EXHIBIT 10.25
FULLY DISCLOSED CLEARING AGREEMENT
This Fully Disclosed Clearing Agreement (the "AGREEMENT") is executed
into by and between ▇▇▇▇▇▇ Financial Services, Inc. ("▇▇▇▇▇▇"), a North Carolina
corporation, and Empire Financial Group, Inc ("CORRESPONDENT").
WHEREAS, Correspondent is in the process of registering or is
registered with the Securities and Exchange Commission ("SEC") as a
broker-dealer of securities in accordance with Section 15(b) of the Securities
and Exchange Act of 1934 (the "ACT") and is applying for membership or is a
member of the National Association of Securities Dealers, Inc. ("NASD"), and
desires for ▇▇▇▇▇▇ to act as a clearing broker for Correspondent; and
WHEREAS, ▇▇▇▇▇▇ meets all requirements of the SEC to function as a
clearing broker, and desires to enter into an agreement to clear and maintain
cash, margin, option or other accounts ("ACCOUNTS") for Correspondent or
customers ("CUSTOMERS") of Correspondent.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and of the guarantee of this Agreement by any guarantor(s), and for
other good and valuable consideration the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
1. REPRESENTATIONS AND WARRANTIES
Correspondent represents and warrants to ▇▇▇▇▇▇ that:
(a) Correspondent is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation.
(b) Correspondent has all the requisite authority in conformity with all
applicable laws and regulations to enter into this Agreement and to
retain the services of ▇▇▇▇▇▇ in accordance with the terms hereof.
(c) Correspondent shall employ, as a manager of its brokerage operation
only a person who has all requisite licenses and experience in
compliance with applicable securities laws and regulations.
(d) Correspondent shall duly employ personnel ("REGISTERED
REPRESENTATIVES") who have the requisite licenses and experience in
compliance with applicable securities laws and regulations.
(e) Correspondent has advised ▇▇▇▇▇▇ of any clearing arrangements that
have been made or are expected to be made with any other clearing
broker or dealer.
▇▇▇▇▇▇ represents and warrants to Correspondent that:
(a) ▇▇▇▇▇▇ is a corporation duly organized, validly existing and in good
standing under the laws of the state of North Carolina.
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(b) ▇▇▇▇▇▇ is registered as a broker-dealer with the SEC and is in
compliance with the rules and regulations thereof.
(c) ▇▇▇▇▇▇ is a member corporation in good standing of the NASD and is in
compliance with the rules and regulations thereof.
(d) ▇▇▇▇▇▇ is in compliance with the rules and regulations of each
national securities exchange of which it is a member.
2. CUSTOMER AND CORRESPONDENT ACCOUNTS
Responsibility for compliance with the provisions of the NASD's Conduct
Rules regarding opening, approving and monitoring Customer accounts shall be
allocated between ▇▇▇▇▇▇ and Correspondent as set forth in this SECTION 2.
(a) ACCOUNT DOCUMENTATION. Correspondent will be responsible for obtaining
and verifying a]] required information and the identity of each
potential Customer. Correspond ant will be responsible for obtaining
all documents related to customer accounts, and for the transmission
of all required documents to ▇▇▇▇▇▇ on a timely basis. ▇▇▇▇▇▇ may, in
its discretion, receive documents directly from the Customer.
Correspondent acknowledges the obligation to retain all documents in
an easily accessible place in accordance with SEC rules and agrees to
provide the original application by overnight delivery or a legible
copy by facsimile transmission within 24 hours of a request from
▇▇▇▇▇▇ Correspondent will be responsible for complying with the
requirement of SEC Rule 15g-9, if applicable.
(b) KNOWLEDGE OF CUSTOMER AND CUSTOMER'S INVESTMENT OBJECTIVES.
Correspondent will be responsible for learning and documenting all the
required information relating to each and every Customer in order to
insure compliance by Correspondent with applicable rules and
regulations. This required information includes, but is not limited
to, all of the information and instructions submitted to ▇▇▇▇▇▇
pursuant to SECTION 2(A) any additional facts relative to the
Customer's investment objectives, and every ------------ person
holding power-of-attorney over any Customer Account. It shall be the
responsibility of Correspondent to ensure that those of its Customers
who open Accounts hereunder shall not be minors. Correspondent shall
be solely responsible for any issues regarding the suitability of any
investments for its Customers.
(c) ACCEPTANCE OF ACCOUNTS. Prior to any Customer Account being opened
with ▇▇▇▇▇▇, it must be approved by Correspondent. ▇▇▇▇▇▇ reserves the
right to withhold acceptance of, or to reject; for any reason, any
Customer, Customer Account, Correspondent Account or any transaction
for any Account and to terminate any Account previously accepted by
▇▇▇▇▇▇. Initial acceptance of each Account shall be conditioned upon
▇▇▇▇▇▇'▇ receipt of completed forms as required by SECTION 2(A).
Correspondent shall not submit such forms with respect to any Customer
Account unless Correspondent has in its possession the
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documentation of all information required pursuant to SECTION 2(B).
▇▇▇▇▇▇ shall be under no obligation to accept any Account as to which
any documentation required to be submitted to ▇▇▇▇▇▇ or maintained by
Correspondent pursuant to SECTIONS 2(A) and 2(B) is incomplete. Prior
to acceptance of any Account, no action taken by ▇▇▇▇▇▇ or any of its
employees, including, without being limited to, executing or clearing
a trade in any Account; shall be deemed to be or shall constitute
acceptance of such Account.
(d) SUPERVISION OF ORDERS AND ACCOUNTS. ▇▇▇▇▇▇ will execute orders for
Correspondent's Customers after Correspondent's appropriate principals
have accepted and approved said Accounts. Correspondent will be
responsible for the review and supervision of, and the suitability of,
investments made by each and every one of its Customers and ▇▇▇▇▇▇
shall have no responsibility Correspondent shall be responsible for
insuring that all transactions in and activities related to all
Accounts opened by it with ▇▇▇▇▇▇, including discretionary accounts,
will be in compliance with all applicable laws, rules and regulations
of the United States, the several states, governmental agencies.
securities exchanges and the NASD, including any laws relating to
Correspondent's fiduciary, responsibilities to Customers, either under
the Employee Retirement Income Security Act of 1974 or otherwise.
Correspondent shall diligently supervise the activities of its
officers, employees and representatives with respect to all Accounts.
▇▇▇▇▇▇ will perform the clearing services provided for in this
Agreement for Accounts accepted by it in accordance with the terms of
this Agreement, as it may be amended from time to time, and otherwise
in accordance with its best business judgment. To the extent, if any,
that ▇▇▇▇▇▇ accepts from Correspondent orders for execution in
accordance with SECTION 7(A), Correspondent shall be responsible for
informing ▇▇▇▇▇▇ of the location of the securities that are the
subject of the order so that ▇▇▇▇▇▇ may comply with the provisions of
Rule 3110 of the NASD's Conduct Rules.
(e) ACCOUNTS OF ASSOCIATED PERSONS. Correspondent will not accept Accounts
for any persons that come within the express provisions of Rule 3050
of the NASD's Conduct Rules unless Correspondent has complied with the
provisions of said Rule and, if applicable, provided evidence of
employer approval as required by the Rule.
(f) ACCOUNT RESPONSIBILITY FOR CERTAIN PURPOSES. Notwithstanding anything
herein to the contrary, for purposes of the Securities Investment
Protection Act of 1970 and the Financial Responsibility Rules of the
SEC, the Customer Accounts are the responsibility. of ▇▇▇▇▇▇. For all
other purposes, the Customer Accounts shall be the full, total and
sole responsibility of Correspondent.
(g) COMPLIANCE WITH ANTI-MONEY LAUNDERING LAWS.
(i) ▇▇▇▇▇▇ and Correspondent agree to conduct business only with
clients who are engaged in legitimate and lawful business
activities, to engage in financial transactions using funds that
are derived solely from lawful activities and legitimate sources,
and not to have involvement in any
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activity that facilitates money laundering or the funding of
terrorist or other criminal activities. ▇▇▇▇▇▇ and Correspondent
will each comply with applicable anti-money laundering laws,
including relevant provisions in, and at promulgated pursuant to,
the U.S. Criminal Code (18 U.S.C. ▇▇.▇▇. 1956, 1957), the Bank
Secrecy Act and the USA Patriot Act.
