing Firm shall be solely and exclusively responsible for
approving all orders for the Introduced Accounts and for establishing
procedures to insure that such approved orders are transmitted
properly to the Clearing Firm for execution. The Clearing Firm, in its
sole and absolute business judgement, reserves the right to reject any
order which the Introducing Firm may transmit to the Clearing Firm for
execution.
F. The Introducing Firm shall be solely and exclusively responsible for
the supervisory review of all orders for the Introduced Accounts and
shall insure that any orders and instructions given by it or any of
its employees to the Clearing Firm pursuant to the terms of this
Agreement shall have been properly authorized in advance.
G. The Introducing Firm shall be solely and exclusively responsible for
sales and purchases for the Introduced Accounts that may create or
result in a violation of any of the Laws and Regulations, Rules or
Standards.
H. All transactions pursuant to the Terms of this Agreement shall be
subject to the constitution, rules, by-laws, regulations, stated
policies, practices, and customs and any modifications thereof of any
National Securities Exchange or other securities exchange or market
and its clearing house, if any, where executed, and the Laws and
Regulations. It is understood that the Introducing Firm assumes sole
and exclusive responsibility for compliance with the Laws and
Regulations in the same manner and to the same degree as if the
Introducing Firm were performing the services for the Introduced
Accounts that have been assumed by the Clearing Firm pursuant to this
Agreement, except insofar as the Clearing Firm may, pursuant to
Section D of this Article VIII, as set forth above, select the counter
party to a particular transaction.
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l. All Transactions hereto between the Introducing Firm and the Clearing
Firm with respect to orders given by or for the Introduced Accounts
and cleared through the Clearing Firm shall be subject to the
provisions of this Agreement.
IX. Supervisory Responsibility
A. The Introducing Firm shall have the sole and exclusive responsibility
for the review of all Introduced Accounts, including an introduced XXX
account for which the clearing agent serves as custodian, and for
compliance with any supervisory responsibility under Rule 405(2) of
the Rules, including but not otherwise limited to matters involving
the investments made by the Introduced Accounts, the reasonable basis
for recommendations made to Introduced Accounts, and the frequency of
trading in the Introductory Accounts, whether or not such transactions
are instituted by the Introducing Firm, its partners, employees or any
registered investment advisor.
B. The Introducing Firm and the Clearing Firm shall each be responsible
for compliance with any supervisory procedures under Rules 342 and 351
of the Rules and, to the extent applicable, any other provisions of
the Laws and Regulations, including but not otherwise limited to
supervising the activities and training of their respective registered
representatives, as well as all of their respective employees in the
performance of functions specifically allocated to them pursuant to
the terms of this Agreement.
C. Introducing Firm will maintain compliance and supervisory procedures
which are adequate to assure compliance with restricted/control stock
requirements.
X. Information to be Provided by the Introducing Firm
A. The Introducing Firm shall provide the Clearing Firm with copies of
all financial information and reports filed by the Introducing Firm
with the New York Stock Exchange, Inc. (if a member), the National
Association of Securities Dealers, Inc. the Securities and Exchange
Commission, and any other National Securities Exchange (where a
member) (including but not otherwise limited to monthly and quarterly
Financial and Operational Combined Uniform Single Reports, i.e.,
"FOCUS" Reports) simultaneous with the filing therewith.
B. The Introducing Firm shall submit to the Clearing Firm on a monthly
basis or, if so requested by the Clearing Firm, at more frequent
intervals, information and reports relating to the Introducing Firm's
financial integrity, including but not otherwise limited to
information regarding the Introducing Firm's aggregate indebtedness
ratio and net capital.
C. The Introducing Firm shall provide the Clearing Firm with all
appropriate data in its possession pertinent to the proper performance
and supervision of any function or responsibility specifically
allocated to the Clearing Firm pursuant to the terms of this
Agreement.
D. The Introducing Firm shall provide the Clearing Firm with any
amendment or supplement to the Form BD of the Introducing Firm.
XI. Information to be Provided by the Clearing Firm
A. The Clearing Firm shall provide the Introducing Firm with all
appropriate data in its possession pertinent to the proper performance
and supervision of any function specifically allocated to the
Introducing Firm pursuant to the terms of this Agreement.
