FULLY DISCLOSED CLEARING AGREEMENT AS AMENDED BETWEEN RIDGE CLEARING & OUTSOURCING SOLUTIONS, INC. -and- HUDSON SECURITIES INC.
Exhibit
10.1
AS
AMENDED
BETWEEN
RIDGE
CLEARING & OUTSOURCING SOLUTIONS, INC.
-and-
▇▇▇▇▇▇
SECURITIES INC.
This
agreement (the “Agreement”), dated as of December 1, 2007, between Ridge
Clearing & Outsourcing Solutions, Inc. (“Ridge”) and ▇▇▇▇▇▇ Securities Inc.
(“Correspondent”), sets forth the terms and conditions under which
Ridge
will
provide
execution and clearing services, on a fully disclosed basis, to Correspondent
and its customers. Ridge will provide such services only to the extent required
by this Agreement, and shall not be responsible for any duties or obligations
not specifically allocated to Ridge by this Agreement. Nothing in this Agreement
shall be deemed to delegate to Ridge any regulatory obligation of Correspondent.
The parties agree that the target date for the conversion of Correspondent
onto
the Services is April 1, 2008.
| I. |
APPLICABLE
LAWS AND RULES AND APPROVAL BY
NYSE
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Throughout
the term of this Agreement, each of the parties hereunder shall be
subject
to the provisions of federal, state and local laws, rules and regulations
and the constitution, by-laws, rules, regulations and stated policies
of
the New York Stock Exchange, Inc. (“NYSE”), and any other securities
exchange or association or regulatory or self-regulatory organization
(“SRO”) vested with authority over the parties and/or the transactions
contemplated hereby, applicable to the parties, as currently in effect
or
as they may be hereinafter amended, revised or supplemented (collectively,
the “Applicable Laws and Rules”). To the extent that specific Applicable
Laws and Rules are cited in this Agreement, such individual Applicable
Laws and Rules shall also apply as currently in effect or as they
may be
hereinafter amended, revised or supplemented. Correspondent agrees
to
comply with the NYSE rules cited herein, as well as comparable SRO
provisions (including, without limitation, comparable NASD rules).
In the
event that Correspondent is not an NYSE member firm, Correspondent
agrees
to comply with the NYSE rules specifically cited herein as if it
were an
NYSE member firm. This Agreement will be submitted by Ridge for approval
by the NYSE, and will become effective upon such approval. In the
event
that this Agreement is not approved, the parties shall negotiate
in good
faith to obtain the requisite
approval.
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| II. |
SERVICES
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A.
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Services
to be Performed by
Ridge
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Subject
to compliance by Correspondent with its obligations under this Agreement,
Ridge will perform the following
services:
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1.
|
Upon
Correspondent’s request, Ridge will execute orders for the proprietary
account(s) of Correspondent (the “Proprietary Accounts”), and the customer
accounts of Correspondent (the “Customer Accounts”), provided such
accounts have been accepted by Ridge (collectively, the “Accounts”), but
only insofar as such orders are transmitted by Correspondent to Ridge
or
are transmitted by a customer of Correspondent (“Customer”) to Ridge in
accordance with Section V.A. of this
Agreement.
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2.
|
Ridge
will prepare and distribute confirmations with respect to transactions
in
each of the Customer Accounts in accordance with Section VII.A. of
this
Agreement, and Ridge will provide duplicates of such confirmations
to
Correspondent.
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3.
|
Ridge
will prepare and distribute summary monthly statements to Customer
Accounts (or quarterly statements to Customer Accounts if no activity
in
the Customer Account occurs during any quarter covered by such statement)
in accordance with Section VII.A. of this Agreement, and Ridge will
provide duplicates of such statements to
Correspondent.
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4.
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Ridge
will settle contracts and transactions in securities (including options
to
buy or sell securities) (a) between Correspondent and other brokers
and dealers, (b) between Correspondent and the Accounts, and (c)
between Correspondent and persons other than the Accounts or other
brokers
and dealers.
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5.
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Ridge
will engage in cashiering functions for the Accounts, including the
receipt, delivery and transfer of securities purchased, sold, borrowed
and
loaned; receiving and distributing payment therefore; holding in
custody
and safekeeping all securities and payments so received; the handling
of
margin accounts, including paying and charging of interest; the receipt
and distribution of dividends and other distributions; and, at the
instruction of the Account, the processing of exchange offers, rights
offerings, warrants, tender offers and redemptions. To the extent
that any
cashiering functions with respect to the receipt of securities and
the
making and receiving of payments therefor may be relinquished to
Correspondent, Correspondent shall have full responsibility for such
functions.
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6.
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Ridge
will construct and maintain books and records of all transactions
executed
or cleared through it and not specifically assigned to Correspondent
pursuant to the terms of this Agreement (e.g., account opening
documentation), including a daily record of required margin and other
information required by the Applicable Laws and Rules.
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Any
additional services to be performed shall be subject to the mutual
agreement of the parties. Such additional services, if applicable,
shall
be set forth with related fees on Schedule A hereto. Schedule A is
hereby
incorporated in and made an integral part of this
Agreement.
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B.
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Services
That Shall Not be Performed by
Ridge
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Unless
otherwise agreed to in a writing executed by the parties hereto,
Ridge
shall not engage in any of the following services on behalf of
Correspondent, the responsibility for which shall be solely and
exclusively that of Correspondent:
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1.
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Accounting,
bookkeeping or recordkeeping, cashiering, or any other services with
respect to commodity transactions, and/or any transaction other than
securities transactions.
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2.
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Preparation
of Correspondent’s payroll records, financial statements or any analysis
or review thereof or any recommendations relating
thereto.
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3.
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Preparation
or issuance of checks in payment of Correspondent’s expenses, other than
expenses incurred by Ridge on behalf of Correspondent pursuant to
this
Agreement.
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4.
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Payment
of commissions, salaries or other remuneration, or reimbursement
of
expenses, to Correspondent’s salespersons or any other employees of
Correspondent.
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5.
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Preparation
and filing of reports with the Securities and Exchange Commission
(the ”SEC”), any state securities commission, any national securities
exchange registered under the Securities Exchange Act of 1934 (the
“1934
Act”), or other securities exchange or securities association or any
other
regulatory or self-regulatory body or agency with which Correspondent
is
associated and/or by which it is regulated. Ridge will, at the request
of
Correspondent, furnish Correspondent with any necessary information
and
data contained in books and records kept by Ridge and not otherwise
reasonably available to Correspondent if such information is required
in
connection with the preparation and filing of such reports by
Correspondent.
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6.
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Making,
maintaining and filing reports and records required to be kept by
Correspondent by the Currency and Foreign Transactions Reporting
Act of
1970 (the “Currency Act”), and the regulations promulgated thereunder
(provided,
however,
that the foregoing shall not affect Ridge’s obligations to make, maintain
and file reports and records required to be kept by Ridge by the
Currency
Act).
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7.
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Making,
maintaining and filing reports and records required of Correspondent
by
the Bank Secrecy Act (the “Bank Secrecy Act”), the U.S.A. Patriot Act (the
“Patriot Act”), and the regulations promulgated thereunder, and other
Applicable Laws and Rules relating to anti-money laundering (“AML”)
activities, including, without limitation, (i) currency transaction
reports (“CTRs”), (ii) currency or monetary instrument reports (“CMIRs”),
(iii) suspicious activity reports (“SARs”), and (iv) foreign bank and
financial account reports (“FBFARs”) (provided,
however,
that the foregoing shall not affect Ridge’s obligations to make, maintain
and file reports and records required of Ridge by the Applicable
Laws and
Rules). Notwithstanding the foregoing, Ridge reserves the right,
exercisable in its sole and exclusive discretion, to prepare and
file such
reports on behalf of Correspondent. In the event that Ridge undertakes
to
prepare or file such reports, Correspondent acknowledges that Ridge
does
not assume any reporting responsibilities of Correspondent nor is
Correspondent relieved of any of its reporting obligations.
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8.
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Verification
of the name or address of any
Account.
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9.
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Verification
of the authority of, or changes in the identity or address, of any
person
holding any power of attorney over any Account.
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10.
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Verification
of the validity of, or proper authorization for, any orders or
instructions received by Ridge from Correspondent or from any Customer
in
connection with an Account.
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11.
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Obtaining
and verifying new account information, and ensuring that such information
meets the requirements of the Applicable Laws and Rules, including,
without limitation, any requirements of the Bank Secrecy Act, the
Patriot
Act, and the regulations promulgated
thereunder.
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12.
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Maintaining
a record of all personal and financial information concerning any
Account
and all orders received by Correspondent therefrom, and maintaining
all
documents and agreements executed by any
Account.
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13.
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Compliance
with the reporting, disclosure and record keeping requirements of
the
Employee Retirement Income Security Act of 1974 (“ERISA”), and the
regulations promulgated thereunder.
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14.
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Compliance
by Correspondent with the statutes, rules and regulations administered
by
the Office of Foreign Assets Control (“OFAC”), which prohibit, among other
things, engaging in financial transactions with certain sanctioned
or
embargoed countries and foreign nationals (provided,
however,
that the foregoing shall not affect Ridge’s obligations to comply with the
statutes, rules and regulations administered by OFAC).
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C.
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Exclusive
Clearing Arrangement
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Correspondent
agrees that, for the term of this Agreement, all transactions in
all
securities, including, without limitation, listed and
over-the-counter equities, fixed income securities, options, and
mutual
fund shares, shall be cleared exclusively through Ridge, unless and
except
to the extent that: (1) Ridge agrees in writing otherwise; or
(2) Ridge has rejected a proposed Account or has declined to execute
or clear a particular transaction in an Account; and (3) Correspondent
currently clears its DVP/RVP institutional business through ▇▇▇▇▇▇▇
▇▇▇▇▇
Execution & Clearing L.P.. In the event that any transaction is
cleared through any other firm, nothing herein shall be construed
as a
waiver by Ridge of the foregoing requirement nor an agreement by
Ridge to
assume any obligations or liabilities arising from any such transaction.
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| III. |
OPENING
AND SUPERVISION OF
ACCOUNTS
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A.
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Account
Documentation
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Correspondent
shall be solely and exclusively responsible for obtaining, verifying
and
maintaining all required information and the identity and address
of each
potential Customer, including, without limitation, any customer
identification information required by the Applicable Laws and Rules,
including, without limitation, the Bank Secrecy Act or the Patriot
Act,
and any regulation(s) promulgated thereunder. Correspondent shall
be
responsible for the maintenance and retention of all account applications,
and Correspondent hereby acknowledges its obligation to retain account
applications in an easily-accessible place in accordance with the
Applicable Laws and Rules and agrees to provide the original application
to Ridge by overnight delivery within 48 hours of a request from
Ridge.
All account documentation shall be on the forms provided by Ridge
for that
purpose, or, alternatively, prepared by Correspondent at its expense
and
pre-approved in writing by Ridge, in either case in a format
compatible with Ridge’s computerized accounting and records maintenance
systems. In accordance with Ridge’s procedures, Correspondent shall notify
Ridge promptly of any changes or corrections in any information,
instructions or documents previously forwarded to Ridge. Correspondent
shall be solely and exclusively responsible for obtaining, updating,
and
maintaining current and correct customer addresses and other customer
information, and Ridge may for all purposes rely, without verification,
on
the accuracy of such addresses and all other information and documents
furnished by Correspondent to Ridge regarding any Customer Account.
Correspondent shall be solely and exclusively responsible for complying
with the requirements of Rule 15g-9 under the 1934 Act, if applicable.
Correspondent shall also promptly furnish Ridge with such additional
information or documentation as Ridge may request from time to
time.
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| B. |
Knowledge
of Customer and
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Customer’s
Investment Objectives
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Correspondent
shall be solely and exclusively responsible through a general partner,
a
principal executive officer or a person designated for supervisory
responsibilities to use due diligence to learn the essential facts
relative to every Customer and Account, every order for any Account,
and
every person holding power of attorney over any Account, and to supervise
diligently all Accounts and their handling by Correspondent’s registered
representatives so as to be in full compliance with all Applicable
Laws
and Rules. The preparation or possession by Ridge for Correspondent
of
surveillance records, exception reports or other similar data shall
not
obligate Ridge to establish policies, practices or procedures relating
to
such materials. Correspondent shall be solely and exclusively responsible
for ensuring that the Customers are not minors and do not otherwise
lack
the capacity to enter into a contract and are not prohibited from
opening
a securities account under the Applicable Laws and Rules. Correspondent
shall implement and enforce policies and procedures reasonably designed
to
ensure that (i) the Customer is the individual or entity it represents
itself to be, (ii) the funds and securities in any Account do not
come
from a prohibited source under the Applicable Laws and Rules, and
(iii)
the Customer or its Customer Account(s) are not established or maintained
for a prohibited purpose under the Applicable Laws and
Rules.
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C.
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Acceptance
of Accounts
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Each
Customer Account and Proprietary Account accepted and approved by
Correspondent shall be subject to acceptance by Ridge (which shall
not be
construed to require any due diligence on the part of Ridge).
Correspondent shall not approve any Customer Account unless all
information required in Section III.A. of this Agreement has been
received
and due diligence as set forth in Section III.B. of this Agreement
has
been performed by Correspondent. Ridge
reserves the right, exercisable in its sole and exclusive discretion,
without prior notice to Correspondent or to the Customer, to reject
any
account that Correspondent may offer as an Account, or to terminate
any
account previously accepted by it as an Account.
Without limiting the generality of any of the foregoing, Ridge will
be
under no obligation to accept any Customer Account as to which any
documentation or information required to be submitted to Ridge or
maintained by Correspondent pursuant to Sections III.A. and III.B.
of this
Agreement is incomplete. No action taken by Ridge or any of its employees,
including, without limitation, clearing a trade in any Account, shall
be
deemed to be or shall constitute acceptance of such Customer Account.
Without limiting the generality of any of the foregoing, in the event
that
any information or documentation requested by Ridge regarding a Customer
Account is not promptly provided to Ridge, Ridge may reject or terminate
such account as a Customer Account or refuse to execute or clear
any
further transactions therein. Ridge shall endeavor to give prior
notice to
Correspondent or to the Customer of any such rejection or termination
to
the extent practical under the circumstances and in the event that
Ridge
does not give such prior notice, it shall promptly give Correspondent
notice after taking such action. If Ridge nevertheless accepts or
continues to execute or clear transactions in such Customer Account,
it
shall not be deemed a waiver of Ridge’s right to receive such information
or documentation or to later terminate or refuse to execute or clear
transactions in such Customer
Account.
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D.
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Supervision
of Orders and Accounts
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Correspondent
shall be solely and exclusively responsible for the conduct and
supervision of the Accounts and all transactions therein and their
compliance with the Applicable Laws and Rules. Correspondent’s
responsibilities shall include, without limitation, the
following:
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1.
