FULLY DISCLOSED
CLEARING AGREEMENT
prepared for
American Portfolios Financial Services, Inc.
October 2002
FULLY DISCLOSED CLEARING AGREEMENT
OF
PERSHING DIVISION
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ SECURITIES CORPORATION
THIS AGREEMENT is made and entered into this 22nd day of October, 2002 by
and between the Pershing Division of ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ Securities
Corporation ("Pershing"), a Delaware corporation, and American Portfolios
Financial Services, Inc. ("Broker'), a New York corporation.
1. APPROVAL
This Agreement shall be subject to approval by the New York Stock Exchange,
Inc. ("NYSE") and by any other self-regulatory organization vested with the
authority to review or approve it. Pershing shall submit this Agreement to the
NYSE and Broker shall submit the Agreement to any other such organization from
which Broker is required to obtain approval. In the event of disapproval, the
parties shall bargain in good faith to achieve the requisite approval.
2. AGREEMENT
From the date of this Agreement until the termination of this Agreement as
provided in Paragraph 22 hereof, Pershing shall carry the proprietary accounts
of Broker and the cash and margin accounts of the customers of Broker introduced
by Broker to Pershing, and accepted by Pershing, and shall clear transactions on
a fully disclosed basis for such accounts, in the manner and to the extent set
forth in this Agreement.
3. ALLOCATION OF RESPONSIBILITY
3.1 Responsibilities of the Parties. Pursuant to NYSE Rule 382,
responsibility for compliance with applicable laws, rules, and regulations of
the Securities and Exchange Commission ("SEC"), the National Association of
Securities Dealers, Inc. ("NASD"), the NYSE, and any other regulatory or self
regulatory agency or organization (collectively the "Rules") shall be allocated
between Pershing and Broker as set forth in this Agreement. To the extent that a
particular function is allocated to one party under this Agreement, the other
party shall supply that party with information in its possession pertinent to
the performance and supervision of that function.
3.2 Relationship with Customers. Except as provided in Paragraph 27.11 of
this Agreement, all customers receiving services pursuant to this Agreement
shall remain customers of Broker. Pershing shall provide services under this
Agreement to Broker only to the extent explicitly required by specific
provisions contained in this Agreement and shall not be responsible for any
duties or obligations not specifically allocated to Pershing pursuant to this
Agreement. Broker shall enter into appropriate contractual arrangements with
customers on its own behalf, and such agreements shall make Broker, and not
Pershing, responsible to customers for the provision of services. Broker shall
not be deemed to be an agent of Pershing for any purpose, nor shall Pershing be
deemed to have a fiduciary relationship with any of Broker's customers. Broker
acknowledges that Pershing does not control the business or operations of
Broker.
4. REPRESENTATIONS AND WARRANTIES
4.1 Broker. Broker represents and warrants that:
4.1.1 Corporation Duly Organized. Broker is a corporation duly organized,
validly existing, and in good standing under the laws of the state of its
incorporation.
4.1.2 Registration. Broker is duly registered and in good standing as a
broker-dealer with the SEC.
4.1.3 Authority to Enter Agreement. Broker has all requisite authority,
whether arising under applicable federal or state law or the rules and
regulations of any regulatory or self-regulatory organization to which Broker is
subject, to enter into this Agreement and to retain the services of Pershing in
accordance with the terms of this Agreement.
4.1.4 Material Compliance with Rules and Regulations. Broker and each of
its employees is in material compliance with, and during the term of this
Agreement shall remain in material compliance with, the registration,
qualification, capital, financial reporting, customer protection, and other
requirements of every self-regulatory organization of which Broker is a member,
of the SEC. and of every state to the extent that Broker or any of its employees
is subject to the jurisdiction of that state.
4.1.5 No Pending Action, Suit, Investigation, or Inquiry. Broker has
disclosed to Pershing every material action, suit, investigation, inquiry, or
proceeding (formal or informal) pending or threatened against or affecting
Broker, any of its affiliates, or any officer, director, or general securities
principal or financial and operations principal of Broker, or their respective
property or assets, by or before any court or other tribunal, any arbitrator,
any governmental authority, or any self-regulatory organization of which any of
them is a member. Broker shall notify Pershing promptly, of the initiation of
any such action, suit, investigation, inquiry, or proceeding that may have a
material impact on the capital of Broker.
4.1.6 Broker Responsibility. Broker shall be responsible for all internal
operations related to its business including without limitation (i) all
accounting, bookkeeping, record-keeping, cashiering, commodity transactions, or
any other transactions not involving securities; or any matter not contemplated
by the Agreement; (ii) preparation of Broker's payroll records, financial
statements, or any analysis thereof~ (iii) preparation or issuance of checks in
payment of Broker's expenses, other than expenses incurred by Pershing on behalf
of Broker pursuant to this Agreement; and (iv) payment of commissions to
Broker's sales personnel.
4.2 Pershing. Pershing represents and warrants that:
4.2.1 Corporation Duly Organized. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ Securities
Corporation ("DLJ") is a corporation duly organized, validly existing, and in
good standing under the laws of the state of Delaware.
4.2.2 Registration. DLJ is duly registered and in good standing as a broker
dealer with the SEC and is a member firm in good standing of the NYSE and the
NASD.
4.2.3 Authority to Enter Agreement. DLJ has all requisite authority,
whether arising under applicable federal or state law, or the rules and
regulations of any regulatory or self-regulatory organization to which DLJ is
subject, to enter into this Agreement and provide services in accordance with
the terms of this Agreement.
4.2.4 Compliance with Registration. Pershing and each of its employees is
in material compliance with, and during the term of this Agreement shall remain
in material compliance with the registration, qualification, capital, financial
reporting, customer protection, and other requirements of every self-regulatory
organization of which Pershing is a member, of the SEC, and every state.
5. ESTABLISHING AND ACCEPTING NEW ACCOUNTS
5.1 Acceptance of New Accounts. Broker shall be responsible for opening and
approving new accounts in compliance with the Rules.
5.1.1 Pershing reserves the right to reject any account which the Broker
may forward to Pershing as a potential new account. Pershing also reserves the
right to terminate any account previously accepted by it as a new account.
5.1.2 At the time of the opening of any new account, the Broker must obtain
sufficient information from its customer to satisfy itself as to the identify of
its client and the source of its funds to satisfy itself that opening the
account would not violate the provisions of various Executive Orders and
regulations issued thereunder by the Office of Foreign Assets Control (OFAC),
which enforces economic and trade sanctions against foreign countries and their
agents, terrorism sponsoring agencies and organizations and international
narcotics traffickers.
5.2 Maintenance of Account Information. Pershing may rely without inquiry
on the validity of all customer information furnished to it by Broker.
Possession of any such documents or information, however provided, concerning
Broker's customers does not create a duty on the part of Pershing to review or
understand the content of those documents.
5.3 Pershing Operations Manual. Broker acknowledges receipt and familiarity
with the Pershing "Quick Reference Guide" and "Bulletins" and agrees to
familiarize itself with any modifications or supplements to such documents that
may be issued from time to time.
6. SUPERVISION OF ORDERS AND ACCOUNTS
6.1 Responsibility for Compliance. Broker shall be solely responsible for
compliance with suitability, "Know Your Customer" rules, and other requirements
of federal and state law and regulatory and self-regulatory rules and
regulations governing transactions and accounts. Possession by Pershing of
surveillance records, exception reports, or other similar data shall not
obligate Pershing to review or be aware of their contents. Pershing shall not be
required to make any investigation into the facts surrounding any transaction
that it may execute or clear for Broker or any customer of Broker.
6.2 Compliance Procedures. Broker agrees to supervise compliance with the
Rules. Broker shall review transactions and accounts to assure compliance with
prohibitions against manipulative practices and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and other
requirements of federal and state law and applicable regulatory and
self-regulatory rules and regulations to which Broker or its customer are
subject. Without limiting the above, Broker shall be responsible for compliance
with the supervisory requirements in Section 15(b)(4) of the Securities Exchange
Act of 1934, as amended, NASD Rule 3010, NYSE Rules 342, 351 and 431, and
similar rules adopted by any other regulatory or self-regulatory agency or
organization, to the extent applicable.
6.3 Knowledge of Customer's Financial Resources and Investment Objectives.
Broker shall comply with Rule 405(1) of the NYSE or comparable requirements of
similar rules of any other regulatory or self-regulatory organization to which
Broker is subject. Broker shall obtain all essential facts relating to each
customer, each cash and margin account, each order, and each person holding a
power of attorney over any account, in order to assess the suitability of
transactions (when required by applicable rules), the authenticity of orders,
signatures, endorsements, certificates, or other documentation, and the
frequency of trading. Broker warrants that, to the best of its knowledge, Broker
will not open or maintain accounts for persons who are minors or who are
otherwise legally incompetent and that Broker will comply with NYSE Rule 407 and
other laws, rules, or regulations that govern the manner and circumstances in
which accounts may be opened or transactions authorized.
6.4 Furnishing of Investment Advice. Broker shall be solely responsible for
any recommendation or advice it may offer to its customers.
6.5 Discretionary Accounts. Broker shall be solely responsible for
obtaining customer approval for and supervising discretionary accounts.
6.6 Obligations Regarding Certain Disclosures. Broker shall make any
disclosures and obtain any agreements from its customers required by applicable
law or regulation, including, without limitation, any disclosures or agreements
required for listed options, ▇▇▇▇▇ stocks, derivative securities, account
transfers or conversions. The cost of making such disclosures or obtaining such
agreements shall be borne by Broker.
7. EXTENSION OF CREDIT
7.1 Presumption of Cash Account. Pershing may, but is not required to,
permit customers of Broker to purchase securities on margin, but all
transactions for a customer will be deemed to be cash transactions, and payment
for those transactions will be required in the manner applicable to cash
transactions, unless, on or prior to settlement, Broker has furnished Pershing
with an executed margin agreement and consent to loan of securities.
7.2 Margin Requirements. Margin accounts introduced by Broker shall be
subject to Pershing's margin requirements as in effect from time to time.
Pershing reserves the right to refuse to accept any transaction in a margin
account without the actual receipt of the necessary margin and to impose a
higher margin requirement for a particular account when, in Pershing's
discretion, the past history or nature of the account or other factors or the
securities held in it warrant such action. In all instances, Broker may require
higher margin than imposed by Pershing for any particular account, group of
accounts, or all accounts introduced by Broker to Pershing. In any case where
Broker requests Pershing to extend credit upon control or restricted securities,
pursuant to Rule 144 under the Securities Act of 1933, as amended, or otherwise;
Broker shall submit to Pershing such documentation, agreements and information
as shall be reasonably required by Pershing to decide to extend such credit. Any
extension of credit so approved shall be subject to Pershing's credit policies
as shall be in effect from time to time.
7.3 Margin Maintenance and Compliance with Regulation T and SEC Rule
15c3-3(m).
7.3.1 Initial Margin. Broker shall be responsible for the initial margin
requirement for any transaction until such initial margin has been received by
Pershing in acceptable form.
7.3.2 Margin Calls. After the initial margin for a transaction has been
received, subsequent margin calls may be made by Pershing at its discretion.
Pershing shall calculate the maintenance requirement and notify Broker of any
amounts due. Broker shall be responsible for issuing the margin call to its
customer and obtaining the amount due directly from Broker's customer. If Broker
fails to take the appropriate action, Pershing reserves the right to collect the
amount due directly from Broker's customer. Broker agrees to cooperate with
Pershing in complying with and obtaining margin in response to such calls.
7.3.3 Actions Upon Failure to Meet Margin Calls or Deliver Securities. In
the event that satisfactory margin is not provided within the time specified by
Pershing, or securities sold are not delivered as required, Pershing may take
such actions as Pershing deems appropriate, including, but not limited to,
entering orders to buy in or sell-out. Broker shall cooperate with Pershing by
entering orders to buy-in or sell-out securities. Compliance with a request to
withhold action shall not be deemed a waiver by Pershing of any of its rights
under this Agreement.