(ii) ▇▇▇▇▇▇ and Correspondent each represent that they have in place
an anti-money laundering compliance program based on the laws of
their respective jurisdiction. and further agree to provide, each
party to the other, a copy of such program.
(iii) ▇▇▇▇▇▇ and Correspondent agree to allocate their anti-money
laundering responsibilities, with regard to the fully disclosed
clearing arrangement between ▇▇▇▇▇▇ and Correspondent, in the
following manner:
(1) KNOW YOUR CUSTOMER.
a. Correspondent shall be responsible for obtaining and
maintaining adequate information regarding customers
for whom it introduces trades to ▇▇▇▇▇▇. Such
information shall include, but not be limited to,
verifying client identity. performing background and
credit checks of clients, assuring that clients are not
prohibited under the Patriot Act (e.g., foreign shell
banks), and, on a regular basis, consulting lists of
known or suspected terrorists or terrorist
organizations maintained by U.S. government agencies to
determine whether a person seeking to open an account,
or a person for whom an account is maintained appears
on such lists.1
▇. ▇▇▇▇▇▇ shall be responsible for consulting lists of
known suspected terrorists or terrorist organizations
maintained by U.S. Government agencies on a regular
basis to determine whether a person seeking to open an
account, or a person for whom an account is maintained,
appears on such Lists.
c. By submitting transactions for opening with ▇▇▇▇▇▇,
Correspondent represents that all customers for whom
accounts are being submitted have been subject to
stringent due diligence procedures as required in
(1)(a) above, the identities of such customers have
been verified, and based on Correspondent's analysis of
information obtained, such customers are not involved
in activity that facilitates money
__________
1 The following websites and any lists maintained thereon should be
considered: Office of Foreign Asset Control ("OFAC") -
▇▇▇.▇▇▇▇▇▇▇.▇▇▇/▇▇▇▇; Financial Crimes Enforcement Network ("FinCEN") -
▇▇▇.▇▇▇▇▇▇▇.▇▇▇/▇▇▇▇▇▇; Financial Action Task Force on Money Laundering
("FATF") - ▇▇▇.▇▇▇▇▇▇▇.▇▇▇/▇▇▇▇; and the Securities and Exchange Commission
("SEC") ▇▇▇.▇▇▇.▇▇▇.
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laundering or the funding of terrorist or other
criminal activities.
d. Correspondent shall be required to maintain all records
of the information used to verify a person's identity
in an easily accessible place for at least two years,
and to make such information available to ▇▇▇▇▇▇ upon
request.
(2) SUSPICIOUS ACTIVITY MONITORING AND REPORTING
▇. ▇▇▇▇▇▇ shall be responsible for monitoring customer
accounts for any suspicious transactions that involve,
in the aggregate, at least $5000 in funds or other
assets. In this regard ▇▇▇▇▇▇ will monitor, on a
regular basis, among other things, customer trades
introduced by Correspondent for clearing, wire
transfers into accounts maintained on behalf of
customers, and the deposit of and withdrawal from
customer accounts of funds or other assets.
b. Correspondent shall notify ▇▇▇▇▇▇ of any suspicious
transactions it detects or of which it is aware with
respect to the accounts of customers for whom it
introduces transactions to ▇▇▇▇▇▇.
c. Person shall be responsible for fling with the
Department of Treasury any resulting Suspicious
Activity Reports as required by the Patriot Act. Such
reports will be filed pursuant to the relevant
procedures set forth in ▇▇▇▇▇▇'▇ anti-money laundering
compliance program.
▇. ▇▇▇▇▇▇ shall be responsible for filing with the
Internal Revenue Service joint FinCEN/IRS forms, as
required by the Patriot Act., with respect to
transactions in which it receives more than $10,000 in
currency or coins. Such reports will be filed pursuant
to the relevant procedures set forth in ▇▇▇▇▇▇'▇
anti-money laundering compliance program.
(3) INFORMATION SHARING
▇. ▇▇▇▇▇▇ shall be responsible for establishing and
maintaining information-sharing procedures to provide
for the sharing of information between ▇▇▇▇▇▇ and
Correspondent as necessary to identify and report
activities that may involve terrorist activities or
money laundering activities.
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b. Correspondent shall agree to comply with the
requirements see forth in the information-sharing
procedures developed by ▇▇▇▇▇▇ pursuant to (3)(a).
3. EXTENSION OF CREDIT
Responsibility for compliance with the provisions of Regulation T issued by
the Board of Governors of the Federal Reserve System pursuant to the Securities
Exchange Act of 1934 ("Regulation T") and all other applicable rules,
regulations and requirements of arty exchange or regulatory agency affecting the
extension of credit shall be allocated between ▇▇▇▇▇▇ and Correspondent as set
forth in this Section 3.
(a) MARGIN AGREEMENTS. At the time of opening of each margin account
Correspondent will furnish ▇▇▇▇▇▇ with a ▇▇▇▇▇▇ Customer Margin and
Short Account Agreement, executed by the Customer, on the form
furnished to Correspondent by ▇▇▇▇▇▇. Correspondent may use a
substitute form upon written approval by ▇▇▇▇▇▇.
(b) MARGIN AND MARGIN MAINTENANCE. Correspondent is responsible for
assuring Customer's payment of Customer's initial margin requirements
and of all amounts necessary to meet subsequent maintenance calls in
each Customer Account, in order to insure compliance with Regulation T
and the house rules of ▇▇▇▇▇▇. Such payment may be collected by
Correspondent on ▇▇▇▇▇▇'▇ behalf, or made directly to ▇▇▇▇▇▇ at
Correspondent's option. Correspondent is responsible for the payment
of initial margin and of all amounts necessary to meet subsequent
margin calls in each Correspondent Account. ▇▇▇▇▇▇ shall have the
unlimited right to buy in or sell out positions in Accounts whenever
▇▇▇▇▇▇, in its sole discretion, deems such action appropriate and
despite whether, if the Account is a Margin Account, any such Account
is then in compliance with applicable margin maintenance requirement
or has requested an extension of time to make any payment required by
Regulation T. Correspondent acknowledges that ▇▇▇▇▇▇ has the right to
demand payment on any debit balance and that Correspondent is
responsible to ▇▇▇▇▇▇ for any unsecured debit balance resulting from
any failure of a Customer to make any such payments upon demand.
(c) MARGIN REQUIREMENTS. Initial margin arid margin maintenance
requirements applicable to any margin account shall be in accordance
with the house rules of ▇▇▇▇▇▇, rather than in accordance with any
lower requirement of any law, any exchange or any regulatory agency.
▇▇▇▇▇▇ may change the margin requirements applicable in any Account or
class of accounts, as described in its house rules; Correspondent
shall be responsible for advising its Customer of the changed
requirements and for the payment by the Customer of any additional
margin necessary to insure compliance with such increased
requirements.
(d) LESSOR. In addition to, and not in limitation of, Correspondent's
agreement to indemnify ▇▇▇▇▇▇ pursuant to the provisions of Section
10, Correspondent indemnifies and holds harmless ▇▇▇▇▇▇ from and
against any and all loss, cost,
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expense and liability (including legal and accounting fees and
expenses) sustained by ▇▇▇▇▇▇ arising our of any of the following:
(1) any failure by any Customer to comply with the terms of its
Customer Margin and Short Account Agreement with ▇▇▇▇▇▇;
(2) The failure of Correspondent or any Customer to comply with
Regulation T;
(3) the failure of Correspondent to satisfy its obligations under
this SECTION 3; or
(4) the failure of delivery of securities sold or failure of payment
for securities purchased in accordance with the provisions of
Regulation T; the return to ▇▇▇▇▇▇ unpaid of any check given to
▇▇▇▇▇▇ by Correspondent or any Customer; or the payment for
and/or delivery of all "when issued" transactions which ▇▇▇▇▇▇
may accept or execute for the Accounts.
