FULLY DISCLOSED CLEARING AGREEEMENT
This Agreement made in Minneapolis, Minnesota on the 2nd day of
November, 1999 by and between Xxxxxx, Xxxxxxx & Xxxxx, Incorporated (MJKI), a
Minnesota corporation, having its principal office at 0000 Xxxxxxx Xxxx. #000,
Xxxxxxxxxxx, Xxxxxxxxx, 00000 and On Line Stock Market. Inc. ("Introducing
Broker"), a California corporation having its principal office at 0000 Xxxxxxx
Xxxx Xxxx Xxxxx 0000, Xxx Xxxxxxx, XX 00000.
WHEREAS, MJKI is registered as a broker/dealer in securities; and
WHEREAS, Introducing Broker is also registered as a broker/dealer in
securities; and
WHEREAS, Introducing Broker is desirous that MJKI clear and settle on a
fully disclosed basis transactions for accounts which from time to time are
transferred or introduced to MJKI by Introducing Broker and are accepted by MJKI
("Introduced Account"), under terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the terms and
conditions hereinafter set forth, the parties agree as follows:
I. REPRESENTATION AND WARRANTIES
A. Introducing Broker represents and warrants that:
1. It is a member and in good standing of the National
Association of Securities Dealers, Inc.;
2. It is duly registered or licensed and in good
standing as a broker/dealer under the Securities
Exchange Act of 1934 and the state securities laws of
California and all such other jurisdictions in which
it transacts business and is required to be
registered as a broker/dealer;
3. It has all requisite power and authority, whether
arising under applicable federal or state taws, its
Articles of Incorporation or Bylaws, to enter into
this Agreement and to perform its obligations
hereunder; and
4. It is in substantial compliance, and during the term
of this Agreement will remain in substantial
compliance, with the capital and financial reporting
requirements of the National Association of
Securities Dealers, Inc. ("NASD"), the Securities and
Exchange Commission ("SEC"), any securities exchange
of which it is a member and of every state having
jurisdiction over it.
B. 1. MJKI represents and warrants that:
2. It is duly registered or licensed and in good
standing as a broker/dealer under the Securities and
Exchange Act of 1934 and the state securities laws of
Minnesota and all other states in which it transacts
business and in which it is required to be registered
as a broker/dealer;
3. It has requisite power and authority, whether arising
under applicable federal or state law, its Articles
of Incorporation or Bylaws to enter into this
Agreement and to perform its obligations hereunder;
and
4. It is in substantial compliance, and during the terms
of this Agreement will remain in substantial
compliance, with the capital and financial reporting
requirements of the NASD, SEC and of every state to
whose jurisdiction it is subject.
II. FINANCIAL ARRANGEMENTS: COMMISSION, CHARGES AND INTEREST
The financial arrangements between the parties shall be those contained
in Attachment I, which is made a part of this Agreement. Attachment I
may be amended from time to time by written agreement of the parties.
Such amended Attachment I shall be initialed and attached to this
original Agreement.
III. SERVICES TO BE PERFORMED BY MJKI
MJKI shall carry the Introduced Accounts and perform the following
services:
A. Clearance and settlement of all transactions in Introduced
Accounts;
B. Execution of all transactions in listed securities, options,
bonds, over the counter securities and other securities as
Introducing Broker from time to time shall request; provided,
however, that MJKI, in its sole discretion, may refuse to
accept any account or any order and terminate any account
previously accepted without prior notice;
C. Preparation and mailing of confirmations to customers on
MJKI's forms, provided that all such confirmations shall
contain a statement that MJKI is acting as the clearing agent
for the Introducing Broker;
D. Preparation and mailing of monthly or other periodic
statements to customers, which statements shall disclose that
MJKI is acting as the clearing agent for the Introducing
Broker;
E. Clearing and settlement of contracts and transactions in
securities (i) between Introducing Broker and other
Broker/Dealers, (ii) between Introducing Broker and its
customers, and (iii) between Introducing Broker and third
persons;
F. Cashiering functions for Introduced Accounts, including
receipt and delivery of securities purchased, sold, borrowed
and loaned, making and receiving payment therefore, custody
and safe keeping of securities and cash, the handling of
margin accounts, dividends and exchanges, rights and tender
offers;
G. Nothing in this Agreement shall create a partnership, joint
venture, association or agency relationship between MJKI and
Introducing Broker;
H. Notification in writing of the existence of a Clearing
Agreement to Introducing Broker Customers;
I. Compliance with NASD Notice to Members 98-99 (see Attachment
Two);
J. Providing notification, at the execution of this agreement and
annually thereafter, of reports that MJKI makes available to
the Introducing Broker to assist the Introducing Broker in
supervising its activities, monitoring its customer accounts,
and carrying out its functions and responsibilities under this
clearing agreement (See Attachment Three) and;
K. Compliance with NASD's OATS Rules and Specifications (See
Attachment Four).
