<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended: March 31, 2000
Commission File Number: 0-27705
WEB STREET, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-4212401
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
510 Lake Cook Road, Deerfield, Illinois 60015
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (847) 444-4700
______________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
---
The number of shares of the registrant's Common Stock outstanding as of May
11, 2000, was 25,704,652.
================================================================================
<PAGE>
WEB STREET, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000
(unaudited) and December 31, 1999................................. 3
Condensed Consolidated Statements of Operations (unaudited) for
the three months ended March 31, 2000 and 1999.................... 4
Condensed Consolidated Statements of Cash Flows (unaudited) for
the three months ended March 31, 2000 and 1999.................... 5
Notes to Condensed Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......... 16
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds........................... 17
Item 6. Exhibits and Reports on Form 8-K.................................... 17
SIGNATURES.................................................................... 18
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WEB STREET, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
March 31, 2000 1999
---------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................................ $ 32,008,412 $ 39,189,362
Receivable from clearing broker.......................................... 4,022,823 2,395,679
Other receivables........................................................ 450,188 359,917
Property and equipment, net.............................................. 5,590,288 3,994,411
Prepaid expenses and other............................................... 2,465,902 1,851,534
-------------- -------------
Total assets............................................................. $ 44,537,613 $ 47,790,903
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable........................................................ $ 3,398,135 $ 2,705,228
Accrued compensation and benefits....................................... 433,736 1,202,561
Other accrued expenses.................................................. 1,154,212 774,072
Deferred rent........................................................... 145,008 146,082
-------------- -------------
Total liabilities........................................................ 5,131,091 4,827,943
Commitments and contingencies
Stockholders' equity:
Preferred stock ($.01 par value; 2,000,000 shares authorized; no shares
issued and outstanding) -- --
Common stock ($.01 par value, 100,000,000 shares authorized; 25,702,777
shares issued and outstanding at March 31, 2000 and 25,660,402 shares
issued and outstanding at December 31, 1999)........................... 257,028 256,604
Additional paid-in capital.............................................. 65,552,753 65,317,651
Accumulated deficit..................................................... (26,403,259) (22,611,295)
-------------- -------------
Total stockholders' equity............................................... 39,406,522 42,962,960
-------------- -------------
Total liabilities and stockholder's equity............................... $ 44,537,613 $ 47,790,903
============== =============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
WEB STREET, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------------------
2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
Revenues:
Transaction revenue..................................................... $12,077,940 $ 4,271,268
Interest income......................................................... 734,549 147,800
Other revenue........................................................... 242,727 217,527
------------- -------------
Total revenues......................................................... 13,055,216 4,636,595
Cost of services:
Clearance and execution................................................. 5,353,579 1,717,696
Employee compensation and benefits...................................... 966,935 550,121
Communication and data processing....................................... 657,712 288,199
------------- -------------
Total cost of services................................................. 6,978,226 2,556,016
Operating expenses:
Marketing and advertising............................................... 5,591,869 633,148
Technology development.................................................. 709,240 314,220
General and administrative.............................................. 3,567,845 1,118,620
------------- -------------
Total operating expenses............................................... 9,868,954 2,065,988
------------- -------------
Net income (loss)........................................................ $(3,791,964) $ 14,591
============= =============
Basic and diluted net income (loss) per common share..................... $ (0.15) $ 0.00
============= =============
Weighted-average common shares used in computation of basic and diluted
net income (loss) per common share...................................... 25,674,219 20,092,013
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
WEB STREET, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31,
--------------------------------------------
2000 1999
------------------- -------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................................... $(3,791,964) $ 14,591
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization......................................... 407,830 107,186
Compensation and other expenses incurred through issuance of stock
options and warrants................................................. 233,174 93,012
Deferred rent amortization............................................ (1,074) (1,074)
Changes in operating assets and liabilities:
Receivable from clearing broker..................................... (1,627,144) 168,061
Other receivables................................................... (90,271) 349,956
Prepaid expenses and other assets................................... (614,368) (326,499)
Accounts payable.................................................... 692,907 (614,822)
Accrued compensation and benefits................................... (768,825) (18,848)
Other accrued expenses.............................................. 380,140 353,972
------------------- -------------------
Net cash provided by (used in) operating activities...................... (5,179,595) 125,535
Cash flows from investing activities:
Purchases of property, equipment and software........................... (2,003,707) (1,071,671)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs........... -- 5,005,740
Redemption of preferred stock........................................... -- (400,000)
Payment from related party.............................................. -- 190,000
Proceeds from the exercise of stock options............................. 2,352 --
------------------- -------------------
Net cash provided by financing activities................................ 2,352 4,795,740
------------------- -------------------
Increase (decrease) in cash and cash equivalents......................... (7,180,950) 3,849,604
Cash and cash equivalents at beginning of period......................... 39,189,362 1,579,639
------------------- -------------------
Cash and cash equivalents at end of period............................... $32,008,412 $ 5,429,243
=================== ===================
Supplemental disclosures of cash flow information:
Interest paid........................................................... $ 2,218 $ 319
Income taxes paid....................................................... -- --
Eliminate common stock put rights....................................... -- 624,375
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
WEB STREET, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
include the accounts of Web Street, Inc. and its wholly-owned subsidiary, Web
Street Securities, Inc. (collectively, the Company), and have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Web Street, Inc. annual report on Form 10-K
for the year ended December 31, 1999.
2. Receivable from Clearing Broker
Receivable from clearing broker represents the net settlement due to the
Company for customer trading activity payable by its clearing broker. The
receivable from clearing broker at March 31, 2000 and December 31, 1999 consists
of the following:
<TABLE>
<CAPTION>
December 31,
March 31, 2000 1999
----------------- -----------------
<S> <C> <C>
Rebates receivable from payment for order flow..................... $2,706,590 $1,566,091
Commissions receivable............................................. 1,316,233 829,588
----------------- -----------------
$4,022,823 $2,395,679
================= =================
</TABLE>
3. Property and Equipment
Property and equipment, net at March 31, 2000 and December 31, 1999
consists of the following:
<TABLE>
<CAPTION>
December 31,
March 31, 2000 1999
----------------- -----------------
<S> <C> <C>
Hardware and equipment............................................. $ 3,768,861 $ 2,813,417
Furniture and fixtures............................................. 501,832 438,576
Software........................................................... 1,269,282 872,458
Buildings and leasehold improvements............................... 1,719,398 1,151,101
Land and improvements.............................................. 44,886 25,000
----------------- -----------------
Total cost......................................................... 7,304,259 5,300,552
Less accumulated depreciation...................................... (1,713,971) (1,306,141)
----------------- -----------------
$ 5,590,288 $ 3,994,411
================= =================
</TABLE>
6
<PAGE>
4. Commitments and Contingencies
During the three months ended March 31, 2000, the Company entered into
various operating leases principally for office facilities. The Company's
aggregate future minimum lease payments on various leases expiring through 2010
were approximately $16,500,000 at March 31, 2000.
The Company has commitments for marketing and advertising of approximately
$2,470,000. Prepaid expenses at March 31, 2000 include $1,390,000 related to
these commitments.
The Company has entered into employment agreements with several of its key
executive officers. These employment agreements provide for annual base salary
compensation, annual incentive compensation and severance payments in the event
of termination of employment under defined circumstances, including changes in
the Company's control.
The Company is, from time to time, a party to certain pending and
threatened legal actions arising in the ordinary course of business. Management
does not believe that any such current matters, either individually or in the
aggregate, will have a material adverse effect on the Company's results of
operations, financial condition or cash flows.
5. Related Party Transactions
As of March 31, 2000, the Company was owed approximately $332,000 from
officers of the Company.
6. Stock Options
During the three months ended March 31, 2000, the Company granted to
employees options on 293,400 shares of the Company's common stock. The
weighted-average exercise price on these options was $6.68 a share.
7. Regulatory Requirements
As a registered broker-dealer, Web Street Securities, Inc. is subject to
the Uniform Net Capital Rule, Rule 15c3-1 under the Securities Exchange Act of
1934, which requires that it maintain minimum net capital, as defined, of
6 2/3% of aggregate indebtedness or $100,000, whichever is greater. At March 31,
2000, Web Street Securities had net capital of $1,818,319, which exceeded the
minimum net capital requirements by $1,582,408, and a ratio of aggregate
indebtedness to net capital of 1.95 to 1.
