Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as ******. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
EXHIBIT 10.1
CLEARING AGREEMENT
This agreement, made this 25 day of April, 1997 (the "Agreement") between
Correspondent Services Corporation (hereinafter referred to as "CSC"), and
Knight Securities LP (hereinafter referred to as the "Correspondent").
WITNESSETH THAT:
WHEREAS, the Correspondent is desirous of availing itself of clearing, execution
and other services related to the securities business as more fully set forth
herein; and Whereas, CSC desires to extend the foregoing types of services to
the Correspondent; now therefore, in consideration of the mutual covenants
hereinafter set forth and other good and valuable consideration the receipt of
which is hereby acknowledged, the parties hereto hereby covenant and agree as
follows:
I. Services
--------
A. Services to be Performed by CSC
-------------------------------
(i) CSC will execute orders for the Correspondent's proprietary
accounts and/or the Correspondent's customers whose cash and/or
margin accounts have been accepted by CSC ("Introduced
Accounts"), but only insofar as such orders are transmitted by
the Correspondent or its designee to CSC.
(ii) CSC will generate, prepare and/or transmit the appropriate data
to effect the production of and cause to be mailed confirmations
respecting transactions effected by each of the Introduced
Accounts.
(iii) CSC will prepare and mail the summary monthly statements (or
quarterly statements if no activity in any Introduced Account
occurs during any quarter covered by such statement) to every
Introduced Account.
(iv) CSC will settle contracts and transactions in securities
(including options to buy or sell securities) (i) between the
Correspondent and other brokers and dealers, (ii) between the
Correspondent and the Introduced Accounts, and (iii) between the
Correspondent and persons other than the Introduced Accounts or
other brokers and dealers.
(v) CSC will engage in all cashiering functions for the Introduced
Accounts, including the receipt, delivery and transfer of
securities purchased, sold, borrowed and loaned, receiving and
distributing payment therefore, holding
1
in custody and safekeeping all securities and payments so
received, the handling of cash and margin accounts, including
paying and charging of interest, the receipt and distribution of
dividends and other distributions, and the processing of exchange
offers, rights offerings, warrants, tender offers and
redemptions. Exclusively for purposes of the Securities and
Exchange Commission's financial responsibility rules and SIPC
requirements, the Correspondent's customers will be considered
customers of CSC and not customers of the Correspondent. Nothing
herein shall cause the Correspondent's customers to be construed
or interpreted as customers of CSC for any other purpose, or to
negate the intent of any other section of this agreement,
including, but not limited to, the delineation of
responsibilities as set forth elsewhere in this agreement. Upon
mutual written agreement of the parties hereto, the cashiering
functions with respect to the receipt of securities and the
making and receiving payments therefor may be relinquished to the
Correspondent.
(vi) CSC will construct and maintain books and records of all
transactions executed or cleared through it and not specifically
charged to the Correspondent pursuant to the terms of this
Agreement, including a daily record of required margin and other
information required by Rule 432(a) of the rules of the Board of
Directors of the New York Stock Exchange, Inc. (the "Rules"), or
by the constitution, articles of incorporation, by-laws (or
comparable instruments) or rules, regulations or other
instruments corresponding to the foregoing, and the stated
policies or practices of any other securities exchange (the
"Standards"), including but not otherwise limited to any national
securities exchanges registered under the Securities Exchange Act
of 1934, as amended ("National Securities Exchange").
B. Services Which Shall Not be Performed by CSC
--------------------------------------------
Unless otherwise agreed to in a writing executed by the parties hereto, CSC
shall not engage in any of the following services on behalf of the
Correspondent:
(i) Accounting, bookkeeping or recordkeeping, cashiering, or any
other services with respect to commodity transactions, and/or any
transaction other than securities (including options,
derivatives, etc.) transactions.
(ii) Preparation of the Correspondent's payroll records, financial
statements or any analysis or review thereof or any
recommendations relating thereto.
(iii) Preparation or issuance of checks in payment of the
Correspondent's expenses, other than expenses incurred by CSC on
behalf of the Correspondent pursuant to this Agreement.
2
(iv) Payment of commissions, salaries or other remuneration to the
Correspondent's salespersons or any other employees of the
Correspondent.
(v) Preparation and filing of reports (the "Reports") with the
Securities and Exchange Commission, and state securities
commission, any National Securities Exchange, or other securities
exchange or securities association or any other regulatory or
self-regulatory body or agency with which the Correspondent is
associated and/or by which it is regulated. Furthermore, CSC
will, at the request of the Correspondent, furnish the
Correspondent with any necessary information and data contained
in books and records kept by CSC and not otherwise reasonably
available to the Correspondent if such information is required in
connection with the preparation and filing of Reports by the
Correspondent.
(vi) Making and maintaining reports and records required to be kept by
the Correspondent by the Currency and Foreign Transactions
Reporting Act of 1970 and the regulations promulgated pursuant
thereto, or any similar laws or regulations enacted or adopted
hereafter.
(vii) Verification of the address changes of any Introduced Account.
(viii) Obtaining (except for bona fide institutional accounts) and
verifying new account information, and insuring that such
information meets the requirements of Rule 405 {1} of the Rules
and any other Rules or applicable standards.
(ix) Maintaining a record of all personal and financial information
concerning any Introduced Account and all orders received
therefrom, and maintaining all documents and agreements executed
by any Introduced Account, except as required by CSC.
(x) Holding for safekeeping of the securities of any Introduced
Account registered in the name of the Introduced Account.
(xi) Accepting deposits from the Correspondent in the form of coin or
currency of the United States or any other country.
II. Clearing Charges
----------------
See Schedule "A" attached hereto and incorporated herein by reference.