IV. HANDLING OF INTRODUCED ACCOUNTS
MJKI and Introducing Broker agree that all Introduced Accounts shall be
subject to the following:
A. For purposes of the Securities Investors Protection Act
("SIPA") and the Securities and Exchange Commission's
financial responsibility rules, customers with respect to
Introduced Accounts shall be deemed to be customers of MJKI as
the clearing agent;
B. MJKI in its sole discretion may refuse to accept any account
or any order and may terminate any account previously accepted
without prior notice and may close an account already open,
refuse to confirm and/or cancel a confirmation, reject a
delivery or receipt of, securities and/or money; refuse to
clear any trade executed by Introducing Broker or refuse
execute any trade for the account of a customer introduced by
Introducing Broker;
C. Introducing Broker agrees that its employees, officers, or
agents may not have Discretionary power with respect to any
Introduced Account;
D. All requests for Reg T extensions must be made to MJKI.
Introducing Broker shall be responsible for determining that
the requests are valid and in compliance with the requirements
of MJKI. MJKI shall not be obligated to comply with any
extension request made by Introducing Broker;
E. Introducing Broker accepts full responsibility for the
authenticity of orders placed by Introducing Broker with
respect to any Introduced Account and with respect to any firm
accounts and for complying with all rules of any exchange or
applicable market in placing such order; without limited the
generality of the foregoing, Introducing Broker will
specifically be responsible for compliance with applicable
NASD rules in connection with the placing of all orders;
F. Nothing in this Agreement shall be construed to require, or
impose any duty upon either party to do anything that might be
in violation of the laws of any jurisdiction in which the
party does business under this Agreement, or the rules of any
regulatory body (including exchanges and clearing corporations
to which either or both of the parties are subject);
G. Introducing Broker acknowledges receipt and familiarity with
the basic guidelines applicable to MJKI's operations and
procedures and agrees to comply with such guidelines and
procedures and to familiarize itself with all modifications or
supplements to such procedures and guidelines which may be
issued by MJKI from time to time. Any changes in such
guidelines will be forwarded in a timely manner to the
Introducing Broker;
H. All correspondence in the nature of customer inquiries or
complaints shall be directed to the Introducing Broker. Any
such correspondence is to be reviewed and replied to by MJKI
or Introducing Broker depending upon who is responsible for
the function which is a subject matter of the correspondence.
If such correspondence is not directed to the appropriate
party initially, MJKI and Introducing Broker shall promptly
forward such oorrespondence to the appropriate party; MJKI
shall forward any customer complaints about the introducing
firm to the introducing firm's Designated Examining Authority,
as well as to the introducing firm.
L. MJKI and Introducing Broker, respectively, agree to maintain
in accordance with applicable retention policies such books
and records as may be required to discharge their respective
functions under this Agreement;
M. MJKI and Introducing Broker agree to cooperate with each other
with respect to the performance of the various functions
performed by MJKI and Introducing Broker. Such cooperation
shall include the provision of appropriate data pertinent to
the functions to be performed by MJKI and Introducing Broker;
N. All services with respect to Introduced Accounts which are not
expressly delegated to MJKI
in this Agreement shall be the responsibility of the
Introducing Broker;
O. MJKI agrees not to set up any proprietary trading or
investment accounts in the name of the Introducing Broker.
V. DUTIES, OBLIGATIONS AND RESPONSIBILITIES OF INTRODUCING BROKER
A. Introducing Broker shall furnish all information and
documentation as required by MJKI for the opening of all
Introduced Accounts. Any new Introduced Accounts shall bear
the written approval of an NASD principal of the Introducing
Broker. Only MJKI approved forms may be used for the opening
of a new Introduced Account.
B. Introducing Broker will provide MJKI with other basic data and
documents, including without limitation, copies of records of
any receipt of customers funds and securities received
directly by Introducing Broker, as may be necessary or
appropriate to permit MJKI to discharge its services hereunder
and which, in all cases, will be compatible with MJKI's
requirements.