7.4 Charging of Interest and Disclosures Pursuant to Rule l0b-16. Interest
charged with respect to debit balances in customers' accounts shall be
determined in accordance with Schedule A attached to this Agreement. Broker
shall send each margin customer a written disclosure statement, in a form
acceptable to Pershing, at the time of the opening of a margin account as
required by SEC Rule l0b-16.
7.5 Unsecured Debits or Unsecured Short Positions. Pershing shall charge
against the accounts of Broker an amount equal to the value of any unsecured
debit or short position (on a "▇▇▇▇ to market" basis) in a customer account if
that position has not been promptly resolved by payment or delivery. Any
remaining debit may be charged against Broker pursuant to Paragraph 19 of this
Agreement.
7.6 EXTENSION OF NONPURPOSE CREDIT
7.6.1 Nonpurpose Credit. Pershing may, but is not required to, extend and
maintain nonpurpose credit to customers of Broker not for purposes of
purchasing, carrying, or trading in securities, but all extensions of credit to
a customer will be deemed to be purpose credit subject to Regulation T unless,
prior to extending the credit, Broker has furnished Pershing with an executed
Federal Reserve Form T-4.
7.6.2 Nonpurpose Lending Requirements. Nonpurpose credit extended by
Pershing shall be subject to nonpurpose lending requirements as established and
modified by Pershing from time to time. Pershing reserves the right to refuse to
extend nonpurpose credit without the actual receipt of the necessary underlying
collateral and to impose a higher underlying collateral value requirement for a
particular account when, in Pershing's discretion, the past history or nature of
the account or other factors or the securities held in it warrant such action.
In all instances, Broker may require a lower loan advance rate to collateral
value than imposed by Pershing for any particular account, group of accounts, or
all accounts introduced by Broker to Pershing. In any case where Broker requests
Pershing to extend nonpurpose credit upon control or restricted securities,
pursuant to Rule 144 under the Securities Act of 1933, as amended, or otherwise;
Broker shall submit to Pershing such documentation, agreements and information
as shall be reasonably required by Pershing to decide to extend such credit. Any
extension of nonpurpose credit so approved shall be subject to Pershing's credit
policies as shall be in effect from time to time.
7.6.3 Underlying Collateral Maintenance and Compliance with Regulation T
and SEC Rule 15c3-3(m).
7.6.3.1 Initial Underlying Collateral. Broker shall be responsible for the
initial underlying collateral requirement for any extension of nonpurpose credit
until such initial underlying collateral has been received by Pershing in
acceptable form.
7.6.3.2 Underlying Collateral Calls. After the initial underlying
collateral for an extension of nonpurpose credit has been received, subsequent
underlying collateral calls may be made by Pershing at its discretion. Pershing
shall calculate the maintenance requirement and notify Broker of any amounts
due. Broker shall be responsible for issuing the underlying collateral call to
its customer and obtaining the amount due directly from Broker's customer. If
Broker fails to take the appropriate action, Pershing reserves the right to
collect the amount due directly from Broker's customer. Broker agrees to
cooperate with Pershing in complying with and obtaining underlying collateral in
response to such calls.
7.6.4 Actions Upon Failure to Meet Underlying Collateral Calls or Deliver
Securities. In the event that satisfactory underlying collateral is not provided
within the time specified by Pershing, or securities sold are not delivered as
required, Pershing may take such actions as Pershing deems appropriate,
including, but not limited to, entering orders to buy in or sell-out. Broker
shall cooperate with Pershing by entering orders to buy-in or sell-out
securities. Compliance with a request to withhold action shall not be deemed a
waiver by Pershing of any of its rights under the Agreement.
7.6.5 Charging of Interest and Disclosures Pursuant to Rule l0b-16.
Interest charged with respect to the extension of nonpurpose credit shall be
determined in accordance with Schedule A attached to this Agreement. Broker
shall send each customer a written disclosure statement, in a form-acceptable to
Pershing, at the time of the extension of nonpurpose credit as required by SEC
Rule l0b-16.
7.6.6 Unsecured Debits. Pershing shall charge against the accounts of
Broker an amount equal to the value of any unsecured debit (on a "▇▇▇▇ to
market" basis) in a customer account if that position has not been promptly
resolved by payment or delivery. Any remaining debit may be charged against
Broker pursuant to Paragraph 19 of the Agreement.
8. MAINTENANCE OF BOOKS AND RECORDS
8.1 Stock Records. Pershing shall maintain stock records and other
prescribed books and records of all transactions executed or cleared through it.
8.2 Regulatory Reports and Records. Broker shall prepare, submit, and
maintain copies of all reports, records, and regulatory filings required of
Broker by any entity that regulates it, including, but not limited to, copies of
all account agreements and similar documentation obtained pursuant to Paragraph
5.0 of this Agreement and any reports and records required to be made or kept
under the Currency and Foreign Transactions Reporting Act of 1970, (the "Bank
Secrecy Act"), and any rules and regulations promulgated pursuant thereto.
8.3 Broker's Anti-Money Laundering and OFAC Reporting and Recordkeeping and
Obligations. Broker recognizes that it is obligated to comply with, among
others, the following anti-money laundering and OFAC legal and regulatory rules,
and reporting and recordkeeping requirements including:
8.3.1 SEC Rule 17a-8 relating to "Financial record keeping and reporting of
currency and foreign transactions".
8.3.2 Rules of the self-regulatory organizations relating to currency
reporting, suspicious activity reporting, and related record keeping
requirements.
8.3.3 Applicable state reporting and record keeping requirements with
regard to certain currency transactions, transportation of currency or monetary
instruments, or reports of suspicious activity.
8.3.4 Federal, state, and international criminal and civil prohibitions
against money laundering, including, among others, the Money Laundering Act of
1986 as applicable. The federal regulations and Executive Orders imposed by the
OFAC which prohibit, among other things, the engagement in transactions with and
the provision of services to certain embargoed foreign countries and specially
designated nationals, specially designated narcotics traffickers and other
blocked parties.
8.3.5 To the extent permissible by law, at the time of filing of any
required reports or other communication, or at such time as requested by
Pershing, Broker will provide Pershing with copies of all reports or other
communications with regard to the introduced accounts filed with the U.S.
Treasury Department or any regulatory body or organization relating to the
reporting of currency transactions, the transfer of currency or monetary
instruments into or outside of the United States, suspicious activity,
including, but not limited to, Currency or Monetary International Reports
(CMIRs), Cash Transaction Reports (CTRs), and Suspicious Activity Reports
(SARs). Broker also shall advise Pershing of all reports made to OFAC with
regard to the introduced accounts.
8.3.6 Pershing reserves the right to make and file such reports where it
deems it appropriate for its own protection. Broker recognizes that when
Pershing does so, Pershing -does not thereby assume any responsibility for such
services and/or relieve the Broker of any responsibility for such services.
Furthermore, to the extent that Pershing is required to prepare or submit any
reports or records by any entity that regulates it, Broker shall cooperate in
providing Pershing with any information needed in order to prepare such reports
or records.
8.4 Audio Taping of Telephone Conversations. Each party understands that
for quality control, dispute resolution or other business purposes, the parties
may record some or all telephone conversations between them: Each party hereby
consents to such recording and will inform its employees, representatives and
agents of this practice. It is further understood that all such conversations
are deemed to be solely for business purposes.
9. RECEIPT AND DELIVERY OF FUNDS AND SECURITIES
9.1 Receipt and Delivery of Funds and Securities.
9.1.1 Cashiering Functions. Pershing shall perform cashiering functions for
accounts introduced by Broker. These functions shall include receipt and
delivery of securities; receipt and payment of funds owed by or to customers;
and provision of custody for securities and funds. Broker shall provide Pershing
with the data and documents that are necessary or appropriate to permit Pershing
to perform its obligations under this Paragraph, including but not limited to
copies of records documenting receipt of customers' funds and securities
received directly by Broker. Such data and documents must be compatible with the
requirements of Pershing's data processing systems.
9.1.2 Purchases. Broker shall be responsible for purchases (including
transactions on a "when issued" basis) made for customers until actual and
complete payment has been received by Pershing. Broker shall not introduce
accounts requiring settlement on a "delivery versus payment" or "receive versus
payment" basis unless such account utilizes the facilities of a securities
depository or qualified vendor as defined in NYSE Rule 387, for all depository
eligible transactions.
9.1.3 Sales. Broker shall be responsible for sales (including those on a
"when issued" basis), until Pershing has received, in acceptable form, the
securities involved in the transaction. If Pershing does not receive delivery of
securities in an acceptable form, Pershing may buy-in all or part of the
securities.
9.1.4 Funds and Securities Received by Broker. Broker shall promptly
deposit with Pershing funds or securities received by Broker from its customers,
together with such information as may be relevant or necessary to enable
Pershing to record such remittances and receipts in the respective customer
accounts.
9.1.5 Failure to Settle or Pay. In the event of a failure to timely deposit
required funds or securities, Pershing may take appropriate remedial action.
Without waiving or otherwise limiting its right to take other remedial action,
Pershing may at its option charge interest at rates as agreed in Schedule A
("Fully Disclosed Pricing Schedule") to this Agreement. Broker may pass such
charges on to its customers but Broker remains responsible therefor until
actually paid.
9.1.6 Check Writing Authority. Pershing may, but is not required to,
authorize certain of Broker's employees to sign checks to Broker's customers for
amounts due to, and requested by them, with respect to their accounts. Broker
shall designate, in writing, the names of any employees it wishes to receive the
authorization described in this subparagraph. All checks must be signed by two
employees who have received written authorization from Pershing. No check or
checks totaling more than $100,000 shall be provided to any customer by Broker
on the same business day. All expenses incurred in connection with the issuance
of checks under the authority described in this subparagraph shall be charged to
Broker. Broker remains responsible for the disbursement and delivery of such
checks to its customers. Any lien on the customer's property granted by the
customer to Broker or Pershing shall extend to any funds which may be segregated
in a separate account in connection with the exercise of the authority described
in this subparagraph. Broker has established, and will maintain and enforce,
supervisory procedures with respect to the issuance of such instruments that are
satisfactory to Pershing.
9.2 Restricted and Control Stock Requirements. Broker shall be responsible
for determining whether any securities held in Broker's or its customer accounts
are restricted or control securities as defined by applicable laws, rules, or
regulations. Broker is responsible for assuring that orders and other
transactions executed for such securities comply with such laws, rules, and
regulations.
9.3 Corporate Action Requests/Soliciting Dealer Agreements. Broker requests
and authorizes Pershing to execute as Broker's agent-in-fact any and all
Soliciting Dealer Agreements for corporate actions involving securities or other
interests held by Broker's customers on the books of Pershing. Pershing agrees
to provide notice of the pending corporate action to Broker at its designated
locations. Pershing further agrees to collect and submit corporate action
requests from Broker and submit them to the soliciting party in accordance with
the instructions received from the soliciting party. Pershing agrees to use its
best efforts to communicate corporate action information to Broker and, where
applicable, Broker's customers, but shall not be liable for a) any delays in the
communication of corporate action information or b) delays in the transmission
of collected corporate action requests to the soliciting party unless caused by
Pershing's gross negligence. All fees received from the soliciting party will be
credited to Broker. In consideration of providing this service to Broker, Broker
agrees to indemnify and hold harmless Pershing, its affiliates, officers, agents
and employees from all claims, suits, investigations, damages and defense costs
(including reasonable attorney's fees) that arise in connection with this
paragraph.
10. SAFEGUARDING OF FUNDS AND SECURITIES
Except as otherwise provided in this Agreement, Pershing shall be
responsible for the safekeeping of all money and securities received by it
pursuant to this Agreement. However, Pershing will not be responsible for any
funds or securities delivered by a customer to Broker until such funds or
securities are actually received by Pershing or deposited in bank accounts
maintained by Pershing.