Correspondent shall have sole discretion to determine the amount of
commission/xxxx up and/or fees charged to its Introduced Accounts cleared
by CSC. CSC agrees to pay
3
Correspondent all commissions and/or sales credits received by CSC with
respect to business introduced by Correspondent less any amounts due to CSC
under this Agreement or otherwise and any expenses or other sums paid to
third parties by CSC paid on the Correspondent's behalf.
In no event shall the fees charged in this Article II for the above
services be in contravention of the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, the Investment Advisers Act of 1940, as
amended, or the Employee Retirement Income Security Act of 1974, as
amended, or any rules or regulations thereunder, or any other law, rule or
regulation, Federal, State or Local, or any constitution, by-law, rule,
regulation or instrument correspondent to the foregoing, or stated policy
or practice of any national securities exchange or other securities
exchange or association or other regulatory or self-regulatory body or
agency ("Laws and Regulations"). In the event that such fees are deemed by
CSC or the Correspondent to be in contravention of the Laws and
Regulations, they shall be replaced with fees mutually agreed upon in
writing by CSC and the Correspondent.
III. Notation on Statements, Confirmation and Other Written Material
---------------------------------------------------------------
CSC shall carry all Introduced Accounts in the names of the Correspondent's
customers, with a notation on its books and records that such Introduced
Accounts were introduced by the Correspondent, and all monthly or quarterly
statements and confirmations relating to such Introduced Accounts shall
also indicate that the Introduced Accounts were introduced by the
Correspondent. In addition, account statements will indicate that customer
funds and securities received by CSC will be held at CSC and will contain
the telephone number of a contact area at CSC. Inadvertent omission of such
notations shall not be deemed to constitute a breach of this Agreement.
Copies of the forms covering the foregoing shall be furnished by CSC to the
Correspondent.
IV. Opening of Accounts
-------------------
(i) At the time of the opening of each Introduced Account,
Correspondent shall furnish CSC with all financial and personal
information concerning such Introduced Accounts as CSC may
reasonably require. At the time of the opening of any Introduced
Accounts which are margin accounts, the Correspondent shall
furnish CSC with executed customers' agreements, hypothecation
agreements and consents to loans of securities (collectively, the
"margin agreement"). CSC shall supply the Correspondent with
margin agreement forms regarding margin accounts in sufficient
quantities, such forms to be submitted to CSC upon their
completion by the correspondent. If any Introduced Account may
have been opened without CSC having previously received a
properly executed margin agreement, failure of CSC to receive
such margin agreements shall not be deemed to be a waiver of the
information requirements set forth herein. Upon the written or
oral
4
request of CSC, the Correspondent shall furnish CSC with any
other documents and agreements executed by the Introduced Account
on forms which shall be supplied by CSC in sufficient quantities
and which may reasonably be required by CSC in connection with
the opening, operating or maintaining of any Introduced Account.
CSC may, at its option, mail margin agreements, option
agreements, "new account" forms or any other form at its
discretion directly to the Introduced Accounts upon notification
of the Correspondent, and/or require completion of said margin
agreements, "new account" forms and/or other forms, and, if
required, option account agreements for the Introduced Accounts.
The Correspondent shall promptly provide CSC with basic data and
copies of documents relating to each of the Introduced Accounts,
including, but not otherwise limited to, copies of records of any
receipts of the Introduced Accounts' funds and/or securities
received directly by the Correspondent, as shall be necessary for
CSC to discharge its service obligations hereunder.
(ii) All transactions in any Introduced Account are to be considered
cash transactions until such time as CSC has received margin
agreements, duly and validly executed in respect of such
Introduced Account. Nevertheless, it is intended that
Correspondent will obtain executed margin agreements within the
time periods set forth in procedural manuals provided by CSC or
any entity affiliated with CSC. In the event credit is
inadvertently extended with respect to such Introduced Accounts,
Correspondent shall indemnify and hold CSC harmless from and
against all loss, liability, damage, cost and expense (including
but not otherwise limited to seasonable fees and expenses of
legal counsel) arising therefrom.
(iii) At the time of the opening of any Introduced Account, the
Correspondent shall furnish CSC with the name of any principal if
other than the account name, for whom the Correspondent is acting
as agent, and written evidence of such authority.
(iv) The Correspondent shall have the sole and exclusive
responsibility for compliance with Rule 405(3) of the Rules and
shall specifically approve the opening of any new account before
forwarding such account to CSC as a potential Introduced Account.
CSC, in its reasonable business judgement, reserves the right to
reject any account which the Correspondent may forward to CSC as
a potential Introduced Account. CSC also reserves the right to
terminate any account previously accepted by it as an Introduced
Account. By mutual agreement, CSC may open institutional accounts
on behalf of Correspondents, if said institution deals directly
with CSC or any affiliated organization.
(v) Pursuant to written notification received by the Correspondent
and
5
forwarded to CSC, any account of the Correspondent may choose to
reject the services to be performed by CSC pursuant to this
Agreement and thus choose not to be serviced as an Introduced
Account pursuant hereto. Upon notice from another member
organization that an Introduced Account intends to transfer his
account thereto, CSC shall expedite such transfer and shall have
the sole and exclusive responsibility for compliance with Rule
412 of the Rules.
(vi) It shall be the sole and exclusive responsibility of the
Correspondent to make every reasonable effort to ascertain the
essential facts relative to any Introduced Account and any order
therefore, in compliance with Rule 405(1) of the Rules, including
but not otherwise limited to ascertaining the authority of all
orders for Introduced Accounts, and the genuineness of
certificates, papers and signatures provided by each Introduced
Account. Any investment advice to include selection of a
qualified money manager furnished to an Introduced Account by the
Correspondent shall be the sole and exclusive responsibility of
the Correspondent.