4. MAINTENANCE OF BOOKS AND RECORDS
▇▇▇▇▇▇ will maintain stock records and other records on a basis consistent
with generally accepted practices in the securities industry and will maintain
copies of such records in accordance with the NASD and SEC guidelines for record
retention in effect from time to time. At the time this Agreement is executed
and annually thereafter, ▇▇▇▇▇▇ will provide Correspondent with a list or
description of all exception or other reports that it offers to Correspondent
(see attached SCHEDULE B). Annually, ▇▇▇▇▇▇ will provide Correspondent with a
list of those reports requested by or supplied to Correspondent and will provide
a copy of such notice to Correspondent's DEA. ▇▇▇▇▇▇ and Correspondent shall
each be responsible for preparing and fling the reports required by the
governmental and regulatory agencies that have jurisdiction over each and ▇▇▇▇▇▇
and Correspondent will provide the other with such information, if any, which is
in the control of one party but is required by the other to prepare any such
report.
5. RECEIPT, DELIVERY AND SAFEGUARDING OF FUNDS AND SECURITIES
(a) RECEIPT AND DELIVERY IN THE ORDINARY COURSE OF BUSINESS. ▇▇▇▇▇▇,
acting on behalf of Correspondent, will receive and deliver all funds
and securities in connection with transactions for Customer Accounts
in accordance with the Customer's instructions to Correspondent.
Correspondent shall be responsible for advising Customers of their
obligations in deliver funds or securities in connection with each
such transaction. Correspondent shall be responsible for any failure
of any Customer to fulfill such obligation. ▇▇▇▇▇▇ shall be
responsible for the safeguarding of all funds and securities delivered
to and accepted by it, subject to count and verification by ▇▇▇▇▇▇.
However, ▇▇▇▇▇▇ will not be responsible for any funds or securities
delivered by a Customer or Correspondent, its agents or employees,
until such funds or securities are physically delivered to ▇▇▇▇▇▇'▇
premises and accepted by ▇▇▇▇▇▇ or deposited in bank accounts
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maintained in ▇▇▇▇▇▇'▇ name. It is expressly understood and agreed,
however, that Correspondent is responsible for compliance with the
Currency and Foreign Transactions Reporting Act (31 U.S.C. Section
5311 et seq.) and the rules and regulations promulgated thereunder (31
C.F.R. Section 103.11, as amended, et seq.).
(b) CUSTODY SERVICES. Whenever ▇▇▇▇▇▇ has been instructed to act as
custodian of the securities in any Correspondent or Customer Account,
or to hold such securities in "safekeeping," ▇▇▇▇▇▇ may hold the
securities in the Customer's name or may cause such securities to be
registered in the name of ▇▇▇▇▇▇ or its nominee or in the names of
nominees of any depository used by ▇▇▇▇▇▇. ▇▇▇▇▇▇ will perform the
services required in connection with acting as custodian for
securities in Correspondent and Customer Accounts, such as (i)
collection and payment of dividends; (ii) transmittal and handling
(through Correspondent) of tenders or exchanges pursuant to tender
offers and exchange offers; (iii) transmittal of all proxy materials
and other shareholder communications; and (iv) handling of exercises
or expirations of rights and warrants, and of redemptions of
securities.
(c) RECEIPT AND DELIVERY PURSUANT TO SPECIAL INSTRUCTION. Upon instruction
from Correspondent or a Customer, ▇▇▇▇▇▇ will make such transfers of
securities or Accounts as may be requested. Correspondent shall be
responsible for determining if any securities held in Correspondent or
Customer Accounts are "restricted securities" or "control stock" as
defined by the rules of the SEC and that orders executed for such
securities are in compliance with applicable laws, rules and
regulations.
(d) DRAFT-ISSUING AUTHORITY. At its discretion ▇▇▇▇▇▇ may authorize
certain of Correspondent's employees to sign drafts as drawer payable
to Correspondent's Customers in amounts and pursuant to conditions as
may be determined by ▇▇▇▇▇▇ from time to time. Correspondent agrees
that it will not request ▇▇▇▇▇▇ to authorize someone to sign drafts
who is not an employee of Correspondent. Correspondent further agrees
that this authority shall not be granted by ▇▇▇▇▇▇ until Correspondent
has notified ▇▇▇▇▇▇ in writing that it has established and will
maintain and enforce supervisory procedures with respect to the
issuance of such instruments. Correspondent agrees to fully indemnify
▇▇▇▇▇▇ from the negligence, fraud, or mistakes of Correspondent or
Correspondent's employees in connection with any draft issuing
authority granted to them and Correspondent authorizes ▇▇▇▇▇▇ to
charge any Correspondent Account or any other assets of Correspondent
held by ▇▇▇▇▇▇ with the amount of any such losses. Notwithstanding
SECTION 5(A), ▇▇▇▇▇▇ will not be responsible for the safeguarding of
funds withdrawn by Correspondent or Correspondent's employees pursuant
to such draft issuing authority. ▇▇▇▇▇▇ may withdraw this draft
issuing privilege without notice at any time during the term of this
Agreement. Notwithstanding anything herein to the contrary, ▇▇▇▇▇▇ may
at any time, at its sole discretion, despite any prior authorization,
refuse payment on any draft for which Correspondent is drawer and
▇▇▇▇▇▇ is payee.
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6. CONFIRMATIONS AND STATEMENTS
(a) PREPARATION AND TRANSMISSION. ▇▇▇▇▇▇ will prepare and send to
Customers monthly statements of account (or quarterly statements if no
activity occurs in an account during any quarter covered by such
statement), which statements shall meet ▇▇▇▇▇▇'▇ requirements as to
format and quality and will indicate that Correspondent is the
introducing broker for the Account. ▇▇▇▇▇▇ will be responsible for
preparing and transmitting confirmations, including the responsibility
for compliance with the provisions of Rule 2230 of the NASD's Conduct
Rules. Copies of all monthly or quarterly statements sent by ▇▇▇▇▇▇ to
Customers will be sent to Correspondent. ▇▇▇▇▇▇ will also provide to
Correspondent monthly statements of clearing services performed by
▇▇▇▇▇▇ for Correspondent and Customer Accounts showing the fees
charged for such services during the month as provided in SECTION 8.
(b) EXAMINATION AND NOTIFICATION OF ERRORS. Correspondent shall examine
promptly all monthly statements of account, monthly statements of
clearing services and other reports provided to Correspondent by
▇▇▇▇▇▇. Correspondent shall notify ▇▇▇▇▇▇ of any error claimed by
Correspondent in any Account in connection with (i) any transaction
prior to the settlement date of such transaction, (ii) information
appearing on daily reports within seven days of such report, and (iii)
information appearing on monthly statements or reports within 30 days
of Correspondents receipt of any monthly statement or report. Any
notice of error shall be accompanied by such documentation as may be
necessary to substantiate Correspondent's claim. Correspondent shall
provide promptly upon ▇▇▇▇▇▇'▇ request any additional documentation
which ▇▇▇▇▇▇ reasonably believes is necessary or desirable to
determine and correct any such error.
7. ACCEPTANCE OF ORDERS, EXECUTION OF TRANSACTIONS, OTHER SERVICES
(a) CUSTOMERS' ORDERS. Orders received by Correspondent can be executed by
Correspondent or forwarded to ▇▇▇▇▇▇ for execution. The party
executing the order shall be responsible for errors in execution.
Acceptance of orders from Customers shall be the responsibility of
Correspondent and Correspondent shall be responsible for the
authenticity of all orders. Correspondent shall advise each of its
Customers that its relationship with ▇▇▇▇▇▇ is solely that of an
introducing broker in a clearing broker and that, except as set forth
in SECTION 2(F) above, Correspondent bears all responsibility for the
Customer's Account. ▇▇▇▇▇▇ is not obligated to accept for execution
any orders placed directly with ▇▇▇▇▇▇ by a Customer. In addition,
▇▇▇▇▇▇ is not obligated to accept any orders from Correspondent if
▇▇▇▇▇▇ determines in good faith that it should not. Correspondent
assumes the risk of failure by an over-the-counter dealer with which
Correspondent executes an order in the event such dealer fails to
perform and will reimburse ▇▇▇▇▇▇ for any, loss incurred by it in the
transaction.
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(b) TRANSACTIONS CLEARING. During the term of this Agreement, ▇▇▇▇▇▇ will
clear transactions on a fully disclosed basis for Accounts of
Correspondent and the Customers that Correspondent introduces and
▇▇▇▇▇▇ accepts as provided in SECTION 2(B); provided, however, that
▇▇▇▇▇▇ is not obligated to clear any transactions for Correspondent or
Correspondent's Customers if ▇▇▇▇▇▇ determines in good faith that it
should not.