Web Street Securities, Inc. is exempt from the customer protection rule,
Rule 15c3-3 under the Securities Exchange Act of 1934, under paragraph
(k)(2)(ii) of that rule because it introduces customers to a clearing broker on
a fully-disclosed basis and does not hold customer funds or securities.
In January, 2000, the Company filed to become a self-clearing broker-
dealer. Clearing services include the confirmation, receipt, settlement, custody
and delivery functions involved in securities transactions. Once it is self-
clearing, the Company will assume responsibility for the possession and control
of customers' securities and other assets and the clearance of customers'
securities transactions. The Company will then be required to record on its
balance sheet the customer receivables and customer payables to the Company that
are the result of customer margin loans (i.e., loans made to customers that are
collateralized by securities held in the customer's margin accounts at the
Company) and customer free credit balances (i.e., customer cash balances
maintained at the Company), respectively.
7
<PAGE>
8. Earnings per Share
The weighted-average common shares used in computation of basic and diluted
net income per common share for the three months ended March 31, 1999 presented
in the condensed consolidated statements of operations represents shares used in
computing basic net income per common share; 20,485,997 shares were used in
computing diluted net income of $0.00 per common share for that period.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
You should read the following discussion along with our Condensed
Consolidated Financial Statements and the related notes included in this
quarterly report. The following discussion contains forward-looking statements
that are subject to risks, uncertainties and assumptions. Our actual results,
performance and achievements in 2000 and beyond may differ materially from those
expressed in, or implied by, these forward-looking statements. See "Cautionary
Note Regarding Forward-Looking Statements."
Overview
We provide online brokerage services to individual investors, primarily in
the United States, Europe, Asia and Latin America, through our wholly owned
subsidiary, Web Street Securities, Inc., a registered broker-dealer. Through
our web site, located at www.webstreet.com, our customers can quickly execute
equity, option and mutual fund trades at a low cost, and conveniently access
real-time trading information, financial market data and account information.
We continued to experience significant growth in our business during the
three months ended March 31, 2000. Our revenues, total trades executed and
total customer accounts increased by 182%, 151% and 106%, respectively, during
the first quarter of 2000 compared to the corresponding period in 1999. We also
continued our international expansion, as we began providing investors in Hong
Kong with online access to the U.S. securities markets through our strategic
alliance with Sun Hung Kai & Co. Securities Ltd.'s online unit, SHK Online
Limited. In February 2000, we significantly increased efforts to promote our
brand with the launch of our new national advertising campaign employing the
tagline "Invest with Ambition." We expect to continue expanding this initiative
in existing and new target markets through additional broadcast, print and
direct marketing efforts. Furthermore, during the first quarter, we eliminated
all Web Street commissions on the purchase, sale and exchange of mutual funds in
transactions of $500 or more on our Mutual Fund SuperSite.
Toward the end of the first quarter of 2000, we took steps to increase our
brick-and-mortar presence, with the signing of leases in the financial districts
of San Francisco, Boston and Denver. These street-level locations will house
our state-of-the-art financial service centers and will enable us to provide
customers with in-person educational seminars, access to information on various
financial markets, and demonstrations detailing our product services and
offerings. In light of the fact that the Internet tends to be very impersonal,
we believe that our existing and potential new customers will benefit from, and
favor, the opportunity for face-to-face interaction with us. We intend to open
additional financial service centers in other select locations in the United
States and internationally.
We believe we now have in-place the required systems and personnel to
effectively convert to self-clearing status. Because the April monthly meeting
of the National Securities Clearing Corporation (NSCC) was delayed until May, we
had not obtained all the necessary regulatory approvals for us to begin
providing self-clearing services by our original May 1, 2000 goal. On April 30,
2000, our initial clearing arrangement with U.S Clearing Corp. expired. Since
then U.S. Clearing has provided clearing and execution services for our
customers' accounts under an interim clearing agreement. We expect to receive
the necessary approval from the NSCC in May, 2000 and expect to complete the
conversion to self-clearing operations at the end of June 2000. By the end of
June 2000, when we expect to end our association with U.S. Clearing, we expect
to have completed the transfer of all of our customer accounts and we do not
foresee any lapses in customer service. While operating under the interim
agreement with U. S. Clearing, we are receiving lower payments for order flow as
the payments are now based on actual, current-market rebates received from the
market makers that process our orders. Additionally, we are experiencing a
$1.25 increase in clearing costs per trade compared to what we had been charged
by U.S. Clearing under the terms of the initial agreement. In addition, as a
result of our postponement of the conversion to self-clearing status, we will
not experience the benefits of the increased interest income that
9
<PAGE>
we expect to derive from carrying our customers' accounts until the conversion
is completed. We expect that the combination of these factors will result in
significantly slower revenue growth during the second quarter compared to our
recent quarterly revenue growth rates. The expected decrease in revenue per
trade, combined with a temporary increase in clearing costs through the
completion of the conversion period, will also lead to lower gross profit
margins. However, we expect to carefully manage discretionary spending,
including marketing, during the second quarter in order to mitigate the impact
on net profit margins. Beyond the second quarter, we anticipate important
positive customer benefits, a return to strong revenue growth and increased
profitability for the firm following this transition to self-clearing. However,
anticipated positive effects of becoming self-clearing will not be fully
realized immediately.
Above-market order flow payments received under our initial agreement with
U.S. Clearing allowed us to offer our customers commission-free trades on over-
the-counter orders of 1,000 or more shares priced at more than $2.00 per share.
Because of the decrease in order flow payments that resulted from the expiration
of our initial agreement with U.S. Clearing and that will continue upon our
conversion to self-clearing operations, we anticipate that we will limit and may
eventually no longer offer these commission-free trades and, thus, we may lose
the competitive advantage we gain by doing so.
Towards the end of the first quarter and into the beginning of the second
quarter of 2000, the U.S. equity markets experienced an increase in price
volatility followed by a decrease in the volume of shares transacted on the
major exchanges. To the extent this trend persists, our transaction volumes and
results of operations and cash flows will be adversely affected.
10
<PAGE>
Results of Operations
In the discussion below, we compare our results of operations for the three
months ended March 31, 2000 and 1999.
The following table shows for the periods presented (a) the percentage of
total revenues represented by items on our condensed consolidated statements of
operations and other operating data, and (b) the percentage change in each item
from the prior period.
<TABLE>
<CAPTION>
Percentage of Total Revenues
---------------------------------
Three months ended March 31,
--------------------------------- Period-to-Period
2000 1999 Percentage Change
-------------- ------------- -----------------
<S> <C> <C> <C>
Revenues:
Transaction revenue............................................... 93% 92% 183%
Interest income................................................... 6 3 397
Other revenue..................................................... 1 5 12
----------- -------------
Total revenues.................................................. 100 100 182
Cost of services:
Clearance and execution........................................... 41 37 212
Employee compensation and benefits................................ 7 12 76
Communication and data processing................................. 5 6 128
----------- -------------
Total costs of services.......................................... 53 55 173
Operating expenses:
Marketing and advertising......................................... 43 14 783
Technology development............................................ 6 7 126
General and administrative........................................ 27 24 219
----------- -------------
Total operating expenses......................................... 76 45 378
----------- -------------
Net income (loss).................................................. (29)% --% n/m
=========== =============
Other Data:
Total trades....................................................... 469,000 187,200 151
Average trades per day............................................. 7,444 3,069 143
Total customer accounts /(1)(2)/................................... 112,000 54,500 106
Total customer assets (millions of dollars) /(1)/.................. $ 1,095 $ 348 215
Total employees /(1)/.............................................. 166 80 108
</TABLE>
n/m - not meaningful
(1) As of the end of each period presented.
(2) Represents open accounts, regardless of whether there have ever been any
funds or securities in the account.