11. CONFIRMATIONS AND STATEMENTS
11.1 Preparation and Transmission of Confirmations and Statements. Pershing
shall prepare confirmations and summary periodic statements and shall, to the
extent required, transmit them to customers and Broker in a timely fashion
except to the extent Broker has agreed to transmit confirmations to customers.
Confirmations and statements shall be prepared on forms disclosing that the
account is carried on a fully disclosed basis for the Broker in accordance with
applicable rules, regulations, and interpretations. Broker will have the
ultimate regulatory responsibility for compliance with the prospectus delivery
requirements of the Securities Act of 1933, as amended, regardless of its
retention of a prospectus fulfillment service to perform delivery of same.
11.2 Examination and Notification of Errors. Broker shall examine all
confirmations, statements, and other reports in whatever medium provided to
Broker by Pershing. Broker must notify Pershing of any error claimed by Broker
in any account; as to purchase and sales transactions prior to settlement date
and as to all other transactions within the time in which Pershing is able to,
without violating applicable law, reverse the transaction. If Broker fails to do
so, Broker shall be deemed to have waived its right to make any claim against
Pershing with respect to such error.
12. ACCEPTANCE AND EXECUTION OF TRANSACTIONS
12.1 Responsibility to Accept or Reject Trades. Pershing shall execute
transactions in customers' accounts and release or deposit money or securities
to or for accounts only upon Broker's instructions. Pershing reserves the right
to accept written or oral transaction orders from Broker's customers in
circumstances where it determines that either (i) the customers are unable to
execute those transactions through Broker (ii) or Pershing is required to do so
by applicable or relevant law. Notwithstanding any instructions to the contrary,
Pershing may, after notifying Broker orally or in writing; (i) refuse to confirm
a transaction or cancel a confirmation, (ii) reject a delivery or receipt of
securities or money; (iii) refuse to clear a trade executed by Broker; or (iv)
refuse to execute a trade for the account of a customer or Broker.
12.2 Responsibility for Errors in Execution. Broker shall be responsible
for transmission to Pershing of all orders and for any errors in the Broker's
recording or transmission of such orders.
13. OTHER OBLIGATIONS AND RESPONSIBILITIES OF BROKER
13.1 Other Clearing Agreements. During the term of this Agreement, Broker
shall not enter into any other similar agreement or obtain the services
contemplated by this Agreement from any other party or supply the services
contemplated by the Agreement without prior written consent of Pershing.
13.2 Disciplinary Action, Suspension, or Restriction. If Broker or any of
its affiliates, or any officer, director, or general securities principal or
financial and operational principal of Broker, becomes subject to disciplinary
action, suspension, or restriction by a federal or state agency, stock exchange,
or regulatory or self-regulatory organization having jurisdiction over Broker or
Broker's securities or commodities business, Broker shall give notice to
Pershing immediately, orally and in writing, and provide Pershing a copy of any
decision relating to such action, suspension, or restriction. Pershing may take
any action it reasonably deems to be necessary (i) to assure that it will
continue to comply with all applicable legal, regulatory, and self-regulatory
requirements, notwithstanding such action, suspension, or restriction; and (ii)
to comply with any requests, directives, or demands made upon Pershing by any
such federal or state agency, stock exchange, or regulatory or self-regulatory
organization.
13.3 Provision of Financial Information. Broker shall furnish Pershing
copies of FOCUS Reports, financial statements for the current fiscal year, the
executed Forms X-17a-5 (Parts I and IIA) filed with the SEC, any amendments to
Broker's Form BD, and any other regulatory or financial reports Pershing may
from time to time require. Broker shall provide such reports to Pershing at the
time Broker files such reports with its primary examining authority. Broker
shall also notify Pershing in advance of withdrawals of more than 10 percent of
its net capital.
13.4 Executing Brokers. If Broker wishes 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 the Agreement or in the No-Action Letter as the sense thereof shall
require. Broker may, from time to time, execute trades (either directly or
through Pershing) 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 Pershing and Prime Broker, and between
Broker and Prime Brokerage Customer prior to the transaction of any business
hereunder.) Broker shall promptly notify Pershing, but in no event later than
5:00 p.m. New York time, of trade date in a mutually acceptable fashion, of such
trades in sufficient detail for Pershing to be able to report and transfer any
trade executed by Broker on behalf of a Prime Brokerage Account to the relevant
Prime Broker. Broker understands and agrees that if Prime Broker shall disaffirm
or "dk" any trade executed by Broker on behalf of a Prime Brokerage Account;
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 Broker to the same extent as for any account introduced by Broker
pursuant to this Agreement. 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 Broker and a Prime Brokerage
Customer or between Pershing and relevant Prime Broker. Broker further agrees to
supply Pershing with such documents, papers and things, which from time to time
are reasonably required by Pershing to carry out the intention of this
Paragraph. Broker agrees that it shall know its customer, obtain appropriate
documentation, including new account form, conduct its own credit check and
determine the availability of shares as required for processing of any short
sales. Broker shall maintain facilities to clear any disaffirmed trades.
13.5 Protection of Intellectual Property. Broker shall use all reasonable
efforts to preserve and protect Pershing's and its affiliates' patent, trade
secret, copyright and other proprietary rights in Pershing's or its affiliates'
products, services, trademarks and tradenames, at least to the same extent used
by Broker to preserve and protect its own proprietary data or information and to
notify Pershing of any action by any third party known by Broker to constitute
an infringement of Pershing's or any of its affiliates' proprietary rights and
to cooperate with Pershing in protecting such rights. Without limiting the
foregoing, and subject to the permission required by Paragraph 21 hereof, Broker
shall note Pershing's or its affiliates' patent, trade secret, copyrights,
trademarks and trade names when Broker makes reference to or distributes
products or services provided by Pershing or its affiliates, as applicable.
14. OTHER OBLIGATIONS AND RESPONSIBILITIES OF PERSHING
14.1 Use of Third-Party Services. Subject to Paragraph 16 hereof Pershing
may, at its reasonable option, and consistent with common industry practice,
retain one or more independent data processing or other service bureaus to
perform functions (including, but not necessarily limited to, pricing services
or proxy mailing services) assigned to Pershing under this Agreement.
14.2 Tax Withholding. Broker hereby agrees to take necessary measures to
comply with the income tax withholding requirements of Section 3406 and Sections
1441 through 1446 (the nonresident alien withholding requirements) of the
Internal Revenue Code of 1986, as amended ("IRC") with respect to its customer
accounts. Broker agrees to furnish to Pershing any tax information, e.g.
taxpayer identification numbers and certifications provided by the customer on
IRS Forms W-8, W-8BEN, W-BIMY, W8EXF, W-8ECI, W-9, or any acceptable substitute)
in its possession relating to each customer account transferred to Pershing and
to each future customer account opened. Broker acknowledges that Pershing will
rely on such information for purposes of determining Pershing's obligation to
withhold federal income tax pursuant to Sections 1441 through 1446 and 3406 of
the Internal Revenue code. Broker hereby authorizes Pershing to employ any
procedures permitted under applicable law or regulation to achieve compliance
with its withholding obligations under federal income tax law.
14.3 Retirement Account Distributions. For retirement accounts for which
Pershing makes designated distributions pursuant to Section 3405 of the IRC or
any successor provision thereto, Broker shall (I) obtain customer authorization
to execute Form W-4P (or an acceptable substitute) on behalf of such customer,
and (2) electronically provide such Form W-4P or a copy thereof to Pershing.
15. ORDER AUDIT TRAIL SYSTEM (OATS)
Pursuant to NASD Rules 6950 through 6957 (Order Audit Trail System ("OATS")
Rules) and the OATS Reporting Technical Specifications, it is hereby agreed
between Broker and Pershing that Pershing shall synchronize Pershing system
clocks in accordance with the National Institute of Standards and Technology
clock and periodically monitor such clocks for performance within any deviation
time frame tolerance level permitted by the OATS Rules.
Unless otherwise directed in writing by Broker, Pershing will record and
transmit to the NASD, on Broker's behalf, all order information that is required
to be recorded pursuant to the OATS Rules and the OATS Technical Specifications
(including any modifications thereto) (the "Order Information") for orders
entered on or linked to Pershing's proprietary electronic order entry systems
(including Trade Order Processing System, BrokerView Order Entry, BrokerView
Direct Order, NetExchange Pr0TM, NetExchange ClientTM, Telexchange Pr0TM, and
Telexchange ClientlM, ParadigmTM and any other electronic order entry system as
Pershing may develop and implement from time to time) (collectively "the
Front-End Products") and routed to a market using Pershing's routing routine.
Pershing will also record and transmit to the NASD information that is received
via the Products by Pershing in connection with modification or cancellation of
any Order Information previously entered into the system.
Unless specifically agreed to in writing, Pershing will not capture
information or transmit Order Information for orders that are not entered on the
Front-End Products or called in for execution or where Pershing does not
determine the order routing routine.
For trades not entered on Front-End Products, Broker is responsible for
providing information necessary for Pershing to report on Broker's behalf.
Broker agrees that Pershing may pass any out-of-pocket costs, associated with
development and/or maintenance of this system on to Broker.
Broker acknowledges and agrees that Pershing shall not be responsible for
any Order Information that is not received by Pershing.
Notwithstanding the foregoing, nothing contained herein shall relieve
Broker of its reporting obligations under paragraph (c)(3) of OATS Rule 6955.
16. LIABILITY OF PERSHING
16.1 DISCLAIMER OF WARRANTIES. BROKER EXPRESSLY AGREES THAT BROKER'S USE OF
PERSHING'S SERVICES, INCLUDING THE SYSTEMS AS DEFINED BY PARAGRAPH 28.1 AND
SOFTWARE PRODUCTS AS DEFINED HEREIN, IS AT BROKER'S SOLE RISK. NEITHER PERSHING
NOR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, CONTRACTORS, AFFILIATES,
INFORMATION PROVIDERS, LICENSORS, OR OTHER SUPPLIERS PROVIDING DATA,
INFORMATION, SERVICES OR SOFTWARE, INCLUDING BUT NOT LIMITED TO THE NYSE,
WARRANTS THAT THE SERVICES WILL BE UNINTERRUPTED OR ERROR FREE; NOR DO ANY OF
THEM MAKE ANY WARRANTY AS TO THE RESULTS THAT MAY BE OBTAINED FROM THE USE OF
THE SERVICES OR AS TO THE TIMELINESS, SEQUENCE, ACCURACY, COMPLETENESS,
RELIABILITY OR CONTENT OF ANY DATA, INFORMATION, SERVICES, OR TRANSACTIONS
PROVIDED AND PERSHING SHALL NOT BE RESPONSIBLE FOR ANY LOSSES LIABILITIES OR
DAMAGES CAUSED BY THE ACTS OR OMISSIONS OF THOSE THIRD PARTY AGENTS,
CONTRACTORS, INFORMATION PROVIDERS OR OTHER SUPPLIERS BEYOND ANY AMOUNT WHICH
PERSHING IS ABLE TO RECOVER PURSUANT TO ITS AGREEMENT WITH SUCH ENTITY. EXCEPT
AS SPECIFICALLY SET FORTH IN THIS PARAGRAPH 16, PERSHING'S SERVICES ARE PROVIDED
ON AN "AS IS," "AS AVAILABLE" BASIS, WITHOUT WARRANTIES OF ANY KIND, EITHER
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THOSE OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT, OTHER THAN THOSE
WARRANTIES WHICH ARE IMPLIED BY AND INCAPABLE OF EXCLUSION, RESTRICTION OR
MODIFICATION UNDER THE LAWS APPLICABLE TO THIS AGREEMENT.
16.2 Pershing Indemnification. In addition to any other obligations it may
possess under other provisions of this Agreement, Pershing shall indemnify,
defend, and hold harmless Broker from and against all claims, demands,
proceedings, suits, actions, liabilities, expenses, and reasonable attorney's
fees, and costs in connection therewith arising out of any grossly negligent,
reckless, dishonest, fraudulent, or criminal act or omission on the part of any
of its officers or employees with respect to the services provided by Pershing
under this Agreement.