(c) OTHER SERVICES. ▇▇▇▇▇▇ will perform such other services, upon such
terms and at such prices, as ▇▇▇▇▇▇ and Correspondent may from time to
time agree.
8. FEES AND SETTLEMENTS FOR SECURITIES TRANSACTIONS
(a) COMMISSIONS: FEES FOR CLEARING SERVICES.
(i) Correspondent has provided to ▇▇▇▇▇▇ its basic commission
schedule and ▇▇▇▇▇▇ will charge each Customer the commission
shown on such schedule or which Correspondent otherwise directs
▇▇▇▇▇▇ to charge on each transaction. Correspondent's basic
commission schedule may be amended from time to time by written
instructions to ▇▇▇▇▇▇ from Correspondent. ▇▇▇▇▇▇ shall be
required to implement such changes only to the extent that they
are within the usual capabilities of ▇▇▇▇▇▇'▇ data processing and
operations systems and only over such reasonable time as ▇▇▇▇▇▇
may deem necessary or desirable to avoid disruption of Person's
normal operational capabilities. ▇▇▇▇▇▇ may charge Correspondent
for changes in the basic commission schedule. Correspondent's
basic commission schedule shall be within the format of ▇▇▇▇▇▇'▇
computer system.
(ii) ▇▇▇▇▇▇ will charge Correspondent for clearing services according
to the fee schedule set forth in SCHEDULE A attached hereto and
incorporated herein for all purposes. Clearing charges may be
modified from time to time by ▇▇▇▇▇▇ without re-execution of this
Agreement. To implement new charges, ▇▇▇▇▇▇ will mail or telecopy
a new SCHEDULE A to Correspondent. If Correspondent does not
object to the new charges within ten (10) days of such mailing or
telecopying, as provided below, the new charges shall become
effective and the new SCHEDULE A shall become a part of and
modify this Agreement without any further action by the parties.
Upon such event ▇▇▇▇▇▇ and Correspondent shall replace the
previous Schedule A with the new SCHEDULE A. Correspondent may
object to new charges by giving notice canceling this Agreement
as provided under SECTIONS 12 and 20(M). During the pendency of
such notice period, the previous charges shall continue to be
effective until termination.
(b) SETTLEMENTS. ▇▇▇▇▇▇ will collect commissions from Customers on behalf
of Correspondent and through Correspondent. ▇▇▇▇▇▇ may make payments
to Correspondent against such commissions in advance of the monthly
settlement
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contemplated by this SECTION 8(B), the amount of such payment to be
determined in ▇▇▇▇▇▇'▇ sole discretion based upon ▇▇▇▇▇▇'▇ experience
with Correspondent.
As soon as practicable after the end of each month, ▇▇▇▇▇▇ will
forward to the Correspondent a statement showing the amount of
commissions and other amounts collected by ▇▇▇▇▇▇ on Correspondent's
behalf and all amounts due to ▇▇▇▇▇▇ from Correspondent (including,
without being limited to, clearing charges, other charges, other fees
and Customer's unsecured debit items, however arising), together with
the amount by which the total owed Correspondent exceeds the total
owed ▇▇▇▇▇▇. If such statement indicates that Correspondent owes
monies to ▇▇▇▇▇▇, Correspondent shall promptly pay ▇▇▇▇▇▇ the amount
by which the total owed ▇▇▇▇▇▇ exceeds the total owed Correspondent.
If Correspondent fails to make such payment on a timely basis, ▇▇▇▇▇▇
shall have the right to charge any other Account maintained by ▇▇▇▇▇▇
for Correspondent or any other assets of Correspondent held by Person
(including the deposit required pursuant to SECTION 9 and positions
and balances in Correspondent Accounts) for the net amount due ▇▇▇▇▇▇.
Any failure by ▇▇▇▇▇▇ to charge any Account or assets of Correspondent
held by ▇▇▇▇▇▇ shall not act as a waiver of ▇▇▇▇▇▇'▇ right to demand
payment of, or to charge Correspondent's Accounts for, the full amount
due at any time.
9. DEPOSIT
Contemporaneously with the signing of this Agreement, Correspondent will
deliver cash or securities to ▇▇▇▇▇▇, as specified in SCHEDULE A attached, for
deposit in an account maintained by ▇▇▇▇▇▇ (the "DEPOSIT ACCOUNT"). If at any
subsequent time ▇▇▇▇▇▇, in its sole discretion, requires an additional deposit,
Correspondent will deposit additional cash or securities in an amount specified
by ▇▇▇▇▇▇. Instead of making such additional deposit, Correspondent may reduce
Correspondent's business volume or modify the nature of the securities involved
in the Correspondent's transactions ("BUSINESS MIX") as specified by ▇▇▇▇▇▇. Any
failure by ▇▇▇▇▇▇ to demand compliance with the requirement that Correspondent
either deposit additional amounts or modify Correspondent's business mix shall
not act as a waiver of ▇▇▇▇▇▇'▇ right to demand compliance with such
requirements at any time. If the deposit is not adequately funded as required by
▇▇▇▇▇▇, ▇▇▇▇▇▇ may, in addition to all other rights under this Agreement,
transfer cash or securities of Correspondent held by ▇▇▇▇▇▇ to the Deposit
Account. Correspondent agrees that if ▇▇▇▇▇▇, at its sole discretion, determines
it to be necessary, ▇▇▇▇▇▇ shall accept only liquidating transactions for
Customer Accounts and that Correspondent will give notice of such fact to
Customers. If such notice is not given to Customers by Correspondent,
Correspondent agrees that ▇▇▇▇▇▇ may give such notice to Customers. ▇▇▇▇▇▇ shall
be entitled to set-off against any deposit in addition to any and all other
rights or remedies ▇▇▇▇▇▇ may have under this Agreement or otherwise. The
deposit will be refunded to the Correspondent within thirty (30) days after
cancellation of the Agreement provided there has been no claim that does or
could give rise to a claim for indemnification under SECTION 10 of this
Agreement, thereby invoking the rights set forth under SECTION 10(C) of this
Agreement. Correspondent agrees that if this Agreement is terminated for any
reason, ▇▇▇▇▇▇ may liquidate securities deposited and
11
deduct from such deposit any amounts Correspondent owes ▇▇▇▇▇▇ because of
failure to meet any of Correspondent's obligations under this Agreement.
10. INDEMNIFICATION
(a) INDEMNITY.
(i) Correspondent agrees to indemnify and hold harmless ▇▇▇▇▇▇, each
person who controls ▇▇▇▇▇▇ within the meaning of the Securities
Exchange Act of 1934 and any directors, officers, employees,
agents and attorney's of ▇▇▇▇▇▇ ("▇▇▇▇▇▇ INDEMNIFIED PERSON")
from and against all claims, demands, proceedings, suits and
actions and all liabilities, losses, expenses and costs
(including any legal and accounting fees and expenses) relating
to ▇▇▇▇▇▇'▇ defense of any failure, for any reason, fraudulent or
otherwise, by Correspondent, Correspondent's employees,
independent agents or contractors, or Customers to comply with
any obligation under this Agreement or any other agreement
executed and delivered to ▇▇▇▇▇▇ in connection with ▇▇▇▇▇▇'▇
performance of services hereunder and any act or failure to act
by ▇▇▇▇▇▇ Indemnified Persons, except any act or failure to act
which is the result of gross negligence or willful misconduct on
the part of any such ▇▇▇▇▇▇ Indemnified Person. Without limiting
the generality of the foregoing, such failure is explicitly
intended by the parties to include failure resulting from (i)
suspension of trading or bankruptcy or insolvency of any company,
securities of which are held in a Customer's Accounts; (ii)
failure by any Customer to maintain adequate margin; or (iii)
breach of any obligation existing between Correspondent and a
Customer of Correspondent or any law, rule or regulation of the
United States, a state or territory thereof, the SEC. the Federal
Reserve Board or other authority, applicable to any transaction
contemplated by this Agreement.
(ii) ▇▇▇▇▇▇ shall indemnify and hold Correspondent harmless against
any losses, claims, damages, liabilities or expenses including
without limitation those asserted by Customers (which shall
include, but not be limited to, all costs of defense and
investigation and all attorney's fees) to which Correspondent may
become subject, insofar as such losses, claims, damages,
liabilities or expenses arise out of, or are based upon the gross
negligence or willful misconduct of ▇▇▇▇▇▇ or its employees in
providing the services contemplated hereunder.