(vii) The Correspondent shall be solely and exclusively responsible for
the handling and supervisory review of any Introduced Accounts
over which the Correspondent's partners, officers or employees
have discretionary authority, as required by Rule 408 of the
Rules and any other applicable Laws and Regulations. The
Correspondent shall furnish CSC with such documentation with
respect thereto as may be requested by CSC. The Correspondent
hereby agrees to indemnify and hold CSC harmless against any
loss, liability, damage, cost or expense (including but not
otherwise limited to fees and expenses of legal counsel) suffered
or incurred by CSC directly or indirectly as a result of any
liabilities or claims arising from the exercise by the
Correspondent, its partners, officers or employees of
discretionary authority over Introduced Accounts. The
Correspondent hereby warrants that with regard to any orders or
instructions given by the Correspondent with respect to such
discretionary accounts, its partners, officers or employees shall
have been fully and properly authorized relative thereto and that
the execution of such orders shall not be in violation of the
Laws and Regulations. Furthermore, the Correspondent hereby
agrees to indemnify and hold CSC harmless against any loss,
liability, damage, cost or expense (including but not otherwise
limited to fees and expenses of legal counsel) suffered or
incurred by CSC directly or indirectly as a result of any breach
of the Correspondent's said warranty.
(viii) The Correspondent shall have the sole and exclusive
responsibility for the handling and supervisory review of any
Introduced Account for an employee or officer of any member
organization, self-regulatory organization, bank, trust company,
insurance company or other
6
organization engaged in the securities business, and for
compliance with Rule 407 of the Rules relating thereto. The
Correspondent shall furnish CSC with such documentation with
respect thereto as may be requested by CSC.
(xi) The Correspondent shall have the sole and exclusive
responsibility to insure that those of its customers who become
Introduced Accounts hereunder shall not be minors or subject to
those prohibitions existing under the Laws and Regulations
generally relating to the incapacity of any Introduced Account or
any conflict of interest relating to such Introduced Account.
(x) The Correspondent shall be solely and exclusively responsible for
any loss, liability, damage, cost or expense (including but not
otherwise limited to fees and expenses of legal counsel)
sustained or incurred by either itself or CSC, arising out of or
resulting from any orders the Correspondent has taken from an
Introduced Account residing or being domiciled in jurisdictions
in which the Correspondent has not been or is no longer
authorized to do business.
(xi) It shall be the sole and exclusive responsibility of the
Correspondent to comply with the Laws and Regulations relating to
each Introduced Account which effect listed option transactions
including, but not limited to, approval by the Correspondent's
Registered Options Principal or Senior Registered Options
Principal (as applicable), delivery of required Options
Disclosure Documents (and Supplements where applicable) and
option documentation.
V. Transactions and Margin
-----------------------
(i) It is understood that with respect to Introduced Accounts which
are margin accounts, CSC is responsible for compliance with
Regulation T, 12 C.F.R. Part 220, the Federal margin regulation
promulgated by the Board of Governors of the Federal Reserve
System (the "Board"), and any interpretative ruling issued by the
Board, and letter rulings of the Federal Reserve Bank of New
York, Rules and Interpretations of the New York Stock Exchange,
Inc. and any other applicable margin and margin maintenance
requirements of the Laws and Regulations. The Correspondent is
responsible to CSC for the collection of the margin required to
support each transaction, and to maintain the proper margin in
each Introduced Account and to insure that such margin is in
conformity with the above margin and margin maintenance
requirements. After such initial margin on each transaction has
been received, maintenance margin calls shall be generated by CSC
and made by CSC or by the
7
Correspondent at the instructions of CSC. CSC shall have the
right to modify, in its sole discretion, the margin
requirements of any Introduced Account from time to time so
that CSC may call for additional margin. Therefore, CSC
shall be the sole judge as to the amount of margin to be
required of and maintained by Introduced Accounts. CSC may
impose such margin by individual security, by individual
Correspondent fusion or by a specified Introduced Account
and such margin need not be of general application to all
accounts.
(ii) On all transactions, the Correspondent shall be solely and
exclusively responsible to CSC for any loss, liability,
damage, cost or expense (including but not otherwise limited
to fees and expenses of legal counsel) incurred or sustained
by the Correspondent or CSC as result of the failure of any
Introduced Account to make timely payment for the securities
purchased by it or timely and good delivery of securities
sold for it, or timely compliance by it with margin or
margin maintenance calls (provided that CSC has timely
issued such call and/or given notice thereof to the
Correspondent or if conditions creating such call should be
reasonably known by Correspondent), whether or not any cash
and/or margin extensions have been granted by CSC pursuant
to the request of the Correspondent. Interest will be
charged by CSC for cash debits in cash accounts past
settlement date and/or margin debits in all Introduced
Accounts. The Correspondent agrees to be solely and
exclusively responsible for the payment and delivery of all
"when issued" or "when distributed" transactions which CSC
may accept, forward or execute for Introduced Accounts.
(iii) On all over-the-counter transactions for Introduced
Accounts, the Correspondent shall furnish CSC with the names
of the respective purchasing and selling (contra) broker-
dealers) except as otherwise provided in paragraph (iv) of
this Section, as set forth below), the names of the
purchasing and selling customers, the wholesale and retail
purchase/sale prices and xxxx-ups/xxxx-xxxxx.
(iv) Should the Correspondent entrust the execution of an order
in an over-the-counter security to CSC or any entity
affiliated with CSC and the counter party is left at CSC's
discretion, CSC will assume the responsibility of paying the
Correspondent that which the counter party has failed to pay
pursuant to the over-the-counter order transaction (counter
party risk). In the case the Correspondent executes its own
over-the-counter order or designates the counter party, it
shall be understood that in the event the over-the-counter
dealer with whom the Correspondent dealt or whom it
designated fails to live up to its part of the transaction,
the Correspondent will assume the counter party risk and
reimburse CSC for any loss
8
sustained thereby.