16.3 Damages. Pershing shall not be liable for special, indirect,
incidental, consequential or punitive damages, whether such damages are incurred
or experienced as a result of entering into or relying on this Agreement or
otherwise, even if Pershing has been advised of the possibility of such damages.
Broker and Pershing each agree not to assist any claim for punitive damages
against the other. Broker acknowledges and agrees that the fees charged by
Pershing reflect the allocation of risks including, but not limited to, the
foregoing limitation of liability. A modification of the allocation of risks set
forth in this Agreement would affect the fees charged by Pershing, and in
consideration of such fees, Broker agrees to such allocation of risks.
16.4 Pershing Right to Compete. Nothing in this Agreement shall be deemed
to restrict in any way the right of Pershing or any affiliate of Pershing to
compete with Broker in any or all aspects of Broker's business.
17. LIABILITY OF BROKER
17.1 Broker Indemnification. In addition to any other obligations it may
possess under other provisions of this Agreement, Broker shall indemnify, and
hold harmless Pershing, and any controlling person of Pershing, from and against
all claims, demands, proceedings, suits, and actions and all liabilities,
expenses, attorney's fees (including fees and costs incurred in enforcing
Pershing's right to indemnification), and costs in connection therewith arising
out of one or more of Broker's or any of its employee's negligent, dishonest,
fraudulent, or criminal act, or omission or any of the following:
17.1.1 Failure to Make Payment or Deliver Securities. A check received by
Pershing from a customer shall not constitute payment until it has been paid and
the proceeds are actually received and finally credited to Pershing (without any
subsequent charge back) by its bank.
17.1.2 Margin Calls. Failure of a customer to meet any initial margin call
or any maintenance call, except that Pershing shall be responsible for the
portion of any such loss or damage that Broker establishes was directly
attributable to Pershing's failure to give notification to Broker as required in
Paragraph 7.3.2 of this Agreement.
17.1.3 Broker's Failure to Perform. Failure of Broker to perform any duty,
obligation, or responsibility with respect to customer accounts as set forth in
this Agreement. Broker's indemnification obligation under this subparagraph
shall not be affected by the participation of Pershing or any person controlling
it or controlled by it within the meaning of the Securities Exchange Act of
1934, as amended, in any transaction giving rise to such an obligation, unless
such participation constitutes recklessness, fraud, or criminal conduct.
17.1.4 Improper Conduct by Agents. Any negligent, dishonest, fraudulent, or
criminal act or omission on the part of any of Broker's officers, directors,
employees, or agents.
17.1.5 Failure of a Customer to Perform Obligations. Any failure by any of
Broker's customers to perform any commitment or obligation with respect to a
transaction carried by Pershing under this Agreement, whether or not such
failure was under the control of Broker.
17.1.6 Customer Claims and Disputes. Any claim or dispute between Broker
and a customer with respect to services provided under this Agreement,
including, but not limited to, any claim or dispute concerning the validity of a
customer order in the form the order was transmitted to Pershing by Broker and
any claim arising in connection with Pershing's guarantee of any signature of
any customer of Broker or at the request of Broker.
17.1.7 Warranties. Any adverse claim with respect to any security delivered
or cleared by Pershing, including a claim of a defect in title with respect to
securities that are alleged to have been forged, counterfeited, raised or
otherwise altered, or if they are alleged to have been lost or stolen. The
parties agree that Pershing shall be deemed to be an intermediary between Broker
and customer and shall be deemed to make no warranties other than as provided in
Section 8-3 06(3) of the Uniform Commercial Code.
17.1.8 Default of Third-Party Broker. Any default by a third-party broker
with whom the Broker deals on a principal or agency basis in a transaction
either not executed by Pershing or not cleared by Pershing even if permitted by
Pershing as provided herein.
17.1.9 Check Signing. Any negligence, fraud, malfeasance, or error of any
employee of Broker with respect to the use of the check signing authority
granted under Paragraph 9.1.6 of this Agreement.
17.1.10 Prior Self-Clearing Arrangements. Any guarantee, indemnification,
or hold harmless agreement in connection with Broker's business or customers
that Pershing may provide to the National Securities Clearing Corporation, the
Depository Trust Company, or any other clearing, depository, or self-regulatory
organization with respect to transactions self-cleared by Broker prior to
transfer of such functions to Pershing.
17.1.11 Breach of Warranty by Broker. Any breach by Broker of any
representation or warranty made by it under this Agreement.
17.1.12 Deposit of Checks to Customer Accounts. Any failure to exercise due
diligence in reviewing checks received from customers to ensure that same are in
proper form, or in the issuance of instructions to Pershing regarding the
accounts into which checks are to be deposited.
17.1.13 Assets Not Held in Brokerage Account. Any claim asserted against
Pershing alleging the inaccuracy of any information appearing on Broker's
customer brokerage account statements with respect to assets not held in the
brokerage account, regardless of whether such information was provided by
Broker, customer or a third-party.
17.1.14 Infringement of Intellectual Property Rights. Any act or omission
of Broker, its agents, employees or customers which infringes on any patent,
trade secret, copyright, trademark, or other intellectual property right of
Pershing or any violation of the terms set forth in paragraph 27 hereof.
17.1.15 Misuse of Passwords and Unauthorized Access. The misuse, loss or
unauthorized access to the Systems and Software Products using the
Identification Devices (as that term is defined in Section 28.4 of this
Agreement) provided to Broker or its customers.
17.2 Injunctive Relief. In the event of a breach or threatened breach of
any of the provisions of this Agreement by Broker or any employee or
representative of Broker, Broker acknowledges that Pershing shall be entitled to
seek preliminary and permanent injunctive relief to enforce the provisions
hereof. In addition, Broker acknowledges that a breach of the terms regarding
confidentiality of information and ownership of Pershing's intellectual property
would cause irreparable and incalculable damage to Pershing. Nothing herein
shall preclude the parties from pursuing any action or other remedy for any
breach or threatened breach of this Agreement, all of which shall be cumulative.
18. FEES AND SETTLEMENTS FOR SECURITIES TRANSACTIONS
18.1 Commissions. Pershing shall charge each of Broker's customers the
commission, markup, and any other charge or expense that Broker instructs it to
charge for each transaction. If instructions are not received with respect to a
transaction in the time period required by Pershing to implement those
instructions, Pershing shall charge the customer the commission, markup, or
other charge or expense prescribed in the basic commission schedule delivered to
Pershing by Broker. This basic schedule may be amended from time to time by
Broker by written instructions delivered to Pershing. Pershing shall only be
required to implement such amendments to the basic schedule to the extent such
amendments are within the usual capabilities of Pershing's data processing and
operations systems and only within such reasonable time limitations as Pershing
may deem necessary to avoid disruption of its normal operating capabilities.
18.2 Miscellaneous Charges. Broker agrees to pay Pershing the fees and
charges described in Schedule A hereto. Notwithstanding the foregoing, Broker
may instruct Pershing to pass through such fees to Broker's customers.
18.3 Fees for Clearing Services. As compensation for services provided
pursuant to this Agreement, Pershing shall deduct from the commissions, ▇▇▇▇-up,
▇▇▇▇-down, or fees charged Broker's customers the amounts set forth in the
fully-disclosed pricing schedule attached hereto as Schedule A.
19. DEPOSIT ACCOUNT
19.1 Establishment of Deposit Account. To further assure Broker's
performance of its obligations under this Agreement, including but not limited
to its indemnification obligations under Paragraph 17, Broker shall, on or
before the execution of this Agreement, establish an account at Pershing to be
designated as the Broker's Deposit Account (the "Deposit Account"). The Deposit
Account shall not represent an ownership interest by Broker in Pershing. The
Deposit Account shall at all times contain cash, securities, or a combination of
both, having a market value of at least the amount set forth in Schedule A. The
securities placed in the Deposit Account shall consist only of direct
obligations issued by or guaranteed as to principal and interest by the United
States Government. In the event of a substantial change in the nature and extent
of Broker's business operations, Pershing may require immediately that an
additional amount be deposited in the Deposit Account. If such a deposit is not
made in the amount specified, whether or not Broker agrees that the amount is
justified under this subparagraph, Pershing may terminate this Agreement
forthwith. The parties agree that Broker's deposit into the Deposit Account does
not represent ownership interest in Pershing by Broker.
19.2 Pershing's Right to Offset. If (i) Pershing shall have any claim
against Broker or a customer of Broker which has not been resolved within five
business days after Pershing presents such claim to Broker; or (ii) if Pershing
shall suffer any loss or incur any expense for which it is entitled to be
indemnified pursuant to this Agreement, and Broker shall fail to -make such
indemnification within five business days after being requested to do so,
Pershing may deduct the amount of such claim, loss, or expense from any account
of Broker. Pershing may withdraw cash or securities (or both) having a market
value equal to the amount of such claimed deficiency. If those funds are
withdrawn from the Deposit Account, then Broker shall be obligated to make an
immediate deposit in the Deposit Account of cash or securities sufficient to
bring the Deposit Account back to a value of at least the amount required by
Schedule A.
19.3 Termination of Deposit Account. Upon termination of this Agreement,
and transfer of all customer and proprietary accounts of Broker or as soon
thereafter as practical, but in all cases within thirty (30) days of
termination, Pershing shall pay and deliver to Broker, the funds and securities
in the Deposit Account, less any amounts to which it is entitled under the
preceding paragraph; provided, however, that Pershing may retain in the Deposit
Account such amount for such period as it deems appropriate for its protection
from any claim or proceeding of any type, then pending or threatened, until the
final determination of such claim or proceeding is made. If a threatened claim
or proceeding is not resolved or if a legal action or proceeding is not
instituted within a reasonable time after the termination of this Agreement, any
amount retained with respect to such claim, proceeding, or action shall be paid
or delivered to Broker.
20. PROPRIETARY ACCOUNTS OF INTRODUCING BROKERS AND DEALERS (PAIB)
Pershing shall establish a separate reserve account for proprietary assets
held by Broker so that Broker can treat these assets as allowable assets under
SEC Rule 1 5c3- 1. Pershing agrees to perform the required computation on behalf
of Broker in accordance with the following provisions, procedures, and
interpretations set forth in the SEC's No-Action Letter regarding Proprietary
Accounts of Introducing Brokers and Dealers (PAIB) dated November 3, 1998:
20.1 Pershing will perform a separate computation for PAIB assets (PAIB
reserve computation) of Broker in accordance with the customer reserve
computation set forth in SEC Rule 15c3-3 (customer reserve formula) with the
following modifications:
A. Any credit (including a credit applied to reduce a debit) that is
included in the customer reserve formula will not be included as a credit in the
PAIB reserve computation;
B. Note E(3) to Rule 15c3-3a, which reduces debit balances by one percent
under the basic method and subparagraph (a)( 1 )(ii)(A) of Rule 1 5c3- 1, which
reduces debit balances by three percent under the alternative method will not
apply; and
C. Neither Note E(I) 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.
20.2 PAIB reserve computation will include all the proprietary accounts of
Broker. All PAIB assets will be kept separate and distinct from customer assets
under the customer reserve computation set forth in SEC Rule l5c3-3.
20.3 PAIB reserve computation will be prepared within the same time frames
as those prescribed by Rule 15c3-3 for the customer reserve formula.
20.4 Pershing will establish and maintain a separate "Special Reserve
Account for the Exclusive Benefit of PAIB Customers" with a bank in conformity
with the standards of Rule I 5c3-3(f) (PAIB Reserve Account). Cash and/or
qualified securities as defined in the Rule will be maintained in the PAIB
Reserve Account in an amount equal to the PAIB reserve requirement.
20.5 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 of the same date. However, a deposit requirement resulting from
the customer reserve formula cannot be satisfied with excess debits from the
PAIB reserve computation.