(iii) Upon receipt by any indemnified party under this SECTION of
notice of the commencement of any action, and if a claim is to be
made against the indemnifying party under this SECTION, the
indemnified party will promptly notify the indemnifying party.
The omission to notify the indemnifying party will not relieve it
from any liability that it may have to any indemnified party
otherwise than under this SECTION 10(A)(III). In any such action
brought against any indemnified party, the indemnifying party
will
12
be entitled to participate in and, to the extent that it may
wish, to assume the defense thereof subject to the provisions
herein stated, with counsel satisfactory to such indemnified
party. After notice from the indemnifying party to such
indemnified party of its election to assume the defense thereof,
the indemnifying party will not be liable to such indemnified
party under this SECTION for any legal or other expense
subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of
investigation. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with
counsel satisfactory to the indemnified party.
(b) SECURITY INTEREST AND AUTHORIZATION TO CHARGE. Correspondent
grants to ▇▇▇▇▇▇ a first lien and security interest in any
Correspondent Account maintained by ▇▇▇▇▇▇ and any other assets
of Correspondent now or hereafter held by ▇▇▇▇▇▇ and authorizes
▇▇▇▇▇▇ to discharge such lien by charging such Account and assets
with all amounts owing to ▇▇▇▇▇▇ including, but not limited to,
(i) any cost or expense resulting from failures to deliver or
failures to receive, (ii) any losses resulting from unsecured
debit balances in any Customer or Correspondent Account and (iii)
any amounts to which ▇▇▇▇▇▇ is otherwise entitled pursuant to the
provisions of SECTION 10(A). ▇▇▇▇▇▇ shall have discretion to
liquidate or sell any securities without notice to Correspondent,
and to determine which securities to sell. Such charge may be
made against Correspondent Account or assets at any time and in
such amount as Penson deems appropriate. No delay in charging any
Correspondent Account or asset shall operate as a waiver of
▇▇▇▇▇▇'▇ right to do so at any future time as and when Penson
deems appropriate. ▇▇▇▇▇▇ shall have the unlimited right to
set-off any indebtedness or other obligations of Correspondent
under this Agreement or otherwise (absolute or contingent,
matured or unmatured) against any obligations of ▇▇▇▇▇▇ to
Correspondent, including from the Deposit Account (as described
in SECTION 9) and/or any other money, securities, or other
property of Correspondent in ▇▇▇▇▇▇'▇ possession.
(c) RESERVES. In connection with any claim that does or could give
rise to a claim for indemnification under this SECTION 10 for
▇▇▇▇▇▇ or a ▇▇▇▇▇▇ Indemnified Person ▇▇▇▇▇▇ may, in its
discretion, in addition to any and all other rights and remedies
under this Agreement, reserve and retain any money, securities or
other property of Correspondent pending a determination of such
claim. The money, securities or other property of Correspondent
set aside in such a reserve shall be subject to ▇▇▇▇▇▇'▇ standard
lien and security interest described in SECTION 10(B) above.
11. UNDERTAKINGS OF CORRESPONDENT
(a) FINANCIAL STATEMENTS AND OTHER REPORTS. Correspondent will furnish to
Person as soon as possible a copy of Correspondent's balance sheet and
statement of earnings
13
for the current fiscal year and for each of Correspondent's subsequent
fiscal years. Each such balance sheet and statement of earnings shall
be certified by independent public accountants. Correspondent also
shall furnish ▇▇▇▇▇▇ with copies of its monthly and quarterly Focus
filings promptly after filing.
(b) OTHER CLEARING SERVICES. During the term of this Agreement
Correspondent will not sign a clearing agreement with another clearing
broker or dealer without prior written approval by ▇▇▇▇▇▇. However,
Correspondent retains the right to continue its current business
relations with other clearing firms.
(c) SUSPENSION OR RESTRICTION. In the event that Correspondent or any
employee of Correspondent shall become subject to suspension or
restriction by any regulatory body having jurisdiction over
Correspondent and Correspondent's securities business, Correspondent
will notify ▇▇▇▇▇▇ immediately and Correspondent authorizes ▇▇▇▇▇▇ to
take such steps as may be necessary for ▇▇▇▇▇▇ to maintain compliance
with the rules and regulations to which ▇▇▇▇▇▇ is subject.
Correspondent further authorizes ▇▇▇▇▇▇, in any event, to comply with
directives or demands made upon ▇▇▇▇▇▇ by any exchange or regulatory
body relative to Correspondent and Customers. In connection with such
directives or demands, ▇▇▇▇▇▇ may seek advice or legal counsel and
Correspondent will reimburse ▇▇▇▇▇▇ for reasonable fees end expenses
of such counsel.
(d) FIXED PRICE OFFERINGS. Correspondent agrees that in making sales of
Securities, as a part of a fixed price offering, it will comply with
all applicable rules of the NASD, including, without limitation, the
NASD's Interpretations with respect to Free-Riding and Withholding
under Rules 2110 and 2740 of the NASD's Conduct Rules.
(e) CUSTOMER ORDERS. Correspondent represents that all orders received by
▇▇▇▇▇▇ will be in accordance with its Customers' instructions. The
parties hereto expressly agree that ▇▇▇▇▇▇ shall not be responsible
for investigation into the facts surrounding any transaction that it
may have with Correspondent, or that Correspondent may have with its
Customers or other persons, nor shall ▇▇▇▇▇▇ be under any
responsibility for compliance by Correspondent with any laws or
regulations which may be applicable to Correspondent.
(f) INQUIRIES ON CERTIFICATES. Person agrees to act as Correspondent's
direct inquirer under the Lost and Stolen Securities Program under
Rule 17f-1 (17 C.F.R. 240.17f-1).
(g) ▇▇▇▇▇▇ FINANCIAL FUTURES, INC. Correspondent agrees that in the event
that the assets in its Accounts, including the Deposit Account are
insufficient to meet any obligations owed to ▇▇▇▇▇▇ and Correspondent
has one or more accounts with ▇▇▇▇▇▇ Financial Futures, Inc. ("▇▇▇▇▇▇
FUTURES"), the ▇▇▇▇▇▇ is hereby authorized to have ▇▇▇▇▇▇ Futures
liquidate the assets of any such accounts to the extent necessary to
pay such obligations, and to pay such amounts to ▇▇▇▇▇▇. Correspondent
further authorizes Person to liquidate any Accounts to pay any
14
obligations owed to Person Futures upon request by Person Futures
after Person Futures' determination that the assets in Correspondent's
accounts with ▇▇▇▇▇▇ Futures, including its Deposit Account, are
insufficient to meet the obligations owed to ▇▇▇▇▇▇ Futures.
12. TERMINATION OF AGREEMENT; TRANSFER OF ACCOUNTS
(a) EFFECTIVENESS. This Agreement shall remain in force for five (5) years
from the date Correspondent first clears transactions at ▇▇▇▇▇▇. At
anytime prior to the expiration of this initial term, Correspondent
may extend the term of the Agreement for an additional five (5) years
after the expiration of the initial term. Subsequent to this initial
term, or to the extended term if extended, either party may terminate
this Agreement by giving forty-five (45) days prior written notice to
the other party.
(b) TERMINATION BY ▇▇▇▇▇▇. Notwithstanding SECTION 12(A), Person may
terminate this Agreement at any time on five (5) days written notice
to Correspondent in the event that Correspondent:
(i) fails to comply with the terms of this Agreement and upon
notification by ▇▇▇▇▇▇ fails to begin compliance within 10 days
from said notification; or
(ii) is enjoined, prohibited or suspended, as a result of an
administrative or judicial proceeding, from engaging in
securities business activities constituting all or portions of
Correspondent's securities business, which injunction,
prohibition or suspension in ▇▇▇▇▇▇'▇ judgment makes
impracticable the fully disclosed clearing relationship
established in this Agreement.
(c) AUTOMATIC TERMINATION. In addition to any other provisions for
termination herein, this Agreement shall terminate immediately in the
event that either Correspondent or ▇▇▇▇▇▇ ceases to conduct its
business or that ▇▇▇▇▇▇:
(i) is no longer registered as a broker/dealer with the SEC; or
(ii) is no longer a member in good standing of the NASD; or
(iii) is suspended by any national securities exchange of which ▇▇▇▇▇▇
is a member for failure to comply with the rules and regulations
thereof.