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selecting,
training, and supervising all personnel of Correspondent who open,
approve, authorize or accept orders or transactions in the
Accounts;
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2.
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establishing
written procedures for the conduct of the Accounts and ongoing review
of
all transactions in Accounts, and maintaining qualified compliance
and
supervisory personnel to implement such
procedures;
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3.
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knowing
the investment objectives of each Customer and determining the suitability
of all transactions in the
Accounts;
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4.
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ensuring
that there is a reasonable basis for any recommendations made by
Correspondent to Customers;
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5.
|
determining
the appropriateness of the frequency of trading in an
Account;
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6.
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determining
that each transaction in an Account has been duly authorized;
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7.
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timely
forwarding instructions from the Customer to Ridge, and authenticating
any
such instructions;
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8.
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obtaining
and maintaining all documents necessary for the performance of
Correspondent’s responsibilities under this Agreement and retaining such
documents in accordance with the Applicable Laws and
Rules;
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9.
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complying,
to the extent applicable, with the “three quote rule” as set forth by the
NASD when functioning as an executing
broker;
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10.
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complying
with all “Blue Sky” requirements applicable to Correspondent with respect
to any order or transaction in an Account;
and
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| 11. |
informing
Ridge of the location of the securities which are the subject of
any order
transmitted to Ridge for execution so that Ridge may comply with
the
Applicable Laws and Rules.
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E.
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The
AML Program
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| 1. |
Correspondent
shall develop, implement and enforce written AML policies and procedures
(the “AML Program”), reasonably designed to ensure compliance with the
requirements of the Applicable Laws and Rules relating to AML, including,
without limitation, the Bank Secrecy Act, the Patriot Act, the regulations
promulgated thereunder, and the statutes, rules and regulations
administered by OFAC. The AML Program shall cover, among other things,
(i)
the identification and verification of prospective Accounts (Patriot
Act,
§ 326), (ii) the identification of the source(s) of funds and securities
in prospective Accounts, (iii) the identification, monitoring and
reporting of suspicious activities, (iv) responses to requests for
documents and information from law enforcement authorities, (v)
prohibitions on the opening, maintaining, administering or managing
of
accounts on behalf of prohibited entities (such as, for example,
foreign
“shell banks”), and (vi) special due diligence procedures for Accounts
involving non-U.S. persons (such as, for example, Accounts held directly
or indirectly by foreign banks). The AML Program shall be developed,
implemented and enforced by a qualified compliance officer designated
by
Correspondent for such purposes. The AML Program shall be reviewed
and
approved in writing by a member of senior management of Correspondent.
Notwithstanding
the foregoing, Ridge reserves the absolute right, without prior notice
to
Correspondent or to the Customer, to freeze or block assets in any
Account, or terminate any Account which, in the sole discretion of
Ridge,
may violate or may cause a violation of the Bank Secrecy Act, the
Patriot
Act, or any other AML provision, or statute, rule or regulation
administered by OFAC.
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Correspondent
shall certify annually to Ridge that it is in compliance with this Section
III.E. and that has implemented and enforced the AML Program.
| 2. |
Ridge
acknowledges the following AML obligations under Applicable Laws
and
Rules:
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a. Anti-Money
Laundering Programs
Ridge
acknowledges its obligation, to the extent applicable, to establish an AML
program that includes, among other things: (i) the development of internal
AML
policies; procedures and controls; (ii) the designation of an AML compliance
officer; (iii) an ongoing AML employee training program; and (iv) an independent
audit function to test the AML program. (Patriot Act, § 352 and SRO rules).
b. Reporting
of Suspicious Activities By Securities Brokers and Dealers; Investment Company
Study
Ridge
acknowledges its obligation, to the extent applicable, to monitor and report
suspicious activities, and to prepare and submit SARs in accordance with 31
U.S.C. 5318(g). (Patriot Act, § 356).
c. Special
Due Diligence for Correspondent Accounts and Private Banking
Accounts
i. Ridge
acknowledges its obligation, to the extent applicable, to conduct enhanced
due
diligence in connection with “correspondent accounts” held by foreign banks
operating under: (i) an offshore banking license; or (ii) a banking license
issued by a foreign country that has been designated as non-cooperative with
international AML principles or procedures by an intergovernmental group or
organization of which the United States is a member, with which designation
the
United States representative to the group or organization concurs, or by the
Secretary of the Treasury as warranting special measures due to AML concerns.
This “enhanced due diligence” includes, among other things, reasonable steps:
(i) to ascertain the identity of each of the owners of the foreign bank, and
the
nature and extent of the ownership interest of each such owner; (ii) to conduct
enhanced scrutiny of such accounts to guard against money laundering and report
suspicious transactions; and (iii) to ascertain whether such foreign bank
provides correspondent accounts to other foreign banks and, if so, the identity
of those foreign banks and related due diligence information. (Patriot Act,
§
312(a)(2)(A) and (B)).
ii. Ridge
acknowledges its obligation, to the extent applicable, to conduct enhanced
due
diligence in connection with “private banking accounts” held by non-United
States persons. This “enhanced due diligence” includes, among other things,
reasonable steps: (i) to ascertain the identity of the nominal and beneficial
owner(s) of, and the source of funds deposited into, any “private banking
account” as needed to guard against money laundering and report suspicious
transactions; and (ii) to conduct enhanced scrutiny of any “private banking
account” that is requested or maintained by or on behalf of a senior political
figure, or any immediate family member or close associate of a senior political
figure, that is reasonably designed to detect and report transactions that
may
involve the proceeds of foreign corruption. (Patriot Act, §
312(a)(3)(A) and (B)).
d. Forfeiture
of Funds in United States Interbank Accounts
Ridge
acknowledges its obligation, to the extent applicable, to obtain and review
certifications and re-certifications from each Account held by a foreign bank
that identify: (i) the owner(s) of such foreign bank; and (ii) the name and
address of a person who resides in the United States and is authorized to accept
service of legal process for records regarding the Account. (Patriot Act,
§
319
(k)(3)(B)(i)).
e. Prohibition
on United States Correspondent Accounts With Foreign Shell Banks
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i. Ridge
acknowledges its obligation, to the extent applicable, not to establish,
maintain, administer, or manage any “correspondent account” in the United States
for or on behalf of a foreign bank that does not have a physical presence in
any
country (“foreign shell bank”). (Patriot Act, § 313(j)(1)).
ii. Ridge
acknowledges its obligation, to the extent applicable, to take reasonable steps
to ensure that any “correspondent account” established, maintained, administered
or managed by Ridge in the United States for or on behalf of a foreign bank
is
not being used by that foreign bank to provide banking services indirectly
to a
“foreign shell bank”. (Patriot Act, § 313(j)(2)).
f. Special
Measures for Jurisdictions, Financial Institutions, or International
Transactions of Primary Money Laundering Concern
Ridge
acknowledges its obligation, to the extent applicable, to comply with special
measures imposed by the Secretary of the Treasury for jurisdictions, financial
institutions, and international transactions of primary money laundering
concern. (Patriot Act, § 311).
g. Cooperative
Efforts to Deter Money Laundering
i. Ridge
acknowledges its obligation, to the extent applicable, to respond to requests
made by the Financial Crimes Enforcement Network (“FINCEN”) on behalf of a
federal law enforcement agency investigating possible terrorist or money
laundering activities. (Patriot Act, § 314(a)).
ii. Ridge
acknowledges its obligation, to the extent applicable, to submit notices to
FINCEN concerning the voluntary sharing of information with other financial
institutions relating to individuals, entities, organizations and countries
suspected of possible terrorist or money laundering activities, and to comply
with requirements concerning the confidentiality of such shared information.
(Patriot Act, § 314(b)).
h. Compliance
Obligations
i. Ridge
acknowledges its obligation, to the extent applicable, to make tools available
to Correspondent (such as, for example, exception reports and automated systems)
to assist Correspondent in complying with its obligation to monitor and detect
possible terrorist, money laundering and related activities.
ii. Ridge
acknowledges its obligation, to the extent applicable, to comply with
record-keeping requirements in connection with each of the above
obligations.
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F.
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Accounts
of Employees of Member Organizations, Self-Regulatory Organizations
and
Financial Institutions
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In
each case in which a Customer is an employee of a member organization,
a
self-regulatory organization or financial institution, the approval
of
which is necessary to the opening and maintenance of a Customer Account,
Correspondent shall be solely and exclusively responsible for obtaining
the approval of such employer, and otherwise complying with NYSE
Rule 407.
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G.
|
Soft-Dollar
Arrangements
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Correspondent
shall be solely and exclusively responsible for compliance with the
Applicable Laws and Rules applicable to each agreement, arrangement
or
understanding, if any, that it may have with any agent exercising
any
authority (including, without limitation, investment discretion)
over any
Account to use commissions to obtain research or other services
(collectively, a “Soft-Dollar
Arrangement”).
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H.
|
Directed-Brokerage
Arrangements
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Correspondent
shall be solely and exclusively responsible for compliance with the
Applicable Laws and Rules applicable to each agreement, arrangement
or
understanding, if any, that it may have with any Account to rebate
any
funds, including, without limitation, any portion of any commission,
▇▇▇▇-up, ▇▇▇▇-down, fee or other charge, or to pay the cost of any
service
or product for an account, or the expenses of an account (collectively,
a
“Directed Brokerage Arrangement”). Correspondent shall use its best
efforts to obtain from the Account an authorization for Ridge to
rely on
the representations and warranties of the Account in any
Directed-Brokerage Arrangement and to be the direct beneficiary of
the
covenants, including, without limitation, any indemnification provision,
in each case in a form acceptable to
Ridge.
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I.
|
Payment
for Order Flow
Arrangements
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Correspondent
shall be solely and exclusively responsible for compliance with the Applicable
Laws and Rules applicable to each agreement, arrangement or understanding,
if
any, that it may have with any other broker-dealer to pay for order flow, or
to
receive payment for order flow (collectively, a “Payment for Order Flow
Arrangement”), including, without limitation, any disclosure requirements.
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J.
|
Prime
Brokerage
|
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No
Account in connection with which Correspondent is to act as an executing
broker in a prime brokerage arrangement shall be opened without the
prior
written authorization of Ridge, which shall not be unreasonably withheld,
and the execution of appropriate documentation by the parties to
such
arrangement, including, without limitation, an agreement in substantially
the same form as the Addendum annexed
hereto.
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K.
|
Customers
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Each
Customer shall remain the customer of Correspondent. Correspondent
acknowledges that Ridge shall not act in the capacity of a fiduciary
with
respect to Correspondent or any of its customers. Nothing herein
shall
cause any Customer to be construed as or deemed to be a customer
of Ridge
for any purpose whatsoever, except that, for the purposes of the
Securities Investor Protection Act and the “financial responsibility”
rules of the SEC, Customers shall be deemed to be customers of Ridge
as
Correspondent’s clearing firm, but only to the extent required by the
Applicable Laws and Rules.
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L.
|
Screening
of Accounts
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Ridge
may, in its sole and exclusive discretion, utilize at Correspondent’s
expense (at the charges set forth in Schedule B hereto or as otherwise
mutually agreed by the parties) a third-party service provider to
screen
Customers and transactions in the Accounts, and the use thereof shall
not
relieve Correspondent of any of its obligations under this Agreement.
Correspondent acknowledges that such screening or the preparation
or
possession of surveillance records or any other data (including,
without
limitation, exception reports) by Ridge on behalf of or for the use
of
Correspondent shall not obligate Ridge to review such material or
make
Ridge responsible to know their contents.
|
-9-
|
M.
|
Discretionary
Accounts
|
|
Correspondent
shall be solely and exclusively responsible for the handling and
supervisory review of any Customer Accounts over which Correspondent’s
partners, officers or employees have discretionary authority, as
required
by NYSE Rule 408, and any other provisions of the Applicable Laws
and
Rules. Correspondent shall furnish Ridge with such documentation
with
respect thereto as may be requested by Ridge. Correspondent hereby
warrants that with regard to any orders or instructions given by
Correspondent with respect to such discretionary Customer Accounts,
its
partners, officers or employees shall have been fully and properly
authorized relative thereto and that the execution of such orders
shall
not be in violation of the Applicable Laws and
Rules.
|
|
N.
|
Option
Accounts
|
|
Before
a Customer Account may engage in option trading, Correspondent shall
deliver to Customer a current disclosure statement of the Options
Clearing
Corporation, the Special Statement for Uncovered Option Writing,
and any
effective amendments or supplements thereto. Correspondent shall
obtain
the required signatures on all option agreements, shall obtain proper
approval for the opening of all option accounts, and shall otherwise
comply with the Applicable Laws and Rules applicable to options accounts
and options trading. Correspondent shall deliver to Ridge a copy
of a
signed option agreement for each Customer approved by Correspondent
for
options trading, such agreement to be in a form acceptable to
Ridge.
|
|
O.
|
Accounts
for Which Agent Holds Power of
Attorney
|
|
Upon
the opening of any Customer Account for which an agent holds a power
of
attorney on behalf of a principal, Correspondent shall provide Ridge
with the name of each principal for whom such agent is acting and
with
written evidence of the agent’s authority to act on the principal’s
behalf. Correspondent hereby warrants that any orders or instructions
of
such agent which are transmitted to Ridge pursuant to this Agreement
shall
have been fully and properly authorized and that the execution of
such
instructions or orders shall not violate the Applicable Laws and
Rules.
|
|
P.
|
Prospectus
Delivery
|
Correspondent
shall be solely and exclusively responsible for delivering, or causing to be
delivered, prospectuses in connection with public offerings of securities (both
initial public and secondary offerings) and sales of mutual funds; provided,
however,
that,
at the request of Correspondent, Ridge will assist Correspondent in mailing
prospectuses that are delivered to Ridge in a timely fashion.
| Q. |
Proprietary
Accounts of
Correspondent
|
In
accordance with the SEC Net Capital Rule (Rule 15c3-1) and for the purposes
of
the Securities Investor Protection Act and the SEC’s financial responsibility
rules, Correspondent will be treated as a client of Ridge.
Account
statements of activity for Correspondent’s Accounts are issued and forwarded to
Correspondent directly by Ridge.
This
Section of the Agreement is in conformity with the SEC No-Action Letter, dated
November 3, 1998 (“No-Action Letter”) relating to the capital treatment of
assets in the proprietary account of an introducing broker (“PAIB”) and to
permit Correspondent to use PAIB assets in its net capital computations.