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B. No later than October 18, 1999 and annually thereafter, Clearing Firm
will provide Introducing Firm with a list or description of all
reports (exception and other types of reports) which Clearing Firm
offers to Introducing Firm to assist Introducing Firm in supervising
Introducing Firm's activities, monitoring Introducing Firm's customer
accounts and carrying out its functions and responsibilities under the
Clearing Agreement. After receipt of this information, Introducing
Firm agrees to promptly notify Clearing Firm in writing of the
specific reports offered by Clearing Firm that Introducing Firm
requires to supervise and monitor its customer accounts.
C. As part of its books and records, Clearing Firm will retain copies of
the reports requested by or provided to Introducing Firm by Clearing
Firm (or alternatively, Clearing Firm may retain the data from which
such original report was produced and at the request of Introducing
Firm's DEA, Clearing Firm can either recreate the report or provide
the data and the data formatting that was used by Clearing Firm to
prepare the report).
D. Each year, no later than July 31, Clearing Firm is required to
provide written notification to the chief executive officer and chief
compliance officer of Introducing Firm (with a copy of such
notification to the Introducing Firm's DEA) of the reports offered by
Clearing Firm and the reports requested by or supplied to Introducing
Firm as of the date of such notification.
XII. Customer Notification and Correspondence
A. The Introducing Firm shall be solely and exclusively responsible for
informing its customers in a written correspondence, the form and
substance of which will be mutually agreed upon, prior to the
effective date of this Agreement, as to the general nature of the
services to be provided by the Clearing Firm pursuant to this
Agreement and the right of such customers to reject the services
provided herein. Any new customers of the Introducing Firm shall be so
informed on or about the date such customers become Introduced
Accounts by the Clearing Firm.
B. The Introducing Firm shall inform its customers pursuant to such
written correspondence that all inquiries and correspondence 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 Firm shall
expeditiously forward such correspondence to the appropriate party.
XIII. Errors, Controversies and Indemnities
A. Errors, misunderstandings or controversies, except those specifically
otherwise covered in this Agreement, between the Introduced Accounts
and the Introducing Firm or any of its employees, which shall arise
out of acts or omissions of the Introducing Firm or any of its
employees (including, without limiting the foregoing, the failure of
the Introducing Firm to deliver promptly to the Clearing Firm any
instructions received by the Introducing Firm from an Introduced
Account with respect to the voting, tender or exchange of shares held
in such Introduced Account), shall be the sole and exclusive
responsibility and liability of the Introducing Firm. In the event,
however, that by reason of such error, misunderstanding or
controversy, the Introducing Firm in its discretion deems it advisable
to commence an action or proceeding against an Introduced Account, the
Introducing Firm shall indemnify and hold the Clearing Firm harmless
from any loss, liability, damage, cost or expense, penalties or taxes
(including but not otherwise limited to fees and expenses of legal
counsel) which the Clearing Firm may incur or sustain in connection
therewith or under any settlement thereof. If such error,
misunderstanding or controversy shall
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result in the bringing of an action or proceeding against the
Clearing Firm, the Introducing Firm shall indemnify and hold the
Clearing Firm harmless from any loss, liability, damage, cost or
expense, penalties or taxes, (including but not otherwise limited to
fees and expenses of legal counsel) which the Clearing Firm may incur
or sustain in connection therewith or under any settlement thereof.
B. Errors, misunderstandings or controversies, except those specifically
otherwise covered in this Agreement, between the Introduced Accounts
and the Introducing Firm or any of its employees, which shall arise
out of acts or omissions of the Clearing Firm or any of its employees,
shall be the sole and exclusive responsibility and liability of the
Clearing Firm. In the event, however, that by reason of such error,
misunderstanding or controversy, the Clearing Firm in its discretion
deems it advisable to commence an action or proceeding against an
Introduced Account, the Clearing Firm shall indemnify and hold the
Introducing Firm harmless from any loss, liability, damage, cost or
expense, penalties or taxes, (including but not otherwise limited to
fees and expenses of legal counsel) which the Introducing Firm may
incur or sustain in connection therewith or under any settlement
thereof. If such error, misunderstanding or controversy shall result
in the bringing of an action or proceeding against the Introducing
Firm, the Clearing Firm shall indemnify and hold the Introducing Firm
harmless from any loss, liability, damage, cost or expense, penalties
or taxes, (including but not otherwise limited to fees and expenses of
legal counsel) which the Introducing Firm may incur or sustain in
connection therewith or under any settlement thereof.