(d) CONVERSION OF ACCOUNTS. In the event that this Agreement is terminated
for any reason, it shall be Correspondent's responsibility to arrange
for the conversion of Correspondent and Customer Accounts to another
clearing broker. Correspondent will give ▇▇▇▇▇▇ notice (the
"CONVERSION NOTICE") of:
(i) the name of the broker that will assume responsibility for
clearing services for Customers and Correspondent;
15
(ii) the date on which such broker will commence providing such
services;
(iii) Correspondent's undertaking, in form and substance satisfactory
to ▇▇▇▇▇▇, that Correspondent's agreement with such broker
provides than such broker will accept on conversion all
Correspondent and Customer Accounts, then maintained by ▇▇▇▇▇▇;
and
(iv) the name of an individual within that organization who ▇▇▇▇▇▇ can
contact to coordinate the conversion. The Conversion Notice shall
accompany Correspondent's notice of termination given pursuant to
SECTION 11(A) or within thirty (30) days of the occurrence of an
event specified in SECTION 12(C).
If Correspondent fails to give the Conversion Notice to ▇▇▇▇▇▇,
▇▇▇▇▇▇ may give to Customers such notice as .Penson deems
appropriate of the termination of this Agreement and may make
such arrangements as Penson deems appropriate for transfer or
delivery of Customer and Correspondent Accounts. Correspondent
will pay to ▇▇▇▇▇▇ $3,000 in programming charges to process the
conversion. In addition, Correspondent shall pay any costs
incurred by ▇▇▇▇▇▇ as billed by any third party vendors such as
transfer agents, etc.
(e) SURVIVAL. Termination of this Agreement. shall not affect ▇▇▇▇▇▇'▇
rights or liabilities relating to business transacted prior to the
effective date of such termination. From the date of termination until
transfer or delivery of all Customer and Correspondent Accounts,
▇▇▇▇▇▇'▇ rights and liabilities relating to business transacted after
such termination shall be governed by the same terms as those set
forth in this Agreement. Termination of this Agreement pursuant to
SECTIONS 12(B) or 12(C) shall not relieve Correspondent from payment
to ▇▇▇▇▇▇ for the remainder of the term as defined under SECTION 12(A)
of the minimum clearing charges set forth in. SCHEDULE A of this
Agreement.
(f) NO OBLIGATION TO RELEASE. ▇▇▇▇▇▇ shall not be required to release to
Correspondent any securities or cash held by ▇▇▇▇▇▇ for Correspondent
in one or more Correspondent Accounts until any amounts owing to
▇▇▇▇▇▇ pursuant to the provisions of this Agreement are paid; and
Correspondent's outstanding obligations hereunder to Person are
determined, including determination of any disputed amounts, and
satisfied; and any property of ▇▇▇▇▇▇ in the possession of
Correspondent is returned to ▇▇▇▇▇▇.
13. CONFIDENTIAL NATURE OF DOCUMENTS
All agreements, documents, papers, and data in any form, supplied by
Correspondent concerning Correspondent's business or Customers shall be treated
by ▇▇▇▇▇▇ as confidential. To the extent such documents or data are retained by
▇▇▇▇▇▇, they shall be kept in a safe place and shall be made available to third
parties only as authorized by Correspondent in writing or pursuant to any order
or request of a court or regulatory body having appropriate jurisdiction. ▇▇▇▇▇▇
shall give Correspondent prompt notice of the receipt by ▇▇▇▇▇▇ of any such
order or
16
subpoena, unless prohibited from doing so by the issuing authority which notice
shall be given prior to ▇▇▇▇▇▇'▇ compliance therewith. Such documents shall be
made available by ▇▇▇▇▇▇ for inspection and examination by Correspondent's
auditors, by properly authorized agents or employees of any regulatory bodies or
commissions or by such other persons as Correspondent may authorize in writing.
Notwithstanding anything herein to the contrary, Correspondent expressly
authorizes ▇▇▇▇▇▇ to supply any information requested relating to Correspondent,
its business, or its Customers to any regulatory body having appropriate
authority.
14. NOTICE TO CUSTOMERS
Subject to the requirements of the NASD's Conduct Rules, Correspondent
shall provide, or cause to be provided to every Customer upon the opening of a
Customer Account, notice of the existence and general terms of this Agreement.
15. CUSTOMER COMPLAINT PROCEDURES
Correspondent will be responsible for the initial handling of all Customer
complaints. Any customer who initiates a complaint with ▇▇▇▇▇▇ will be referred
by ▇▇▇▇▇▇ to Correspondent. ▇▇▇▇▇▇ will forward any complaints received to
Correspondent's Designated Examining Authority ("DEA"). ▇▇▇▇▇▇ will also notify
the Customer in writing that the complaint was received and was forwarded to
Correspondent and to Correspondent's DEA. If any such complaint is based upon an
alleged act or failure to act by ▇▇▇▇▇▇, Correspondent will notify ▇▇▇▇▇▇
promptly of such complaint and the basis therefor, and will consult with ▇▇▇▇▇▇
and the parties will cooperate in determining the validity of such complaint and
the appropriate action to be taken.
16. REMEDIES CUMULATIVE
The enumeration herein of specific remedies shall not be exclusive of any
other remedies. Any delay or failure by any party to this Agreement to exercise
any right; power, remedy or privilege herein contained, or now or hereafter
existing under any applicable statute or law, shall not be construed to be a
waiver of such right, power, remedy or privilege, nor to limit the exercise of
such right, power, remedy or privilege, nor shall it preclude the further
exercise thereof or the exercise of any other right, power, remedy or privilege.
17. GUARANTEE
The corporation or individual(s) who guarantee the obligations of
Correspondent under this Agreement by executing the signature lines designated
for such purpose at the end of this Agreement (the "GUARANTOR(S)"), in
consideration of ▇▇▇▇▇▇'▇ entering into the Agreement, do(es) hereby personally
guarantee(s) (jointly and severally, if more than one) the performance by
Correspondent of the provisions of the Agreement (including without limitation
the indemnification provisions of SECTION 10) and shall promptly pay any amount
that is not paid by Correspondent to ▇▇▇▇▇▇ under the Agreement. This is an
absolute, unconditional and unlimited guarantee of payment and may be proceeded
upon by ▇▇▇▇▇▇ or a ▇▇▇▇▇▇ Indemnified Person before fling any action against
Correspondent or after any action against Correspondent has been commenced
Guarantor(s) grants to ▇▇▇▇▇▇ a first lien and security interest on any and all
money
17
and securities of a Guarantor(s) held by ▇▇▇▇▇▇. ▇▇▇▇▇▇ shall have the unlimited
right to set-off any amounts owed to it by Guarantor(s) against any obligation
of ▇▇▇▇▇▇ to Guarantor(s). ▇▇▇▇▇▇ also shall have the unlimited right to set-off
any amount owed to it by Guarantor(s) against any obligation of ▇▇▇▇▇▇ to
Guarantor(s). ▇▇▇▇▇▇ also shall have the absolute and unlimited right to sell,
transfer, or liquidate any of the assets in any of Guarantor(s)' accounts with
▇▇▇▇▇▇ for any amount owed to it by Correspondent or Guarantor(s). The
obligations of the Guarantor(s) shall not be discharged or impaired or otherwise
affected by the failure of ▇▇▇▇▇▇ or a ▇▇▇▇▇▇ Indemnified Person to assert,
claim, demand or enforce any remedy under this Agreement nor by waiver,
modification or amendment of this Agreement or any compromise, settlement or
discharge of obligations of Correspondent under this Agreement, or any release
or impairment of any collateral by ▇▇▇▇▇▇ or a ▇▇▇▇▇▇ Indemnified Person.