(v) The Correspondent shall be solely and exclusively responsible for
all orders placed on behalf of or by the Introduced Accounts. The
Correspondent is also responsible for establishing procedures to
insure that such orders are transmitted properly to CSC for
execution. CSC, in its reasonable business judgement, reserves
the right to reject any order which the Correspondent or its
designate may transmit to CSC for execution.
(vi) The Correspondent shall be solely and exclusively responsible for
the supervisory review of all orders for the Introduced Accounts
and shall insure that any orders and instructions given by it or
any of its employees to CSC pursuant to the terms of this
Agreement shall have been properly authorized in advance.
(vii) The Correspondent shall be solely and exclusively responsible for
sales and purchases for the Introduced Accounts that may create
or result in violation of any of the Laws and Regulations.
(viii) All transactions pursuant to the terms of this Agreement shall be
subject to the constitution, rules, by-laws, regulations, stated
practices, and customs and any modifications thereof of any
national securities exchange or other securities exchange or
market and its clearing house, if any, where executed, and the
Laws and Regulations. It is understood that the Correspondent
assumes sole and exclusive responsibility for compliance with the
Laws and Regulations in the same manner and to the same degree as
if the Correspondent were performing the services for the
Introduced Accounts that have been assumed by CSC pursuant to
this Agreement, except insofar as CSC may pursuant to paragraph
(iv) of this Section, as set forth above, select the counter
party to a particular transaction.
(ix) All transactions heretofore had between the Correspondent and CSC
with respect to orders given by or for the Introduced Accounts
and cleared through CSC shall be subject to the Provisions of
this Agreement.
VI. Supervisory Responsibility
--------------------------
(i) Correspondent shall have the sole and exclusive responsibility
for the review of all Introduced Accounts and for compliance with
any supervisory responsibilities under Rule 405(2) of the Rules,
including but not otherwise limited to matters involving the
investment objectives of the Introduced Accounts, the reasonable
basis for recommendations made to Introduced Accounts, and the
frequency of trading in the Introduced Accounts, whether or not
such transactions are instituted by the Correspondent, its
9
PAGE>
partners, officers, employees or any registered investment
advisor.
(ii) The Correspondent and CSC shall each be responsible for
compliance with any supervisory procedures under Rule 342 of
the Rules and, to the extent applicable, any other provisions
of the Laws and Regulations, including but not otherwise
limited to supervising the activities and training of their
respective registered representatives, as well as all of their
other respective employees in the performance of functions
specifically allocated to them pursuant to the terms of this
Agreement.
VII. Information to be provided by the Correspondent
-----------------------------------------------
(i) The Correspondent shall provide CSC with copies of all
financial information and reports filed by the Correspondent
with the New York Stock Exchange, Inc. (if a member), the
National Association of Securities Dealers, Inc., the
Securities and Exchange Commission, and any other National
Securities Exchange (where a member) (including but not
otherwise limited to monthly and quarterly Financial and
Operational Combined Uniform Single Reports, i.e., "FOCUS"
Reports) simultaneous with the filing therewith.
(ii) The Correspondent shall submit to CSC on an annual basis the
audited financial statements of the Correspondent, its parent
organization (if applicable) and, when requested by CSC, its
affiliated entities. In addition, the Correspondent shall
submit to CSC upon request, information and reports relating to
the financial integrity of Correspondent, its parent
organization (if applicable) and its affiliated entities,
including but not otherwise limited to information regarding
the Correspondent's aggregate indebetedness ratio and net
capital.
(iii) The Correspondent shall provide CSC with all appropriate data
in its possession pertinent to the performance and supervision
of any function or responsibility specifically allocated to CSC
pursuant to the terms of this Agreement.
(iv) The Correspondent shall provide CSC with any amendment or
supplement to the Form BD of the Correspondent.
VIII. Information to be provided by CSC
---------------------------------
CSC shall provide the Correspondent with all appropriate data in its
possession pertinent to the proper performance and supervision of any
function specifically allocated to the Correspondent pursuant to the
terms of this Agreement. The Correspondent shall be responsible for and
shall promptly reimburse CSC for all costs incurred by CSC in
10
connection with the preparation and mailing of such information.
IX. Customer Notification and Correspondence
----------------------------------------
(i) The Correspondent shall be solely and exclusively responsible for
informing its customers in a written correspondence, the form and
substance of which will be mutually agreed upon, prior to the
effective date of this Agreement, as to the general nature of the
services to be provided by CSC pursuant to this agreement and the
right of such customers to reject the services provided herein.
Any new customers of the Correspondent shall also be informed as
provided herein. Any new customers of the Correspondent shall
also be informed as provided herein, verbally prior to such
customers becoming Introduced Accounts and in writing, once the
new accounts have been opened and accepted. The Correspondent
shall be solely and exclusively responsible for the payment of
all costs incurred in connection with the preparation and mailing
of such customer correspondence.
(ii) The Correspondent shall inform its customers pursuant to such
written correspondence that all inquiries and correspondence
should be directed to the Correspondent. All customer
correspondence shall be reviewed and responded to by the party
responsible for the specific area to which the inquiry or
compliant relates pursuant to the terms of this Agreement. In the
event such correspondence is improperly directed to either party,
the Correspondent or CSC shall expeditiously forward such
correspondence to the appropriate party.
X. Errors, Controversies and Indemnities
-------------------------------------
(i) Errors, misunderstandings or controversies, except those
specifically otherwise covered in this Agreement, between the
Introduced Accounts and the Correspondent or any of its
employees, which shall arise out of acts or omissions of the
Correspondent or any of its employees (including, without
limiting the foregoing, the failure of the Correspondent to
deliver promptly to CSC any instructions received by the
Correspondent from an Introduced Account with respect to the
voting, tender or exchange of shares held in such Introduced
Account), shall be the sole and exclusive responsibility and
liability of the Correspondent. In the event, however, that by
reason of such error, misunderstanding or controversy, the
Correspondent in its discretion deems it advisable to commence an
action or proceeding against an Introduced Account, the
Correspondent shall indemnify and hold CSC harmless from any
loss, liability, damage, cost or expense (including but not
otherwise limited to reasonable fees and expenses of legal
counsel) which CSC may incur or sustain in connection therewith
or under any settlement thereto. If such error, misunderstanding
or controversy shall
11
result in the bringing of an action or proceeding against CSC,
the Correspondent shall indemnify and hold CSC harmless from any
loss, liability, damage, cost or expense (including but not
otherwise limited to reasonable fees and expenses of legal
counsel) which CSC incur or sustain in connection therewith or
under any settlement thereof.