20.6 Within two business days of entering into this Agreement, Broker must
notify its designated examining authority (DEA) in writing that it has entered
into a PAIB agreement with its clearing broker-dealer.
20.7 Upon discovery that any deposit made to the PAIB Reserve Account did
not satisfy its deposit requirement, Pershing will immediately notify its DEA
and the SEC. Unless a corrective plan is found to be acceptable by the SEC and
the DEA, Pershing will provide written notification within five business days of
the date of discovery to Broker that PAIB assets held by Pershing will not be
deemed allowable assets for net capital purposes.
20.8 To the extent applicable, commissions receivable and other receivables
of Broker from Pershing (excluding clearing deposits) that are otherwise
allowable assets under the net capital rule are not to be included in the PAIB
reserve computation, provided the amounts have been clearly identified as
receivables on the books and records of the Broker and as payables on the books
of Pershing.
21. COMMUNICATION
21.1 Notice to Customers. Pershing shall, upon the opening of an account
pursuant to paragraph 5 of this Agreement, mail to each customer a copy of the
notice to customers required by NYSE Rule 3 82(c).
21.2 Customer Complaint Reporting and Customer Notification. Broker
authorizes and instructs Pershing to forward promptly any written customer
complaint received by Pershing regarding Broker and/or its associated persons
relating to functions and responsibilities allocated to Broker under this
Agreement to a) Broker and b) Broker's designated examining authority ("DEA")
designated under Section 17 of the Securities and Exchange Act of 1933 -or, if
none, to Broker's appropriate regulatory agency or authority. Further, Broker
authorizes Pershing to notify the customer, in-writing, that Pershing has
received the complaint, and the complaint has been forwarded to Broker's DEA
(or, if none, to the appropriate regulatory agency).
21.3 Restriction on Advertising. Neither Pershing nor Broker shall utilize
the name of the other in any way without the other's prior written consent
except to disclose the relationship between the parties. Neither party shall
employ the other's name in such a manner as to create the impression that the
relationship between them is anything other than that of clearing broker and
introducing broker, Broker shall not hold itself out as an agent of Pershing or
as a subsidiary or company controlled directly or indirectly by or affiliated
with Pershing except as provided in this paragraph.
21.4 Linking Between Sites. Without express written authorization, neither
party may provide or allow an electronic hyperlink directly from its service or
site on the Internet or another site over which that party has control to the
service or site on the Internet of the other party.
22. TERMINATION OF AGREEMENT
This Agreement shall continue until terminated as hereinafter provided:
22.1 Termination Upon 90-Day Notice. This Agreement may be terminated by
either party without cause upon ninety days prior notice. If either party
terminates the Agreement pursuant to this subparagraph, Pershing shall have the
right to impose reasonable limitations upon Broker's activities during the
period between the giving of Notice and the transfer of Broker's accounts.
22.2 Default. If either party defaults in the performance of its
obligations under this Agreement, or otherwise violates the provisions of this
Agreement, the non-defaulting party may terminate this Agreement by delivering
Notice to the defaulting party (i) specifying the nature of the default; and
(ii) notifying the defaulting party that unless the default is cured within a
period of ten days from receipt of the Notice, this Agreement will be terminated
without further proceedings by the non-defaulting party.
22.3 Disability. This Agreement may be terminated by Pershing or Broker
immediately in the event that the other party is enjoined, disabled, suspended,
prohibited, or otherwise -becomes unable to engage in the securities business or
any part of it by operation of law or as a result of any administrative or
judicial proceeding or action by the SEC, any state securities law
administrator, or any regulatory or self-regulatory organization having
jurisdiction over such party.
22.4 Conversion of Accounts. In the event that this Agreement is terminated
for any reason, Broker shall arrange for the conversion of Broker's and its
customer accounts to another clearing broker or to Broker if it becomes
self-clearing. Broker shall give Pershing Notice (the "Conversion Notice") of:
(i) the name of the broker that will assume responsibility for clearing services
for Customers and Broker; (ii) the date on which such broker will commence
providing such services; (iii) Broker's undertaking, in form and substance
satisfactory to Pershing, that -Broker's agreement with such clearing broker
provides that such clearing broker will accept on conversion all Broker and
customer accounts then maintained by Pershing; and (iv) the name of an
individual or individuals within new clearing broker's organization whom
Pershing may contact to coordinate the conversion. The Conversion Notice shall
accompany Broker's notice of termination given pursuant to this paragraph. If
Broker fails to give Conversion Notice to Pershing, Pershing may notify Broker's
customers as Pershing deems appropriate of the termination of this Agreement and
may make such arrangements as Pershing deems appropriate for transfer or
delivery of customer and Broker accounts. The expense of notifying those
customers and making such arrangements shall be charged to Broker.
22.5 Survival. Termination of this Agreement in any manner shall not
release Broker or Pershing from any liability or responsibility with respect to
any representation or warranty or transaction effected on the books of Pershing.
22.6 Termination Fee. If Broker terminates this Agreement pursuant to
Paragraph 22.1 above, or Pershing terminates this Agreement pursuant to
Paragraph 22.2 or 22.3 within the period specified in Schedule A, Broker shall
pay to Pershing a termination fee and will reimburse Pershing for Deconversion
Expenses as stated in Schedule A.
22.7 Termination under S.I.P.A. In the event that Broker is the subject of
the issuance of a protective decree pursuant to the Securities Investor
Protection Act of 1970 (15 USC 78aaa-l 11), Pershing's claim for payment of a
termination fee under this Agreement shall be subordinate to claims of Broker's
customers that have been approved by the Trustee appointed by the Securities
Investor Protection Corporation pursuant to the issuance of such protective
decree.
23. CONFIDENTIAL NATURE OF DOCUMENTS AND OTHER INFORMATION
Neither Pershing nor-Broker shall disclose the terms of this Agreement or
information obtained as a result thereof or information regarding the identity
of the other's customers to any outside party except to regulatory or
self-regulatory organizations, pursuant to judicial process or as otherwise
required by law or to authorized employees of the other. Any other publication
or disclosure of the terms of this Agreement maybe made only with the prior
written consent of the other party. Broker and Pershing shall each maintain the
confidentiality of documents and information received from the other party
pursuant to this Agreement.
Broker acknowledges that the services Pershing provides hereunder involve
Broker access to proprietary technology, trading and other systems, and that
techniques, algorithms and processes contained in such systems constitute trade
secrets and shall be safeguarded by Broker, and that Broker shall exercise
reasonable care to protect Pershing's interest in such trade secrets. Broker
agrees to make the proprietary nature of such systems known to those of its
consultants, staff, agents or clients who may reasonably be expected to come
into contact with such systems. Broker agrees that any breach of this
confidentiality provision may result in its being liable for damages as provided
by law.
24. ACTION AGAINST CUSTOMERS BY ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ may, in its sole discretion and at its own expense and, upon
written notice to Broker, institute and prosecute in its name any action or
proceeding against any of Broker's customers in relation to any controversy or
claim arising out of Pershing's transactions with Broker or with Broker's
customers. Nothing contained in this Agreement shall be deemed either (a) to
require Pershing to institute or prosecute such an action or proceeding; or (b)
to impair or prejudice its right to do so, should it so elect, nor shall the
institution or prosecution of any such action or proceeding relieve Broker of
any liability or responsibility which Broker would otherwise have had under this
Agreement. Broker assigns to Pershing its rights against its customer as
necessary to effectuate the provisions of this paragraph.
25. NOTICES
Any Notice required or permitted to be given under this Agreement shall be
sufficient only if it is in writing and sent by hand or by certified mail,
return receipt -requested, to the patties at the following address:
Broker:
--------------------------
--------------------------
--------------------------
Pershing:
Pershing Division of ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
Securities Corporation
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn:
cc: Legal Department
26. ARBITRATION
26.1 Arbitration Requirement. Any dispute between Broker and Pershing that
cannot be settled shall be taken to arbitration as set forth in paragraph 26.3
below.
26.2 ARBITRATION DISCLOSURE.
26.2.1 ARBITRATION IS FINAL AND BINDING ON THE PARTIES.
26.2.2 THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT,
INCLUDING THE RIGHT TO JURY TRIAL.
26.2.3 PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND
DIFFERENT FROM COURT PROCEEDINGS.
26.2.4 THE ARBITRATORS' AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS
OR LEGAL REASONING AND ANY PARTY'S -RIGHT TO APPEAL OR TO SEEK MODIFICATION OF
RULINGS BY THE ARBITRATORS IS STRICTLY LIMITED.
26.2.5 THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF
ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE SECURITIES INDUSTRY.
26.3 ARBITRATION AGREEMENT.
ANY CONTROVERSY BETWEEN US ARISING OUT OF YOUR BUSINESS OR THIS AGREEMENT
SHALL BE SUBMITTED TO ARBITRATION CONDUCTED BEFORE THE NEW YORK STOCK EXCHANGE,
INC., OR NASD REGULATION INC., AND IN ACCORDANCE WITH THE RULES OBTAINING OF THE
SELECTED ORGANIZATION AND SHALL BE CONDUCTED AS A BROKER TO BROKER OR MEMBER VS
MEMBER DISPUTE. ARBITRATION MUST BE COMMENCED BY SERVICE UPON THE OTHER PARTY OF
A WRITTEN DEMAND FOR ARBITRATION OR A WRITTEN NOTICE OF INTENTION TO ARBITRATE,
THEREIN ELECTING THE ARBITRATION TRIBUNAL. NO PERSON SHALL BRING A PUTATIVE OR
CERTIFIED CLASS ACTION TO ARBITRATION, NOR SEEK TO ENFORCE ANY PRE-DISPUTE
ARBITRATION AGREEMENT AGAINST ANY PERSON WHO HAS INITIATED IN COURT A PUTATIVE
CLASS ACTION AND WHO IS A MEMBER OF A PUTATIVE CLASS AND WHO HAS NOT OPTED OUT
OF THE CLASS WITH RESPECT TO ANY CLAIMS ENCOMPASSED BY THE PUTATIVE CLASS ACTION
UNTIL: (i) THE CLASS CERTIFICATION IS DENIED; (ii) THE CLASS IS DECERTIFIED; OR
(iii) THE CUSTOMER IS EXCLUDED FROM THE CLASS BY THE COURT. SUCH FORBEARANCE TO
ENFORCE AN AGREEMENT TO ARBITRATE SHALL NOT CONSTITUTE A WAIVER OF ANY RIGHTS
UNDER THIS AGREEMENT EXCEPT TO THE EXTENT STATED HEREIN.
27. GENERAL PROVISIONS
27.1 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the respective successors and assigns of Broker and
Pershing. No assignment of this Agreement or any rights, including those to
indemnification hereunder by Broker shall be effective unless Pershing's written
consent shall be first obtained.
27.2 Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, the validity or enforceability of the remaining
provisions and conditions shall not be affected thereby.
27.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute a single agreement.
27.4 Entire Agreement Amendments and Duties Not Specifically Enumerated
Herein. This Agreement represents the entire agreement between the parties with
respect to the subject matter contained herein and all prior discussions,
agreements, and promises, written or oral, are merged herein. This Agreement may
not be changed orally, but only by an agreement in writing signed by the
parties. Pershing shall not be responsible or liable for failure to perform any
duties not specifically enumerated herein.
27.5 Captions. Captions herein are for convenience only and are not of
substantive effect.
27.6 Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to the conflicts of laws or principles thereof. This Agreement shall not
be governed by the United Nations Convention on the International Sale of Goods.
27.7 Citations. Any reference to the rules or regulations of the SEC, NASD,
the NYSE, or any other regulatory or self-regulatory organization are current
citations. Any changes in the citations (whether or not there are any changes in
the text of such rules or regulations) shall be automatically incorporated
herein.
27.8 Construction of Agreement. Neither this Agreement nor the performance
of the services hereunder shall be considered to create a joint venture or
partnership between Pershing and Broker or between Broker and other brokers for
whom Pershing may perform the same or similar services.