C. The Clearing Firm and the Introducing Firm both agree to indemnify the
other and hold the other harmless from and against any loss,
liability, damage, cost or expense, penalties or taxes, (including but
not otherwise limited to fees and expenses of legal counsel) arising
out of or resulting from any failure by the indemnifying party or any
of its employees to carry out fully the duties and responsibilities
assigned to the indemnifying party herein (including, without
limitation, the indemnification obligations contained in this
Agreement) or any breach of any representation or warranty herein by
the indemnifying party under this Agreement. The Introducing Firm
hereby agrees to indemnify and hold the Clearing Firm harmless from
and against any loss, liability, damage, cost or expense, penalties or
taxes, (including but not otherwise limited to fees and expenses of
legal counsel) sustained or incurred in connection herewith in the
event any Introduced Account fails to meet any initial margin call or
maintenance call, in conformity with Article VIII hereof.
D. The indemnification provisions in this Agreement shall remain
operative and in full force and effect, regardless of the termination
of this Agreement, and shall survive any such termination.
E. Introducing Firm agrees to maintain, and to provide a certificate of
insurance thereof to the Clearing Firm, brokers indemnity bond
insurance providing coverage for an Introducing Firm that acts in the
capacity of market maker equal to the greater of (a) $1 million or (b)
the minimum coverage as required under NASD rules, and for all other
Introducing Firms, the minimum coverage as required under NASD rules
and other applicable law (or other such reasonable indemnity bond
insurance requirements as communicated in writing upon 30-days notice
to Introducing Firm) covering any and all acts of its employees,
agents and partners, listing the Clearing Firm as an additional
insured party and permitting the Clearing Firm to assume the policy in
the event of the Introducing Firm ceasing operations. Such indemnity
bond insurance shall contain a rider or provision whereby the
insurance company will notify the Clearing Firm, as an insured party,
of any modification to or claims under such policy by the Introducing
Firm.
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XIV. Representations, Warranties and Covenants
A. The Introducing Firm represents, warrants and covenants as follows:
(i) The Introducing Firm will (a) maintain at all times a net
capital computed in accordance with Rule 15c3-1 of at least
75,000 in excess of the minimum net capital required by such
rule if the Introducing Firm does not make a market in any
security and of at least 150,000 in excess of the minimum net
capital required by such rule if the Introducing Firm makes a
market in any security and (b) immediately notify the Clearing
Firm when (i) its net capital is less than the applicable
amount set forth in (a) above, (ii) its Aggregate Indebtedness
Ratio reaches or exceeds 10 to 1 or (iii) if the Introducing
Firm has elected to operate under paragraph (f) of Rule 15c3-1
of the Securities Exchange Act of 1934, as amended, when its
net capital is less than 5% of aggregate debit items computed
in accordance with Rule 15c3-3.
(ii) The Introducing Firm is a member in good standing of the
National Association of Securities Dealers, Inc. The
Introducing Firm will promptly notify the Clearing Firm of any
additional exchange memberships or affiliations. The
Introducing Firm shall also comply with whatever non-member
access rules have been promulgated by any National Securities
Exchange or any other securities exchange of which it is not a
member.
(iii) The Introducing Firm and its representatives are and during the
term of this Agreement will remain duly registered or licensed
and in good standing as a broker/dealer and registered
representatives under all applicable Laws and Regulations.
(iv) 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
Firm in accordance with the terms hereof.
(v) The Introducing Firm is in compliance, and during the term of
this Agreement will remain in compliance with (i) the capital
and financial reporting requirements of every National
Securities Exchange or other securities exchange and/or
securities association of which the Introducing Firm is a
member, (ii) the capital requirements of every state in which
the Introducing Firm is licensed as a broker/dealer. In the
event that the Introducing Firm is notified at anytime by any
regulatory authority of a net capital deficiency or similar
notice, a copy shall be provided immediately to the Clearing
Firm. The Introducing Firm, in addition, will provide to the
Clearing Firm copies of any and all net capital deficiency
notices or reports that the Introducing Firm files with such
regulatory authorities including, but not limited to, notices
and reports made pursuant to section 17a(11) of the Securities
and Exchange Act of 1934.
(vi) The Introducing Firm shall not generate and/or prepare any
statements, xxxxxxxx or confirmations respecting any Introduced
Account unless expressly so instructed in writing by the
Clearing Firm.