(ii) Errors, misunderstandings or controversies, except those
specifically otherwise covered in this Agreement, between the
Introduced Accounts and the Correspondent or any of its
employees, which shall arise out of acts or omissions of CSC or
any of its employees, shall be the sole and exclusive
responsibility and liability of CSC. In the event, however, that
by reason of such error, misunderstanding or controversy, CSC in
its discretion deems it advisable to commence an action or
proceeding against an Introduced Account, CSC shall indemnify and
hold the Correspondent harmless from any loss, liability, damage,
cost or expense (including but not otherwise limited to
reasonable fees and expenses of legal counsel) which the
Correspondent may incur or sustain in connection therewith or
under any settlement thereof. If such error, misunderstanding or
controversy shall result in the bringing of an action or
proceeding against the Correspondent, CSC shall indemnify and
hold the Correspondent harmless from any loss, liability, damage,
cost or expense (including but not otherwise limited to
reasonable fees and expenses of legal counsel) which the
Correspondent may incur or sustain in connection therewith or
under any settlement thereof.
(iii) CSC and the Correspondent both agree to indemnify the other and
hold the other harmless from and against any loss, liability,
damage, cost or expense (including but not otherwise limited to
reasonable fees and expenses of legal counsel) arising out of or
resulting from any failure by the indemnifying party or any of
its employees to carry out fully the duties and responsibilities
assigned to the indemnifying party herein or any breach of any
representation or warranty herein by the indemnifying party under
this Agreement. The Correspondent hereby agrees to indemnify and
hold CSC harmless from and against any loss, liability, damage,
cost or expense (including but not otherwise limited to
reasonable fees and expenses of legal counsel) sustained or
incurred in connection herewith in the event any Introduced
Account fails to fully pay for a cash transaction or to meet any
initial margin call or subsequent maintenance calls, in
conformity with Section V hereof.
(iv) The indemnification provisions in this Agreement, shall remain
operative and in full force and effect, regardless of the
termination of this Agreement, and shall survive any such
termination.
12
(v) Correspondent agrees to maintain, and to provide evidence
thereof to CSC, at least $250,000 blanket bond indemnity
bond insurance covering any and all acts of its
employees, agents and partners, with an insurance company
reasonably acceptable to CSC, listing CSC as an insured
party and permitting CSC to assume the policy in the
event of the Correspondent ceasing operations.
XI. Representations and Warranties
------------------------------
(a) The Correspondent represents and warrants as follows:
(i) The Correspondent will maintain at all times while this
Agreement is in full force and effect stated net capital
of not less than $100,000 unless CSC has otherwise agreed
in writing. The Correspondent will not carry customer,
broker or dealer accounts and will not receive or hold
funds under Rule 15c3-1 of the Securities Exchange Act of
1934, as amended, for those persons. The Correspondent
will immediately notify CSC when [i] its Aggregate
Indebtedness Ratio reaches or exceeds 10 to 1, [ii] if
the Correspondent has elected to operate under paragraph
[f] or Rule 15c3-1 of the Securities Exchange Act of
1934, as amended, when its net capital is less than 5% of
aggregate debit items computed in accordance with Rule
15c3-3, [iii] when the aggregate amount of any
withdrawals of equity capital and/or unsecured advances
or loans exceed 20% of excess net capital in any 30 day
period or 30% of excess net capital in any 90 day period
or [iv] its stated net capital is less than the minimum
amount required under this Agreement.
(ii) The Correspondent is a member of good standing of the
National Association of Securities Dealers, Inc. The
Correspondent will promptly notify CSC of any additional
exchange memberships or affiliations. The Correspondent
shall also comply with whatever non-member access rules
have been promulgated by any National Securities Exchange
or any other securities exchange of which it is not a
member.
(iii) The Correspondent is and during the term of this
Agreement will remain duly registered or licensed and in
good standing as a broker/dealer under all applicable
Laws and Regulations.
(iv) The 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
CSC in accordance with the terms thereof.
(v) The Correspondent is in compliance, and during the term
of this Agreement will remain in compliance with [i] the
capital and financial
13
reporting requirements of every national securities exchange or
other securities exchange and/or other securities association of
which the Correspondent is a member, [ii] the capital requirements
of the Securities and Exchange Commission, and [iii] the capital
requirements of every state in which the Correspondent is licensed
as a broker/dealer.
(vi) The Correspondent shall not generate and/or prepare any statements,
xxxxxxxx or confirmations respecting any Introduced Account unless
expressly so instructed in writing by CSC.
(vii) The Correspondent shall keep confidential any information it may
acquire as a result of this Agreement regarding the business and
affairs of CSC, which requirement shall survive the life of this
Agreement.
(b) CSC represents and warrants as follows:
(i) CSC is a member in good standing of the National Association of
Securities Dealers, Inc., and the New York Stock Exchange, Inc.
(ii) CSC is and during the term of this Agreement will remain duly
licensed and in good standing as a broker/dealer under all
applicable Laws and Regulations.
(iii) CSC has all the requisite authority, in conformity with all
applicable Laws and Regulations, to enter into and perform this
Agreement.