In addition, Guarantor(s) agrees that any rights that Person has under this
provision to sell, transfer, or liquidate any of the assets in any of
Guarantor(s)' Accounts with ▇▇▇▇▇▇ for any amount owed to it by Correspondent
shall also apply to any amount owed by Correspondent to ▇▇▇▇▇▇ Financial
Futures, Inc., upon request by ▇▇▇▇▇▇ Financial Futures, Inc. after ▇▇▇▇▇▇
Financial Futures, Inc.'s determination that the assets in Correspondent's
accounts with ▇▇▇▇▇▇ and ▇▇▇▇▇▇ Financial Futures, Inc. including its Deposit
Accounts, are insufficient to meet the obligations owed to ▇▇▇▇▇▇ Financial
Futures, Inc.
18. RESPONSIBILITY FOR ERRORS; LIMIT ON LIABILITY; NO CONSEQUENTIAL DAMAGES
In the general course of business, Person and Correspondent shall each be
responsible for correcting their own errors. In any action by Correspondent
against ▇▇▇▇▇▇ for any claim arising out of the relationship created by this
Agreement, ▇▇▇▇▇▇ shall only be liable to Correspondent in cases of gross
negligence or willful misconduct, and in such cases ▇▇▇▇▇▇ shall only be liable
for the amount or actual monetary losses suffered by Correspondent.
Correspondent shall not, in any such action or proceeding, or otherwise, assert
any claim against ▇▇▇▇▇▇ for consequential damages on account of any loss, cost,
damage or expense which Correspondent may suffer or incur related to
transactions in connection with this Agreement or otherwise, including, but not
limited to, any lost opportunity claims.
19. PAIB PROVISION
(a) PAIB RESERVE CALCULATION. As the clearing broker for Correspondent,
▇▇▇▇▇▇ agrees to perform the calculation for PAIB assets ("PAIB
RESERVE COMPUTATION") in accordance with the customer reserve
computation ("CUSTOMER RESERVE FORMULA") set forth in SEC Rule 15c3-3
with the following modifications:
(i) Any credit (including a credit applied to reduce a debit) that is
included in the customer reserve formula will not be included as
a credit in the PAID reserve computation.
(ii) 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
18
reduces debit balances by 3% under the alternative method will
not apply to the PAIB reserve computation.
(iii) Neither Note E(l) to Rule 15c3-3a nor NYSE interpretation/04 to
item 10 of Rule 15c3-3a regarding securities concentration
charges will be applied to the PAIB reserve computation.
(b) RESERVE COMPUTATION TIME FRAMES. The PAIB reserve computation will be
prepared within the same time frames as those prescribed by Rule
l5c3-3 for the customer reserve formula.
(c) PAIB ASSETS. The PAIB reserve computation will include all of the
proprietary accounts of Correspondent covered by this Agreement. All
PAIB assets will be kept separate and distinct from customer assets
under the customer reserve formula in the Customer Protection Rule.
(d) PAIB RESERVE ACCOUNT. ▇▇▇▇▇▇ will 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 will be maintained in the PAIB Reserve
Account in an amount equal to the PAIB reserve requirement.
(e) PAIB CREDITS.
(i) Credits included in the PAIB reserve computation that result from
the use of PAIB securities pledged to meet intra-day margin calls
in a cross margin account established between The Options
Clearing Corporation and any regulated commodity exchange can be
reduced to the extent that the excess margin held by the other
clearing corporation in the cross margin relationship is used the
following business day to replace the PAIB securities that were
previously pledged. In addition, balances resulting from a cross
margin account which are segregated pursuant to the Commodities
Future Trading Commission regulations need not be included in the
PAIB reserve computation.
(ii) Deposits received prior to a transaction pending settlement which
are $5 million or greater for any single transaction or $10
million in aggregate can be excluded as credits from the PAIB
reserve computation if such balances are placed and maintained in
a separate PAIB Reserve Account by 12 noon eastern time (ET) on
the following business day. Thereafter, the money representing
any such deposits may be withdrawn to complete the related
transactions without performing a new PAIB reserve computation.
(f) DEPOSIT REQUIREMENTS. In the event the PAIB reserve computation
results in a deposit requirement, the requirement can be satisfied to
the extent of any excess
19
debit in the customer reserve formula of the same date. However, a
deposit requirement resulting from the customer reserve formula will
not be satisfied with excess debits from the PAIB reserve computation.
(g) CREDIT BALANCES. A credit balance resulting from a PAIB reserve
computation can be reduced by the amount that items representing such
credits are swept into money market funds or mutual funds of an
investment company registered under the Investment Company Act of 1940
prior to 10 a.m. ET on the deposit date provided that the credits
swept into any such fund are not subject to any right, charge,
security interest, lien, or claim of any kind in favor of the
investment company or ▇▇▇▇▇▇. Any credits which have been swept into
money market funds or mutual funds must be maintained in the name of
Correspondent or for the benefit of Correspondent. This treatment of
credit balances applies only to the PAIB reserve computation.
(h) EXCLUSIONS FROM PAIB RESERVE COMPUTATION.
(i) Commissions receivable and other receivables of Correspondent
from ▇▇▇▇▇▇ (excluding clearing deposits) that are otherwise
allowable assets under the Net Capital Rule will not be included
in the PAIB reserve computation provided the amounts have been
clearly identified as receivables on the books and records of the
Correspondent and as payables on the books of ▇▇▇▇▇▇.
(ii) The proprietary account of Correspondent that is a guaranteed
subsidiary of a clearing broker or who guarantees a clearing
broker (i.e., guarantees all liabilities and obligations) will be
excluded from the PAIB reserve computation.
(i) CLEARING DEPOSITS. Clearing deposits required to be maintained at
▇▇▇▇▇▇ may be included as debits in the PAIB reserve computation to
the extent the percentage of the deposit which is based upon ▇▇▇▇▇▇'▇
aggregate deposit requirements that relates to the proprietary
business of the Correspondent can be identified. The clearing deposit
does not represent an ownership interest.
(j) NOTIFICATION REQUIREMENTS.
(i) Within two business days of the execution of this Agreement,
Correspondent will notify its designated examining authority
("DEA") in writing that it has entered into such agreement with
▇▇▇▇▇▇.
(ii) Upon discovery that any deposit made to the PAIB Reserve Account
does not satisfy its deposit requirement ▇▇▇▇▇▇ shall by
facsimile or telegram immediately notify its DEA and the
Securities arid Exchange Commission ("SEC"). Unless a corrective
plan is found acceptable by the SEC and the DEA, ▇▇▇▇▇▇ will
provide written notification within 5 business days of the date
of discovery to Correspondent that PAIB assets held by ▇▇▇▇▇▇
20
will not be deemed allowable assets for net capital purposes. In the
event Correspondent wishes to continue to count its PAIB assets as
allowable, it will have until the last business day of the month
following the month in which notification is 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, Correspondent may choose to
keep its assets at ▇▇▇▇▇▇.
20. MISCELLANEOUS
(a) TAX REPORTING. ▇▇▇▇▇▇ shall be responsible for providing IRS Form 1099
(or any successor form) and other information required to be reported
by federal, state or local tax laws, rules or regulations, to Accounts
solely with respect to events subsequent -to the effective date of
this Agreement and for the mailing of same at ▇▇▇▇▇▇'▇ expense.
(b) SCOPE OF SERVICES. ▇▇▇▇▇▇ shall limit its services pursuant to the
terms of this Agreement to those services expressly set forth herein
and related thereto.
(c) MODIFICATION. This Agreement may be modified only by a writing signed
by both parties to this Agreement. Such modification shall not be
deemed as a cancellation of this Agreement. Subject to the NASD's
Conduct Rules, this Agreement and all modifications may be required to
be submitted to the NASD for approval prior to effectiveness, it is
expressly understood that brokerage services cannot be provided. by
Correspondent under this Agreement until such approval, if required,
is received.
(d) ASSIGNMENT. This Agreement shall be binding upon all successors,
assigns or transferees of both parties hereto, irrespective of any
change with regard to the name of or the personnel of Correspondent or
▇▇▇▇▇▇. Any assignment of this Agreement shall be subject to the
requisite review and/or approval of any regulatory or self-regulatory
agency or body whose review and/or approval must be obtained prior to
the effectiveness and validity of such assignment. No assignment of
this Agreement shall be valid unless the non-assigning party, in its
sole discretion consents to such an assignment in writing. Neither
this Agreement nor any operation hereunder is intended to be, shall
not be deemed to be, and shall not be treated as a general or limited
partnership, association or joint venture or agency relationship
between Correspondent and ▇▇▇▇▇▇.