Revenues
Total revenues increased to $13,055,000 in the first quarter of 2000, up
182% from $4,637,000 in the first quarter of 1999. Our transaction volumes,
total customer accounts and customer asset balances grew rapidly through 1999
and the first quarter of 2000. We executed 7,444 trades per day in the three
months ended March 31, 2000 compared to 3,069 trades per day during the same
period of 1999. Total customer accounts increased from 54,500 at March 31, 1999
to 112,000 at March 31, 2000. Customer asset balances increased from
$348,308,300 at March 31, 1999 to $1,094,745,000 at March 31, 2000.
Transaction revenue increased to $12,078,000 in the first quarter of 2000,
up 183% from $4,271,000 in the first quarter of 1999. Transaction revenue
represented 93% of total revenue in the first three months of 2000, compared to
92% in the same period in 1999. Brokerage commissions declined to
11
<PAGE>
49% of total revenues in the first quarter of 2000 from 55% in the first quarter
of 1999, while order flow-related rebates increased to 44% of total revenue in
the first quarter of 2000 from 37% in the corresponding period in 1999. For the
three months ended March 31, 2000, equity transactions represented 91% and
option transactions represented 9% of our total transaction volumes. This
compares to 83% for equity transactions and 17% for option transactions for the
three months ended March 31, 1999. Average transaction revenue increased to
$25.75 per trade in the first quarter of 2000 from $22.82 in the first quarter
of 1999, as a result of the increase in average order flow-related payments per
trade, offset slightly by the shift in trade mix away from the higher commission
option trades. Transaction revenue from our international partnerships,
principally our agreement with ConSors Discount-Broker (ConSors), represented
approximately 23% of our total revenues in the first three months of 2000. Our
relationship with ConSors became operational at the end of the first quarter of
1999. We expect revenues from our international relationships to increase as a
percentage of our total revenues in the future.
Interest income increased to $735,000, or 6% of total revenue, in the first
quarter of 2000, up 397% from $148,000, or 3% of total revenue, in the first
quarter of 1999 due primarily to increases in our average cash balances. Our
average cash balances increased from approximately $3.5 million during the first
quarter of 1999 to approximately $35.6 million during the first quarter 2000 as
a result of the receipt of approximately $41 million from the offering of
4,192,500 shares of our common stock to the public during the fourth quarter of
1999. Also contributing to the increase in interest income were increases in
customer money market and margin debit balances. We expect interest income to
increase as a percentage of total revenue in the future as we convert to self-
clearing, retain the full interest spread that we currently share with U.S.
Clearing, and experience additional growth in customer credit and debit
balances.
Other revenue increased to $243,000 in the first quarter of 2000, up 12%
from $218,000 in the first quarter of 1999. The increase was due to a
comparable increase in the number of subscribers to our automatically updating
real-time quote services at prices ranging from $19.95 to $79.95 per month.
Other revenue declined to 1% of total revenue in the first three months of 2000
from 5% in the same period in 1999, as transaction revenues and interest income
grew at a more rapid rate.
Cost of Services
Total cost of services increased to $6,978,000 in the first quarter of
2000, up 173% from $2,556,000 in the comparable quarter of 1999. This increase
was due primarily to the increase discussed above in the number of securities
transactions we executed during the first quarter of 2000. Clearance and
execution costs increased to $5,354,000 in the first three months of 2000, up
212% from $1,718,000 in the same period in 1999. The transaction-based fees
paid to U.S. Clearing for trade execution, as well as to various market data
vendors, increased throughout 1999 and into the first quarter of 2000 as
transaction volumes increased. In April 1999, we began making margin-sharing
payments for trades directed to us under agreements with our international
partners that we also recorded as clearance and execution costs. These margin-
sharing payments caused the average clearance and execution cost per trade to
increase by $2.08 in the first quarter of 2000 compared to the first quarter of
1999. As a result of initiating these margin-sharing payments, clearance and
execution costs increased to 41% of total revenues in the first quarter of 2000
from 37% in the first quarter of 1999.
Employee compensation and benefits increased to $967,000 in the first quarter of
2000, up 76% from $550,000 in the first quarter of 1999. Communication and data
processing costs increased to $658,000 in the first quarter of 2000, up 128%
from $288,000 in the first quarter of 1999. These increases resulted from our
addition of licensed brokers and other customer service personnel, as well as
third party market data services, communication lines and equipment, to
accommodate the increased number of customer accounts and associated traffic to
our web site and to our customer service call center. Additionally, in December
1999, we moved the brokerage operations of Web Street Securities into 33,000
square feet of
12
<PAGE>
newly leased space in downtown Chicago, Illinois and significantly upgraded the
telecommunications systems and equipment in our call center. These enhancements
to our operations resulted in greater personnel, occupancy and communication
costs in the first quarter of 2000 compared to the same period in 1999. Total
employees involved in brokerage, customer service and technical support
activities increased to 114 at March 31, 2000 from 51 at March 31, 1999. As a
percentage of total revenues, however, employee compensation and benefit costs
decreased to 7% in the three months ended March 31, 2000, from 12% in the same
three-month period of 1999. Communication and data processing costs as a
percentage of total revenues were essentially unchanged in the first quarter of
2000 compared to the same period in 1999.
Operating Expenses
Total operating expenses increased to $9,869,000 during the three months
ended March 31, 2000, up 378% from $2,066,000 during the three months ended
March 31, 1999. The majority of this increase was due to increased costs
associated with marketing and advertising to develop brand awareness for our web
site, as described in further detail below. We expect to spend significant
amounts in the future to market our brand and expand our customer base, to
continue developing and delivering to our customers state-of-the-art online
financial products and services, and to increase the number of our financial
services centers. We also plan to continue enhancing financial, operational and
management controls and reporting systems and procedures in support of the
continued expansion of our operations. As a consequence, we intend to increase
expenditures in all operating areas. However, as previously mentioned, we may
scale-back or delay planned increases in our marketing efforts until the
transition to self-clearing status is completed at the end of June, 2000.
Marketing and advertising expenses increased to $5,592,000 in the first
quarter of 2000, up 783% from $633,000 in the first quarter of 1999. During the
fourth quarter of 1999, we began production of a new national advertising
campaign, employing the tagline "Invest with Ambition," that launched in
February 2000. As of December 31, 1999, approximately $684,000 of production
costs related to this campaign were deferred and included in prepaid expenses
and other assets in our consolidated balance sheet. These costs were charged to
expense in the first quarter of 2000 upon the first airing of these
advertisements. We expect this advertising campaign to result in substantially
increased levels of advertising expense in the foreseeable future as we attempt
to attract new customer accounts and accelerate our revenue growth rate.
However, in the second quarter of 2000, we also expect much of the growth in
revenue from the expected increase in customer accounts to be offset by declines
in revenue per trade from the expected decrease in order flow-related payments
resulting from the expiration of our initial clearing agreement with U.S.
Clearing on April 30, 2000.
Technology development expenses increased to $709,000 in the first quarter
of 2000, up 126% from $314,000 in the same period in 1999. The increased
spending was due to an increase in the number of technology department employees
and expenses related to software development by third parties to enhance our web
site and expand our product and service offerings. However, in the first
quarter of 2000, technology development expenses decreased slightly to 6% of
total revenues, from 7% in the first quarter of 1999. We expect that technology
development expenditures will continue to increase in the future, but may
fluctuate as a percentage of revenues over time depending on the timing of
future development projects.
General and administrative expenses increased to $3,568,000 in the first
quarter of 2000, up 219% from $1,119,000 in the first quarter of 1999. This
increase was due to a variety of factors, all related to the significant growth
of our business that we experienced during the intervening period. Among these
factors, an increase in the number of employees, conversion of our operations to
self-clearing, and improved compensation and benefit levels to attract and
retain qualified employees were the primary causes of the increase. Other
factors that contributed to the increase were increased consulting
13
<PAGE>
expenses and other professional fees; increased occupancy costs related to
opening our new brokerage operation facilities in Chicago, Illinois in December
1999; and increased costs for insurance and postage associated with the higher
customer and trading activity levels. Additionally, we recorded higher non-cash
charges for stock options and warrants, granted at or above then-current market
values, to vendors and an international partner in the second half of 1999. The
values associated with these grants are amortized over the period over which
services are rendered. This non-cash expense also includes charges related to
stock options granted to employees below the current market value of our stock
at the time of the grants. The non-cash expense associated with vendor and
employee-related grants was $93,000 in the first three months of 1999 and
$233,000 in the first three months of 2000. We have not granted any options with
exercise prices below the current market value of our stock to employees since
September 1, 1998, nor do we expect to make any such grants in the future. As a
result, the charges against income associated with the employee grants will
decline in future periods. However, we have granted and may continue to grant
options and warrants to third parties, for services rendered and on which we
will be required to recognize future charges against income. We anticipate
hiring additional personnel and incurring increased administrative costs related
to being a public company and to support the expected future growth of our
business. We incurred approximately $750,000 of start-up costs related to our
self-clearing conversion during the quarter ended March 31, 2000. Prior to these
costs, general and administrative expenses declined from 24% to 22% of total
revenues compared to the year-ago period. We anticipate incurring between
$750,000 and $1,000,000 in nonrecurring expenses during the second quarter of
2000 to complete the conversion to self-clearing, consisting primarily of
consulting, personnel and training costs. We do not expect to incur significant
self-clearing conversion costs after the second quarter of 2000.