(iv) CSC is in compliance, and during the term of this Agreement, will
remain in compliance, with [i] the capital and financial reporting
requirements of every national securities exchange and/or other
securities exchange or association of which it is a member, [ii] the
capital requirements of the Securities and Exchange Commission, and
[iii] the capital requirements of every state in which it is
licensed as a broker/dealer.
(v) CSC represents and warrants that the names and addresses of the
Correspondent's customers which have or which may come to its
attention in connection with the clearing and related functions it
has assumed under this Agreement are confidential and shall not be
utilized by CSC except in connection with the functions performed
by CSC pursuant to this Agreement. CSC shall send no written
information to such customers other than statements, bills or
notices of transactions in connection with its role as clearing
agent. Notwithstanding the foregoing, should an Introduced Account
request, on an unsolicited basis, that CSC or any entity affiliated
with CSC become its broker, acceptance or such Introduced Account by
CSC or any entity affiliated with CSC shall in no way violate
14
this representation and warranty, nor result in a breach of this
Agreement.
(vi) CSC shall keep confidential any information it may acquire as a
result of this Agreement regarding the business and affairs of
the Correspondent, which requirement shall survive the life of
this Agreement.
XII. Termination - Event of Default
------------------------------
Notwithstanding any provision in this Agreement, the following events or
occurrences shall constitute an Event of Default under this Agreement:
(i) Either CSC or the Correspondent shall fail to perform or observe
any term, covenant or condition to be performed or observed by it
hereunder and such failure shall continue to be unremedied for a
period of 30 days after written notice from the non-defaulting
party to the defaulting party specifying the failure and
demanding that the same be remedied; or
(ii) Any representation or warranty made by either CSC or the
Correspondent herein shall provide to be incorrect at any time in
any material respect; or
(iii) A receiver, liquidator or trustee of either CSC or the
Correspondent, or of its property, held by either party,
appointed by court order and such order remains in effect for
more than 30 days; or either CSC or the Correspondent is
adjudicated bankrupt or insolvent; or any of its property is
sequestered by court order and such order mains in effect for
more than 30 days; or a petition is filed against CSC or the
Correspondent under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law
of any jurisdiction, whether now or hereafter in effect, and is
not dismissed within 30 days after such filing; or
(iv) Either CSC or the Correspondent or the respective parent
organization files a petition in voluntary bankruptcy or seeking
relief under any provision of any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of the jurisdiction, whether now or hereinafter
in effect, or consents to filing of any petition against it under
any such law; or
(v) Either CSC or the 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 of either CSC or
the Correspondent, or of any property held by either party; or
15
(vi) Either CSC or the Correspondent or their affiliated entities
hereto knowingly and willfully solicits or causes to solicit for
employment the employees of either party or their
affiliates/subsidiaries, successors or assignees without
prior consent of the other party; or
(vii) If research is provided by CSC or any entity affiliated with CSC
to the Correspondent and the Correspondent knowingly and
willfully reproduces or reprints in any fashion same or
represents to customers or to an unrelated third party that the
research supplied by CSC or such affiliated entity is that of the
Correspondent.
Upon the occurrence of any Event of Default, the non-defaulting party
may, at its option, by notice to the defaulting party declare that this
Agreement shall be thereby terminated and such termination shall be
effective as of the date such notice has been sent or communicated to the
defaulting party.
XIII. Remedies Cumulative
-------------------
The enumeration herein of specific remedies shall not be exclusive of
any other remedies. Any delay or failure by any party of this Agreement
to exercise any right, power, remedy or privilege herein contained, or
now or hereafter existing under any applicable statute or law, shall not
be construed to be a waiver of such right, power, remedy or privilege or
to limit the exercise of such right, power, remedy or privilege. No
single, partial or other exercise of any such right, power, remedy or
privilege shall preclude the further exercise thereof or the exercise of
any other right, power, remedy or privilege.
XIV. Miscellaneous
-------------
(1) As of the effective date of this Agreement, CSC will not convert
or allow to be converted to its records as Introduced Accounts
customer accounts of the Correspondent that are partially or
totally unsecured, securities in the name of the Correspondent's
customers, or legal transfer securities (securities in the name
of estates, trust, joint ownership, foreign ownership and such),
unless previously approved in writing by CSC. If in error such
accounts are converted to CSC books or records, CSC reserves the
right to convert back to the Correspondent or its previous
clearing firm said customer accounts and the positions.
(ii) CSC shall have the power to place open orders as instructed by
the Correspondent as of the effective date of this Agreement, and
appropriate adjustments shall be made by CSC to reflect that CSC
will now act as broker on open orders previously placed with
specialists on any national securities exchange or other
securities exchange.
16
(iii) CSC shall have the power to effect appropriate adjustments with
respect to pending dividends and other distributions from the
effective date of this Agreement through the last payable date of
such pending dividends.
(vi) The Correspondent shall be responsible for providing annual
dividend and distribution information as contained in IRS Form
1087 (to include individual 1099 filings) and any other
information required to be reported by Federal, state or local
tax laws, rules and regulations, to its customers until the
effective date of this Agreement, whereupon CSC shall assume this
function as to Introduced Accounts.
(v) CSC shall have the power to allocate and make appropriate
adjustments for fails, reorganization accounts, other work in
process accounts, and overages relating to accounts of the
customers of the Correspondent that have become Introduced
Accounts pursuant to the terms of this Agreement.
(vi) The Correspondent shall assume all liabilities in connection with
the bad debts of all Introduced Accounts. Unsecured debits in the
Introduced Accounts shall be paid within 30 days of their origin
date, and it shall be the responsibility of the Correspondent to
collect such payments from its customers and transmit them to CSC
within such 30-day period. If any unsecured debit balances remain
outstanding beyond such 30-day period, CSC is authorized to apply
as payment of such debit balances commission fees owed to the
Correspondent in connection with transactions pursuant to this
Agreement.
(vii) Transfers of securities relating to Introduced Accounts shall be
frozen ten business days prior to the effective date of this
Agreement.