(vii) The Introducing Firm shall keep confidential any information it
may acquire as a result of this Agreement regarding the
business and affairs of the Clearing Firm, which requirement
shall survive the life of this Agreement.
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(viii) Introducing Firm agrees that it will not use the name of or
make any representations on behalf of Clearing Firm or any
of its affiliates without the express written consent of
Clearing Firm.
B. The Clearing Firm represents, warrants and covenants as follows:
(i) The Clearing Firm is a member in good standing of the
National Association of Securities Dealers, Inc. and the New
York Stock Exchange, Inc.
(ii) The Clearing Firm is and during the term of this Agreement
will remain duly licensed and in good standing as a
broker/dealer under all applicable Laws and Regulations.
(iii) The Clearing Firm has all the requisite authority, in
conformity with all applicable Laws and Regulations, to
enter into and perform this Agreement.
(iv) The Clearing Firm is in compliance, and during the term of
this Agreement will remain in compliance with (i) the
capital and financial reporting requirements of every
National Securities Exchange and/or other securities
exchange or association of which it is a member, (ii) the
capital requirements of the Securities and Exchange
Commission, and (iii) the capital requirements of every
state in which it is licensed as a broker/dealer.
(v) The Clearing Firm represents and warrants that the names
and addresses of the Introducing Firm's customers which have
or which may come to its attention in connection with the
clearing and related functions it has assumed under this
Agreement are confidential and shall not be utilized by the
Clearing Firm except in connection with the functions
performed by the Clearing Firm pursuant to this Agreement.
The Clearing Firm shall send no written information to such
customers other than statements, bills or notices of
transactions in connection with its role as Clearing Firm.
Notwithstanding the foregoing, should a client who has an
Introduced Account request, on an unsolicited basis, that
the Clearing Firm or an organization affiliated with the
Clearing Firm become its broker, acceptance of such client
by the Clearing Firm or such affiliated organization shall
in no way violate this representation and warranty, nor
result in a breach of this Agreement.
(vi) The Clearing Firm shall keep confidential any information
it may acquire as a result of this Agreement regarding the
business and affairs of the Introducing Firm, which
requirement shall survive the life of this Agreement.
XV. Termination - Event of Default
Notwithstanding any provision in this Agreement, the following events or
occurrences shall constitute an Event of Default under this Agreement:
(1) either the Clearing Firm or the Introducing Firm shall fail to
perform or observe any term, covenant or condition to be performed or
observed by it hereunder and such failure shall continue to be
unremedied for a period of 60 days (30 days in the case of a failure
of the Introducing Firm to maintain the net capital ratios set forth
in Section A(i)(a) of Article XIV) after written notice from the
non-defaulting party to the defaulting party specifying the failure
and demanding that the same be remedied; or
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(2) any representation or warranty made by either the Clearing Firm
or the Introducing Firm herein shall prove to be incorrect at any
time in any material respect; or
(3) a receiver, liquidator or trustee of either the Clearing Firm or
the Introducing Firm, or of its property, held by either party is
appointed by court order and such order remains in effect for
more than 30 days; or either the Clearing Firm 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 Firm 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 30 days after
such filing; or
(4) either the Clearing Firm or the Introducing Firm files a petition
in voluntary bankruptcy or seeking relief under any provision 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
(5) either the Clearing Firm 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 Firm or the Introducing Firm, or of any
property held by either party.
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 this
Agreement shall be thereby terminated and such termination shall be
effective as of the date such notice has been sent or communicated to the
defaulting party.
XVI. 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.
XVII. Miscellaneous
A. As of the effective date of this Agreement, the Clearing Firm will not
convert to its records as Introduced Accounts customer accounts of the
Introducing Firm that are partially or totally unsecured, securities in
the name of the Introducing Firm's customers, or legal transfer
securities (securities in the name of estates, trust, joint ownership
and such).
B. The Clearing Firm 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
Firm to reflect that the Clearing Firm has acted as broker on the open
orders with specialists on any National Securities Exchange or other
securities exchange.
C. The Clearing Firm 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.
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D. The Introducing Firm shall be responsible for providing annual
dividend and distribution information as contained in IRS Form 1087
and any other information required to be reported by federal, state,
or local tax laws, rules or regulations, to its customers until the
effective date of this Agreement, whereupon the Clearing Firm shall
assume this function as to Introduced Accounts.