Liquidity and Capital Resources
As of March 31, 2000, we had cash and cash equivalents of $32,008,000 and
no bank debt. Our cash used in operating activities was $5,180,000 in the first
quarter of 2000, compared to cash provided by operations of $126,000 in the
first quarter of 1999. Our operating cash inflows consist principally of
brokerage commissions and order flow-related payments collected, and other
revenue and interest received. Our operating cash outflows consist principally
of clearing and execution costs, employee compensation and benefit costs,
marketing and advertising costs, and general and administrative costs paid. The
increase in operating cash outflows for the first three months of 2000 compared
to the same period in 1999 is attributable to greater amounts paid for marketing
and advertising. We paid $6,357,000 in marketing and advertising costs in the
first quarter of 2000, including the prepayment of $1,390,000 in advertising
expenses related to the second quarter of 2000.
Cash used in investing activities, all of which has represented capital
expenditures, increased to $2,004,000 for the three months ended March 31, 2000,
compared to $1,072,000 for the three months ended March 31, 1999. We continued
to acquire, build or develop facilities, fixed assets and software for cash and
under operating leases during the first three months of 2000 to support the
continued rapid growth of the business. During the three months ended March 31,
2000, we signed leases increasing our aggregate commitments under non-cancelable
operating leases for facilities and equipment to $16,500,000 at March 31, 2000.
Cash flows related to operating leases are included in net cash provided by or
used in operating activities.
In May, 2000, we expect to receive the final regulatory approval to become
a self-clearing broker-dealer. Clearing services include the confirmation,
receipt, settlement, custody and delivery functions involved in securities
transactions. We believe we have hired the necessary experienced clearing-
operations personnel, and have appropriately modified our systems and
operations, so that we will be prepared to convert from fully disclosed to self-
clearing at the end of the second quarter of 2000.
14
<PAGE>
Once we are self-clearing, we will assume responsibility for the possession
and control of our customers' securities and other assets, and the execution and
clearance of our customers' securities transactions. Accordingly, we will
recognize on our balance sheet the customer receivables and customer payables to
us that are the result of customer margin loans (i.e., loans made to customers
for the purchase of securities that are collateralized by securities held in the
customers' margin accounts with us) and customer free credit balances (i.e.,
customer cash balances deposited with us), respectively. In addition, to the
extent that our customer debit balances exceed customer free credit balances, we
may be required to finance any excess debit balances. On April 27, 2000, we
secured an $8 million line of credit. Borrowings on this line will be secured
by customers' margin account securities and will bear interest at the federal
funds rate plus 1.25%. Either party can cancel this borrowing arrangement with
60 days' prior notice.
Additionally, once we are self-clearing, we will be required to maintain
significantly higher minimum net capital. See note 7 to the Condensed
Consolidated Financial Statements. During April, 2000, we contributed $6
million in capital to our wholly owned subsidiary, Web Street Securities, Inc.
Management expects that this contribution will provide us net capital
approximately $5 million in excess of the minimum net capital that will be
required once we become self-clearing.
In the future, we expect to incur significantly higher costs, particularly
marketing and advertising, technology development, payroll and occupancy costs,
to grow our business. We anticipate increased levels of capital expenditures in
the remainder of 2000 to continue construction of a second data center, which we
expect to complete in the second quarter, and to continue to expand our existing
systems and network of online financial service centers over the next year. It
is our intention to finance certain of these capital expenditures with
additional lease financing that we expect to be available to us.
We believe that our current cash and cash equivalents, supplemented with
lease financing that we expect to be available, will be sufficient to meet our
anticipated cash needs for working capital, regulatory capital and capital
expenditures for at least the next 12 months. However, during this period, we
may need to seek additional capital in the private and/or public equity markets
in order to support more rapid growth, to respond to competitive pressures, to
develop new products and services and to acquire complimentary businesses.
After that 12-month period, if cash generated from operations is insufficient to
satisfy our liquidity requirements, we may need to raise additional funds
through public or private financing, strategic relationships or other
arrangements. If we receive additional funds through the issuance of equity
securities, our existing stockholders may experience significant dilution and
these equity securities may have rights, preferences or privileges senior to
those of our common stock. Further, we may not be able to obtain additional
financing when needed or on terms favorable to us or our stockholders. If we
are unable to obtain additional financing when needed, or to do so on acceptable
terms, we may be unable to develop or enhance our products or services, take
advantage of business opportunities or respond to competitive pressures.
Cautionary Note Regarding Forward-Looking Statements
Because we want to provide you with more meaningful and useful information,
this quarterly report includes forward-looking statements that reflect our
current expectations and projections about our future results, performance,
prospects and opportunities. These forward-looking statements include, without
limitation, the statements regarding the expected impact of the deferral of
self-clearing operations and regarding the expected benefits to us of becoming
self-clearing. You can find many of these statements by looking for words such
as "may," "will," "expect," "anticipate," "believe," "intend," "estimate,"
"foresee" and similar expressions. These forward-looking statements are based
on information currently available to us and are subject to a number of risks,
uncertainties and other factors
15
<PAGE>
that could cause our actual results, performance, prospects or opportunities in
the remainder of 2000 and beyond to differ materially from those expressed in,
or implied by, these forward-looking statements. These risks, uncertainties and
other factors include, without limitation, our ability to successfully become
self-clearing, our need to maintain and increase our customer accounts, our
ability to establish additional international and content-provider
relationships, the intense competition among web sites providing online
financial services, existing and future regulations affecting our business or
the Internet generally, and other factors. We caution you not to place undue
reliance on any forward-looking statements. For further information about these
and other risks, uncertainties and factors, that could affect Web Street's
future results, performance, prospects and opportunities, please review the
disclosure included under the caption "Business-Risk Factors'" in Web Street's
annual report on Form 10-K for the year ended December 31, 1999, as filed with
the Securities and Exchange Commission. Except as otherwise required by federal
securities laws, we undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, changed circumstances or any other reason after the date of this
quarterly report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our primary financial instruments are cash in banks, money market
instruments and short-term certificates of deposit. We do not believe that
these instruments are subject to material potential near-term losses in future
earnings from reasonably possible near-term changes in market rates or prices.
We do not have derivative financial instruments for speculative or trading
purposes. In the normal course of business, our customers enter into
transactions where the risk of potential loss due to market fluctuations or
failure to perform exceeds the amounts reported for the transaction. We have
established policies, procedures and internal processes governing our management
of market risks in the normal course of our business operations. We, along with
U.S. Clearing, continuously monitor our exposure to market and counterparty risk
through the use of a variety of financial, position and credit exposure
reporting and control procedures. In addition, we review the credit-worthiness
of each customer and/or other counterparty with which we conduct business. We
are not currently exposed to any material currency exchange risks because the
risk is borne by our international customers and our international partners, and
we do not hold any assets or incur any liabilities denominated in foreign
currencies.
16
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On November 16, 1999, our registration statements on Form S-1 (File No.