(viii) CSC shall limit its services pursuant to the terms of this
Agreement to that of clearing and execution functions and related
services expressly set forth herein. Correspondent shall not hold
itself out as an agent of CSC or any of the subsidiaries or
companies controlled directly or indirectly by or affiliated with
CSC or its parent.
(ix) This Agreement supersedes any previous agreement and may be
modified only in writing, signed by both CSC and the
Correspondent. Such modification shall not be deemed as a
cancellation of this Agreement.
(x) This Agreement shall be submitted to and/or approved by any
national securities exchange, or other regulatory and self-
regulatory bodies vested with the authority to review and/or
approve this Agreement or any amendment or modifications hereto.
In the event of any such disapproval, the parties hereto agree to
bargain in good faith to achieve the requisite
17
approval. CSC will file a fully executed copy of this
agreement with the New York Stock Exchange.
(xi) This Agreement may be canceled by either of the parties
hereto upon sixty (60) days' written notice; provided,
however, that this Agreement may be canceled by either party
upon thirty (30) days' written notice if (i) the net
capital ratio of the other party exceeds 10 to 1, (ii) if
the other party has elected to operate under paragraph [f]
of Rule 15c3-1 of the Securities Exchange Act of 1934, as
amended, when its net capital is less than 5% of aggregate
debit items computed in accordance with Rule 15c3-3, (iii)
when the aggregate amount of any withdrawals of equity
capital and/or unsecured advances or loans exceed 20% of
excess net capital in any 30 day period or 30% of excess net
capital in any 90 day period or (iv) its stated net capital
is less than the minimum amount required under this
Agreement; and provided, further, that this Agreement may be
canceled by CSC at any time between the date on which this
Agreement is executed and the effective date of this
Agreement, if there is a material change in the control or
management of the Correspondent.
(xii) Any dispute or controversy between the Correspondent and CSC
relating to or arising out of this Agreement shall be
settled by arbitration before and under the rules of the
Arbitration Committee of the New York Stock Exchange, Inc.,
unless the transaction which gave rise to such dispute or
controversy was effected in another exchange or market which
provides arbitration facilities, in which case it shall be
settled by arbitration under such facilities.
(xiii) CSC will not be bound to make any investigation into the
facts surrounding any transaction that it may have with the
Correspondent on a principal or agency basis or that the
Correspondent may have with its customers or other persons,
nor will CSC be under any responsibility for compliance by
the Correspondent with any Laws and Regulations which may be
applicable to the Correspondent. It is understood that CSC
will assist the Correspondent in any investigation conducted
by the Correspondent.
(xiv) To facilitate the keeping of records by CSC the
Correspondent will turn over promptly to CSC any and all
cash remittances and securities which the Correspondent
receives from its customer. Concurrently with the delivery
of such funds or securities to the Correspondent, it shall
furnish CSC with such information as may be relevant or
necessary to enable CSC to record promptly an properly such
cash remittances and securities in the respective Introduced
Accounts.
18
(xv) 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 the
Correspondent or CSC. Any assignments 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. Except as
indicated below, no assignment of this Agreement by either
party shall be valid unless consented to in writing by the
other party. Any assignment by CSC to any subsidiary or to a
company affiliated with or controlled directly or indirectly
by CSC will be deemed valid and enforceable in the absence
of any consent from Correspondent. Neither this Agreement
nor any operation hereunder is intended to be, shall not be
deemed to be, and shall not be treated as a general or
limited partnership, association or joint venture or agency
relationship between the Correspondent and CSC.
(xvi) Should the Correspondent in any way attempt to hold itself
out as, advertise or in any way represent that it is the
agent of CSC or any affiliated entity, CSC shall have the
power, at is option, to terminate the Agreement and the
Correspondent shall be liable for any loss, liability,
damage, cost or expense (including but not otherwise limited
to reasonable fees and expenses of legal counsel) sustained
or incurred by CSC as a result of such representation of
agency or apparent authority to act as an agent of CSC, or
any affiliated entity, or agency by estoppel.
(xvii) The Correspondent shall not, without having obtained the
prior written approval of CSC, agree to place or place any
advertisement in any newspaper, publication, periodical or
any other media if such advertisement in any manner makes
reference to CSC, to any person or entity that directly, or
indirectly through one or more intermediaries, controls or
is controlled by, or is under common control with CSC and to
the clearing arrangements and/or any of the services
embodied in this Agreement.
(xviii) The Laws and Regulations require that CSC must have proper
documentation to support any account opened on its books,
including Introduced Accounts. If, after reasonable requests
therefor, the necessary documents so as to enable CSC to
comply with such account documentation requirements of the
Laws and Regulations have not been received by CSC, the
Correspondent shall receive notification that no further
orders will be accepted for the Introduced Accounts
involved. Should it happen that inadvertent orders are
placed for such accounts after this notice is received, no
commission credit will be granted from such order. On
receipt of the necessary documents, this restriction will be
lifted on future commissions, but any commissions withheld
will not be credited
19
or paid. This Agreement is not in any way intended to limit the
responsibility of CSC under the Laws and Regulations with respect
to Introduced Accounts.
(xix) The construction and effect of every provision of this Agreement,
the rights of the parties hereunder and any questions arising out
of this Agreement, shall be subject to the statutory and common
law of the State of New York.
(xx) 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.
(xxi) This Agreement shall cover only the type of services set forth
herein and is in no way intended nor shall be construed to bestow
upon the Correspondent any special treatment regarding any other
arrangements, agreements or understandings which presently exist
between Correspondent and CSC or which may hereinafter exist. The
Correspondent shall be under no obligation whatsoever to deal
with CSC or any of its subsidiaries or any companies controlled
directly or indirectly by or affiliated with CSC or its parent,
in any capacity other than as set forth in this Agreement.