27.9 Third-Parties. This Agreement is between the parties hereto and is not
intended to confer any benefits on third-parties including, but not limited to,
customers of Broker.
27.10 Non-Exclusivity of Remedies. The enumeration herein of specific
remedies shall not be exclusive of any other remedies. Any delay or failure by a
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. 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.
27.11 SEC Release 34-31511 Provision. Pursuant to the interpretation of
Introducing Accounts on a Fully-Disclosed Basis contained in SEC Release 34-3
1511, it is hereby agreed between Broker and Pershing that, insofar as the
"financial responsibility rules" of the SEC and Securities Investor Protection
Act only are applicable, the accounts Broker introduces to Pershing on a
fully-disclosed basis shall be considered to be accounts of Pershing and not
Broker's accounts. Nothing in this paragraph will otherwise change or affect the
provisions of this Agreement which provide that the customer account remains
Broker's customer account for all other purposes, including but not limited to,
supervision, suitability and indemnification.
27.12 United States Postal Service Documents. Broker hereby appoints
Pershing as its attorney-in-fact for the purpose of executing such documents as
are necessary to allow Broker and its customers to participate in the
FASTforward program of the United States Postal Service. This may include, but
not be limited to Pershing's execution, on an annual basis, on Broker's behalf,
of the FASTforward Processing Acknowledgment Form.
27.13 Provision of Reports and Exception Reports. On or before the
effective date of this Agreement, Pershing shall provide to Broker, Pursuant to
NYSE Rule 3 82(e), a list of all reports (e.g. exception-type reports) it offers
to Broker. Broker shall promptly notify Pershing, in writing, of those specific
reports it elects to receive. Pershing and Broker each represent that their
obligations relative to exception reports, pursuant to NYSE Rule 382(e) have
been completed. (NYSE Information Memo 99-33)
28. OWNERSHIP AND LICENSES
28.1 License to Use Systems. In order to effectuate the terms of this
Agreement and to allow each party to perform its duties hereunder, Pershing
hereby grants to Broker a nonexclusive, non-transferable, non-assignable limited
license for the term of this Agreement to access and use the various account
information, trading and order entry systems to which Pershing specifically
provides access whether pursuant to the schedules attached hereto or -otherwise
("the Systems"). Said license shall be limited to the use of the most recently
updated version of Systems in accordance with the written manuals and procedures
provided by Pershing in effect from time to time. Broker shall not, directly or
indirectly, modify the features or functionality of, copy or create derivative
works using all or any portion, of, peel -semiconductor components, decompile,
or otherwise reverse engineer or attempt to reverse engineer or derive source
code from the Systems or permit or encourage any third-party to do so.
28.2 License to Software Products. Subject to receipt by Pershing of the
fees set forth in the pricing schedules attached hereto and approval by Pershing
of any customized version created by Broker, Pershing may provide or arrange for
the provision of software and other associated and non-associated services,
features of which may enable Broker's customers or its representatives to
contact Broker and transact business through Broker via various media, including
a site or pages of a site located on the World Wide Web and reached through an
Internet address, which shall be unique to Broker (but which shall not be
required to be a domain name unique to Broker) (the "Software Products"). To
the-extent required, Pershing hereby grants to Broker a non-exclusive,
non-transferable, non-assignable limited license for the term of this Agreement
to access and use the Software Products solely for the purposes for which they
were created and provided to Broker: to enable its customers and representatives
(a) to communicate with Broker; and (b) access financial information and
transact business with Broker through the various media. Said license shall be
limited to the use of the most recently updated version of the Software Products
in accordance with the written manuals and procedures provided by Pershing in
effect from time to time. Except as specifically permitted pursuant to the first
sentence of this Paragraph 28.2, Broker shall not, directly or indirectly,
modify the features or functionality of, copy or create derivative works using
all or any portion-of, peel semiconductor components, decompile, or otherwise
reverse engineer or attempt to reverse engineer or derive source code from the
Software Products or permit or encourage any third-party to do so.
28.3 Ownership of the Systems and Software Products. Nothing herein shall
be construed to transfer to Broker any rights, title and/or interest in and to
the Systems or to the Software Products, including without limitation, the
intellectual property rights therein. The Systems and Software Products are
considered the trade secrets of Pershing and its affiliates. As between Broker
and Pershing, Pershing shall at all times be and remain the sole and exclusive
owner of the Systems and Software Products, including any and all home page
design(s), methodologies, techniques, software libraries, and know-how used by
Pershing or incorporated into the Systems and Software Products, including all
improvements, modifications, or enhancements thereto. Except with respect to
intellectual property rights in trademarks and copyrights belonging to Broker,
Pershing and its affiliates retains all rights, title, and interest in and to
Systems and Software Products, including without limitation, all applicable
copyrights (including without limitation, the exclusive right to reproduce,
distribute copies of~ display and perform the copyrighted work and to prepare
derivative works), copyright registrations, and applications, trademark rights
(including without limitation, registrations and applications), patent rights,
trade-names, mask-work rights, trade secrets, moral rights, authors' rights, and
all renewal and extensions thereof~ regardless of whether any of such rights
arise under the laws of the United States or any other state, country or
jurisdiction. If at any time Broker proposes or makes modifications to its
customized version of any System or Software Product ("Modification"), all
right, title and interest in the Modifications shall be deemed to be a work made
for hire. To the extent that title to any such Modification may not vest in
Pershing by operation of law, or such Modifications may not be considered works
made for hire, all right, title, and interest to therein are hereby irrevocably
assigned to Pershing. All such Modifications shall belong exclusively to
Pershing, with Pershing having the right to obtain and to hold in its own name
copyright registrations, patents, and such other intellectual property
protection as may be appropriate to the subject matter, and any extensions and
renewals thereof. Broker agrees to give Pershing and any person designated by
Pershing reasonable assistance, at Pershing's expense, required to perfect the
rights defined in this Section. Unless otherwise directed by Pershing, upon the
termination of this Agreement, Broker shall immediately turn over to Pershing
all Modifications, including, but not limited to, computer programs, working
papers, descriptions, reports, and data. Nothing contained in this Paragraph
28.3 shall be construed as preventing Pershing from assigning any intellectual
property right with respect to any Modification to any third-party. This
Paragraph 28.3 shall survive any termination of this Agreement.
28.4 Protection of the Systems and Software Products. Pershing shall, from
time to time, provide Broker with passwords, codes, certificates, and other
identification devices and security measures (the "Identification Devices")
necessary to access and use the Systems and Software Products. Broker shall
determine whether and which of its customers, employees, or agents shall have
access to the Systems and Software Products. Broker shall be solely responsible
for the assignment, distribution, and maintenance of all Identification Devices
to ensure that access to the Systems and Software Products is granted only to
those individuals who are authorized by Broker. Nothing in this paragraph shall
affect or diminish Pershing's right, in its sole discretion, to refuse to
provide any or all the Systems and Software Products to Broker, its agents or
employees or any customers of Broker. Broker shall be responsible for and shall
provide the same level of security as Broker applies to its own source code and
trade secrets in the protection, maintenance, and distribution of those
Identification Devices and codes within its organization and to its agents and
customers, but in no case less than reasonable security. Any loss, theft, or
discovery of any Identification Devices shall be reported to Pershing
immediately and Broker shall be responsible for any unauthorized use, and for
any loss resulting from unauthorized use, of any Identification Device prior to
the time the loss, theft, or discovery of the Identification Device is reported
to Pershing.
28.5 Restricted Use of Data. Broker acknowledges that certain information
available via the Systems and Software Products cannot be viewed by or otherwise
distributed to an individual who is a member of any exchange or the NASD, or of
any corporation of which an exchange owns a majority of the capital stock, or of
a member firm or member corporation of any exchange or the NASD or of any
corporation, firm or individual engaged in the business of dealing either as a
broker or a principal in securities, bills of exchange, acceptances, or other
forms of commercial paper (hereinafter "Professional User"). Broker acknowledges
that Broker is solely responsible for ensuring that and represents and warrants
that it will not use or permit any other Professional User to access or view the
restricted information except in their capacity as public customers. In
addition, certain information available through the Systems cannot be viewed by
or otherwise distributed to Broker's customers. Broker acknowledges that Broker
is solely responsible for ensuring that no such individual views the restricted
information. Pershing's or its affiliates' mere creation and license of the
Systems and Software Products to be used by Broker as tools for conducting its
business does not diminish Broker's responsibility for compliance with all
applicable rules as set forth in paragraph 6 of this Agreement.
28.6 Options Price Reporting Authority Requirements. In providing the
Systems and Software Products, Broker may allow access to information concerning
options contracts to its customers or itself, which information has been
licensed to Pershing. Broker hereby certifies that, for each customer to whom it
instructs Pershing to provide access to information concerning options
contracts, it has obtained a written agreement in which the customer agrees that
he or she: (1) shall receive options information solely for such person's own
use; (2) shall not retransmit or otherwise furnish options information to any
other person; (3) shall acknowledge that options information is and shall remain
the property of the respective exchange or other market on which a reported
transaction took place or a reported quotation was entered; and (4) shall
acknowledge that; (i) neither the Options Price Reporting Authority (OPRA),
OPRA's processor, nor any OPRA Participant guarantees the timeliness, sequence,
accuracy, or completeness of any options last sale price, quotation information,
or other market information provided by OPRA; (ii) neither OPRA, OPRA's
processor nor any OPRA Participant shall be liable in any way to such customer,
broker or any other person for any loss, damages, cost, or expense which may
arise from any failure of performance by OPRA, OPRA's processor, or any OPRA
Participant, or from any delays, inaccuracies, errors in or omissions of, any
Options Information, or in the transmission or delivery thereof, whether or not
due to any negligent act or omission on the part of OPRA, OPRA's processor or
any OPRA Participant; and (iii) in no event shall OPRA, OPRA's processor or any
OPRA Participant be liable for any incidental, special, indirect, or
consequential damages, including but not limited to, lost profits, trading
losses, or damages resulting from inconvenience, or loss of use of the Service.
Such written agreement shall -state that it is for the express benefit of OPRA,
OPRA's processor, and each OPRA Participant. In addition, Broker, on its own
behalf, acknowledges its understanding of OPRA's responsibilities under this
Paragraph 28.6. In addition, Broker agrees that it shall maintain and preserve
for at least three years sufficient records to identify the names and addresses
of its customers to whom it is authorized to provide the Service, together with
copies of all customer agreements and billing records. At the request of OPRA,
Broker -agrees to permit representatives of OPRA to have access to such records,
and to provide to OPRA any information that OPRA may reasonably request
concerning its customers. Broker further acknowledges that its acknowledgments
and agreements as stated above should are for the express benefit of OPRA,
OPRA's processor, and each OPRA participant.
28.7 Receipt of Information from Third-Parties and Reality Online Inc. In
providing the Systems and Software Products, Broker may allow access to
information to its customers or itself, which information has been licensed to
Pershing by a third-party, including without limitation Reality Online Inc.
Broker acknowledges that it has read and executed the agreement attached hereto
as Exhibit A - Reuters Services - NetExchange ClientTM Agreement and thereby has
the right to distribute the information provided by Reality Online Inc.
IN WITNESS WHEREOF the parties have hereto affixed their hands and seals by
their duly authorized officers on the day and date first above written.
This Agreement contains a pre-dispute arbitration clause in Paragraph 26
beginning on page 20. Broker acknowledges receiving a copy of this Agreement.
BROKER: PERSHING/DIVISION OF ▇▇▇▇▇▇▇▇▇,
LUFKIN & ▇▇▇▇▇▇▇▇ SECURITIES
CORPORATION
By: /s/ By: /s/
--------------------------- ----------------------------
Title: Title:
------------------------ ----------------------------
Any questions regarding the Reality Online Inc. agreement should be directed to:
▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇, Reality Online Inc., ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇, (610) 650-8600 ext. 8202
EXHIBIT A
REUTERS SERVICES - NETEXCHANGE CLIENT(TM) AGREEMENT
REUTERS SERVICES - CLIENT AGREEMENT, dated __________ between Reality
Online Inc. a REUTERS Company ("Reality") with its principal office at ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ and _____________ ("Client") with its
principal offices at _________________ (Client Address).