C. If securities purchased for cash are sold because of
nonpayment or if securities sold in a cash account are
repurchased because of nondelivery or delivery on
nontransferable securities, then Introducing Broker will
promptly pay MJKI any losses MJKI may sustain (including
interest thereon) as a result thereo(pound)
D. Introducing Broker agrees to turn over promptly to MJKI funds
or securities received by Introducing Broker from customers
with respect to Introduced Accounts, together with such
information as may be relevant or necessary to enable MJKI
promptly and properly to record such remittances and receipts
in respect to Introduced Accounts. MJKI may, at its option,
make a charge for late payments or deliveries in such an
amount as it, in its sole discretion, may determine, within
reasonable industry standards.
E. Introducing Broker shall promptly pay MJKI the amount of any
unsecured debit balances in Introduced Accounts other than
such introduced debit balances arising through errors and
omissions of MJKI. Upon Introducing Broker's failure to pay
MJKI any amount required above, MJKI shall have the right to
liquidate a sufficient portion of any position in the
Introducing Broker's proprietary accounts to satisfy such
obligation.
F. Introducing Broker shall have the sole responsibility,
including sole supervisory responsibility with respect to all
accounts handled by the personnel of its organization. This
responsibility includes, but is not limited to, the following:
1. Determining the amount of commission to be charged to
Introduced Accounts;
2. Assuring that no transactions are made in violation
of any laws or regulations;
3. Selecting, investigating, training, registering and
supervising all personnel, registered or otherwise,
who service Introduced Accounts;
4. Establishing procedures to review transactions and
trading in Introduced Accounts;
5. Assuring the suitability of all transactions,
including recommendations made to customers;
6. Assuring the appropriateness of the frequency of
trading in Introduced Accounts;
7. Handling of any account for an employee or officer of
any exchange member organization, self regulatory
organization, bank, trust company, insurance or other
organization engaged in the securities business and
for the compliance with applicable rules and
regulations.
8. Introducing Broker agrees to furnish MJKI a copy of
its annual Focus Report at the same time Introducing
Broker files such report with its primary examining
authority.
G. Introducing Broker agrees to notify promptly MJKI, in writing,
of reports provided by MJKI that the Introducing Broker
requires to supervise and monitor its customer accounts.
VI. INDEMNITY, INSURANCE
A. Introducing Broker hereby agrees to indemnify, defend and hold
harmless MJKI from and against all claims, demands,
proceedings, suits, and actions made or brought against MJKI
or any of its controlling persons, and to indemnify MJKI from
all losses, damages, expenses attorney's fees and costs
arising out of one or more of the following:
1. Failure of Introducing Broker or of a customer with
respect to an Introduced Account to make payment when
due for securities purchased or to deliver when due
securities sold for the account of Introducing Broker
or such customer;
2. Failure of an Introduced Account to meet any initial
margin call or any maintenance call, except that MJKI
shall be responsible only for the portion of any such
losses that are directly attributable to MJKI's
failure to give proper and timely notification to the
customer of any maintenance call;
3. Failure of Introducing Broker to properly perform its
duties, obligations and Responsibilities with respect
to Introduced Accounts as set forth in the Agreement,
it being understood that the participation of any
employee of MJKI with respect to any such transaction
shall not effect the Introducing Broker's
indemnification obligations hereunder unless such
participation by MJKI's employee was fraudulent or
grossly negligent;
4. Any dishonest, fraudulent, negligent or criminal act
or omission on the part of any of the Introducing
Broker's officers, partners, controlling persons,
employees, agents or customers;
5. All claims or disputes between Introducing Broker and
its customer with respect to the Matters set forth in
Section IV, it being understood that; (i) Introducing
Broker guarantees the validity of customer orders and
the forms such orders are transmitted to MJKI by
Introducing Broker and guarantees to MJKI that each
customer will promptly and fully perform its
commitments and obligations with respect to all
transactions in all of his or her accounts carried by
MJKI hereunder and (ii) checks received by MJKI from
Introduced Accounts shall not constitute payment
until they have been paid and the proceeds actually
received and credited to MJKI by its bank;
6. The breach by Introducing Broker of any warranty made
by it under this Agreement; (i) MJKI's guarantee of
any signature with respect to transactions in the
Introduced Accounts; and (ii) the failure of
Introduced Accounts to fulfill their obligations to
Introducing Broker or to MJKI (whether or not such
failure is in the Introducing Broker's control);
7. Any adverse claims with respect to any customer
securities delivered or cleared by MJKI, it being
understood that MJKI shall be deemed to be an
intermediary between Introducing Broker and the
customer and shall be deemed to make no warranties
other than those provided in Section 8-306(3) of the
Uniform Commercial Code;
B. MJKI shall indemnity, defend and hold harmless Introducing
Broker from and against all claims, demands, proceedings,
suits and actions and all liabilities expenses, attorney's
fees and costs in connection therewith arising out of any
grossly negligent, dishonest, fraudulent or criminal act or
omission on the part of any of its officers, partners,
controlling persons or employees with respect to the services
provided by MJKI under this Agreement.