Likewise, CSC shall be under no obligation whatsoever to deal
with the Correspondent or any of its affiliates in any capacity
other than as set forth in this Agreement.
(xxii) 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.
(xxiii) In the event that CSC assumes any contractual obligation on
behalf of the Correspondent relative to communications equipment,
the Correspondent hereby agrees to immediately absorb the
remaining portion of said contract if Correspondent terminates
the relationship with CSC. The Correspondent further agrees to
absorb any all costs associated with the removal or relocation of
any communications equipment installed by or at the direction of
CSC, if this agreement is terminated by the Correspondent.
(xxiv) Any unsecured debit residing in a customer account as a result of
the failure to perform on behalf of the customer and/or the
Correspondent will be the responsibility of the Correspondent.
Thirty (30) calendar days will
20
be allowed for collection. If funds are not received, CSC
reserves the right to debit the Correspondent; bad debit,
collateral and/or commission refund account the amount of the
unsecured balance plus interest at the rate of 1/2% above the
prevailing broker call loan rate.
(xxv) The interest and handling expense (to include day charges) for
any DVP transaction that does not settle on a normal or regular
way basis or is rejected by the agent for any reason other than
CSC negligence is the responsibility of the Correspondent.
(xxvi) For the purposes of any and all notices, consents, directions,
approvals, restrictions, requests or other communications
required or permitted to be delivered hereunder, CSC's address
shall be 0000 Xxxxxx Xxxxxxxxx, 0xx Xxxxx, Xxxxxxxx "X",
Xxxxxxxxx, Xxx Xxxxxx 00000 and the Correspondent's address shall
be 000 Xxxxxxxxxx Xxxx, Xxxxxx Xxxx, XX and either party may
change its address for notice purposes by giving written notice
pursuant to registered mail of the new address to the other
party.
(xxvii) This Agreement shall become effective on or about 5/5/97 or such
date mutually agreed upon by the parties hereto.
Made and executed at S.F. on the date hereinabove set forth.
Accepted and Agreed to:
CORRESPONDENT FIRM
By: [SIGNATURE ILLEGIBLE]
------------------------------------
Title: Managing Director
------------------------------------
Date: 4/25/97
------------------------------------
Accepted and Agreed to:
CORRESPONDENT SERVICES CORPORATION (CSC)
By: [SIGNATURE ILLEGIBLE]
-------------------------------
Title: President
-------------------------------
Date: 4/30/97
-------------------------------
21
KNIGHT SECURITIES, L.P.
SCHEDULE A
CLEARANCE FEES:
--------------
EQUITIES (LISTED/OTC) ONLY
DEALER:
Daily Transaction Fee
----------------- ---
****** trades and above *** per trade
****** to ****** trades *** per trade
up to ****** trades *** per trade
CUSTOMER (COD):
*** per transaction
PLUS: FLOOR BROKERAGE/EXECUTION*:
EQUITIES: *** per share Automated Market Orders (Up to 25,000 shares)
*** per share Limit Orders
*** Per share All others to include CSC Block Orders
*If CSC is utilized for execution.
FINANCING CONSIDERATIONS
------------------------
DEBIT BALANCES:
Margin debit balances in proprietary accounts will be charged ***
FREE CREDIT BALANCES:
Interest will be paid on all free credit balances in proprietary accounts
***
SHORT INTEREST REBATES:
Rebates on short positions will be ***
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
OTHER CONSIDERATIONS
--------------------
---------------------------------------------------------------------------------
Average Price Transactions Not applicable
---------------------------------------------------------------------------------
Communications Costs predicated on number of devices,
locations and entitlements. National discount
packages available.
---------------------------------------------------------------------------------
D/K Charges **************
---------------------------------------------------------------------------------
Draft Charges Bank draft plus interest (if outside NYC).
---------------------------------------------------------------------------------
Electronic Mailbox ********* maintenance fee for
downloads users.
---------------------------------------------------------------------------------
Ex-Clearing ********* per transaction
---------------------------------------------------------------------------------
Extensions *******************
---------------------------------------------------------------------------------
Foreign Settlements To be decided.
---------------------------------------------------------------------------------
General Ledger Package Pricing available upon request.
---------------------------------------------------------------------------------
Miscellaneous Special Customized forms; Promotional
materials; Special Computer/Systems related
requests; Exchange fees *********
---------------------------------------------------------------------------------
New Account Credit Review *********
---------------------------------------------------------------------------------
Post Settlement Trade Correction *********
---------------------------------------------------------------------------------
Tenders and Exchanges Negotiated
---------------------------------------------------------------------------------
Trailer Processing Fee Mutual Funds, Insurance, RAPs, SWPs, etc.:
********* per item.
---------------------------------------------------------------------------------
Transfer Fees Accommodation transfer *********
Legal transfer *********
For restricted (Rule 144) legal transfers
some agents may assess additional fees.
---------------------------------------------------------------------------------
Unsecured Debits Interest will be charged until payment
received or debit reserved. Timeframes
allotted for collection determined by size of
unsecured balance.
---------------------------------------------------------------------------------
CHARGES APPLICABLE DIRECTLY TO RETAIL CLIENTS
---------------------------------------------
---------------------------------------------------------------------------------
ACAT Exit Fee ********* per account*
---------------------------------------------------------------------------------
Bank Fees; Returned Checks and ********* per item
Stop Payments
---------------------------------------------------------------------------------
Cash Accounts Debits Interest charged per *********
---------------------------------------------------------------------------------
Inactive Fee ********* per annum*
---------------------------------------------------------------------------------
Product Related Costs (IRAs, At rates currently in effect.
RMAs BSAs, etc.)
---------------------------------------------------------------------------------
Transaction Fee ********* per confirmation
---------------------------------------------------------------------------------
Wired (FED) Funds ********* per item
---------------------------------------------------------------------------------
*Revenue shared evenly with Knight
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
2