Correspondent shall identify to Ridge in writing all accounts that are, or
from
time to time may be, proprietary accounts of Correspondent. Ridge shall perform
a computation for PAIB assets (“PAIB Reserve Computation”) of Correspondent in
accordance with the customer reserve computation set forth in Rule 15c3-3
(“customer reserve formula”) with the following modifications:
-10-
(a) Any
credit (including a credit applied to reduce a debit) that is included in the
customer reserve formula may not be included as a credit in the PAIB reserve
computation;
(b) Note
E(3)
to Rule 15c3-3a which reduces debit balances by 1% under the basic method and
subparagraph (a)(1)(ii)(A) of the net capital rule which reduces debit balances
by 3% under the alternative method shall not apply; and
(c) Neither
Note E(1) to Rule 15c3-3a nor NYSE Interpretation /04 to Item 10 of Rule 15c3-3a
regarding securities concentration charges shall be applicable to the PAIB
reserve computation.
The
PAIB
reserve computation shall include all proprietary accounts of Correspondent.
All
PAIB assets shall be kept separate and distinct from customer assets under
the
customer reserve formula in Rule 15c3-3.
The
PAIB
reserve computation shall be prepared within the same time frames as those
prescribed by Rule 15c3-3 for the customer reserve formula.
Ridge
shall establish and maintain a separate “Special Reserve Account for the
Exclusive Benefit of Customers” with a bank in conformity with the standards of
paragraph (f) of Rule 15c3-3 (“PAIB Reserve Account”). Cash and/or qualified
securities as defined in the customer reserve formula shall be maintained in
the
PAIB Reserve Account in an amount equal to the PAIB reserve
requirement.
If
the
PAIB reserve computation results in a deposit requirement, the requirement
may
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 shall not be satisfied with excess debits from the PAIB reserve
computation.
Within
two business days of entering into this PAIB Agreement, Correspondent shall
notify its designated examining authority in writing (with copy to Ridge) that
it has entered into this PAIB Agreement.
Commissions
receivable and other receivables of Correspondent from Ridge (excluding clearing
deposits) that are otherwise allowable assets under the net capital rule may
not
be included in the PAIB reserve computation, provided the amounts have been
clearly identified as receivables on the books and records of Correspondent
and
as payables on the books of Ridge.
If
Correspondent is a guaranteed subsidiary of Ridge or if Correspondent guarantees
Ridge (i.e., guarantees all liabilities and obligations) then the proprietary
account of Correspondent shall be excluded from the PAIB Reserve
Computation.
Upon
discovery that any deposit made to the PAIB Reserve Account did not satisfy
its
deposit requirement, Ridge shall by facsimile or telegram immediately notify
its
designated examining authority and the Securities and Exchange Commission
(“Commission”). Unless a corrective plan is found acceptable by the Commission
and the designated examining authority, Ridge shall provide written notification
within 5 business days of the date of discovery to Correspondent that PAIB
assets held by Ridge shall not be deemed allowable assets for net capital
purposes. The notification shall also state that if Correspondent wishes to
continue to count its PAIB assets as allowable, it has until the last business
day of the month following the month in which the notification was made to
transfer all PAIB assets to another clearing broker. However, if the deposit
deficiency is remedied before the time at which Correspondent must transfer
its
PAIB assets to another clearing broker, the Correspondent may choose to keep
its
assets at Ridge.
The
parties shall adhere to the terms of the No-Action Letter (a copy of which
is
attached hereto as Exhibit B and which is hereby incorporated by reference),
including the Interpretations set forth therein, in all respects.
-11-
| IV. |
EXTENSION
OF CREDIT
|
| A. |
Margin
Agreement
|
Prior
to
the execution or clearance of any margin transaction in an Account,
Correspondent shall obtain and provide Ridge with a margin agreement,
hypothecation agreement and consent to loan of securities (collectively, “margin
agreement”) executed by the Customer (or, in the case of any Proprietary
Account, executed by Correspondent), such agreement to be in a form acceptable
to Ridge. Ridge shall have all rights and remedies set forth in such margin
agreement, in addition to those set forth in this Agreement, with respect to
Accounts which are margin accounts. All transactions in an Account shall be
considered cash transactions until Ridge has determined, in its sole and
exclusive discretion, to accept margin transactions therein and the duly
executed margin agreement has been received by Ridge. Ridge may cancel and
rebook as a cash transaction any margin transaction for an Account for which
no
such executed margin agreement has been received prior to settlement date,
and all transaction costs associated with each such cancellation and rebooking
shall be borne in their entirety by Correspondent. Correspondent shall be
responsible for compliance with Rule 10b-16 under the 1934 Act. Correspondent
shall obtain in advance of dissemination the written approval of Ridge of any
document to be provided to Customers in connection with Rule 10b-16 under the
1934 Act.
| B. |
Margin
Requirements
|
|
Correspondent
shall be solely and exclusively responsible to Ridge for the collection
of
initial margin and for maintenance at all times of margin in each
Account
sufficient to ensure compliance with Regulation T, promulgated by
the
Board of Governors of the Federal Reserve System pursuant to the
1934 Act,
and any interpretations thereof, with any other margin or margin
maintenance rules under the Applicable Laws and Rules, and with Ridge’s
house margin rules. After initial margin has been received, maintenance
margin calls shall be generated by Ridge and made by Ridge or by
Correspondent at the instructions of Ridge.
|
|
Correspondent
understands and acknowledges that Accounts shall be subject to any
house
rules of Ridge requiring initial margin or maintenance margin in
amounts
greater than would otherwise be required under Regulation T or any
other
provisions of the Applicable Laws and Rules. Ridge may at any time,
in its
sole and exclusive discretion, change its house margin requirements
as
they pertain to any Account or class of accounts or specific securities
or
class of securities, including, without limitation, in response to
market
conditions and periods of extreme volatility. Such changes shall
be
effective immediately upon the provision of oral notice to Correspondent.
Correspondent shall be solely and exclusively responsible for advising
the
Customers of any such changes and for the prompt collection of any
additional margin necessary to ensure compliance therewith.
|
| C. |
Interest
on Margin Accounts
|
|
Ridge
will charge interest on Accounts that are margin accounts in accordance
with the margin agreements applicable to such Accounts, provided
that such
interest and other charges will not exceed amounts that may be charged
under the Applicable Laws and Rules. Ridge may at any time, in its
sole
and exclusive discretion, revise its credit terms and conditions.
|
-12-
| V. |
TRANSMISSION,
ACCEPTANCE AND EXECUTION OF
ORDERS
|
|
A.
|
Transmission
of Orders
|
|
All
orders in Accounts shall be transmitted to Ridge by Correspondent
in
accordance with such procedures as Ridge may implement from time
to time
for that purpose. Customers shall not place orders directly with
Ridge.
Notwithstanding the foregoing, Ridge may, in its sole and exclusive
discretion, on a case-by-case basis, make exception and agree to
accept
orders directly from a particular Customer or Account at the request
of a
Correspondent; provided,
however,
that in doing so Ridge shall not assume or be deemed to have assumed
any
of the responsibilities for supervision of Accounts allocated to
Correspondent under this Agreement. Ridge shall have no duty of inquiry
or
investigation with respect to any orders transmitted to it for execution
or clearance. Correspondent shall be responsible for the timely and
accurate transmission of all orders to Ridge, as well as for any
errors or
discrepancies therein.
|
|
B.
|
Acceptance
of Orders
|
|
Orders
accepted by Ridge for execution and clearance shall be executed and
cleared in accordance with Ridge’s standard practices and the Applicable
Laws and Rules. Ridge
reserves the right, exercisable in its sole and exclusive discretion,
without prior notice to Correspondent or to the Customer, to reject
for
execution and clearance any orders or trades which exceed established
limits or are otherwise unacceptable to Ridge due to such factors
as
adverse market conditions, assumptions regarding the volatility and
liquidity of the subject securities, current market price, the financial
condition or credit worthiness of Correspondent or of the Customer,
any
regulatory issues relating to Correspondent or the Customer, or for
any
reason whatsoever which, in the sole and exclusive discretion of
Ridge,
renders it advisable to reject an order or trade. Ridge also reserves
the
right, exercisable in its sole and exclusive discretion, to restrict
trading in Accounts in any manner, including, but not limited to,
restricting trading to liquidating orders only or cash transactions
only,
or to prohibit certain trading strategies or trading of certain types
of
securities.
|
|
C.
|
Over-the-Counter
Transactions
|
|
For
all over-the-counter transactions, Correspondent shall furnish Ridge
with
the names of the respective purchasing and selling broker-dealers
(except
as otherwise provided in Section V.D. of this Agreement), and the
wholesale and retail purchase and sale prices necessary for confirmation
in accordance with the Applicable Laws and Rules.
|
|
D.
|
Designation
of Contra Brokers
|
|
Whenever
Correspondent directs Ridge to route an order to a particular broker,
dealer, or market for execution, including, without limitation,
designating the contra broker in an over-the-counter
transaction for an Account, Correspondent shall be responsible to
Ridge
for all aspects of the transaction, including, without limitation,
any
duty of best execution or any failure by such contra broker or dealer
to
settle the transaction for any reason whatsoever, and Correspondent
shall
immediately reimburse Ridge for any loss, liability, claim, cost
or
expense, in each case as incurred, including, but not limited to,
attorneys’ fees and expenses incurred or sustained by Ridge in connection
therewith.
|
-13-
|
E.
|
Short
Sales
|
|
Correspondent
shall be solely and exclusively responsible for determining and advising
Ridge whether each order for the sale of securities for an Account
is
“long” or “short” within the meaning of the Applicable Laws and Rules.
Correspondent shall also be solely and exclusively responsible for
ensuring that each short sale for an Account complies with Rule 10a-1
under the 1934 Act, NYSE Rule 440B, all provisions relating to short
sales
under NASD rules, and the interpretations of such rules, and any
other
applicable provisions of the Applicable Laws and Rules regarding
short
sales.
|
|
F.
|
Low
Priced/▇▇▇▇▇ Stocks
|
Ridge
shall not be required to execute orders in any securities that are not “reported
securities,” as defined in ▇▇▇ ▇▇▇▇ ▇▇▇▇-▇. ▇▇▇▇▇▇▇▇▇▇▇▇▇ shall not accept
orders for transactions in securities that do not meet such criteria without
the
prior written consent of Ridge, and the disclosure requirements of SEC Rule
3a51-1 do not apply.
|
G.
|
Order
Limits; Position and Credit
Limits
|
|
Correspondent
shall be responsible for maintaining continuing familiarity and compliance
with all limits on order size and all position and credit limits
which
have been or may be established by Ridge with respect to transactions
in
the Accounts, which limits may be changed from time to time by Ridge
in
its sole and exclusive discretion. Correspondent agrees to notify
Ridge
and obtain its approval prior to the entry of any trade in an Account
which would exceed such limits.
|
|
H.
|
Delivery
Versus Payment
|
|
Correspondent
agrees to comply with NYSE Rule 226 by ensuring that its Customers
utilize
the facilities of a securities depository for the confirmation,
acknowledgment, and book entry settlement of all depository eligible
transactions in connection with delivery versus payment transactions.
Correspondent shall be solely and exclusively responsible for causing
any
Customers engaging in such transactions to utilize such facilities.
Correspondent further agrees to ensure that its Customers shall provide
their agent with instructions in accordance with the requirements
set
forth in NASD Rule 11860.
|
|
I.
|
Buy-Ins
and Sell-Outs; Interest
Charges
|
|
Upon
the failure of any Customer (or, in the case of Proprietary Accounts,
Correspondent) to make timely payment for securities purchased or
timely
and good delivery of securities sold, or the failure timely to comply
with
any applicable margin requirements, Ridge will be entitled, but not
obligated, to take such remedial action, or direct Correspondent
to take
such remedial action, as Ridge, in its sole and exclusive discretion,
deems appropriate, including, but not limited to, executing buy-ins
or
sell-outs for an Account. Checks shall not constitute payment until
they
have cleared and the proceeds have been collected by Ridge’s bank and
credited to Ridge. The taking or not taking of any such remedial
action by
Ridge shall not in any way affect or diminish Correspondent’s
indemnification, reimbursement, or payment obligations pursuant to
this
Agreement.
|
-14-
|
To
the extent permitted by Regulation T, Rule 15c3-3(m) under the 1934
Act,
or any other provisions of the Applicable Laws and Rules, Correspondent
may request, in a writing signed by an officer, partner or principal
of
Correspondent, that Ridge defer a buy-in or sell-out for an Account.
The
grant or denial, in whole or in part, of any such request to defer
a
buy-in or sell-out, or of any application for an extension of time
for any
Account to make any payment required by Regulation T or any other
provision of the Laws or Rules, shall remain within the sole and
exclusive
discretion of Ridge. Correspondent shall be liable to Ridge for any
loss
or expense incurred by Ridge in connection with such request, whether
or
not granted.
|
|
Ridge
may, at its option, charge Customers (or, in the case of Proprietary
Accounts, Correspondent) interest at the rate of 2% above the broker’s
call rate, or such other rate as may be agreed in writing by Correspondent
and Ridge, arising from any debit in an Account however arising,
including, without limitation, for late payments or deliveries of
securities. Correspondent shall be liable to Ridge for such charges
to the
extent not paid by Customers.
|
|
J.
|
Option
Assignments, Tender Offers, and Rights
Offerings
|
|
Ridge
will process option assignments, tender offers, and rights offerings
only
in accordance with the written instructions of Correspondent or the
Customer.
|
|
Ridge
may, in its sole and exclusive discretion, buy back in the cash market
or
borrow shares on the day Ridge is notified of option assignments
affecting
shares which have been tendered and which have caused short positions
in
Accounts as of either the proration or withdrawal date. Shares purchased
for cash or borrowed shall not be considered part of an Account’s tendered
position until such shares are in Ridge’s actual possession. Ridge will
reduce the tender for Accounts by the size of the short or unreceived
shares.
|
|
During
a tender period in which there are competing and counter tender offers
for
a security, Ridge will tender only upon the written instructions
of
Correspondent or the Customer and only on a trade date basis the
number of
shares net long in the Account as of either the proration or withdrawal
date, which number shall, at Ridge’s request, be confirmed in writing by
Correspondent. Correspondent shall be solely and exclusively responsible
for ensuring that such tender is being made upon the instructions
of
persons authorized to direct the disposition of the shares and, at
Ridge’s
request, shall confirm it in
writing.
|
|
In
connection with a rights offering, Ridge will exercise rights only
upon
the written instructions of Correspondent or the Customer and only on
a trade date basis the number of rights relating to shares net long
in the
Account, which number shall, at Ridge’s request, be confirmed in writing
by Correspondent. Correspondent shall be solely and exclusively
responsible for ensuring that such exercise is being made upon the
instructions of persons authorized to do so and, at
Ridge’s request, shall confirm it in writing.
|
| K. |
Options
Policy
|
At
Ridge
it is
the policy that no uncovered (“naked”) index options orders are to be entered on
behalf of any client or correspondent. In addition, all option orders are
required to be designated as opening or closing, whichever term applies.