333-85849 and File No. 333-91087) relating to the initial public offering (IPO)
of our common stock was declared effective by the SEC. After payment of the
underwriting discount of $3,228,225 and expenses of $1,911,082, we received net
proceeds of $40,978,193 from the offering. We have used approximately $7.9
million to market our online brokerage services and other financial services and
products, approximately $2.0 million for the acquisition, construction or
development of property, equipment and software, and approximately $1.8 million
for working capital and general corporate purposes. The above-mentioned uses of
the offering proceeds are before consideration of cumulative cash flow from
operating activities exclusive of these uses since the IPO of approximately $1.9
million. We have invested the remaining net proceeds, pending their use, in
short-term, investment grade, interest-bearing obligations.
Item 6. Exhibits and Reports on Form 8-K.
a) We have filed, or incorporated by reference, the following exhibits
with this quarterly report.
Exhibit
Number Exhibit
10.1+ Co-operation Agreement dated as of January 17, 2000 between
Web Street Securities and ConSors Discount-Broker.
10.2+ Master Services Agreement dated March 24, 2000 between Web
Street Securities and Securities Industry Software, a
division of ADP Financial Information Services, Inc.
27 Financial Data Schedule
+ A portion of the exhibit has been omitted pursuant to a
request for confidential treatment.
b) Reports on Form 8-K.
We did not file any Current Reports on Form 8-K during the first quarter
of 2000.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 2000 By: /s/ JOSEPH J. FOX
-----------------------------------------
Joseph J. Fox
Co-Chief Executive Officer (principal
executive officer) and Co-Chairman of the
Board
Date: May 15, 2000 By: /s/ JOSEPH A. BARR
-----------------------------------------
Joseph A. Barr
President, Chief Financial Officer
(principal financial and accounting officer)
and Treasurer
18
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Number Exhibit
- -------------- ------------------------------------------------------------
10.1+ Co-operation Agreement dated as of January 17, 2000 between
Web Street Securities and ConSors Discount-Broker.
10.2+ Master Services Agreement dated March 24, 2000 between Web
Street Securities and Securities Industry Software, a
division of ADP Financial Information Services, Inc.
27 Financial Data Schedule
+ A portion of the exhibit has been omitted pursuant to a request for
confidential treatment.
<PAGE>
EXHIBIT 10.1
Co-operation Agreement
This Co-operation Agreement (hereinafter referred to as the "AGREEMENT") is made
by and between
Consors Discount-Broker AG (hereinafter referred to as "ConSors"), with its
principal place of business at Johannesgasse 20, 90402 Nurenberg, Germany
and
Web Street Securities, Inc. (hereinafter referred to as "Web Street"), with its
principal place of business at 510 Lake Cook Road - 4th Floor, Deerfield, IL
6001, U.S.A.
("ConSors" and "Web Street" are also hereinafter referred to as "PARTY/PARTIES",
as the context requires)
RECITALS
WHEREAS Web Street is one of the premier On-line brokerage firms in the U.S.A.
with substantial experience and reputation and ConSors is one of the premier
On-line brokerage firms in Europe; and
WHEREAS ConSors wishes to offer its customers the facilities to trade U.S.
equities and options and Web Street has the technological and professional
skills to assist this wish; and
WHEREAS to that end, the PARTIES desire to grant each other appropriate rights
and to undertake appropriate obligations as set forth herein.
THEREFORE, in consideration of the mutual promises and covenants set forth
below, ConSors and Web Street agree as follows:
Article I - Definitions
1.1 TERRITORY
"TERRITORY" shall mean Germany, France, Switzerland, Austria, Italy,
Spain and Luxembourg.
1.2 ConSors CUSTOMER/S
"ConSors CUSTOMER/S" refers to all individuals residing in the
TERRITORY who have opened an account with Web Street.
1.3 MARGIN LOSS
"MARGIN LOSS" shall mean any and all uncollected debits of ConSors
CUSTOMERS.
1.4 Web Street MARKS
<PAGE>
"Web Street MARKS" shall mean all intellectual property rights in the
name Web Street and variations thereof, including but not limited to
registered and unregistered Trademarks and the copyrightable
expressions therein.
1.5 Web Street MATERIALS
"Web Street MATERIALS" shall mean all forms, advertising and
promotional materials of Web Street.
1.6 EFFECTIVE DATE
"EFFECTIVE DATE" shall mean December 11, 1998.
1.7 EXPIRATION DATE
"EXPIRATION DATE" shall mean January 31, 2003.
Article II - Brokerage Arrangement
2.1 ConSors will work jointly with Web Street in establishing a unique
destination on ConSors' web site--ConSors-WebStreet.com--which will be
a co-branded site including translations into German. The site design
will be completed by ConSors, with final approval by Web Street; and
the co-branded portion of the site will be housed with Web Street
utilizing Web Street's servers.
2.2 ConSors will direct all of its customers desiring to trade U.S.
equities or options through Web Street to Web Street, and, in turn,
Web Street will notify its existing customers residing in the
TERRITORY about the ConSors-WebStreet.com site and will inform all
prospective customers residing in the TERRITORY about the option of
opening a Web Street account via this site (e.g. by hyperlinking,
e-mail, etc.).
2.3 The PARTIES will negotiate in good faith with respect to adding other
countries to the TERRITORY.
Article III - Establishment of ConSors CUSTOMER Accounts
3.1 On or after the Effective Date, ConSors CUSTOMERS will procure and
submit to Web Street Web Street's account application (with required
signature(s)) and standard arbitration agreement and other paperwork
customarily required of Web Street customers. ConSors CUSTOMERS will
complete and submit to Web Street any other paperwork reasonably
required by Web Street including, without limitation, I.R.S. Forms W-8
and W-9 (where applicable), and other documentation which may be
incidental to the foreign national status of a Web Street customer. It
is understood that ConSors CUSTOMERS will not have trading authority
until all documentation and paperwork required as set forth above has
been satisfactorily completed and received by Web Street, in its sole
discretion. For the avoidance of doubt, the Parties hereby confirm
that the contractual relationship of ConSors CUSTOMERS trading
equities, options and/or mutual funds (and other products/services
from time to time offered by Web Street for trading) on U.S. markets
under this Agreement will only be established through Web Street.
3.2 Web Street will promptly forward to ConSors a monthly list of all
ConSors CUSTOMERS who opened a Web Street account.
<PAGE>
Article IV - Maintenance of ConSors CUSTOMER Accounts; Commission Allocation
ConSors CUSTOMER Accounts will be maintained according to the
following procedures and protocols:
4.1 For ConSors CUSTOMERS desiring to fund their accounts by depositing
German funds directly to ConSors. ConSors will maintain an internal
account with Web Street in U.S. dollars solely for the purpose of
funding such ConSors CUSTOMER accounts. For such ConSors CUSTOMER
accounts, ConSors will notify Web Street by e-mail or fax to debit
ConSors' internal Web Street account and credit the ConSors CUSTOMER's
account.
4.2 Orders for trades made by ConSors CUSTOMERS shall be placed in any
manner available to other Web Street customers, i.e., on-line (via the
Internet) or by telephone through a Web Street trader. Orders received
outside market hours (being 9:30 a.m. to 4:00 p.m. Eastern U.S. time)
will be placed at the opening or as near the opening of the applicable
market as is practicable the next business day.
4.3 ConSors CUSTOMERS will have access to all Web Street services (subject
to any technological limitations beyond Web Street's control),
including stock quotes, research, news and portfolio management
capabilities, as well as 24 hours/day, 7 days/week telephone access to
custom service representatives (see Exhibit A for a listing of Web
Streeter features and resources available as of the date hereof).
4.4 All charges for ConSors CUSTOMERS account activity shall be made
according to the Web Street commission schedule as in effect from time
to time. Web Street will provide reasonable advance notice to ConSors
of any changes to the commission schedule. (The commission schedule in
effect at the date hereof is attached as Exhibit B.)
4.5 All ConSors CUSTOMERS will have the benefit of the same insurance
coverage for loss due to broker-dealer or clearing corporation error
as other Web Street customers, including SIPC insurance up to an
aggregate of $500,000 ($100,000 cash and $400,000 securities).
Additional such coverage which applies to Web Street customers as of
the date hereof is set forth in the attached Exhibit C.
4.6 ConSors CUSTOMERS will have the ability to purchase options and to
purchase securities on margin according to the same terms and
conditions as other Web Street customers, subject only to Clearing
Firm requirements. The Clearing Firm will be responsible for the
extension of credit under Regulation T of the Federal Reserve and NASD
Article III, Section 30, Appendix A. All margin calls issued to
ConSors CUSTOMERS shall be met within twenty-four (24) hours.