WHEREAS, Client wishes to distribute the Reuters Services via a
NetExchange(TM) Site to Visitors and Users, as defined herein.
NOW, THEREFORE, in consideration of the promises set forth below and the
mutual agreements contained herein and for good and valuable consideration, the
parties, intending to be legally bound, agree as follows:
1. Definitions
1.1 Content shall mean the text, information, data, images (still and
moving), and sound recordings included in the Reuters Services.
1.2 Distributor shall mean PC Financial Network, a service of ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ Securities Corporation, with its principal office at ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇.
1.3 NetExchange(TM) Site shall mean a World Wide Web site developed,
operated, and hosted by Distributor on behalf of Client, which site shall have
an area generally accessible to any person accessing the site (the "Public
Area") and an area available only to registered holders of an account with such
brokerage firm (the "Account Holder Area").
1.4 Reuters Services shall mean the Reuters North American Securities News
content delivered by Distributor via the NetExchange(TM) Site.
1.5 User shall mean a registered holder of an account with Client, acting
in a non-professional status who accesses the Account Holder Area of a
NetExchange(TM) Site.
1.6 Visitor shall mean a non-registered individual, acting in a
non-professional status, who accesses the Public Area of a NetExchange(TM) Site.
2. Terms
2.1 Client shall ensure that all Visitors and Users agree not to copy all
or part of any of the Content except for purposes of downloading and/or printing
for the Visitors/Users own personal use.
2.2 Client shall ensure that all Visitors and Users agree not to
distribute, disseminate or republish all or part of any of the Content in any
hard copy or electronic form, including print, on-line services, CD-ROM, DVD and
facsimile, or in any other form.
2.3 Client and its Visitors and Users acknowledge that Reuters will not be
liable for any damages (including special or consequential damages) of any kind
resulting in any way from (a) the use of the Content, or (b) failures, delays or
interruptions in the delivery of the Content or in the availability of all or
any portion thereof.
2.4 Client and its Visitors and Users acknowledge that Reuters does not
warrant the accuracy, completeness, currentness, merchantability or fitness for
a particular purpose of the Content.
2.5 Client and its Visitors and Users acknowledge that Reuters owns all
rights (including copyright), title and interest in the Content.
2.6 Client will be considered to have met its obligations hereunder by
providing the following text on all NetExchange(TM) Site pages which contain
Content: Copyright Reuters, Ltd. Use is subject to the terms and conditions of
User Agreement, where the words User Agreement are a hyper-text link which
accesses a page containing the User Agreement (attached as Exhibit 1).
REALITY ONLINE, INC. AMERICAN PORTFOLIOS FINANCIAL
SERVICES, INC.
By: By:
------------------------------- ---------------------------------
Name: Name:
----------------------------- ---------------------------------
Title: Title:
---------------------------- ---------------------------------
EXHIBIT 1
USER AGREEMENT
BY ACCESSING, DOWNLOADING, VIEWING, OR USING ANY DATA FROM REUTERS YOU
AGREE TO THE TERMS OF THIS AGREEMENT WITH REUTERS, LTD. ("REUTERS"). CONTINUED
ACCEPTANCE OF AND COMPLIANCE WITH THE TERMS OF THIS AGREEMENT ARE A CONDITION OF
YOUR RIGHT TO ACCESS OR USE THE DATA. ACCESSING OR USING THE DATA AFFIRMS YOUR
ACCEPTANCE OF THIS AGREEMENT AND ITS TERMS. IF YOU DO NOT DESIRE TO ACCEPT THE
TERMS OF THIS AGREEMENT, DO NOT ACCESS OR USE THE DATA AND EXIT NOW.
Data License. In consideration of access to the Data, Reuters grants you a
non-exclusive, non-transferable and limited license to use the Data for your own
internal business or personal use for a period of thirty (30) days, subject to
all terms and conditions provided herein.
Proprietary Rights. You agree that all rights, title, and interest
(including all copyrights, trademarks, service marks and other intellectual
property rights) in and to the Data, belong exclusively to Reuters.
Disclaimer. The Data is provided "as is" and without warranty of any kind.
Reuters does not warrant, guarantee, or make any representations concerning the
Data, including accuracy, reliability, completeness, currentness, functionality,
or otherwise. Reuters does not make any warranties, express or implied,
including, without limitation, any implied warranties of merchantability and/or
fitness for a particular purpose, with respect to the Data. Reuters does not
warrant the Date to be free of any error or defect.
You:
(1) assume the entire risk as to the suitability, use, results of use,
performance, accuracy, completeness, currentness and performance of the Data;
(2) waive any claim of detrimental reliance upon the Data; and
(3) agree to independently verify, through other sources, the accuracy,
completeness, and currentness of the Data.
Limited Liability. Reuters entire liability, and your sole and exclusive
remedy, as to any defective Data shall be retransmission of the Data or
defective portion thereof. Reuters shall not be liable for any direct, indirect,
consequential, or incidental damages (including damages for loss of business
profits, business interruption, loss of business information and the like)
arising out of your use of inability to use the Data, even if advised of the
possibility of such damages.
Termination. This agreement shall remain in effect for thirty (30) days,
unless sooner terminated by Reuters. This agreement may be terminated at any
time by Reuters and shall automatically be terminated in the event you fail to
comply with any terms of this Agreement. The Proprietary Rights, Disclaimer, and
Limited Liability provisions shall survive any termination of this Agreement.
Injunctive Relief. You agree that legal remedies alone provide inadequate
protection of the Data and intellectual property rights embodied therein and,
that in addition to other relief, Reuters may seek temporary or permanent
injunctions to enforce their respective rights. You hereby waive the requirement
of any bond in the event Reuters seeks injunctive relief.
Severability. Any provision hereof found by a tribunal of competent
jurisdiction to be illegal or unenforceable shall be automatically conformed to
the minimum requirements of law and all other provisions shall remain in full
force and effect. Waiver of any provision hereof, in one instance, shall not
preclude enforcement on future occasions. Headings and subheadings are for
purposes of reference and convenience and have no substantive effect.
Entire Agreement. This Agreement: (1) constitutes the complete and
exclusive agreement among the parties with respect to the Data; and (2)
supersedes all other communications, representations, statements, and
understandings, whether oral or written, among the parties concerning its
subject matter.
Schedule A
FULLY DISCLOSED PRICING PROPOSAL
AMERICAN PORTFOLIOS FINANCIAL SERVICES, INC.
October 22, 2002
**[Confidential treatment requested for a portion of this Schedule relating to
fees and charges.]**
I. Execution Services:
------------------------------------------------------
Listed Equities (NYSE & AMEX)
Automated Market Orders < 2099 Shares
All Other Market Orders > 2099 Shares
Limit Orders
Listed Equities (Regional Exchanges):
Market Orders < 5099 Shares
All Other Orders
Pershing Preferred List of Specialist Stocks
OTC Equities
Options
Equity and Index
Debt and Currency
Listed Corporate Bonds
II. Clearance Services Per Transaction:
------------------------------------------------------
Principal Trading
Agency Customer Dealer
----------------- --------------------- ------------------
Listed Equities
OTC Equities
Options
Corporate Bonds
Municipal Bonds
Treasury Bonds
Government Agency Bonds
Money Market Instruments (BA's, CD's, CP)
Precious Metals
Mortgage Backed When Issued
Unit Investment Trusts
Unit Investment Trusts - Redemptions
Loan Mutual Funds:
FundServ
Non FundServ
Redemptions and NAV Purchases:
In Account
Physical
No Load Mutual Funds
Dollar Cost Averaging and Systematic
Withdrawals Using the SRS System
Option Exercise and Assignment Transactions:
Currency Options $_________ Per Notification **[Confidential treatment requested for a portion of this Schedule.]**
Other Options $_________ Per Notification **[Confidential treatment requested for a portion of this Schedule.]**
There will be a minimum activity fee of $________ per quarter, based upon the
above transaction charges. **[Confidential treatment requested for a portion of
this Schedule.]**
(1) **[Confidential treatment requested for a portion of this Schedule.]**
**[Confidential treatment requested for a portion of this Schedule relating to
fees and charges.]**
I. Rebillable Fees:
---------------------------------------------------------------------------
All Exchange, MSRB, Option, and OCC Transaction fee, and any other regulatory
fees that may be applicable.
Margin Extensions*
Returned Checks*
ACH Returned Checks
Resource Checking Returned Checks
Resource Checking Stop Payment
Retail Customer Confirmation Charge*
Reorganization Activities - Voluntary*
Custody Fee* (2)
Transfers*
Legal/GNMA Transfers
Register & Ship
Outgoing Account Transfers
DK Items
Foreign Receive and Deliver Fees*:
Euro Clear
All Other Foreign Securities
Customer Name Safekeeping*
Foreign Securities Safekeeping*
Precious Metal Storage Fee
Wired Funds
Mutual Fund & SRS Exchanges** (Includes Confirm Fee)
Fixed Income Certificate Costs
Fractional Share Equity Dividend Reinvestment (3)
* **[Confidential treatment requested for a portion of this Schedule.]** **
**[Confidential treatment requested for a portion of this Schedule.]**
(2) **[Confidential treatment requested for a portion of this Schedule.]**
(3) **[Confidential treatment requested for a portion of this Schedule.]**
Excess SIPC Coverage:
Securities held in custody by Pershing for your account are protected up to the
total amount held in the account. Of this total, Securities Investor Protection
Corporation (SIPC) provides $500,000 of coverage, including $100,000 for claims
for cash awaiting reinvestment. Pershing has arranged for the additional
protection, for **[Confidential treatment requested for a portion of this
Schedule.]**. The account protection applies when a SIPC member firm fails
financially and is unable to meet obligations to securities clients, but it does
not protect against losses from the rise and fall in the market value of
investments. This additional protection may change at any time upon notification
to you.
IV. Interest
Cash Due Interest:
Interest on all cash account delinquencies in customer accounts will be charged
directly to your firm at **[Confidential treatment requested for a portion of
this Schedule.]**
Margin Debit Interest Schedule:
Interest will be charged to customers on margin debt balances at **[Confidential
treatment requested for a portion of this Schedule.]**
Net Debit Balance Standard Surcharge Over PBLR
---------------------------- ---------------------------------------------
**[Confidential treatment requested for a portion of this Schedule.]**
Margin Debit Interest Participation:
**[Confidential treatment requested for a portion of this Schedule.]**
Credit Interest Schedule and Participation:
Customer accounts not electing a sweep option will be credited interest
(Pershing Money Market Rate) when they maintain a minimum daily balance of
$______ **[Confidential treatment requested for a portion of this Schedule.]**
or more for more than three consecutive days. **[Confidential treatment
requested for a portion of this Schedule.]** The rebate will be based on the
following scale:
Average Free Credit Balances
(Millions) Basis Points (Annual) Annualized Rebate
---------------------------------- -------------------------------- -----------------------------
**[Confidential treatment requested for a portion of this Schedule.]**
Alternatively, you may elect not to credit your customer accounts with free
credit interest. In this case, Pershing will rebate _____% **[Confidential
treatment requested for a portion of this Schedule.]** of the prevailing free
credit interest to your firm. You may elect this option at the individual
customer level.