Correspondent is responsible for ensuring compliance with this policy and will
be liable for the consequences of any violations, including, but not limited
to,
any damages caused. Ridge
may
terminate this Agreement in the event that you fail to comply with this policy.
|
L.
|
Participation
in Underwritings / Special
Requirements
|
You
agree
to the following procedures which must be complied with in order to participate
in Initial Public Offerings (IPO’s) either as a Manager or a Co -
Manager:
-15-
i.) Approval
must be granted in advance of any such participation in an underwriting. Such
approval shall not be unreasonably withheld by Ridge.
ii.) At
the
very earliest, a preliminary prospectus (“Red ▇▇▇▇▇▇▇”) must be forwarded to
Ridge’s
Risk
Manager together with details concerning the size of your commitment, expected
price and the names of all brokerage firms which are known to be
participants.
iii.) In
order
to participate and takedown shares in an underwriting, you as the Correspondent
must have at least $250,000 in net capital. Your Good Faith Deposit must be
increased so that it will represent no less than the greater of 30% of your
commitment (take-down) and the equivalent capital requirement of the applicable
SRO with respect to such transaction.
iv.) You
must
indicate whether or not you intend to be a market maker in the secondary market
with respect to the securities which are part of the public
distribution.
v.) You
are
not to proceed with such IPO participation unless and until the Risk Manager
of
Ridge
has
specifically granted his approval and indicated the size of the commitment
granted. Such approvals must be received either by fax or wire and they are
to
be retained as part of your records.
Any
requests for exceptions to the above, must be submitted in writing with all
pertinent details included to Ridge’s
Risk
Manager.
|
M.
|
Execution
Away
|
In
the
event you execute your own orders and give Ridge’s
name
to the other broker for clearance and settlement, you agree that you will only
execute bona fide orders or request free delivery of cash or securities where
you have reasonable grounds to believe that the Account and the other broker
have the financial capability to complete the transaction. Ridge
reserves
the right at any time to place a limit (of either dollars or number of
securities) on the size of transactions that Ridge
in these
circumstances will accept for clearance. If, after you have received notice
of
such limitation, you execute an order in excess of the limit established by
Ridge,
Ridge
shall
have the right to notify the other party and other broker that it will not
accept the transaction for clearance and settlement. In the event any claim
is
asserted against Ridge
by the
other broker because of such action by Ridge,
you
agree to indemnify and hold Ridge
harmless
from any loss, liability, damage, cost or expense (including but not limited
to
fees and expenses of legal counsel) arising directly or indirectly
therefrom.
In
the
event you execute orders away from Ridge,
Ridge
will on
a best efforts basis attempt to clear the transaction within a reasonable period
and utilize the same procedures it utilizes when clearing transactions on behalf
of other firms clearing through Ridge.
If
either you or the other broker for any reason whatsoever fail to settle the
transaction, you will be solely liable to Ridge
for any
and all loss, including expenses caused thereby and Ridge
shall
have no liability to you whatsoever in any such circumstance. You further agree
to take all appropriate capital charges on your books arising out of or incurred
in connection with your executing orders away from Ridge.
Notwithstanding
the foregoing, option transactions shall be executed on behalf of Customers
and
Accounts solely and exclusively by Ridge.
-16-
|
VI.
|
RECEIPT
AND DELIVERY OF FUNDS AND
SECURITIES
|
|
A.
|
Receipt
and Delivery in the Ordinary Course of
Business
|
|
Ridge
will receive and deliver funds and securities for Accounts in accordance
with Correspondent’s written instructions to Ridge, provided that
Correspondent shall be responsible for advising Customers of their
obligations to deliver funds or securities in connection with each
transaction in an Account and shall be responsible for any failure
by a
Customer to satisfy such obligations. Correspondent agrees promptly
to
deliver to Ridge any and all funds or securities received by Correspondent
from Customers, together with such information as may be relevant
or
necessary to enable Ridge properly to record such deliveries in the
appropriate Accounts. Ridge will be responsible for the safeguarding
of
all funds and securities actually received and accepted by Ridge,
subject
to count and verification by Ridge. Ridge shall not be
responsible for any funds or securities delivered by a Customer to
Correspondent or its agents or employees until such funds or securities
are physically delivered to and accepted by Ridge at its premises
or
deposited in Ridge’s bank accounts. It is expressly understood and agreed,
however,
that Correspondent shall be responsible for compliance with the Currency
Act, and the regulations promulgated thereunder. Ridge reserves the
right
to reject any funds or securities, without prior notice to Correspondent
or to the Customer, that it determines, in its sole and exclusive
discretion, may violate or cause a violation of the Applicable Laws
and
Rules, including, without limitation, the Bank Secrecy Act, the Patriot
Act, and the regulations promulgated
thereunder.
|
|
B.
|
Lost,
Stolen or Forged
Securities
|
|
Correspondent
shall be responsible for any defect in title to any securities purchased,
sold, borrowed, delivered or transferred under this Agreement which
may
have been forged, counterfeited, altered, lost, stolen, or the subject
of
any similar occurrence or act.
|
|
C.
|
Custody
Services
|
|
Whenever
Ridge has agreed in writing to act as custodian of securities in
any
Account, or to hold securities in “safekeeping”, Ridge may hold the
securities in the Customer’s name (“Customer Name Securities”), or may
cause such securities to be registered in the name of Ridge or its
nominee
or in the names or nominees of any depository used by Ridge. In connection
with Customer Name Securities, Ridge will have no responsibility
for,
among other things, collecting and paying of dividends, transmitting
and
handling tenders or exchanges pursuant to tender offers and exchange
offers, transmitting proxy materials and other shareholder communications,
and handling exercises or expirations of rights and warrants or
redemptions.
|
|
D.
|
Receipt
and Delivery Pursuant to Special
Instructions
|
|
Upon
special instructions from Correspondent or from a Customer, Ridge
will
endeavor to make such transfers of securities or Accounts as may
be
requested, consistent with the Applicable Laws and Rules. Any such
special
instructions shall be in writing.
|
|
E.
|
Restricted
or Control Securities
|
|
Correspondent
shall be solely and exclusively responsible for determining whether
any
securities in Accounts are restricted and/or control securities within
the
meaning of Rule 144 under the 1933 Act, and for ensuring that any
transactions in such securities are in compliance with the Applicable
Laws
and Rules. Prior to the time an order in such securities is transmitted
to
Ridge, Correspondent shall notify Ridge and Ridge may, in its sole
and
exclusive discretion, charge such reasonable fees, in addition to
the
clearing charges described below, as it deems appropriate for handling
such transactions.
|
-17-
|
VII.
|
CONFIRMATIONS
AND STATEMENTS
|
|
A.
|
Preparation
and Transmission
|
In
the
case of Customer Accounts, Ridge will prepare and mail confirmations and monthly
or quarterly statements of account to Customers in connection with transactions
executed or cleared through Ridge. Confirmations and statements of account
shall
disclose that
the
Accounts are carried on a fully-disclosed basis for Correspondent. Correspondent
acknowledges that such confirmations shall be prepared and delivered on
Correspondent’s behalf and at its direction, and that such confirmations shall
remain, for all purposes, the confirmations of Correspondent. Correspondent
further acknowledges that it shall have sole and exclusive responsibility for
information that it provides or fails to provide for disclosure on confirmations
and monthly or quarterly statements. Accordingly, Correspondent shall provide
in
writing to Ridge any information required by the Applicable Laws and Rules
to be
disclosed in its confirmations and monthly and quarterly statements, including,
without limitation, information required in connection with any
Directed-Brokerage Arrangement or Payment for Order Flow Arrangement.
Correspondent
shall review and approve in writing the form of confirmations and monthly and
quarterly statements of account prior to their use. Ridge will provide
Correspondent with copies of all confirmations and statements sent by Ridge
to Customers in connection with the Accounts. Correspondent shall not prepare
or
transmit confirmations or periodic account statements to Customers without
the
prior written consent of Ridge.
|
B.
|
Examination
and Notification of
Errors
|
|
Correspondent
shall examine promptly all confirmations, comparisons, monthly and
quarterly statements of account, the Reconciliation Statements (as
defined in Section IX.C. of this Agreement), and any other statements
or
reports provided to Correspondent by Ridge or its clearing agency.
Confirmations and comparisons shall be deemed accurate and correct,
and
Correspondent shall be deemed to have waived any claim with respect
to the
accuracy or correctness of the information therein, unless Correspondent
notifies Ridge in writing of any alleged errors or discrepancies
within
twenty (20) business days of receipt of the applicable confirmation.
Monthly and quarterly statements of account shall be deemed accurate
and
correct, and Correspondent shall be deemed to have waived any claim
with
respect to the accuracy or correctness of the information therein,
unless
Correspondent notifies Ridge in writing of any alleged errors or
discrepancies within twenty (20) business days of receipt. Any notice
of
error shall be accompanied by such documentation as may be necessary
to
substantiate Correspondent’s claim. At the request of Ridge, Correspondent
promptly shall provide any additional documentation or information
Ridge
reasonably believes is necessary or desirable to substantiate and
correct
any such alleged error or
discrepancy.
|
|
C.
|
Notations
on Confirmations, Monthly and Quarterly Statements, and
Notices
|
|
Ridge
will make reasonable efforts to indicate on confirmations, monthly
and
quarterly statements, and notices to Customers that Customers are
customers of Correspondents or are introduced by Correspondent. Occasional
or inadvertent omission of such notations shall not be deemed to
constitute a breach of this Agreement, and shall not affect the allocation
of responsibilities between Ridge and Correspondent pursuant to this
Agreement.
|
-18-
|
VIII.
|
BOOKS
AND RECORDS
|
|
Ridge
will prepare and maintain stock records and other prescribed books
and
records of the services performed and transactions effected by Ridge
for
the Accounts on a basis consistent with generally accepted practices
in
the securities industry and with the Applicable Laws and Rules governing
clearing brokers. Such books and records will include, without limitation,
records of daily margin requirements as required by NYSE Rule 432.
Ridge
reserves the right, at its sole and exclusive discretion, to amend
its
policies with respect to the retention of reports requested by or
provided
to Correspondent. Any reports relating to the Accounts that, under
the
Applicable Laws and Rules, are required to be prepared and filed
with the
SEC or any other regulatory or self-regulatory organization by
Correspondent or Ridge shall remain the responsibility of the respective
parties, and Ridge and Correspondent each agrees promptly to provide
the
other with any information in its possession necessary to enable
the other
to prepare and file any such
reports.
|
|
IX.
|
COMMISSIONS
AND CLEARING FEES
|
|
A.
|
Commissions
|
|
Correspondent
shall be solely and exclusively responsible for determining the amount
of
commissions, ▇▇▇▇-ups and similar fees charged by Correspondent
(collectively, “Commissions”) for transactions in the Customer Accounts,
and Ridge shall not exercise any control or influence over the amount
of
such Commissions. Correspondent shall be solely and exclusively
responsible for compliance with the Applicable Laws and Rules
relating to commissions, including, but not limited to, any disclosures
to
Customers or others required to be made in connection therewith.
On or
before the execution of this Agreement, Correspondent shall have
provided
Ridge with a schedule (the “Commission Schedule”) showing the amounts of
Commissions to be charged to Customers. Correspondent may amend the
Commission Schedule from time to time by written instructions to
Ridge.
Ridge will debit and collect from Customer Accounts the amounts shown
on
the Commission Schedule, but Ridge will be required to implement
any
amendments to the Commission Schedule only to the extent and over
such
time as is within the normal capabilities of Ridge’s data processing and
operations systems. Notwithstanding anything herein to the contrary,
Ridge
shall not be obligated to charge Customers any amounts that it believes
violate the Applicable Laws and Rules, but Ridge will have no obligation
to determine whether any such charges violate the Applicable Laws
and
Rules.
|
|
B.
|
Clearing
Fees
|
|
Correspondent
agrees to pay Ridge the clearing fees and other amounts set forth
in
Schedule B hereto for the execution, clearing and related services
to be
provided under this Agreement. Schedule B is hereby incorporated in
and made an integral part of this Agreement.
|
|
C.
|
Collection
and Remittance of
Commissions
|
|
On
behalf of Correspondent, Ridge will collect all Commissions paid
by
Customer Accounts and will deduct and retain the following amounts
from
such Commissions:
|
|
1.
|
all
amounts payable to Ridge in accordance with Schedule B and any amendments
thereto;
|
|
2.
|
any
expenses payable by Ridge on Correspondent’s
behalf;
|
-19-
|
3.
|
any
loss, liability, damage, claim, cost or expense (including, but not
limited to, attorneys’ fees and expenses), as incurred, in respect of
which any Ridge Indemnitee (as defined below) is entitled to
indemnification by Correspondent under this Agreement;
and
|
|
4.
|
all
other amounts owed by Correspondent or by any Customer to Ridge pursuant
to this Agreement or any other agreement between Ridge and Correspondent
or between Ridge and any Customer (including, without limitation,
Customers’ unsecured debit items or unsecured or partially secured short
positions).
|
|
As
soon as practicable after the end of each month, Ridge will credit
the
Settlement Deposit Account (as defined in Section X.B. of this Agreement)
with the amount of Commissions collected by Ridge on Correspondent’s
behalf, net of all amounts to be deducted as set forth above and
any other
amounts due to Ridge from Correspondent, however arising, as determined
by
Ridge. If the amount due to Ridge in any month exceeds the amount
available in Correspondent’s Settlement Deposit Account, Correspondent
shall, in accordance with the provisions of Section X.A. of this
Agreement, immediately deposit with Ridge additional cash so that
the
Settlement Deposit Account shall always have a zero or credit balance.