C. Introducing Broker agrees to keep in full force and effect a
stockbroker's blanket bond (Form 14), with coverage for all
insuring clauses and other insurances required by the rules of
any exchange or the NASD as of the date of this Agreement and
in at least the minimum required limits and to furnish MJKI at
the time of the Introducing Broker's annual audit a statement
from its auditors to the effect that the bonds are in full
force and effect. MJKI reserves the right to require a similar
confirmation from Introducing Broker at any time. Introducing
Broker agrees to give MJKI prompt written notice of any change
or cancellation of the insurance referred to above.
VII. DURATION AND TERMINATION OF AGREEMENT
A. This Agreement shall take effect upon execution and delivery
by the parties and shall continue in force for a term of one
year.
B. Unless written notice oftermination shall have been received
from the other prior to the expiration of the initial term, or
any additional term, the term ofthe Agreement shall
automatically be extended for a further twelve (12) months.
C. Either party may terminate this Agreement during the initial
term or any additional term by giving (thirty) 30 days written
notice of its desire to terminate this Agreement. Violation by
either party of any provision of this Agreement, or the
bankruptcy or insolvency of either party, or the appointment
of a receiver or trustee over the assets or business of either
party will subject the Agreement to automatic termination.
D. The termination of this Agreement for any reason, shall not
release either party from any liability or responsibility to
the other as of the date of termination, whether or not then
ascertained, provided that such liability shall relate to
transactions prior to the effective date of such termination.
VIII. ASSIGNMENT
This Agreement shall be binding and inure to the benefit of the
Introducing Broker and MJKI, and their respective successors and
assigns, except that Introducing Broker may not assign or transfer its
rights hereunder without the prior written consent of MJKI, which will
not be unreasonably withheld within industry standards.
IX. ARBITRATION
Any and all disputes or controversies between the parties relating to
or arising out of this Agreement shall be resolved by arbitration to
the full extent provided by law. Such arbitration shall be in
accordance with the rules then in effect of the National Association of
Securities Dealers, Inc. and any such hearing shall be held in
Minneapolis, Minnesota. Judgment upon any award rendered by arbitration
may be entered in any court having jurisdiction thereof.
X. FINANCIAL INFORMATION, REPORTS AND CAPITAL WITHDRAWLS
A. Introducing Broker agrees to furnish to MJKI a copy of all
FOCUS Reports under Rule 17a-5 of the Securities Exchange Act
of 1934, when filed as required, and quarterly balance sheets.
B. Introducing Broker agrees to give MJKI at least thirty (30)
days written notice prior to any capital withdrawals exceeding
in the aggregate ten (10) percent of its net capital under
Rule 15c3-1 of the Securities Exchange Act of 1934 as reported
in Introducing Broker's most recent FOCUS Report furnished to
MJKI.
XI. NET CAPITAL
A. Introducing Broker agrees to maintain minimum net capital
acceptable to MJKI or as required under the Rules of the
Securities Exchange Commission, or the NASD, whichever of the
above is higher, and to maintain at all times a ratio of
aggregate indebtedness to net capital not in excess of 10 to
1.
B. Introducing Broker agrees to notify MJKI promptly, but in any
event, within three (3) business days if its net capital ratio
exceeds 8 to 1.
XII. GENERAL
A. Notice, as provided herein, shall be by certified mail, return
receipt requested, and shall be sent to Introducing Broker at
the address in this Agreement. Notice to MJKI shall be sent to
the address stated in this Agreement to the attention of:
Xxxxx X. Xxxxxx, CEO. The address to which notice is sent may
be changed in writing by either party.
B. This Agreement contains the entire Agreement between the
parties and cannot be amended or modified except in writing
executed by both parties.
C. Neither this Agreement nor the operations hereunder shall be
deemed to create a joint venture, partnership or agency
relationship.
D. Introducing Broker agrees not to use MJKI's name in
advertising or any promotional matters without the explicit
written consent of MJKI.
E. This Agreement shall be deemed a contract under the laws of
the State of Minnesota and for all purposes, shall be
construed and enforced in accordance with the laws of the
state.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
XXXXXX XXXXXXX & XXXXX, INCORPORATED
By: /s/ XXXXXXX X. XXXXXX By /s/ XXXX X XXXXX
Xxxxxxx X. Xxxxxx Xxxx X. Xxxxx
Its President Its Vice President
Dated: 11-2-99 Dated: 11-3-99
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