4.7 The PARTIES hereto agree that any MARGIN LOSS shall be borne by Web
Street only.
4.8 All notices and other written materials required or permitted to be
prepared and submitted by ConSors or ConSors CUSTOMERS shall include
complete and accurate English language versions or translations, as
applicable and otherwise as required under U.S. Securities laws and
regulations. Translations of originally English language documents
into German (including the Web Street web site) shall be ***. ConSors
shall be responsible for all printing, advertising and other marketing
costs and expenses in the TERRITORY and ConSors shall be responsible
for any errors in any such translation and shall indemnify and defend
Web Street for all losses, costs, damages, etc, incurred by Web Street
and arising from any such errors.
*** This information is omitted pursuant to a confidential treatment request
filed with the SEC.
<PAGE>
Article V - Clearing Functions
5.1 All clearing functions, including order tickets, time stamps,
confirmations and statement generation shall be conducted by the
Clearing Firm or such other clearing operation (including Web Street,
should it become self-clearing) as Web Street may in its sole
discretion designate.
5.2 Web Street will promptly forward to ConSors weekly Clearing Firm
reports relating to transactions involving ConSors CUSTOMERS.
5.3 Web Street will promptly forward all confirmations to ConSors
CUSTOMERS and will promptly forward to ConSors all monthly statements
for ConSors CUSTOMERS accounts with activity and quarterly statements
for all such accounts.
5.4 The Clearing Firm will be the "direct inquirer" for ConSors CUSTOMERS
under Rule l7f-1 (Lost and Stolen Securities) as promulgated by the
SEC under the Act.
5.5 The Clearing Firm shall be responsible for actions required in
connection with dividends, interest, redemptions, tenders, exchanges
or warrant offers for all ConSors CUSTOMER accounts.
5.6 It is understood and agreed that all transactions conducted pursuant
to this AGREEMENT will take place and be denominated in U.S. currency.
Web Street shall not have any responsibility for currency losses
incurred by ConSors or any ConSors CUSTOMER resulting from the
repatriation of funds to the Territory or for any other reason.
5.7 Other than in the case of Web Street becoming self-clearing, ConSors
waives any claim it may have against Web Street, its officers,
directors, shareholders, employees, agents, successors in interest and
legal representatives for loss or damage resulting from any Clearing
Firm errors or omissions; provided that such claim does not arise
solely by reason of the negligence of Web Street, and provided that
. Web Street agrees to devote its best efforts to resolving all issues
with the Clearing Firm (including market makers) to the satisfaction
of the ConSors CUSTOMER, and
. Web Street cooperates in any legal action taken by ConSors CUSTOMERS
against the Clearing Firm resulting from any clearing company errors
or omissions, and
. Web Street assigns all claims it may have against the clearing company
for such errors and omissions to the ConSors CUSTOMERS affected by the
error or omission.
Article VI - Responsibilities of the PARTIES
6.1 ConSors will forward to Web Street all completed new account
documentation (including new account agreements, margin agreements,
option agreements, and Forms W-8 and W-9 (where applicable) which have
been submitted to ConSors or ConSors CUSTOMERS.
6.2 ConSors will provide Web Street copies of any complaints received by
ConSors that relate to the Clearing Firm or Web Street within
twenty-four hours after receipt.
6.3 Web Street will answer or seek diligently to obtain answers and to
comply with ConSors CUSTOMER complaints related to the Clearing Firm
or Web Street.
6.4 ConSors will furnish its customers with the required prospectus, when
applicable, including supplements, amendments, option prospectus and
disclosure documents, and when making sales of underwriting securities
shall comply with all NASD rules.
<PAGE>
6.5 Web Street acknowledges and agrees that ConSors will have no
responsibility for any customer losses and damages attributable to Web
Street system failures or outages. ConSors will notify Web Street
promptly of claims against ConSors arising out of such system failures
or outages and Web Street will indemnify ConSors against any payments
required to be made to the claimant and all liabilities, costs and
expenses incurred by ConSors in the course of the defense and
settlement of such claim.
ARTICLE VII - Remuneration
7.1 For the obligations of ConSors as set forth herein, ConSors shall
receive a remuneration in the amount as agreed upon in the attached
Exhibit D.
ARTICLE VIII - Marketing
Web Street hereby grants a royalty-free license to ConSors to use, reproduces
and display the Web Street MARKS, as follows:
8.1 The grant of license shall be co-terminous with the term of this
AGREEMENT.
8.2 The grant of license shall be non-exclusive regarding the use of the
Web Street MARKS by Web Street in the TERRITORY. No use of the Web
Street MARKS in the TERRITORY by other licensees than ConSors is
contemplated or agreed to. ConSors agrees not to use the Web Street
MARKS outside the TERRITORY. The possibility to access ConSors' web
site or the co-branded web site--ConSors-WebStreet.com--outside the
TERRITORY shall not be considered as a use of the Web Street MARKS by
ConSors outside the TERRITORY.
8.3 Included in the grant of license herein is the right to use Web Street
MATERIALS in the TERRITORY.
8.4 ConSors will provide and be responsible for all translations into
German (or any other language indigenous to a country or part thereof
within the TERRITORY) of Web Street MATERIALS. ConSors will provide
Web Street with copies of all Web Street MATERIALS used by ConSors;
and ConSors will obtain Web Street's advance written approval of
ConSors' uses of any Web Street Mark and/or Web Street MATERIALS.
ConSors shall indemnify Web Street for any liability, claims,
obligations, suits, causes of actions, and expenses, including but not
limited to reasonable legal fees, arising directly or indirectly from
or in connection with errors in translations of Web Street MATERIALS.
Vice versa Web Street shall indemnify ConSors for any liability,
claims, obligations, suits, causes of actions, and the like brought
forward against ConSors, same as expenses, including but not limited
to reasonable legal fees, arising directly or indirectly from or in
connection with the use of any Web Street MARK and or Web Street
MATERIALS in the Territory.
Article IX - Governing Law and Arbitration
9.1 The AGREEMENT shall be governed by and construed in accordance with
the laws of Switzerland.
9.2 Whenever a controversy should arise between the PARTIES arising out of
or relating to the AGREEMENT, including but not limited to the
conclusion, construction, application, interpretation or termination
of the AGREEMENT and the rights and obligations of the PARTIES
deriving therefrom, the PARTIES shall apply their best endeavors to
settle such controversy in an amicable manner.
<PAGE>
9.3 In the event the PARTIES should be unable to reach a mutual
understanding on any controversy within a period of 60 (sixty) days
from the date of written invitation by either PARTY to enter into
discussions on a particular issue, the PARTIES agree that any dispute
arising out of or in connection with this AGREEMENT, including any
question regarding its existence, validity or termination, shall be
referred to and finally resolved by arbitration under the London Court
of International Arbitration Rules, which Rules are deemed to be
incorporated by reference into this clause. The number of arbitrators
shall be one or three as reasonably determined by the London Court of
International Arbitration. The seat, or legal place, of arbitration
shall be London, England. The language to be used in the arbitral
proceedings shall be English. With respect to the provisions of
Sections 10.2 and 10.3, the 60 (sixty) days provided for in this
Section 9.3 above may be bypassed in the event of the assertion by
either party of a "substantial breach" or "exceptional circumstances",
but the arbitration procedure itself may not be avoided by virtue of
such an assertion. Each PARTY shall, in any event, have a reasonable
period of time within which to cure any violation or alleged violation
of this AGREEMENT after receiving notice thereof from the other PARTY.
Article X - Term and Termination
10.1 The AGREEMENT shall become effective on the EFFECTIVE DATE and shall
continue in full force and effect until the EXPIRATION DATE unless
terminated as specified below. It is understood and agreed that the
AGREEMENT shall expire automatically on this EXPIRATION DATE.
10.2 Subject to the terms of Section 9.3 hereof, each PARTY may terminate
the AGREEMENT with immediate effect, by notice given in writing by
means of communications ensuring evidence and date of receipt (e.g.
registered mail with return receipt, special courier), in case of a
substantial breach by the other PARTY of the obligations arising out
of the AGREEMENT, or in case of exceptional circumstances justifying
the termination. The PARTIES each covenant and agree that any
assertion of "substantial breach" or "exceptional circumstances" will
be made only after diligent review of the circumstances involved, and
in good faith.