If
Correspondent fails to make such additional deposit, Ridge will have
full
rights of setoff, including, without limitation, the right to charge
any
other Account maintained by Ridge for Correspondent or any other
assets of
Correspondent held by Ridge, including, but not limited to, the Security
Deposit (as defined in Section X.B. of this Agreement) and positions
and
balances in Accounts which are proprietary accounts of Correspondent,
for
the net amount due Ridge. If Ridge elects not to charge such other
Accounts or assets, or such assets are insufficient to discharge
the net
amount due to Ridge, any amount due to Ridge will be paid to Ridge
by
Correspondent by check within twenty (20) days of Correspondent’s receipt
of a statement (the “Reconciliation Statement”) showing the amount due to
Ridge. If Ridge does not receive payment within such period, Ridge
will
charge Correspondent interest at 2% above the broker’s call rate, or such
other rate as may be agreed in writing by Ridge and Correspondent
until
paid. Any failure by Ridge to charge the Settlement Deposit Account
or any
other Account or assets of Correspondent held by Ridge shall not
act as a
waiver of Ridge’s right to demand payment of, or to charge Correspondent’s
Accounts for, the full amount due at any
time.
|
|
X.
|
SECURITY
FOR OBLIGATIONS OF CORRESPONDENT
|
|
A.
|
Lien
and Security Interest
|
|
In
order to secure the performance by Correspondent of all of its obligations
under this Agreement, including, but not limited to, its liability
to
Ridge for any failures by Customers timely to pay for or deliver
securities purchased or sold and for any losses resulting from unsecured
debit balances or short positions in Accounts, Correspondent hereby
grants
Ridge a continuing lien, security interest in and right of setoff
against
(a) the Settlement Deposit Account and the Security Deposit (as such
terms
are defined below), (b) any Proprietary Accounts, and (c) any
Commissions, funds, securities or other property of Correspondent
held by
Ridge. Correspondent further agrees that Ridge may debit any cash
balances
and/or liquidate any securities held in the Settlement Deposit Account
or
in any Proprietary Account and credit the proceeds to Ridge in such
amounts as are necessary to satisfy Correspondent’s obligations under this
Agreement and at such times as Ridge, in its sole and exclusive
discretion, deems appropriate. The lien, security interest and right
of
setoff created hereunder shall survive the termination of this Agreement
until such time as, in the sole and exclusive discretion of Ridge,
security for the performance of Correspondent’s obligations is no longer
required.
|
-20-
|
B.
|
Settlement
Deposit Account and Security
Deposit
|
|
On
or before the execution of this Agreement, Correspondent shall have
established an account (the “Settlement Deposit Account”) with Ridge. The
Settlement Deposit Account shall at all times contain cash and/or
securities issued or guaranteed as to principal and interest by the
United
States (“U.S. Government Securities”) having an aggregate present valueas
set forth in Schedule B (the “Security Deposit”). Ridge reserves the
right, in its sole and exclusive discretion, on written notice to
Correspondent, at any time, to increase the amount of the Security
Deposit
required to be maintained by Correspondent. Correspondent shall
immediately transfer to the Settlement Deposit Account sufficient
cash
and/or U.S. Government Securities to satisfy the increased amount
of the
Security Deposit. If Correspondent fails to transfer such additional
cash
or U.S. Government Securities to the Settlement Deposit Account,
or if,
for any other reason, including, but not limited to, the exercise
of any
right of setoff pursuant to Section X.A. of this Agreement, the aggregate
value of cash and U.S. Government Securities in the Settlement Deposit
Account is less than the Security Deposit amount then in effect,
Ridge
will be entitled to deposit in the Settlement Deposit Account such
Commissions, funds, securities or other property of Correspondent
in
Ridge’s possession as are necessary to satisfy the deficiency. No later
than thirty (30) days after termination of this Agreement, Ridge
shall
refund all cash or securities in
the Settlement Deposit Account except for (i) deductions on account
of (a)
all clearing and other charges, costs, or expenses due Ridge in accordance
with the terms of this Agreement, including any minimum monthly fee
set
forth on Schedule B to the extent applicable; (b) all charges payable
by
Ridge on your account; and (c) all amounts due Ridge from you under
this
Agreement including amounts arising from any losses, liabilities,
or
damages in accordance with the terms hereof and (ii) amounts held
back as
determined by Ridge, in the reasonable exercise of its discretion,
to be
necessary to protect itself fully against any liabilities, costs,
or
expenses (whether mature or contingent, liquidated or unliquidated)
for
which Correspondent may be responsible under the terms of this Agreement
(without limiting the foregoing, amounts held back may include reasonable
amounts on account of transactions in respect of Customer Accounts
that
have settled for ten days or less and on account of margin accounts
of
your Customers or other Customer Accounts having a debit balance,
other
than accounts that Correspondent has agreed in writing to
accept).
|
|
C.
|
Funds,
Securities and No
Interest
|
|
All
funds transferred to the Settlement Deposit Account shall be in
immediately available United States funds. All securities transferred
to
the Settlement Deposit Account (a) shall be in suitable form for
transfer or shall be accompanied by duly executed instruments of
transfer
or assignment in blank and such other documentation as Ridge may
request,
and (b) shall be transferred on the book-entry system of a Federal
Reserve Bank, or by any other method acceptable to Ridge. Ridge shall
not
be obligated to pay interest to Correspondent on any cash held in
the
Settlement Deposit Account. Neither the Security Deposit nor the
Settlement Deposit Account shall be deemed to be margin for any Account,
nor shall they give rise to or constitute an ownership interest in
Ridge.
|
-21-
|
XI.
|
INFORMATION
TO BE SUPPLIED BY
CORRESPONDENT
|
|
A.
|
Financial
Statements and Other
Reports
|
|
On
or before the execution of this Agreement, Correspondent shall have
supplied Ridge with copies of its most recent audited annual financial
statements and its most recent unaudited quarterly financial statements.
Throughout the term of this Agreement, Correspondent shall, within
five
(5) business days after their preparation, continue to provide Ridge
with
copies of its audited annual and unaudited quarterly financial statements,
together with any amendments thereto, for each subsequent fiscal
year and
quarterly period. Correspondent shall advise Ridge in writing of
any
material errors in or omissions in such financial statements, or
of any
material adverse change in its financial condition or business prospects,
immediately upon becoming aware of such error, omission or change.
In
addition, simultaneously with their filing, Correspondent shall supply
Ridge with copies of all financial information and reports filed
by
Correspondent with the SEC, NYSE, NASD, and any other national securities
exchange or association of which it is a member, including, but not
limited to, its monthly and quarterly Financial and Operational Combined
Uniform Single (“FOCUS”) Reports, any amendment or supplement to its Form
BD, and any reports on Form U-4 or Form U-5 relating to Correspondent’s
principals, together with any amendments or supplements to any of
the
foregoing information or reports. Correspondent shall advise Ridge
in
writing of any material errors in or omissions in such financial
information and reports. Correspondent shall provide immediate oral
and
written notice to Ridge in the event that Correspondent’s capital becomes
subject to the “early warning” provisions of SEC Rule
17a-11.
|
|
B.
|
Suspension
or Restriction
|
|
In
the event that Correspondent learns that Correspondent or any of
its
employees becomes subject to revocation, suspension, bar, injunction,
restriction, censure, consent decree, cease-and-desist order, or
other
formal disciplinary action by the SEC, NYSE, NASD, or any other
regulatory or governmental body having jurisdiction over Correspondent
or
such employee, Correspondent shall notify Ridge immediately and,
in
addition to such other rights and remedies as Ridge may have under
this
Agreement and the Applicable Laws and Rules, Correspondent authorizes
Ridge to take such steps as Ridge determines, in its sole and exclusive
discretion, may be necessary or advisable for Ridge to be in compliance
with the Applicable Laws and Rules. Correspondent further authorizes
Ridge, in such event, to comply with requests, directives or demands
made
upon Ridge by any such exchange or regulatory body. In connection
with
such requests, directives or demands, Ridge may seek advice or legal
counsel and Correspondent shall promptly reimburse Ridge for the
reasonable fees and expenses of such counsel, in each case as incurred.
|
|
C.
|
Actions,
Lawsuits, Arbitrations, Investigations and
Inquiries
|
|
In
the event that Correspondent learns that Correspondent or any of
its
employees becomes a subject, target, respondent or defendant in any
action, lawsuit, arbitration, investigation, inquiry or other proceeding
(formal or informal) relating, directly or indirectly, to its business,
Correspondent shall notify Ridge in writing within twenty (20) business
days and, in addition to such other rights and remedies as Ridge
may have
under this Agreement and the Applicable Laws and Rules, Correspondent
authorizes Ridge to take such steps as Ridge determines, in its sole
and
exclusive discretion, may be necessary or advisable for Ridge to
be in
compliance with the Applicable Laws and
Rules.
|
-22-
|
D.
|
Additional
Information
|
|
At
the request of Ridge, Correspondent shall promptly supply Ridge with
such
other information, reports or documentation reflecting or relating
to
Correspondent’s financial condition, including, without limitation, its
aggregate indebtedness ratio and net capital; Correspondent’s principals
and representatives; and inquiries, investigations, or disciplinary
action
relating to Correspondent or its principals or representatives by
the SEC,
NYSE, NASD, or any other regulatory or governmental body. Within
five (5)
business days after their filing, Correspondent shall supply Ridge
with
copies of reports that it files pursuant to the Bank Secrecy Act,
the
Patriot Act, or any other AML provision, including, without limitation,
CTRs, CMIRs, SARs or FBFARS. At the request of Ridge, Correspondent
shall
(i) file a notice pursuant to Section 314 of the Patriot Act and
any
regulation(s) promulgated thereunder to permit the voluntary sharing
of
information between the parties, and (ii) supply Ridge with such
additional information as is necessary for Ridge to satisfy its
obligations under the Bank Secrecy Act, the Patriot Act, and the
regulations promulgated thereunder.
|
|
XII.
|
COMMUNICATIONS
WITH CUSTOMERS
|
|
Correspondent
shall provide written notice to existing Customers within (30) thirty
days
of the effective date of this Agreement, and to new Customers within
(30)
thirty days of execution of the relevant customer agreement, describing
the respective obligations of the parties under this Agreement and
any
other customer-related responsibilities of the parties in accordance
with
NYSE Rule 382 and NASD Rule 3230. The notifications shall be in
substantially the form of Exhibit A annexed hereto; provided,
however,
that Ridge may, in its sole and exclusive discretion, provide the
notifications on behalf of Correspondent. Correspondent shall be
responsible for the payment of all costs incurred in connection with
the
preparation and mailing of the
notifications.
|
|
Ridge
and Correspondent each agrees to forward promptly to the other party
a
copy of any written inquiry, complaint or other correspondence received
from a Customer that relates to services provided or obligations
assumed
under this Agreement by the other party. Ridge and Correspondent
each
agrees to forward promptly to the other party’s DEA a copy of any written
complaint received from a Customer that relates to services provided
or
obligations assumed under this Agreement by the other party. Correspondent
agrees to forward promptly to Ridge a copy of all of Correspondent’s
filings pursuant to NYSE Rule 351. Correspondent shall also provide
Ridge
with such additional information as Ridge may reasonably request,
including, without limitation, a copy of any written inquiry, complaint
or
other correspondence from any Customer of Correspondent, whether
or not
such written inquiry, complaint or other correspondence was disclosed
by
Correspondent in its filings pursuant to NYSE Rule
351.
|
|
XIII.
|
ERRORS,
CONTROVERSIES AND ADDITIONAL
INDEMNITIES
|
|
A.
|
Errors
and Controversies
|
|
Correspondent
shall be solely and exclusively responsible for any error, controversy,
dispute or discrepancy between Correspondent, or any of its control
persons, partners, shareholders, directors, officers, employees,
agents,
affiliates, successors or assigns (collectively, including Correspondent,
the “Correspondent Parties”), and any of the Accounts or Customers.
Correspondent shall indemnify, defend and hold Ridge and its control
persons, partners, shareholders, directors, officers, employees,
agents,
affiliates, successors and assigns (collectively, including Ridge,
the
“Ridge Indemnitees”) harmless from and against any loss, liability,
damage, claim, cost or expense (including, but not limited to, attorneys’
fees and expenses), in each case as incurred, arising directly or
indirectly from any such error, controversy, dispute or discrepancy,
and
from any action or proceeding commenced by or against any of the
Correspondent Parties by any Customer, or from the settlement of
any such
claim, action or proceeding.
|
-23-
|
B.
|
Additional
Indemnities
|
Correspondent
hereby agrees to indemnify, defend and hold the Ridge Indemnitees harmless
from
and against any loss, liability, damage, claim, cost or expense (including,
but
not limited to, attorneys’ fees and expenses), in each case as incurred, arising
directly or indirectly from or related to the Accounts, the Customers or any
order or transaction contemplated by this Agreement, or as a result of any
inquiry or investigation conducted in connection therewith or in the defense
or
settlement of any threatened or pending action or proceeding brought by any
regulatory or self-regulatory organization, governmental agency or private
person arising out of or in connection with the same, unless such loss,
liability, damage, claim, cost or expense, as finally determined by a court
of
competent jurisdiction, was caused solely and directly by the willful misconduct
or gross negligence of Ridge. This indemnity is supplemental to any other
obligation of Correspondent in this Agreement to pay or reimburse Ridge for
any
loss, liability, damage, claim, cost or expense (including, but not limited
to,
attorneys’ fees and expenses). Without limiting its generality, the foregoing
indemnity is intended to include, among other things, any loss, liability,
damage, claim, cost or expense (including, but not limited to, attorneys’ fees
and expenses) arising from or relating to any of the following:
|
1.
|
the
failure of any Customer to make timely payment for securities purchased
or
timely and good delivery of securities sold, the existence of an
unsecured
debit balance or unsecured short position in an Account, the failure
of
any Customer timely to comply with initial margin or maintenance
margin
requirements, the failure of any Customer to pay interest in accordance
with the applicable margin agreement(s), or the failure of any Customer
otherwise to fulfill any of its obligations in connection with any
Account, whether or not such failure is within the control of
Correspondent;
|
|
2.
|
the
failure of any of the Correspondent Parties fully and properly to
discharge its obligations and responsibilities with respect to Accounts,
it being understood and agreed that the participation of any of the
Ridge
Indemnitees in any transaction shall not diminish, reduce or otherwise
affect Correspondent’s indemnification obligations hereunder, except to
the extent that such participation has been finally determined by
a court
of competent jurisdiction to have been caused solely and directly
by the
willful misconduct or gross negligence of
Ridge;
|
|
3.
|
any
defect in title to any securities purchased, sold, borrowed, delivered
or
transferred under this Agreement (including, without limitation,
those
that may have been forged, counterfeited, altered, lost or stolen),
and
any adverse claims with respect to any securities purchased, sold,
borrowed, delivered or transferred under this Agreement, it being
understood that Ridge will be deemed to be solely and exclusively
an
intermediary between Correspondent and Customers with respect to
such
securities and will be deemed to make no representations or warranties
other than as provided with respect to intermediaries in Section
8-306 of
the Uniform Commercial Code;
|
|
4.
|
any
claim by any contra broker or any other person arising from or relating
to
Ridge’s rejection of a transaction for clearance pursuant to the terms
of
this Agreement, or the failure by any contra broker designated by
Correspondent to settle any transaction for an Account;
|
|
5.
|
any
errors or discrepancies in orders as transmitted by Correspondent
or
Customer to Ridge;
|
| 6. |
the
use of check-writing privileges pursuant to Section XXI.C. of this
Agreement;
|
-24-
|
7.
|
any
request by Correspondent to defer a buy-in or sell-out for an Account,
or
to extend the time for the making of a required margin payment by
an
Account, whether or not granted in whole or in part by Ridge;
|
|
8.