E. The Clearing Firm shall have the power to allocate and make
appropriate adjustments for fails, reorganization accounts, other
work in process accounts, and coverages relating to accounts of the
customers of the Introducing Firm that have become Introduced Accounts
pursuant to the terms of this Agreement.
F. 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 15 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 Firm within such
15-day period. If any debit balances remain outstanding for a period
of more than 15 days after their origin date, the Clearing Firm 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.
G. Transfers of securities relating to Introduced Accounts shall be
frozen 10 business days prior to the effective date of this Agreement.
H. The Clearing Firm 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 Firm or any of the subsidiaries
or companies controlled directly or indirectly by or affiliated with
the Clearing Firm. Should the Introducing Firm in any way attempt to
hold itself out as, advertise or in any way represent that it is the
agent of the Clearing Firm, the Clearing Firm shall have the power, at
its option, to terminate this Agreement and the Introducing Firm shall
be liable for any loss, liability, damage, cost or expense (including
but not otherwise limited to fees and expenses of legal counsel)
sustained or incurred by the Clearing Firm as a result of such a
representation of agency or apparent authority to act as an agent of
the Clearing Firm or agency by estoppel.
I. This Agreement supersedes any previous agreement and may be modified
only by a writing signed by both parties to this Agreement. Such
modification shall not be deemed as a cancellation of this Agreement.
J. This Agreement shall be submitted to and/or approved by any National
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 of any such
disapproval, the parties hereto agree to bargain in good faith to
achieve the requisite approval.
K. (i) The arrangement contemplated by this Agreement shall be for a term
of three (3) years from the date first written above (the "Term").
Unless either party hereto gives the other party sixty (60) days
advance written notice before the expiration of the Term of its
intention not to renew, this Agreement shall renew for one (1) year.
(ii) In the event that the Introducing Firm desires to terminate the
Agreement and cancel the relationship contemplated hereby prior to
the expiration of the Term or Renewal Term as
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applicable, the Introducing Firm shall pay to the Clearing Firm the
following early termination fees:
Termination in Year Early Termination Fee
------------------- ---------------------
1 $100,000
2 $50,000
3 $25,000
(iii) Notwithstanding the foregoing provisions of this Paragraph K,
this Agreement may be cancelled by either party upon thirty (30) days'
written notice if (a) the ratio of aggregate indebtedness to net
capital of the other party exceed 10 to 1 or (b) if the other party
has elected to operate under paragraph (f) of Rule 15c3-1 of the
Securities Exchange Act of 1934, as amended, when its net capital is
less than 3% of aggregate debit items computed in accordance with Rule
15c3-3, and provided, further, that this Agreement may be cancelled by
the Clearing Firm at any time between the date on which this Agreement
is executed and the effective date of this Agreement if there is a
material change in the control or management of the Introducing Firm.
(iv) Notwithstanding any other provision of this Agreement, this
Agreement may be terminated and the relationship contemplated hereby
cancelled by the Clearing Firm at any time for any reason, and without
liability therefor, upon sixty 60 prior written notice to the
Introducing Firm.
L. ANY DISPUTE OR CONTROVERSY BETWEEN THE INTRODUCING FIRM AND THE
CLEARING FIRM RELATING TO OR ARISING OUT OF THIS AGREEMENT SHALL BE
SETTLED BY ARBITRATION BEFORE AND UNDER THE RULES OF THE ARBITRATION
COMMITTEE OF THE NEW YORK STOCK EXCHANGE, INC., UNLESS THE TRANSACTION
WHICH GAVE RISE TO SUCH DISPUTE OR CONTROVERSY WAS EFFECTED IN ANOTHER
EXCHANGE OR MARKET WHICH PROVIDES ARBITRATION FACILITIES, IN WHICH
CASE IT SHALL BE SETTLED BY ARBITRATION UNDER SUCH FACILITIES.
M. The Clearing Firm 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 customers or other persons, nor
will the Clearing Firm be under any responsibility for compliance by
the Introducing Firm with any Laws or Regulations which may be
applicable to the Introducing Firm.
N. To facilitate the keeping of records by the Clearing Firm the
Introducing Firm will turn over promptly to the Clearing Firm any and
all payments and securities which the Introducing Firm receives from
its customers. Concurrently with the delivery of such payments or
securities to the Introducing Firm, it shall furnish the Clearing Firm
with such information as may be relevant or necessary to enable the
Clearing Firm to record promptly and properly such payments and
securities in the respective Introduced Account.