10.3 Any failure by a PARTY to carry out all or part of its obligations
under the AGREEMENT resulting in such detriment to the other PARTY as
to substantially deprive such other PARTY of what it is entitled to
expect under the AGREEMENT, shall be considered as a substantial
breach for the purpose of Article 10.2, above. Circumstances in which
it would be unreasonable to require the terminating PARTY to continue
to be bound by the AGREEMENT shall be considered as exceptional
circumstances for the purpose of Article 10.2, above.
10.4 Furthermore, the PARTIES agree that the following situations, in
particular but not limited hereto, shall be considered as exceptional
circumstances that justify the termination by the other PARTY as set
forth in Article 10.2 above: bankruptcy, moratorium, receivership, or
liquidation that is not stayed by order of court within 60 (sixty)
days.
Article XI - Effect of Expiration or Termination
11.1 In the event of expiration or termination of the AGREEMENT in
accordance with Article X, the PARTIES will assist each other and the
Clearing Firm in making an orderly transition. The PARTIES shall pay
all amounts owed to the other or to the Clearing Firm.
11.2 The expiration or termination of the AGREEMENT shall not affect Web
Street's ongoing obligation to pay the consideration as agreed upon
herein and in Exhibit D for ConSors CUSTOMERS who open a Web Street
account during the term of the AGREEMENT as long as, and for as long
as, ConSors continues to provide customer service to such CUSTOMERS at
a level equivalent to that which is provided during the term of this
AGREEMENT.
<PAGE>
11.3 Promptly following expiration or termination of the AGREEMENT the
PARTIES shall cease and thereafter refrain from using the internet
domains ConSors-WebStreet.com, Webstreet-Consors.com,
Webstreet-Consors.de and ConSors-Webstreet.de.
Article XII - Miscellaneous
12.1 Binding Effect: This AGREEMENT shall be binding upon and inure to the
benefit of the PARTIES hereto, their legal representatives, successors
in interest and permitted assigns.
12.2 Assignment: Because of the personal nature of the performance
hereunder, the PARTIES agree that the rights, obligations, and
performances required hereunder shall not be transferred or assigned
without the express written consent of the PARTIES hereto.
12.3 Notices: All notices required or permitted under this AGREEMENT shall
be in writing and personally delivered or sent by facsimile
transmission as follows:
If to Web Street at: c/o Stuart A. Cohn
Web Street Securities, Inc.
510 Lake Cook Road - 4th Floor
Deerfield, IL 60015
Facsimile (847) 267-9295
If to ConSors at: c/o Achim Feige
ConSors
Johannesgasse 20
90402 Nurnberg
Germany
Facsimile: (09 11) 24 70 209
or such other address as either PARTY may from time to time designate
to the other by notice duly given.
12.4 Survival: The provisions of the AGREEMENT which by their sense and
context are meant to survive expiration or termination of the
AGREEMENT, including without limitation Articles 4.7, 4.8, 5.2, 5.7,
6.3, 6.5, 7.1, 8.4, 11.2 and 11.3 and this provision shall so survive.
12.5 Entire AGREEMENT; Amendment: This AGREEMENT contains the entire
understanding of the PARTIES, and supercedes any prior agreements or
understandings, with respect to the transactions contemplated by this
AGREEMENT. This AGREEMENT may be amended only with the express written
consent of the PARTIES hereto. This shall equally apply to any change
or amendment of this provision.
12.6 Partial Invalidity. In the event any part or parts of this AGREEMENT
are found to be invalid, illegal or unenforceable in any respect, it
is the intent of the PARTIES that a court so finding shall revise or
modify the provisions hereof found to be invalid, illegal or
unenforceable, and the remaining provisions hereof shall nevertheless
be valid and binding with the same force and effect as if the invalid,
illegal or unenforceable part or parts were originally deleted.
12.7 Waivers. Any term or provision of this AGREEMENT may be waived, or the
time for its performance may be extended, by the PARTY or PARTIES
entitled to the benefit thereof. The failure of any PARTY hereto to
enforce at any time any provision of this AGREEMENT shall not be
construed to be a waiver of such
<PAGE>
provision, nor in any way to affect the validity of this AGREEMENT or
any part hereof or the right of any PARTY thereafter to enforce each
and every such provision. No waiver of any breach of this AGREEMENT
shall be held to constitute a waiver of any other or subsequent
breach.
12.8 Expenses: Each PARTY hereto will pay all of its own costs and expenses
incident to its negotiation and preparation of this AGREEMENT and to
its performance and compliance with all agreements and conditions
contained herein on its part to be performed or complied with,
including the fees, expenses and disbursements of its counsel and
accountants.
12.9 Multiple Counterparts: This AGREEMENT may be signed in two or more
counterparts, each of which shall be deemed an original hereof, and
all of which taken together shall be considered one and the same
instrument.
12.10 NO Authority to Bind: Neither Web Street nor ConSors shall have the
authority to bind the other, other than as expressly provided for
herein.
If the foregoing accurately reflects the agreement and understanding
of the PARTIES, please so indicate by signing below.
Nuremberg, 01/17/2000 Deerfield, IL,______________
- ------------------------------ For Web Street Securities, Inc.
For ConSors Discount-Broker AG
/s/ Achim Feige /s/ Joseph J. Fox
- ------------------------------ ------------------------------
Achim Feige Name: Joseph J. Fox
Managing Director Position: President
<PAGE>
EXHIBIT A
Web Street Securities, Inc.
Features
|_|A real-time trading pit to monitor stocks, options and mutual funds and check
balances and positions;
|_|
|_|Instantaneous (6 - 10 seconds) executions on most market orders;
|_|
|_|Online "pop-up" and mailed confirmations;
|_|
|_|Flat $14.95 per online trade;
|_|
|_|Free online trades of 1,000 or more NASDAQ shares of more than $2 per share;
|_|
|_|Free (not real-time) monitoring of 10 separate Watchlists of up to 10
positions each;
|_|
|_|FREE Baseline company profiles that include company histories, market trends
and individual stock movements;
|_|
|_|FREE Real Time balances and positions; and
|_|
|_|Optional Live Self Updating Real Time Quotes.
<PAGE>
EXHIBIT B
WEB STREET SECURITIES, Inc.
Commission Schedule
- --------------------------------------------------------------------------------
TRADES EXECUTED VIA THE INTERNET
- --------------------------------------------------------------------------------
Any listed stock trade, any size $14.95
- --------------------------------------------------------------------------------
NASDAQ Stock Trade under 1,000 shares $14.95
- --------------------------------------------------------------------------------
NASDAQ Stock Trades 1,000 shares or more* FREE
- --------------------------------------------------------------------------------
Equity and Index Options $14.95 plus
$1.75 per contact
- --------------------------------------------------------------------------------
Mutual Funds Transaction $25.00
- --------------------------------------------------------------------------------
*On stocks trading over $2.00 per share. For stocks trading $2.00 and under per
share, $14.95.
- --------------------------------------------------------------------------------
TRADES EXECUTED VIA A LIVE REPRESENTATIVE
- --------------------------------------------------------------------------------
Any listed stock trade, any size $24.95
- --------------------------------------------------------------------------------
NASDAQ Stock Trade under 1,000 shares ** $24.95
- --------------------------------------------------------------------------------
NASDAQ Stock Trades 1,000 shares** or more $24.95
- --------------------------------------------------------------------------------
Equity and Index Options $24.95 plus
$1.75 per contract
- --------------------------------------------------------------------------------
Mutual Funds Transaction $25.00
- --------------------------------------------------------------------------------
Bonds - government, municipals, corporate Contact a Web Street
Account Executive
for pricing
- --------------------------------------------------------------------------------
**On stocks trading over $2.00 per share. For stocks trading $2.00 and under per
share, $24.95 plus one cent per share.