|
any
guarantee by Ridge of any signatures with respect to a transaction
in an
Account;
|
|
9.
|
the
exercise by Correspondent Parties of discretionary authority over
any
Account;
|
|
10.
|
any
action or inaction by an agent holding a power of attorney for an
Account
on behalf of a principal;
|
|
11.
|
any
claim or dispute arising directly or indirectly from a Soft-Dollar
Arrangement, Directed-Brokerage Arrangement, or Payment for Order
Flow
Arrangement;
|
|
12.
|
any
act or omission of Correspondent, its agents, employees or customers
which
infringes on any patent, trade secret, copyright, trademark, or other
intellectual property right of Ridge;
or
|
|
13.
|
the
breach by Correspondent of, or an untrue statement or omission in,
any
representation, warranty or covenant in this
Agreement.
|
|
C.
|
Defense
of Claims and Actions
|
|
If
any claim or action is asserted or commenced against any Ridge Indemnitee
in respect of which indemnity may be sought against Correspondent
pursuant
to this Agreement, such Ridge Indemnitee will notify Correspondent
in
writing, and Correspondent shall assume the defense of such claim
or
action, including the employment of counsel and payment of attorneys’ fees
and expenses, as incurred, on behalf of such Ridge Indemnitee. Each
Ridge
Indemnitee against whom such claim or action is asserted or commenced
shall have the right to employ its own separate counsel, but the
fees and
expenses of such separate counsel shall be at the expense of such
Ridge
Indemnitee unless: (1) the employment of such separate counsel shall
have
been authorized in writing by the Correspondent; (2) Correspondent
shall
not have employed counsel to conduct the defense of such Ridge Indemnitee;
or (3) such Ridge Indemnitee shall have reasonably concluded that,
as
between such Ridge Indemnitee and Correspondent or between such Ridge
Indemnitee and one or more of the other Ridge Indemnitees, there
may be a
conflict of interest requiring separate counsel. In the event that
any of
the circumstances referred to in clauses (1)-(3) of the preceding
sentence
occurs, the fees and expenses of the separate counsel employed by
such
Ridge Indemnitee shall be borne in their entirety by Correspondent,
and
Correspondent shall not have the right to direct the defense of such
Ridge
Indemnitee. In any event, Correspondent shall cooperate in the defense
of
any such claim or action against an Ridge Indemnitee, including,
without
limitation, in the effectuation of any settlement which such Ridge
Indemnitee, in its reasonable discretion, deems appropriate, the
costs of
which settlement shall be borne in their entirety by
Correspondent.
|
|
D.
|
Survival
of Indemnities
|
|
All
indemnification, reimbursement and payment for expense provisions
of this
Agreement shall survive the termination of the Agreement. Each indemnity
under this Agreement shall also extend to the costs and expenses
(including, but not limited to, attorneys’ fees and expenses), if any,
incurred by any of the Ridge Indemnitees in enforcing such indemnity.
|
-25-
|
XIV.
|
LIMITATION
OF LIABILITY OF RIDGE
|
|
A.
|
Limitation
of Liability
|
|
In
no event shall Ridge be responsible to Correspondent, to any Customer,
or
to any other person for indirect, special, consequential or punitive
damages arising from or relating, directly or indirectly, to this
Agreement, regardless of whether Ridge has been advised of or might
otherwise have anticipated the possibility of such damages. Ridge
shall
have no liability under this Agreement except to Correspondent.
Notwithstanding anything to the contrary in this Agreement, Ridge
shall
have no liability whatsoever for any losses, damages, costs or expenses
which are not finally determined by a court of competent jurisdiction
to
have been caused solely and directly by its own willful misconduct
or
gross negligence. Correspondent
acknowledges and agrees that this Agreement significantly limits
the
liability of Ridge and that such limitation is fair and reasonable
in
light of the limited responsibilities of Ridge, and the amounts payable
to
Ridge for its services, under this
Agreement.
|
|
B.
|
Third-Party
Service Providers
|
|
Ridge
may, in its sole and exclusive discretion, use third-party service
companies to perform or assist it in the performance of selected
services
under this Agreement (including affiliates of Ridge). In such event,
the
term “Ridge” shall be deemed to include such third-party service
companies, and the limitations of liability in Section XIV.A. of
this
Agreement shall apply.
|
|
C.
|
Systems
and Communications Failures; Errors in
Instructions
|
|
Ridge’s
sole responsibilities with respect to any systems or communications
failures, or any interruptions or delays in the services provided
or to be
provided by Ridge under this Agreement, shall be to use its best
efforts
to make such systems and services available as promptly as reasonably
practicable. Ridge shall have no responsibility whatsoever for the
accuracy of, or any errors or omissions in, any databases or securities
information and related market and statistical information displayed,
carried or furnished by or through its equipment or systems. Ridge
shall
have no responsibility whatsoever for any loss, expense or damage
suffered
by Correspondent, any Customer or any other person by reason of any
interruption or delay in the transfer or receipt of funds or securities
through the Federal Reserve Book Entry System, the Federal Funds
Wire
Transfer System or any similar system or from any clearing agent,
issuer,
broker, dealer or other third party. Ridge shall have no responsibility
whatsoever for any failures to execute or “DK’s” directly or indirectly
resulting from incorrect, incomplete or untimely instructions or
any other
failure by Correspondent, or any other person, to provide proper
instructions.
|
|
XV.
|
ADDITIONAL
REPRESENTATIONS, WARRANTIES AND
COVENANTS
|
|
A.
|
Representations,
Warranties and Covenants of
Correspondent
|
|
Correspondent
represents, warrants and covenants to Ridge as
follows:
|
|
1.
|
Correspondent
is, and during the term of this Agreement shall remain, duly
registered and in good standing as a broker-dealer with the SEC,
a member
firm in good standing of the NASD, and a member in good standing
of every
national securities exchange and association of which it is a
member.
|
-26-
|
2.
|
Correspondent
has all requisite authority in conformity with all Applicable Laws
and
Rules to enter into and perform this Agreement and has taken all
necessary
actions to authorize the execution of this Agreement and the performance
of its obligations hereunder.
|
|
3.
|
Correspondent
and each of the other Correspondent Parties is, and during the term
of
this Agreement shall remain, in full compliance with the Applicable
Laws
and Rules, including, but not limited to, the registration, qualification,
capital, financial reporting, customer protection, disclosure and
similar
requirements of the SEC, NYSE, NASD, any other securities exchange
or
association of which it is a member, and every state to which jurisdiction
it is subject.
|
|
4.
|
Correspondent
has, and during the term of this Agreement shall maintain, excess
net
capital in an amount that is the greater of the amount required under
the
Law and Rules and the amount set forth on Schedule B. Ridge may,
in its
sole and exclusive discretion, increase that amount if it determines
that
a higher amount is necessary and advisable for its protection.
Correspondent shall immediately notify Ridge in writing in the event
that
Correspondent’s excess net capital falls below the greater of the amount
required under the Applicable Laws and Rules and the amount set forth
on
Schedule B.
|
|
5.
|
All
orders and instructions transmitted to Ridge by Correspondent shall
be
valid and shall have been duly and properly
authorized.
|
|
6.
|
There
is no action, suit, investigation, inquiry or proceeding (formal
or
informal) pending or threatened against or affecting Correspondent
or any
of the other Correspondent Parties, by or before any court or other
tribunal, arbitrator, governmental agency, instrumentality or authority
or
any self-regulatory or clearing organization, as to which Ridge has
not
been informed and provided with copies of all relevant documents.
|
|
7.
|
The
activities of Correspondent pursuant to this Agreement do not and
during
the term of this Agreement shall not give rise to a prohibited transaction
within the meaning of Section 406 of ERISA, and all applicable Prohibited
Transaction Class Exemptions shall have been complied
with.
|
|
8.
|
Correspondent
has, and during the term of this Agreement shall maintain, blanket
bond
insurance policies satisfactory to Ridge covering any and all acts,
errors, and omissions of any of the Correspondent Parties and adequate
fully to protect and indemnify Ridge against any loss, liability,
damage,
claim, cost or expense (including, but not limited to, attorneys’ fees and
expenses) which Ridge may suffer or incur directly or indirectly
as a
result of any such act, error, or omission. Coverage to be maintained
under such policies shall be in an amount that is the greater of
the
amount required under NASD Rule 3020 or NYSE Rule 319, as applicable,
and
an amount specified in writing by Ridge to Correspondent, and shall
remain
in effect during the term of this Agreement and include coverage
for any
claims discovered or made within at least ninety (90) calendar days
following the termination of this Agreement. Ridge shall be expressly
named as the beneficiary of the errors and omissions policy required
to be
maintained by Correspondent pursuant
hereto.
|
|
9.
|
On
or before the execution of this Agreement, Correspondent shall have
identified in writing to Ridge each of its lines of business and any
securities in which Correspondent makes a market. Correspondent shall
give
Ridge reasonable prior written notice of proposed material changes in
its market-making activities; provided,
however,
that with respect to changes in the securities in which Correspondent
proposes to act as a market maker, Correspondent shall endeavor to
give
such notice prior to the change only if and to the extent practical.
|
-27-
|
10.
|
Correspondent
shall give Ridge at least thirty (30) business days’ prior written notice
of any new lines of business that materially modify the mix of business
that Correspondent is engaged in on the date of this Agreement. Such
notice shall be required notwithstanding that such new business or
different business mix does not affect the services to be performed
by
Ridge under this Agreement. In connection with any such new business
or
different business mix, Ridge will have the right, in its sole and
exclusive discretion, to request additional assurances from Correspondent,
to require Correspondent to increase the amount of its Security Deposit,
or to terminate this Agreement.
|
|
B.
|
Representations,
Warranties and Covenants of
Ridge
|
|
Ridge
represents, warrants and covenants to Correspondent as
follows:
|
|
1.
|
Ridge
is and during the term of this Agreement shall remain duly registered
and
in good standing as a broker-dealer with the SEC, a member firm in
good
standing of the NYSE and NASD, and a member in good standing of every
national securities exchange and association of which it is a
member.
|
|
2.
|
Ridge
has all requisite authority in conformity with all Applicable Laws
and
Rules to enter into and perform this Agreement and has taken all
necessary
actions to authorize the execution of this Agreement and the performance
of its obligations hereunder.
|
|
3.
|
Ridge
has and during the term of this Agreement shall maintain net capital
in an
amount no less than that required by the Law and
Rules.
|
|
XVI.
|
NO
PARTNERSHIP OR AGENCY; NO SPECIAL
TREATMENT
|
Neither
this Agreement nor any activity hereunder shall create a general or limited
partnership, association, joint venture, branch or agency relationship between
Correspondent and Ridge. Correspondent shall not hold itself out as an agent
of
Ridge or of any subsidiary or company controlled directly or indirectly by
or
affiliated with Ridge, nor shall it employ Ridge’s name in any manner that
creates the impression that the relationship created or intended between them
is
anything other than that of clearing broker and introducing broker. Correspondent
shall not, without the prior written approval of Ridge, place any advertisement
in any newspaper, publication, periodical or any other media if such
advertisement in any manner makes reference to Ridge or to the execution and
clearing arrangements contemplated by this Agreement.
Correspondent shall not, without the prior written approval of Ridge, furnish
any link to the website(s) of Ridge or its affiliates. Should Correspondent
in
any way hold itself out as, advertise or otherwise represent that it is the
agent of Ridge, Ridge shall have the right, at its option, in addition to such
other rights and remedies as it may have, to terminate this Agreement and/or
to
obtain injunctive relief or any other provisional remedy in any New York federal
or state court, and Correspondent shall be liable for any loss, liability,
damage, claim, cost or expense (including, but not limited to, attorneys’ fees
and expenses) sustained or incurred as a result of such representation of
agency. No such application for a provisional remedy, however, nor any act
by
either party in furtherance of or in opposition to such application, shall
constitute a relinquishment or waiver of any right to have the underlying
dispute or controversy with respect to which such application is made settled
by
arbitration in accordance with Section XXI.M. of this Agreement.
This
Agreement is not intended, nor shall it be construed, to bestow upon
Correspondent any special treatment regarding any other arrangements, agreements
or understandings that exist or may hereafter exist between the parties or
their
affiliates. Neither party shall have any obligation to deal with the other
in
any capacity other than as set forth in this Agreement.
-28-
|
XVII.
|
CONFIDENTIALITY;
EMPLOYEES
|
|
A.
|
Confidentiality
|
|
Correspondent
and Ridge shall each keep confidential any information acquired as a
result of this Agreement regarding the business and affairs of the
other,
except such information as may be required to be disclosed pursuant
to
subpoena, court order or in any regulatory or self-regulatory inquiry,
investigation, proceeding or other matter (collectively, an “Inquiry”), or
as may be required to be disclosed under this Agreement. Except as
otherwise prohibited by law, Correspondent and Ridge will each give
the
other prompt notice of the receipt of any Inquiry prior to such party’s
disclosing information in connection therewith. Correspondent agrees
not
to disclose the terms of this Agreement to any person or entity except
to
regulatory bodies with appropriate jurisdiction and to authorized
employees of Correspondent on a need-to-know basis. Any other publication
or disclosure of the terms of this Agreement may be made only with
the
prior written consent of Ridge. The confidentiality provisions of
this
Agreement shall survive the termination of this
Agreement.
|
|
B.
|
Employees
|
|
Without
Ridge’s prior written consent, Correspondent shall not solicit, or engage
in negotiations with, any person who is, or within the preceding
twelve
(12) months has been, employed by Ridge or by any affiliate of
Ridge.
|
|
XVIII.
|
TERM
AND TERMINATION
|
|
A.
|
Term
|
|
The
initial term of this Agreement shall commence upon its approval by
the
NYSE and shall continue until the date which is five years from the
date
that the Services are first provided on a live basis (the “Initial Term”).