O. This Agreement shall be binding upon all successors, assigns or
transfers of both parties hereto, irrespective of any change with
regard to the name of or the personnel of the Introducing Firm or the
Clearing Firm. Any assignment of this 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 by the Introducing Firm shall be valid
unless the Clearing Firm consents to such an assignment in writing.
Any assignment by the Clearing Firm to any subsidiary that it may
create or to a company affiliated with or controlled directly or
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indirectly by it will be deemed valid and enforceable in the absence
of any consent from the Introducing Firm. 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 Firm.
P. Notwithstanding the provisions of Section L of Article XVII that any
dispute or controversy between the parties relating to or arising out
of this Agreement shall be referred to and settled by arbitration, in
connection with any breach by the Introducing Firm of Section H, the
Clearing Firm may, at any time prior to the initial arbitration
hearing pertaining to such dispute or controversy, by application to
the United States District Court for the Eastern District of Virginia
or the Circuit Court of the State of Virginia or the City of Richmond
seek any such temporary or provisional relief or remedy ("provisional
remedy") provided by the laws of the United States or the laws of the
Commonwealth of Virginia would be available in an action based upon
such dispute or controversy in the absence of an agreement to
arbitrate. The parties acknowledge and agree that it is their
intention to have any such application for a provisional remedy
decided by the court to which it is made and that such application
shall not be referred to or settled by arbitration. No such
application to either said court for a provisional remedy, nor any act
or conduct by either party in furtherance of or in opposition to such
application, shall constitute a relinquishment or waiver of any right
to have the underlying dispute or controversy with respect to which
such application is made settled by arbitration in accordance with
Section L above.
Q. The Introducing Firm shall not, without having obtained the prior
written approval of the Clearing Firm, agree to place or place any
advertisement in any newspaper, publication, periodical or any other
media or communicate with any customer or the public in any manner
whatsoever if such advertisement or communication in any manner makes
reference to the Clearing Firm, to any person or entity that directly,
or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control, with the Clearing Firm and
to the clearing arrangements and/or any of the services embodied in
this Agreement.
R. The Laws and Regulations require that the Clearing Firm must have
proper documentation to support any account opened on its books,
including Introduced Accounts. If, after reasonable request therefor,
the necessary documents so as to enable the Clearing Firm to comply
with such account documentation requirements of the Laws and
Regulations have not been received by the Clearing Firm, the
Introducing Firm shall receive notification that no further orders
will be accepted for the Introduced Accounts involved. Should it
happen that inadvertent orders are placed for such account after this
notice is received, no commission credit will be granted from such
orders. On receipt of the necessary documents, this restriction will
be lifted on future commissions, but any commissions, withheld will
not be credited or paid. This Agreement is not in any way intended to
limit the responsibility of the Clearing Firm under the Laws and
Regulations with respect to Introduced Accounts.
S. The construction and effect of every provision of this Agreement, the
rights of the parties hereunder and any questions arising out of the
Agreement, shall be subject to the statutory and common law of the
Commonwealth of Virginia.
T. The headings preceding the text, articles and sections hereof have
been inserted for convenience and reference only and shall not be
construed to affect the meaning, construction or effect of this
Agreement.
U. This Agreement shall cover only the types of services set forth herein
and is no way intended nor shall it be construed to bestow upon the
Introducing Firm any special treatment regarding
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Tejas Securities Group, Inc.
May 19, 2000
any other arrangements, agreements or understanding which presently
exist between the Introducing Firm and the Clearing Firm or which may
hereafter exist. The Introducing Firm shall be under no obligation
whatsoever to deal with the Clearing Firm or any of its subsidiaries
or any companies controlled directly or indirectly by or affiliated
with the Clearing Firm, in any capacity other than as set forth in
this Agreement. Likewise, the Clearing Firm 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.
V. If any provision or condition of this Agreement shall be held to be
invalid or unenforceable by any court, or regulatory or
self-regulatory agency or body, such invalidity or unenforceability
shall attach only to such provision or condition. The validity of the
remaining provisions and conditions shall not be affected thereby and
this Agreement shall be carried out as if any such invalid or
unenforceable provision or condition were not contained herein.