(e) ACCOUNT DOCUMENTATION. Applicable laws and regulations require that
▇▇▇▇▇▇ must have proper documentation and support for any Account
opened on its books. If, after reasonable requests, the necessary
documents to enable ▇▇▇▇▇▇ to comply with such account documentation
requirements of the laws and regulations have not been received by
▇▇▇▇▇▇; Correspondent shall receive notification that no further
orders will be accepted for the Account involved.
21
(f) CONSTRUCTION. The construction and effect of every provision of this
Agreement; the rights of the parties hereunder and any questions
arising out of the Agreement; shall be subject to the statutory and
common law of the state of Texas.
(g) ARBITRATION. In the event of a dispute between the parties, such
dispute shall be settled by arbitration before arbitrators sitting in
Dallas, Texas, in accordance with the rules of the Arbitration
Committee of the NASD then in effect. The arbitrators may allocate
attorneys' fees and arbitration costs between parties, and such award
shall be final and binding between the parties and judgment thereon
may be entered in any court of competent jurisdiction.
(h) HEADINGS. The headings preceding the text, articles and sections
hereof have been inserted for convenience and reference only and shall
not be construed to affect the meaning, construction or effect of this
Agreement.
(i) ENTIRE AGREEMENT. This Agreement shall cover only the types of
services set forth herein and is in no way intended nor shall it be
construed to bestow upon Correspondent or ▇▇▇▇▇▇ any special treatment
regarding an other arrangements; agreements or understandings that
presently exist between Correspondent and ▇▇▇▇▇▇ or that may
hereinafter exist. Correspondent shall be under no obligation
whatsoever to deal with ▇▇▇▇▇▇ or any of its subsidiaries or any
companies controlled directly or indirectly by or affiliated with
▇▇▇▇▇▇, in any capacity other than as set forth in this Agreement.
Likewise, ▇▇▇▇▇▇ shall be under no obligation whatsoever to deal with
Correspondent or any of its affiliates in any capacity other than as
set forth in this Agreement. An Addendum to this Agreement does exist
and is attached herewith.
(j) SEVERABILITY. If any provision or condition of this Agreement shall be
held to be invalid or unenforceable by any court, or regulatory or
self-regulatory agency or body, such invalidity or unenforceability
shall attach only to such provision or condition. The validity of the
remaining provisions and conditions shall not be affected thereby and
this Agreement shall be carried out as if any such invalid or
unenforceable provision or condition were not contained herein.
(k) FORCE MAJEURE. In addition to any excuse provided by applicable law,
all parties hereto shall be excused from liability for non-performance
of this Agreement arising from any event beyond any party's control,
whether or not foreseeable by either party, including but not limited
to, labor disturbance, war, fire, accident, adverse weather, inability
to secure transportation, governmental act or regulation, inability to
obtain raw materials or other causes or events beyond either party's
control, whether or not similar to those enumerated above.
(l) INTERPLEADER. If ▇▇▇▇▇▇ receives conflicting claims from
Correspondent, a Customer and/or other persons regarding money,
securities or other property held by ▇▇▇▇▇▇, ▇▇▇▇▇▇ may, in its sole
discretion, tender such money, securities or other property to a court
of competent jurisdiction and institute an action in interpleader or
other appropriate legal proceeding to determine the tights of the
respective claimants.
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▇▇▇▇▇▇ shall have no liability to Correspondent or Customers in
connection with any such action, and shall be entitled to
reimbursement for its costs and expenses in connection with such
action from Correspondent.
(m) NOTICE. For the purposes of any and all notices, consents, directions,
approvals, restrictions, requests or other communications required or
permitted to be delivered hereunder, ▇▇▇▇▇▇'▇ address shall be:
Attention: ▇▇▇▇▇▇ ▇. Son
President
▇▇▇▇▇▇ Financial Services, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
and Correspondents address shall be:
Mr. ▇▇▇▇▇ ▇▇▇▇▇
Empire Financial Group, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Either party may provide such notice or change its address for notice
purposes by giving written notice pursuant to registered or certified
mail, return receipt requested, of the new address to the other party.
(n) COUNTERPARTS: NASD APPROVAL. This Agreement nay be executed in one or
more counterparts, all of which taken together shall constitute a
single agreement. When each party hereto has executed and delivered to
the other a counterpart, this Agreement shall become binding on both
parties, subject only to any required approval by the NASD. If
required by the NASD, ▇▇▇▇▇▇ shall submit this Agreement to the NASD
promptly following execution and will notify, Correspondent, or cause
Correspondent to be notified promptly upon receipt of such approval.
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MADE AND EXECUTED AT _________ THIS ______ DAY OF ___________ 20__.
▇▇▇▇▇▇: ▇▇▇▇▇▇ FINANCIAL SERVICES, INC.
By: __________________________________
▇▇▇▇▇▇ ▇. ____________, EVP
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ 7501
CORRESPONDENT:
INDIVIDUAL: __________________________________
[Signature]
__________________________________
[Print Name]
__________________________________
[Address]
__________________________________
ENTITY: EMPIRE FINANCIAL GROUP, INC.
__________________________________
[Name]
CORPORATION
__________________________________
[Type of Entity, i.e., corporation,
partnership, etc.]
By: __________________________________
Its:__________________________________
__________________________________
[Address]
__________________________________
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GUARANTEE: The undersigned individual(s) or corporation hereby guarantee(s) the
obligations of Correspondent under the Agreement as provided in SECTION 17 of
the Agreement.
INDIVIDUAL GUARANTOR(S): __________________________________
[Signature]
__________________________________
[Print Name]
__________________________________
[Signature]
__________________________________
[Print Name]
__________________________________
[Signature]
__________________________________
[Print Name]
CORPORATE GUARANTOR: EMPIRE FINANCIAL GROUP, INC.
__________________________________
[Name of Corporation]
By: __________________________________
Its:__________________________________
__________________________________
[Address]
__________________________________
25
ADDENDUM TO THE FULLY DISCLOSED CLEARING AGREEMENT
BETWEEN
▇▇▇▇▇▇ FINANCIAL SERVICES, INC.
AND
EMPIRE FINANCIAL GROUP, INC.
(NAME OF CORRESPONDENT)
This is an Addendum dated April 7, 2003. ("ADDENDUM") to the Fully Disclosed
Clearing Agreement ("AGREEMENT") between ▇▇▇▇▇▇ Financial Services, Inc. and
Empire Financial Group, Inc. (Name of Correspondent).
1. SCHEDULE A to the Fully Disclosed Clearing Agreement ("AGREEMENT") will
remain in force for five (5) years from the date of execution, and the fees
paid to ▇▇▇▇▇▇ contained therein may be changed only by mutual consent of
the parties. ▇▇▇▇▇▇ may pass through regulatory, clearing and exchange fees
and changes to such fee without consent of Empire. Empire may extend the
term of the contract for an additional five (5) years at its option anytime
during the term of the Agreement.
2. Empire may enter into sub-clearing agreements with other broker-dealers.
▇▇▇▇▇▇ retains the right to approve such arrangements and to reject any
such agreement at its sole discretion.
3. In the event of an emergency at Empire's primary office location, which
makes access to such space unavailable, ▇▇▇▇▇▇ will provide Empire
personnel with access to ▇▇▇▇▇▇'▇ ▇▇▇▇▇▇ offices as a back-up site. Such
access will be in accordance with ▇▇▇▇▇▇'▇ standard office procedures, and
will not include equipment or furniture. ▇▇▇▇▇▇ will not charge for such
allocated space for the term of the emergency.
4. Subject to its standard credit policies, ▇▇▇▇▇▇ will consider providing
excess leverage, not to exceed 6:1 on an intra-day basis, to Empire.
5. The monthly minimum charge of $5,000 will not be applicable until the
completion of the tape-to-tape conversion between Empire's current clearing
firm and ▇▇▇▇▇▇, unless such conversion occurs more than six months after
the effective date of the Agreement. In such case, the minimum charge will
begin to apply in the seventh month after the effective date of the
Agreement.
▇▇▇▇▇▇ FINANCIAL SERVICES, INC. EMPIRE FINANCIAL GROUP, INC.
By: _____________________________ By: _______________________________
Printed Name: ___________________ Printed Name: _____________________
Title: __________________________ Title: ____________________________
Date: __________________________ Date: _____________________________
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