The end of the Initial Term shall be referred to as the “Initial
Expiration Date.”
|
The
term
of this Agreement shall continue for successive one-year periods after the
Initial Term and this Agreement shall be deemed to have been extended for such
one-year periods as of the Initial Expiration Date and each anniversary of
the
Initial Expiration Date, provided that written notice of termination is not
provided (1) by Correspondent at least sixty (60) calendar days in advance
of
the commencement of any such one-year period or (2) by Ridge at least one
hundred and eighty (180) calendar days in advance of the commencement of any
such one-year period.
|
B.
|
Termination
|
|
Notwithstanding
the foregoing, Ridge may terminate this Agreement, in accordance
with the
procedures set forth below, whether prior to or after the Initial
Expiration Date, upon the occurrence of an “Event of Default”. For
purposes hereof, an “Event of Default” shall occur
if:
|
|
1.
|
Correspondent
fails to perform or observe any term, covenant or condition to be
performed hereunder and such failure continues unremedied for a period
of
thirty (30) days after receipt of written notice from Ridge specifying
the
failure and demanding that Correspondent remedy its default;
|
-29-
|
2.
|
any
material representation or warranty made by Correspondent hereunder
proves
false or misleading at any time in any material respect and such
breach
continues unremedied for a period of ten (10) days after Correspondent
becomes aware of the breach;
|
|
3.
|
Correspondent
is enjoined, censured, suspended, prohibited, or otherwise unable
to
engage in all or a material portion of its securities business as
a result
of any administrative or judicial proceeding or action by the SEC,
any
state securities law administrator, any national securities exchange,
or
any self-regulatory organization or governmental body having jurisdiction
over Correspondent; or
|
|
4.
|
Correspondent
is adjudicated bankrupt or insolvent or a trustee or similar creditors’
representative is appointed by court order; or any property of
Correspondent is sequestered by court order and such order remains
in
effect for more than thirty (30) calendar days; or a petition is
filed by
or against Correspondent either voluntarily or involuntarily under
any
bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt,
dissolution or liquidation law of any jurisdiction, whether now or
hereafter in effect, and is not dismissed within thirty (30) calendar
days
after such filing; or Correspondent makes an assignment for the benefit
of
its creditors, or admits in writing its inability to pay its debts
generally as they become due, or consents to the appointment of a
receiver, trustee or liquidator for itself or for any property held
by
it.
|
|
Correspondent
shall promptly advise Ridge in writing upon the occurrence of any
event
which constitutes, or with the passage of time would constitute,
an Event
of Default under this Agreement. Upon the occurrence of an Event
of
Default under subsections (1) or (2) above, Ridge may, at its option,
by
notice in writing to Correspondent, declare this Agreement terminated,
and
such termination shall be effective as of the date such notice is
delivered or such later date as may be designated by Ridge in such
notice.
Upon the occurrence of an Event of Default under subsections (3)
or (4)
above, this Agreement shall immediately and automatically terminate
without notice or any further action by Ridge.
|
|
C.
|
Changes
in the Applicable Laws and
Rules
|
|
Notwithstanding
any provision hereof, Ridge may, in its sole and exclusive discretion,
amend the fees that it charges Correspondent if there is a material
increase in its costs as a result of a change in the Applicable Laws
and
Rules. Ridge agrees to give prior written notice to Correspondent
of any
such amendment at least 180 days prior to the amendment (if Ridge
has at
least 180 days’ notice of such material increase in its costs) or a number
of days’ notice, not less than 60 days, which is equal to the number of
days’ notice that Ridge has of such material increase in its costs (if
Ridge has less than 180 days’ notice of such material increase in its
costs). Upon receipt of such written notice, Correspondent will have
the
right to terminate this Agreement during such notice period.
|
|
D.
|
Changes
in Control, Management or Business
Mix
|
|
Notwithstanding
any provision hereof, this Agreement may be terminated by Ridge at
any
time, upon written notice to Correspondent, if there is a change
in
control or a material change in the management of Correspondent,
or in the
scope, nature, or extent of the transactions effected in the Accounts
or
in the business mix of Correspondent, in each case without the prior
written approval of Ridge. For purposes hereof, a change in the business
mix of Correspondent shall include, without limitation, a change
in the
market-making activities of Correspondent. Correspondent shall immediately
advise Ridge in writing upon the occurrence of any of the events
described
in this Section.
|
-30-
|
E.
|
Termination
Fee
|
|
In
the event that this Agreement is terminated by Correspondent in a
manner
which is not expressly permitted herein (i.e., a termination for
its
“convenience) or by Ridge in a manner which is expressly permitted
herein
(i.e., a termination for other than for its “convenience), prior to the
Initial Expiration Date, Correspondent shall pay to Ridge a termination
fee (the “Termination Fee”) equal to the sum of (1) the early termination
fee set forth on schedule B, and (2) an amount equal to the costs
and
expenses of Ridge incurred in connection with the conversion of Accounts
pursuant to Section XVIII.F. of this Agreement, which amount shall
in no
event be less than $10,000. Correspondent shall pay the Termination
Fee,
in immediately available U.S. funds, within ten (10) calendar days
of
receipt of a written statement from Ridge setting forth the costs
and
expenses comprising the Termination Fee.
|
| In the event that Correspondent is the subject of the issuance of a protective decree pursuant to the Securities Investor Protection Act of 1970 (15 USC 78aaa-III), Ridge’s claim for a payment of a termination fee under this Agreement shall be subordinate to claims of Correspondent’s customers that have been approved by the trustee appointed by the Securities Investor Protection Corporation pursuant to the issuance of such protective decree. |
|
F.
|
Conversion
of Accounts
|
|
Upon
termination of this Agreement for any reason, it shall be Correspondent’s
responsibility to arrange for the conversion of the Accounts to another
broker for clearing and/or execution services. Correspondent shall
promptly upon termination give Ridge written notice of the name of
such
other broker, the anticipated date on which it shall commence acting
as
clearing broker with respect to the Accounts, and the name of the
individual(s) within that organization whom Ridge can contact to
coordinate the conversion. Correspondent shall also provide Ridge
with
Correspondent’s written undertaking, in a form acceptable to Ridge, that
such other broker shall accept on conversion all Accounts then maintained
by Ridge for such Correspondent. If Correspondent fails to provide
Ridge
with the notice and undertaking referred to above, Ridge may, at
the sole
expense of Correspondent, give Customers such notice of termination
of
this Agreement as Ridge deems appropriate and make such other arrangements
as Ridge deems appropriate for transfer or delivery of the Accounts.
Ridge
will provide reasonable assistance to Correspondent in de-converting
Accounts from the systems of Ridge. Correspondent shall promptly
pay to
Ridge reasonable expenses incurred by Ridge in processing the
de-conversion.
|
|
G.
|
Survival
|
|
Termination
of this Agreement shall not affect any of the rights or liabilities
of the
parties relating to business transacted prior to the effective date
of
such termination. From the date of termination until transfer or
delivery
of all Accounts, the rights and liabilities of the parties relating
to any
business transacted after such termination shall be governed by the
same
terms as those set forth in this
Agreement.
|
|
H.
|
No
Obligation to Release Correspondent
Accounts
|
|
Subject
to Ridge’s obligation to refund cash or securities in the Settlement
Account within 30 days after termination of this Agreement in accordance
with Section X.B. above, Ridge shall not be required to release to
Correspondent any securities or cash held by Ridge for Correspondent
in
one or more Accounts of Correspondent until all amounts owing to
Ridge
pursuant to the provisions of this Agreement are paid in full and
Correspondent’s outstanding obligations (including any disputed
obligations) to Ridge are determined and satisfied and any property
of
Ridge in the possession of Correspondent is returned to
Ridge.
|
-31-
|
XIX.
|
ACTIONS
AGAINST CUSTOMERS
|
|
If
Correspondent is unable or unwilling to pursue a claim against any
Customer, Ridge shall have the right, but not the obligation, in
its sole
and exclusive discretion, to institute and prosecute in either its
own
name or, at Ridge’s option, in the name of Correspondent, any action or
proceeding against any Customer as to any controversy or claim arising
(directly or indirectly) out of any transaction with Ridge, Correspondent
or any Customer, and nothing contained in this Agreement shall be
deemed
or construed to impair or prejudice such right in any way whatsoever,
nor
shall the institution or prosecution of any such action or proceeding
relieve Correspondent of any liability or responsibility which
Correspondent would otherwise have under this Agreement. Correspondent
hereby assigns to Ridge such rights against Customers, and, upon
the
request of Ridge, agrees to execute such other and further instruments
or
documents, as are reasonably necessary or appropriate to carry out
the
intent of this Section.
|
|
XX.
|
NOTICES
|
|
Except
as otherwise expressly provided herein, any notice or instruction
required
or permitted to be given under this Agreement shall be in writing,
shall
be effective upon receipt, and shall be sent by hand or by certified
mail,
in either case, return receipt requested, to the parties at the following
addresses, or at such other address as to which notice in writing
shall
have been given:
|
If
to
Ridge:
Ridge
Clearing & Outsourcing Solutions, Inc.
▇▇
▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax
No:
(▇▇▇) ▇▇▇-▇▇▇▇
Attn:
General Counsel
If
to
Correspondent:
▇▇▇▇▇▇
Securities Inc.
▇▇▇
▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Fax
No.:
(201)
Attn:
▇▇▇▇▇ ▇▇▇▇, President
|
XXI.
|
MISCELLANEOUS
|
|
A.
|
Exchange
of Information
|
|
Each
party shall promptly supply the other with all appropriate information
in
its possession necessary or appropriate to enable the other party
properly
to perform its obligations under this
Agreement.
|
| B. |
Exception
and Other Reports
|
|
At
the time of execution of this Agreement, and annually thereafter,
Ridge
will provide to Correspondent a list of exception and other reports
it can
make available to Correspondent, and the cost therefor, which may
assist
Correspondent in complying with regulatory requirements, supervising
and
monitoring the Accounts, and meeting its obligations under this Agreement.
Correspondent specifically acknowledges that such reports may not
be
inclusive of all of the exception and other reports necessary for
Correspondent to comply with its regulatory
obligations.
|
-32-
|
At
each time specified in the paragraph above, Correspondent shall promptly
designate in writing to Ridge which, if any, of such reports Correspondent
requires during the succeeding twelve months, and Ridge will thereafter
provide such designated reports to Correspondent. Within thirty (30)
days
of July 1 of each year, Ridge will give written notice to Correspondent’s
chief executive and compliance officer identifying the list of reports
offered to Correspondent and those reports that were actually requested
by
Correspondent. A copy of the written notice will also be provided
to
Correspondent’s designated examining authority (or, if none, to its
appropriate regulatory agency or authority). It shall be the sole
responsibility of Correspondent to determine whether additional reports
are necessary for Correspondent to meet its regulatory obligations,
and to
obtain and use such reports. Ridge will retain the data from which
each of
such reports was produced for at least six (6) years in a manner
sufficient for Ridge to reproduce the
report.
|
Notwithstanding
the foregoing, Correspondent shall itself maintain reports, records and
regulatory filings required to be kept by Correspondent by this
Agreement.
|
C.
|
[Intentionally
Omitted]
|
| D. |
Credit
Investigations
|
Both
Ridge and Correspondent shall have the right to investigate, or to cause a
third
party to investigate, the other party’s credit.
| E. |
Tape
Recording
|
Both
Ridge and Correspondent shall have the right to record telephone conversations
between themselves, and both Ridge and Correspondent waive any right to further
notice of any such recording.
|
F.
|
No
Third-Party
Beneficiaries
|
|
Except
as otherwise provided in Section XXI.K of this Agreement, this Agreement
is between Ridge and Correspondent only, and is not intended to confer
any
benefits or rights upon any Customers or other persons not expressly
made
parties hereto (other than Ridge Indemnitees).
|
|
G.
|
Customer
Agreements
|
|
All
customer agreements used by Correspondent shall be provided by Ridge
or,
alternatively, by Correspondent at its expense and pre-approved in
writing
by Ridge. In the event that any customer agreement is prepared by
Correspondent, Correspondent agrees to designate Ridge as a beneficiary
of
each of Customer’s representations, warranties, acknowledgments and
covenants in the customer agreement to the same extent as if such
representations, warranties, acknowledgments and covenants were made
directly by Customer to Ridge, and that Ridge, in its own name and
for its
own benefit, shall be entitled to enforce such provisions and all
other
rights granted to Correspondent directly against
Customer.
|
|
H.
|
Competition
|
|
Nothing
herein shall restrict or be deemed to restrict the right of Ridge
or any
affiliate of Ridge to compete with Correspondent in any or all aspects
of
Correspondent’s business. Notwithstanding the foregoing, Ridge’s current
business lines currently include only the provision of clearing and
outsourcing services and Ridge has no present intention of getting
into or
competing with Correspondent’s market making
business.
|
-33-
|
I.
|
Remedies
Cumulative
|
|
The
enumeration herein of specific remedies shall not be exclusive of
any
other remedies. Any delay or failure by any party to this Agreement
to
exercise any right or remedy under this Agreement or under the Applicable
Laws and Rules, or the single or partial exercise of any such right
or
remedy, shall not be construed to be a waiver of any such rights
or
remedies, or to limit the exercise of such rights or
remedies.
|
| J. |
Merger;
Amendment
|
|
This
Agreement represents the entire agreement between the parties and
supersedes all other understandings and agreements between the parties
with respect to the subject matter hereof. This Agreement may not
be
amended except by a writing signed by the parties hereto.
|
| K. |
Assignment
|
|
This
Agreement shall be binding upon and inure to the benefit of the respective
successors and authorized assigns of the parties. Correspondent shall
provide Ridge with thirty (30) business days’ prior written notice of any
proposed change in control. Correspondent may not assign this Agreement,
or assign or delegate any of its rights or obligations hereunder,
without
the prior written consent of Ridge, which consent shall not be
unreasonably withheld. Ridge may assign this Agreement or assign
or
delegate any of its rights or obligations hereunder to any affiliate
of
Ridge without Correspondent’s consent if such affiliate executes and
delivers to Correspondent an assumption agreement pursuant to which
such
affiliate assumes all such obligations of Ridge under this Agreement
as
have been delegated to it. Correspondent consents and agrees to the
assignment and transfer by Ridge of its rights and obligations hereunder
at any future time resulting from a merger, sale of all or a substantial
portion of its assets, liquidation or otherwise of all Accounts covered
by
this Agreement (including, but not limited to, all securities positions,
credit and debit balances contained therein) to any such successor
organization or assignee, including any registered broker and/or
dealer
that owns any of Ridge’s capital stock, and such assignment shall be
binding upon the undersigned, its successors, and
assigns.
|
|
L.
|
Governing
Law
|
|
This
Agreement shall be governed by and construed in accordance with the
laws
of the State of New York, without regard to its conflict of laws
principles.
|
|
M.
|
Arbitration
|
|
Any
dispute or controversy arising out of or relating in any way to this
Agreement, including, without limitation, any dispute or controversy
that
might give rise directly or indirectly to a class action or putative
class
action, shall be submitted to arbitration before the NYSE (conducted
pursuant to NYSE Rules), or, if Correspondent is not a NYSE member,
any
other self-regulatory organization or exchange chosen by Ridge that
has
jurisdiction over the dispute or controversy. Arbitration must be
initiated by service upon the other party of a written demand for
arbitration or notice of intention to arbitrate. Judgment upon any
award
rendered by the arbitrator(s) shall be final, and may be entered
in any
court, state or federal, having
jurisdiction.
|
-34-
|
N.
|
Customer
Actions
|
|
In
the event of an arbitration or court action in which a Customer has
asserted a claim against Ridge or an affiliate thereof, Correspondent
agrees that (1) it shall submit to the jurisdiction of any such forum
in
which such claim is brought, and (2) it shall accept service of process
for any such claim. Service of process in any such action or arbitration
shall be sufficient if served on Correspondent by certified mail,
return
receipt requested, at the address provided for the delivery of notices
under this Agreement.
|
|
O.
|
Temporary
or Provisional Relief
|
|
Notwithstanding
Section XXI.M. of this Agreement, Ridge may, at any time prior to
an
initial arbitration hearing with respect to any dispute or
controversy relating to or arising out of this Agreement, obtain
upon
application to the United States District Court for the Southern
District
of New York or the Supreme Court of the State of New York for the
County
of New York any temporary or provisional relief or remedy that would
be
available in an action based upon such dispute or controversy in
the
absence of an agreement to arbitrate. The parties acknowledge and
agree
that it is their intention to have any such application for provisional
or
temporary relief decided by the court to which it is made and that
such
application shall not be referred to or settled by arbitration. Process
in
any such proceeding shall be sufficient if served on Correspondent
by
certified mail, return receipt requested, at the address provided
above
for the delivery of notices under this Agreement. In this connection,
Correspondent expressly waives any defense (1) to personal jurisdiction,
(2) to service of process in the manner set forth above, and (3)
to venue.