W. For the purposes of any and all notices, consents, directions,
approvals, restrictions, requests or other communications required or
permitted to be delivered hereunder, the Clearing Firm's address shall
be First Clearing Corporation, 000 X. Xxxx Xxxxxx, X.X. Xxx 0000,
Xxxxxxxx, XX 00000-0000 and the Introducing Firm's address shall be
0000 Xxx Xxxxxxx, Xxxxx 000, Xxxxxx, XX 00000.
Either party may change its address for notice purposes by giving
written notice pursuant to registered mail of the new address to the
other party.
X. This Agreement shall become effective on or about May 19, 2000 or such
other date mutually agreed upon by the parties hereto.
Y. The Clearing Firm shall not be liable for any loss caused, directly or
indirectly, by government restrictions, exchange or market ruling,
suspension of trading, war, strikes or other conditions beyond the
control of the Clearing Firm. In the event that any communications
network or computer system used by the Clearing Firm, whether or not
owned by the Clearing Firm, is rendered inoperable, the Clearing Firm
shall not be liable to the Introducing Firm for any loss, liability,
claim, damage or expense resulting, either directly or indirectly,
therefrom.
Z. The Clearing Firm shall have the right to investigate, or arrange for
an appropriate party to investigate, the Introducing Firm's credit;
provided, however, that the Introducing Firm may make a written
request for disclosure of the nature of such investigation within a
reasonable time. Nothing in this paragraph shall be construed to
relieve the Introducing Firm of its obligation to oversee its
financial integrity.
XVIII. Introducing Firm Deposit Account
A. In order to further assure compliance with its representations,
agreements and indemnifications herein, the Introducing Firm agrees to
establish an Introducing Firm Deposit Account ("the Deposit Account")
in the name of the Introducing Firm with the Clearing Firm.
The Introducing Firm shall deposit good and free funds in the amount
of $250,000 into the Deposit Account prior to the date September 30,
2000. The Clearing Firm will pay interest on cash deposited in the
Deposit Account in accordance with its then accepted Free Credit
Balance Interest Rates.
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Tejas Securities Group, Inc.
May 19, 2000
B. The establishment of the Deposit Account and deposit of funds
therein shall be for the purposes described in this section
and shall not constitute an ownership interest in the Clearing
Firm by the Introducing Firm.
C. In the event (1) the Clearing Firm has a claim arising in any
fashion under this agreement against the Introducing Firm, (2)
if an Introduced Account has made a claim against the Clearing
Firm arising from the Introducing Firm's actions or inactions
hereunder or (3) if the Introducing Firm is otherwise
obligated to indemnify the Clearing Firm herein, then if the
Introducing Firm has not resolved its obligation within five
business days after receipt of notice of the obligation from
the Clearing Firm, the Clearing Firm may deduct such
obligation from commissions then owed to the Introducing Firm,
and if such commissions are insufficient to satisfy such
obligation, the Clearing Firm is authorized to withdraw the
amount from the Deposit Account and pay amount to itself.
After the resolution of such obligation, the Introducing Firm
will promptly deposit additional cash into the Deposit Account
so that the principal balance equals the amount required in
the first paragraph of this section.
D. Return of Required Clearing Deposit. Upon termination of this
Agreement in accordance with the provisions hereof, and
subject to, (a) FCC's receipt of payment in full of any and
all amounts owing to FCC hereunder, and (b) Correspondent's
satisfaction of each and every of Correspondent's outstanding
obligations to FCC hereunder, FCC shall return the required
clearing deposit to Correspondent within thirty (30) calendar
days of the date on which all of said payments have been
received, and obligations satisfied. These obligations
include, but are not limited to, any open and unsettled
litigation matters between FCC and either Correspondent or
Customer, any unresolved, unsecured Correspondent-Account or
Customer-Account debit balances, any open fails as a result of
trades executed on behalf of Correspondent Account or Customer
Accounts, and any failures to transfer to another broker any
Customer Accounts introduced by Correspondent.
Made and executed at Richmond, VA on the date first hereinabove set forth.
Tejas Securities Group, Inc.
By /s/ XXX X. VAN ERT
---------------------------
President
---------------------------
Title
Date 5-24-00
---------------------------
ACCEPTED:
FIRST CLEARING CORPORATION
By [ILLEGIBLE]
------------------------
Managing Director
------------------------
Title
Date 5-31-00
------------------------
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