Short Interest Rebate Program:
Pershing will credit your firm or customers short interest rebates at ______%
**[Confidential treatment requested for a portion of this Schedule.]** of the
Fed Funds rate on the market value of the shorts. The following guidelines apply
to this program:
**[Confidential treatment requested for a portion of this Schedule.]**
Firm Account Interest:
If your inventory is acceptable collateral to our banks, we will charge your
firm **[Confidential treatment requested for a portion of this Schedule.]**. If
our bank does not accept your inventory as collateral, we reserve the right to
charge a higher interest rate for inventory financing. On credit balances in
your firm accounts, **[Confidential treatment requested for a portion of this
Schedule.]**
Deposit Account:
Pershing will require a clearing deposit upon which you will receive interest at
the ________________ rate **[Confidential treatment requested for a portion of
this Schedule.]**, if such deposit is made in cash. If Pershing executes all
trades, the minimum deposit is $_________________ **[Confidential treatment
requested for a portion of this Schedule.]**. If Pershing authorizes you to
execute away and "give up" our name for clearance only, the minimum deposit
requirement is $__________ **[Confidential treatment requested for a portion of
this Schedule.]**. Finally, firms engaging in market making activity, large
volumes of activity, institutional sized trades, and transactions in foreign
currencies may be subjected to higher capital and deposit requirements.
DK Interest On Trades:
DK interest on trades will be charged to your firm at the **[Confidential
treatment requested for a portion of this Schedule.]**.
V. Money Market Funds:
Pershing provides an automated sweep to ____________ **[Confidential treatment
requested for a portion of this Schedule.]**, according to the following
parameters:
**[Confidential treatment requested for a portion of this Schedule.]**
o Check deposits
o Settling sell trades
o Dividends and interest
o Other credits
o Incoming wire funds
Pershing offers distribution assistance payments on the Alliance Retail Money
Market Funds as outlined below:
Average Fund Balance (Millions) Annual Distribution (Basis
Points) Annual Payment Rate
------------------------------------ --------------------------------- ---------------------------------
**[Confidential treatment requested for a portion of this Schedule.]**
Alliance offers Institutional Money Market Funds; some may require a minimum
investment of $1 million per account. Pershing can provide information on these
funds and their distribution assistance payment schedule on request.
Proprietary Money Market Funds:
Pershing will develop and support an automated interface to your money market
fund record keeper to facilitate a sweep to the proprietary money market fund(s)
of your firm. Pershing will also provide a consolidated statement, including
activity and positions within your proprietary money market fund(s). The cost of
developing and maintaining the sweep and consolidated statement systems will be
negotiated in advance by your firm and Pershing.
ProCash Plus Accounts:
Pershing will make its ProCash Plus Asset Management Account available to your
customers. The annual fee structure is as follows:
**[Confidential treatment requested for a portion of this Schedule.]**
Gold Account
Gold Corporate Account
Platinum Account
Platinum Corporate Account
**[Confidential treatment requested for a portion of this Schedule.]**
Clarification of ProCash Plus Accounts:
**[Confidential treatment requested for a portion of this Schedule.]**
VI. Retirement Accounts:
DLJSC is the custodian for self-directed retirement plans. The following fees
apply:
**[Confidential treatment requested for a portion of this Schedule.]**
Annual Custodial
Maintenance Fee Termination
Type of Account Fee
--------------------------------------------------------------------------- -------------------- ------------------
Traditional ▇▇▇ and IRS model SEP
▇▇▇▇ ▇▇▇ and Education ▇▇▇
SARSEP, Simple ▇▇▇, Qualified Retirement Plans, and 403(b)(7) custodial accounts
Plans, and 403(b)(7) custodial accounts
A fee of $_____ will apply for conversions to a ▇▇▇▇ ▇▇▇ from a Traditional ▇▇▇.
Balances in retirement accounts will be swept to and from a 12b-1 money fund,
the Pershing Government Account, and distribution assistance payments will be
made to your firm as follow:
**[Confidential treatment requested for a portion of this Schedule.]**
Average Balances (Millions) Annual Distribution Annual Payment Rates
(Basis Points)
**[Confidential treatment requested for a portion of this Schedule.]**
VII. Special Products:
Investments in Limited Partnerships and Private Placements (including Retirement
Accounts) are subject to the following fees:
**[Confidential treatment requested for a portion of this Schedule.]**
Proprietary Retirement Account Program:
Pershing can develop and support a customized Retirement Account Fee program for
your firm. The cost of developing and maintaining the customized Retirement
Account fee program will be negotiated in advance by your firm and Pershing.
VIII. Portfolio Evaluation Service (PES):
The Portfolio Evaluation Service offers complete support for tax-lot accounting
and performance measurement. The pricing and parameters for this optional
service are noted below:
**[Confidential treatment requested for a portion of this Schedule.]**
Base Package: (Does not include online performance measurements) Online
system containing all inquiry screens and a link to monthly statements:
Online Performance Package: (In addition to the Base Package)
--------------------------
Online performance measurements
Minimum: **[Confidential treatment requested for a portion of this Schedule.]**
-------
Example of minimum: **[Confidential treatment requested for a portion
of this Schedule.]**
IX. Other Services:
"Blue Sheet" Requests:
On occasion certain regulatory agencies will request of Pershing information
regarding your firm's or customers' positions or transactions. Such "Blue Sheet"
requests will be billed to your firm at a rate of $_______ **[Confidential
treatment requested for a portion of this Schedule.]**
Cashless Options Exercise Program: (Optional)
Pershing can allow your firm to process the cashless exercise of employee stock
options. Pershing handles much of the administrative work directly with the
employer. The charge for this service is _______ **[Confidential treatment
requested for a portion of this Schedule.]**.
Correspondent Investment Management Support (CIMS): (Optional)
--------------------------------------------------
CIMS provides the administrative support (including Tax Lot Accounting,
Quarterly Performance Reporting, Customer Management Fee Billing, Daily
Balancing, etc.) for your firm's managed account program. Please note that a
minimum CIMS revenue requirement may apply. A separate CIMS agreement and formal
pricing schedule is also required and will be sent to you upon request. For your
information, the standard administrative fee schedule associated with this
service is as follows:
**[Confidential treatment requested for a portion of this Schedule.]**
Customer Billing System: (Optional)
Pershing offers the ability for your firm to use Pershing's customer billing
system which allows your firm to program its own asset-based fee schedule for
registered investment advisory activity. The pricing for this optional service
is as follows:
**[Confidential treatment requested for a portion of this Schedule.]**
Customized Systems/Requests/Reports:
Pershing has a proven track record of implementing customer-initiated systems
and projects at no cost to its customers. However, Pershing reserves the right
to charge your firm for customized reporting requests and system enhancement
requests. Such charges will be agreed upon on a case by case basis and confirmed
in writing in advance between your firm and Pershing.
Data Communications and Transmissions:
Your firm will be responsible for installation and maintenance fees related to
data communications lines, modems, related equipment, and data transmissions.
Pershing attempts to lower your data communications lines by promoting data
communications line sharing wherever possible.
Pershing Link: (Optional)
Pershing will develop and support an automated interface to your existing
proprietary and or vendor supplied front-end solution. Several standard
interface options are available at a fixed cost (see table below). This fee may
be higher for an interface requiring customized development functions. Cost
estimates will be provided upon request and agreed upon prior to a start date.
**[Confidential treatment requested for a portion of this Schedule.]**
Application Description One-Time Fee
----------- ----------- ------------
ADMS Administrative Wires
ASD Application Security Data
ASPS Subscription Products
ATOMS Equity and Option Order Entry
ATOMS Additions to Pre-Existing Connections
DVRE Dividend Re-investment Data
▇▇▇▇ ▇▇▇▇▇▇▇▇ Documentation Tracking
MFNL Mutual Fund Order Entry
PONA New Accounts, Adds, Deletes and Adjustments
E-Document Suite: (Optional)
If the Investment Professional's hardcopy delivery is still requested, an
electronic paper continuance fee will be imposed according to the following
schedule:
**[Confidential treatment requested for a portion of this Schedule.]**
File Downloads: (Optional)
Pershing offers over 60 standard files that can be sent electronically using a
variety of file transmission protocols:
**[Confidential treatment requested for a portion of this Schedule.]**
Transmission Protocol Initial Setup Fee Monthly Maintenance
Network Data Model (NDM)
Network Job Entry (NJE)
File Transmission Protocol (FTP)
InfoDirect
Defined Contribution Plan - Self Directed Automated (SDA) Link: Pershing can
provide a high volume automated link to transfer funds between the core defined
contribution plan account and the SDA option. This service is available for
__________ **[Confidential treatment requested for a portion of this
Schedule.]**.
EasyPay Funds Transfer System:
Pershing makes available EasyPay, an automated funds transfer system. Your
customers will be able to authorize payments to Pershing via touch tone
telephone at no additional cost to them or to your firm.
Investment Research:
Pershing offers an action oriented Research Program with a solid record of
performance. The program consists of a full line of hard copy research reports
(available with your firm's name or logo), a daily morning fax service, an
electronic (on-line) research service, access to our Information Center, and
direct access to our Research Analysis including conference calls and visits.
The program can be customized to meet your needs and the price of the program
varies accordingly.
Mutual Funds Prospectus Mailing: (Optional)
Pershing will facilitate mailing of prospectuses to your customers for mutual
fund purchases at a charge of _______________ **[Confidential treatment
requested for a portion of this Schedule.]**. A Mutual Fund Prospectus Mailing
agreement is required and can be provided upon request.
Securities Information Center:
All securities received by Pershing are electronically submitted to SIC's lost
and stolen security database. Since all introducing broker dealers have a
regulatory requirement to participate in the SIC program, Pershing enables you
to participate as an "Indirect Inquirer" at a reduced cost of _________
**[Confidential treatment requested for a portion of this Schedule.]**.
Special Statement Production:
Pershing normally prepares and mails customer statements for accounts that have
any brokerage activity at some point during the statement period. Should your
firm wish to have a statement sent for customers with assets, regardless of
activity, there is a _____________ **[Confidential treatment requested for a
portion of this Schedule.]** charge for this service.
Statement Inserts/Messaging:
Pershing will insert in your customer statements the Marketing/Product
Information of your choice at a cost of _____________ **[Confidential treatment
requested for a portion of this Schedule.]**. Pershing enables your firm to
place customized messages on customer statements at no cost.
Step In/Step Out Processing:
Pershing can process "step in/step out" equity trades on your firm's behalf.
These transactions are billed at **[Confidential treatment requested for a
portion of this Schedule.]**
X. Syndicates:
Whenever your firm participates in or manages a syndicate that is settled by
Pershing, we will pass along to your firm costs incurred for depository fees and
closing representation. When your firm acts as lead manager, clearance charges
between the firm "syndicate" account and the "firm take down" account will be
________ **[Confidential treatment requested for a portion of this Schedule.]**.
The following additional charges may apply:
**[Confidential treatment requested for a portion of this Schedule.]**
XI. Conversion or Establishment Costs:
Pershing ordinarily absorbs all of its internal costs related to the conversion
or the establishment of a new client relationship. Your firm is responsible for
costs relating to withdrawal from your current clearing firm or service bureau,
etc. and/or your internal costs.
We expect to expend substantial resources in the conversion and/or establishment
of your accounts. Accordingly, our initial agreement should contemplate a term
of 3 years with a fee payable to Pershing for earlier termination as follows:
**[Confidential treatment requested for a portion of this Schedule.]**
Termination Fee
----------- ---
In Year 1
In Year 2
In Year 3
In Year 4 or Thereafter
Pershing also reserves the right to pass through to your firm any additional
charges (i.e. inactive account fees, retirement account fees, etc.), or changes
to existing charges, whether foreseen or unforeseen, that Pershing may incur as
a result of changes in industry practices or through the course of normal
business operations. Your firm will be notified of any of the aforementioned
changes prior to their implementation.
XII. Term of Proposal:
This pricing proposal is good for a period of 30 days from the date captioned
above. Pershing reserves the right to modify this proposal thereafter.
AMERICAN PORTFOLIOS PERSHING DIVISION OF
FINANCIAL SERVICES, INC. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
BY:/s/ ▇▇▇ ▇. ▇▇▇▇▇▇ BY: /s/ , Director
----------------------------- --------------------------------
DATE: 10/22/02 DATE: 11/4/02
--------------------------- --------------------