No such application to a court for provisional or temporary relief,
nor
any act or conduct by either party in furtherance of or in opposition
to
such application, shall constitute a relinquishment or waiver of
any right
to have the underlying dispute or controversy settled by arbitration
in
accordance with Section XXI.M. of this
Agreement.
|
|
P.
|
Force
Majeure
|
|
Ridge
shall not be liable for losses caused directly or indirectly by government
restrictions, exchange or market rulings, suspension of trading,
labor
strike, war, act of civil or military authority, sabotage, terrorism,
epidemic, flood, earthquake, fire, or other natural disaster, or
any other
conditions or occurrences beyond Ridge’s reasonable
control.
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| Q. |
Headings
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The
headings contained herein have been inserted for convenience and
ease of
reference only and shall not be construed to affect the meaning,
construction or effect of this
Agreement.
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R.
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Enforceability
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If
any provision or condition of this Agreement is held to be invalid
or
unenforceable by any court, arbitration tribunal or regulatory or
self-regulatory agency or body, the validity of the remaining provisions
and conditions shall not be affected thereby and this Agreement shall
be
carried out as if any such invalid or unenforceable provision or
condition
were not contained herein.
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S.
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Counterparts
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This
Agreement may be executed in counterparts, each of which shall constitute
an original, and all of which together shall constitute one and the
same
agreement.
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-35-
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T.
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Sole
and Exclusive
Discretion
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All
provisions in this Agreement that permit Ridge to exercise its “sole and
exclusive discretion” shall be deemed to require that (i) Ridge act in good
faith when exercising its discretion, (ii) if practical under the circumstances,
Ridge shall give notice of its intentions prior to taking action, and if not
practical prior to the action, Ridge shall give notice of its action to
Correspondent promptly thereafter, and (iii) upon the request of a senior
officer of Correspondent, the parties shall meet to discuss Ridge’s rationale
behind its discretionary act, and the parties shall work in good faith to
resolve any disputes regarding such actions.
IN
WITNESS WHEREOF the parties have executed this Agreement as of the date first
written above.
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RIDGE
CLEARING & OUTSOURCING SOLUTIONS, INC.
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By:
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/s/
▇▇▇▇▇▇ ▇▇▇▇▇
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▇▇▇▇▇▇
▇▇▇▇▇
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President
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▇▇▇▇▇▇
SECURITIES INC.
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By:
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/s/
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
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Chief Executive Officer
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-36-
EXHIBIT
A
[CORRESPONDENT
LETTERHEAD]
Dear
Customer:
[Correspondent]
has a contractual arrangement with Ridge & Outsourcing Services, Inc.
(“Ridge”) for the performance of clearance services. In accordance with NYSE
Rule 382, this letter is intended to inform you, as the holder of an account
with us, of the allocation of responsibilities between [Correspondent] and
Ridge. It is intended to be a general disclosure, not a definitive enumeration
of each and every responsibility. Nothing in this letter shall be deemed to
delegate to Ridge any regulatory requirement or contractual obligation of our
firm. We are not an affiliate or subsidiary of Ridge, its parent corporation,
or
any of Ridge’s affiliated companies; nor are we registered representatives or
other persons employed by Ridge, its parent corporation, or affiliated
companies.
You
have
appointed our firm to act as your agent for the purpose of carrying out your
directions with respect to your purchases and sales of securities, disbursements
of funds, transfers of securities, and related activities. Ridge has been
informed that we are authorized to place and cancel orders and take such other
steps as are reasonable to carry out your directions. Until receipt of your
written notice to the contrary, Ridge may accept instructions for your account
from us without inquiry or investigation by Ridge including, without limitation,
instructions with respect to the disbursement of funds and the transfer of
securities. Ridge is not responsible or liable for any of our acts or omissions
or those of our employees, nor is it responsible for any indirect or
consequential damages under any circumstances. As between you and Ridge, you
shall be responsible for any action Ridge takes in or for your account based
upon instructions Ridge receives from either you or our firm. In the event
that
you maintain a delivery versus payment account, you agree to furnish your agent
with instructions for the delivery or receipt of securities promptly upon
receipt of confirmation (or the relevant data as to execution), which will
be no
later than (i) the close of business on the second business day after execution
for purchases, and (ii) the close of business on the first business day after
execution for sales. Both Ridge and we have the right to reject any proposed
transaction in your account.
You
understand that Ridge does not act as a fiduciary, investment adviser or solicit
orders, that Ridge does not advise you or us or make any investigation or
determination on any matters pertaining to the suitability of any order; offer
any opinion, judgment or other type of information pertaining to the nature,
value, potential or suitability of any particular investment; or review the
appropriateness of investment advice given or transactions entered by our firm
or any other person on your behalf. Ridge neither controls, audits or otherwise
supervises the activities of our firm or its registered representatives, nor
does it verify information provided by our firm regarding your account,
including any transactions therein.
-37-
We
shall
at all times be solely and exclusively responsible for:
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·
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Opening,
approving, servicing, and monitoring your account, including obtaining
and
verifying your new account
information.
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·
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Obtaining
personal information from you, including your investment
objectives.
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·
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Reviewing
your account and all orders for that account, which includes supervising
all investment advice we give and, if your account is a discretionary
account, supervising the exercise of such
discretion.
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·
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Accepting
orders and arranging for execution of your transactions, and establishing
procedures for reviewing and transmitting orders prior to
execution.
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·
|
Determining
commissions, ▇▇▇▇-ups or other fees charged for your
transactions.
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|
·
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Transmitting
instructions concerning your account to Ridge either generally or
in
connection with tender or exchange offers or any other form of corporate
reorganization, unless Ridge accepts instructions directly from
you.
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·
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Ensuring
that securities sold by you may be transferred without restriction
or that
transfer restrictions have been complied
with.
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·
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Complying
with all laws, rules and regulations applicable to any arrangement
or
understanding that we may have: (i) to rebate to you any funds, including,
without limitation, any portion of any commission, ▇▇▇▇-up, ▇▇▇▇-down,
fee, or other charge or to pay on your behalf the cost of any service
or
product, or (ii) to provide research or other services to any agent
exercising authority over your account (including, without limitation,
investment discretion).
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·
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The
conduct of your account and ensuring that all the transactions or
transfers therein are in compliance with all applicable laws, rules
and
regulations. Such responsibility includes, without limitation: (i)
knowing
all persons holding power of attorney over your account; (ii) selecting,
investigating, training, and supervising all personnel who open,
approve,
authorize or review transactions in your account; (iii) establishing
written procedures for the conduct of your account and maintaining
compliance and supervisory personnel adequate to implement such
procedures; (iv) determining the suitability and legality of all
transactions in your account; and (v) determining the appropriateness
of
the frequency of trading in your
account.
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|
·
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Receiving
and delivering funds and securities (except where you either deliver
funds
or securities directly to Ridge or you receive a check directly from
Ridge), and enforcing Ridge’s initial margin and maintenance margin
requirements.
|
|
·
|
Supplying
all documentation required by Ridge. Ridge at all times has the right,
reasonably exercisable in its sole and exclusive discretion, to refuse
to
accept orders for your account, which right it may exercise where,
for
example, it has not received the necessary documentation of funds
for your
account.
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-38-
Ridge
will be responsible for the following services provided at our request as
contemplated by the contractual arrangement between our firms:
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·
|
Any
extensions of credit to you, which includes complying with Regulation
T of
the Federal Reserve Board, determining maintenance margin, paying
and
charging interest and rehypothecation or loan of any of your margin
securities.
|
|
·
|
Maintaining
account records on your behalf with such name(s) and address(es)
as
provided by our firm.
|
|
·
|
Keeping
custody of funds and securities (while they are in Ridge’s physical
possession), and segregating such funds and securities as required
by
applicable law.
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·
|
Preparing
and transmitting to you on our behalf confirmation of trades and
monthly
or, if appropriate, quarterly account statements. Such confirmations
and
statements shall rely, in whole or in part, on information provided
by our
firm.
|
Unless
we
receive a written communication from you to the contrary, your understanding
of
and acceptance of the allocation of responsibilities described herein is
acknowledged and reaffirmed each time you enter an order with us.
Any
questions you may have concerning the conduct of your account should be
addressed directly to [our Compliance Officer, _____, at _________].
Very
truly yours,
[Correspondent]
-39-
ADDENDUM
TO CLEARING
AGREEMENT
FOR SECURITIES
CLEARANCE
SERVICES FOR PRIME BROKERAGE
Dear
Correspondent:
We
refer
to a certain agreement for securities clearance services currently in effect
between you and Ridge & Outsourcing Services, Inc. (the “Clearing
Agreement”).
This
Addendum conforms to the requirements outlined in a no-action letter, issued
by
the Securities and Exchange Commission (the “SEC”) on or about January 25, 1994
(the “No-Action Letter”), which sets forth the requirements for maintaining a
prime brokerage arrangement.
The
purpose of this Addendum is to set forth the obligations and responsibilities
of
Ridge when you act as an executing broker in a prime brokerage arrangement.
When
you act as the “executing broker,” as such term is defined in the No-Action
Letter, Ridge acts as your clearing agent and the prime broker settles such
transactions and carries the positions for the customer. All defined terms
herein shall have the same meanings as provided in the Clearing
Agreement.
▇.▇▇▇
hereby agree as follows:
a) You
will
notify Ridge in advance with respect to each account for which you intend to
act
as an executing broker in a prime brokerage arrangement.
b) As
agreed
to by you and Ridge, you are solely and exclusively responsible for the conduct
of the customer’s account, including, but not limited to, the responsibilities
to “know your customer,” determine the suitability of all transactions, obtain
all proper documentation (including, but not limited to, all new account
documents), and conduct your own credit review of the customer.
c) Prior
to
effecting a short sale, you shall be responsible for verifying with Ridge that
all orders effected by you will comply with all applicable short sale provisions
in the applicable rules and regulations, including, but not limited to,
Regulation SHO, SEC Rule 10a-1 and NASD Rule 3350, and you will be responsible
for verifying that securities can be borrowed in order to effect a timely
delivery against each short sale.
d) In
the
event of any execution error or trade discrepancy between a trade as executed
and a trade as recorded in the customer’s account with the prime broker, you
shall be responsible for correcting such error or resolving such discrepancy
with Ridge or your customer in accordance with securities industry practice.
You
shall be liable to Ridge for any and all losses, including, without limitation,
expenses caused thereby, and Ridge will have no liability to you or the customer
under any circumstances. You agree to indemnify and hold Ridge harmless from
and
against and pay promptly on demand any loss, liability, damage, claim, cost
or
expense (including, but not limited to, the reasonable fees and expenses of
counsel), in each case as incurred, arising out of or incurred in connection
with such discrepancy or error.
e) You
shall
retain in your possession copies of all agreements that are necessary to enable
you to execute prime brokerage trades and, except to the extent undertaken
by
Ridge in the Clearing Agreement, you shall preserve all records relating to
such
trades, as required of an executing broker by the applicable rules and
regulations and the No-Action Letter.
-40-
2.Ridge
hereby agrees as follows:
a) Ridge
will, on your behalf and pursuant to your instructions, inform the prime broker
of all trade data, including the contract amount, security involved, number
of
shares or number of units, and whether the transaction was a long or short
sale
or a purchase, by the morning of the next business day after trade
date.
b) Ridge
will treat the customer as its own customer and record the transactions in
a
cash or margin account at Ridge. Ridge will treat all disaffirmed and “DK’d”
trades as normal customer transactions. If the disaffirmed or “DK’d” trade is a
short sale, Ridge will treat the transaction as if it had been executed in
a
customer margin account.
c) Ridge
will not extend, or arrange for a prime broker to extend, credit on a security
sold by Ridge to the customer if Ridge was a member of a selling syndicate
or
group within the prior thirty (30) days.
d) Ridge
will be responsible for issuing confirmations directly to the customer for
each
trade executed by you at Ridge, unless Ridge receives written instructions
from
the customer explicitly requesting that the confirmations be sent to the
customer in care of its prime broker, in which case Ridge will send the
confirmations to such customer in care of the prime broker. In the event that
a
trade is disaffirmed or “DK’d”, Ridge will promptly send a confirmation of the
transaction to the customer in the manner described above.
e) If
a
customer account, introduced by you to Ridge, is managed by an investment
advisor, each confirmation may cover a single bulk trade representing
transactions that have been combined with those of other accounts managed by
such investment advisor.
f) Ridge
will keep and preserve records, as required by SEC Rule 17a-3, relating to
trades placed with Ridge pursuant to a prime broker arrangement.
3. Ridge
hereby represents, warrants and covenants that it has and during the term of
this Addendum shall maintain the minimum net capital required by the applicable
rules and no-action letters.
4. All
of
the terms and conditions of the Clearing Agreement remain in full force and
effect except insofar as a conflict exists between the provisions thereof and
this Addendum, in which event the term or condition of this Addendum shall
supersede the conflicting term or condition of the Clearing Agreement, but
only
to the extent of the conflict.
5. The
terms
of this Addendum may not be amended or waived unless agreed to in writing by
both parties.
Kindly
acknowledge acceptance and agreement to this Addendum by signing in the space
provided.
ACCEPTED
AND AGREED:
|
▇▇▇▇▇▇
SECURITIES INC.
|
RIDGE
CLEARING & OUTSOURCING
SOLUTIONS,
INC.
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|||
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By:
|
By:
|
|||
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(Authorized
Signature)
|
(Authorized
Signature)
|
|||
|
(Print
Name/Title/Date)
|
(Print
Name/Title/Date)
|
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-41-