- --------------------------------------------------------------------------------
MARGIN RATES
- --------------------------------------------------------------------------------
0 - 4,999 2% above broker call
- --------------------------------------------------------------------------------
5,000 - 9,999 1 3/4% above broker
call
- --------------------------------------------------------------------------------
10,000 - 14,999 1 1/2% above broker
call
- --------------------------------------------------------------------------------
15,000 - 19,999 1 1/4% above broker
call
- --------------------------------------------------------------------------------
20,000 - 24,999 1% above broker call
- --------------------------------------------------------------------------------
25,000 and higher 3/4% above broker
call*
- --------------------------------------------------------------------------------
Broker call as quoted in Wall Street Journal
- --------------------------------------------------------------------------------
*over $100,000 rate is negotiable
CURRENT AS OF 1.12.00 - SUBJECT TO CHANGE
<PAGE>
EXHIBIT C
Web Street Securities, Inc.
Insurance Coverage
Web Street is a member of SIPC (Securities Investor's Protection
Corporation). SIPC insures the first $500,000 of each customer account ($100,000
cash; $400,000 securities). Individual accounts are additionally protected by
Web Street Securities, currently through coverage provided by Asset Guaranty
Corporation, up to $99.5 million.
<PAGE>
EXHIBIT D
WEB Street Securities, Inc.
Ticket Charges - Web Street currently pays to U.S. Clearing a charge of US $8.50
for the clearing of any size equity transaction. This includes both market and
limit orders. Web Street currently pays to U.S. Clearing a charge of US $8.50
plus an additional US $1.25 contract for all options transactions.
Transaction Revenues - Web Street charges US $14.95 commission on all equity
transactions. Web Street charges no commission on NASDAQ trades of 1,000 or more
if the stock is priced over US $2.00. Both market and limit orders. Web Street
charges US $14.95 plus US $1.75 per contract on option trades.
Order Flow Rebates - Web Street currently receives the following rebates on
NASDAQ stock trades (which rebates may from time to time change as a result of
market conditions):
US $0.25 per share on NASDAQ stock priced over US $2.00. US $.01 per share
on NASDAQ stock priced US $1.01 to US $2.00.
Consideration - ConSors will receive a consideration for the performance of the
obligation of this AGREEMENT in the amount of *** of the sum consisting of both:
Total Transaction Revenues plus then applicable Order Flow Rebates less
Ticket Charges;
and
Net interest income earned on all Web Street-ConSors accounts from margin
balances as well as free credit balances, and net interest income earned on
money market account balances.
The consideration shall be paid to an account identified by ConSors, no later
than the 15th calendar day following the close of the "trading month." The
"trading month" ends on the Tuesday preceding the last Friday of each calendar
month.
*** This information is omitted pursuant to a confidential treatment request
filed with the SEC.
<PAGE>
EXHIBIT 10.2
MASTER SERVICES AGREEMENT
Client: Web Street Securities, Inc.
---------------------------
Address: 510 Lake Cook Road, 4th Floor
-----------------------------
City: Deerfield State: IL Zip Code: 60015
--------- ----- -----
1. SCOPE OF AGREEMENT. A. Securities Industry Software, a division of ADP
Financial Information Services, Inc. ("ADP") agrees to provide Client and
Client agrees to obtain from ADP, in accordance with the terms and
conditions of this Agreement and the Schedules hereto, the following:
(i) the services described in the Schedules to this Agreement
(the "Services");
(ii) the grant of licenses and/or sublicenses to the
applications software listed in the Schedules to this Agreement (the
"Application Software");
(iii) the software support services to the Applications Software
referred to in Paragraph 9 below and as may be further described in
the Schedules to this Agreement (the "Support Services"); (iv) the
Equipment listed in the Schedules to this Agreement (the "Equipment")
and the grant of licenses and/or sublicenses to the operating software
to such Equipment listed in the Schedules to this Agreement (the
"Operating Software"); and
(v) the maintenance services for the Equipment referred to in
Paragraph 14 below and as may be further described in the Schedules to
this Agreement (the "Maintenance Services").
B. ADP may, from time to time during the term of this Agreement, provide
Client, at Client's request, with services, applications software,
operating software, software support services, equipment and equipment
maintenance services which are then being provided by ADP and are not
specifically covered by the Schedules hereto. The terms "Services",
"Applications Software" and "Operating Software" (collectively the
"Software"), "Support Services", "Equipment" and "Maintenance
Services" shall automatically be amended from time to time to include
all such additional services, application software, operating
software, software support services, equipment and equipment
maintenance services, as the case may be, which are provided by ADP to
Client.
C. ADP will provide the Services, Software, Support Services, Equipment
and Maintenance Services within the continental United States in
accordance with the terms, conditions and prices set forth in this
Agreement and the Schedules hereto. At Client's request, ADP may, in
its sole and absolute discretion, provide the Services, Software,
Support Services, Equipment and Maintenance Services outside of the
continental United States in accordance with prices to be mutually
agreed upon, the terms and
<PAGE>
conditions of this Agreement and such other terms and conditions as
may be mutually agreed to by ADP and Client, it being understood that
changes to the terms and conditions of this Agreement and other agreed
upon terms and conditions may be necessary to meet applicable laws,
rules and regulations, and local market customs and requirements.
2. TERM OF AGREEMENT.
The term of this Agreement shall be for the period commencing the date this
Agreement has been signed by an authorized officer of both ADP and Client
and continuing until all Schedules hereto have terminated. The term of
each Schedule shall be for the period indicated therein. Client's and
ADP's continuing obligations under this Agreement and the Schedules hereto
(including, without limitation, those relating to Client's payment of the
charges referred to in Paragraph 3 below, and to the "ADP Products", the
"Confidential Information" and the "Client Files" (all as hereinafter
defined) shall survive the termination of this Agreement and the Schedules
hereto.
3. CHARGES.
A. The initial charges for the Services, Software, Support Services,
Equipment and Maintenance Services listed in the Schedules shall be as
set forth in the applicable Schedules. The charges for any services,
applications software, operating software, software support services,
equipment and equipment maintenance services provided by ADP to Client
which are not listed in the Schedules shall be mutually agreed to by
ADP and Client and shall be in addition to the charges asked in the
Schedules.
B. The charges for any of the Services, Software, Support Services,
Equipment and Maintenance Services listed in the Schedules may be
changed by ADP only in the manner, and to the extent, set forth
therein. The charges for any services, applications software,
operating software, software support services, equipment and equipment
maintenance services provided by ADP to Client which are not listed in
the Schedules may be changed by ADP at any time and from time to time
upon at least 30 days prior written notice to Client.
C. Client will be invoiced for all supplies provided by ADP in preparing
the various reports and documents required by the applicable Schedules
at ADP's then current prices for such supplies.
D. The cost of any conversion services provided pursuant to Paragraph 5
below, and/or for any equipment installation services provided
pursuant to Paragraph 13 below, will be ADP's then prevailing nominal
charges therefor.
E. The communications charges set forth in the Schedules are based on
current communication costs paid to common carriers and other
communication vendors. ADP reserves the right to immediately pass on
any increase or decrease in such
<PAGE>
charges to Client: no discounts shall apply to such increase or
decrease. ADP may, to the extent set forth in the Schedules, charge
Client administration fees for the services provided to Client
pursuant to this Paragraph 3(E) and Paragraph 4 below.
F. There shall be added to all charges invoiced Client pursuant to this
Agreement and the Schedules hereto amounts equal to any applicable
taxes, exclusive of taxes based on ADP's net income.
G. Client by using any of the Services, Software, Support Services,
Equipment and Maintenance Services agrees to pay, within 10 days after
the date of any invoice from ADP, the then applicable charges for the
Services, Software, Support Services, Equipment and Maintenance
Services covered thereby. If Client fails to pay any amounts due
under this Agreement and the Schedules hereto, Client shall, upon
demand, pay interest at the rate of 1-1/2% per month (but in no event
more than the highest interest rate allowable by law) on such
delinquent amounts from the due date until the date of payment.
H. Any security deposit set forth in a Schedule shall be paid by Client
to ADP concurrently with Client's execution of the applicable
Schedule. Such security deposit shall be held by ADP to ensure
payment of charges accruing under the applicable Schedule. ADP may,
in its sole discretion, use the Client's security deposit to offset
any charges arising under this Agreement and any Schedule hereto which
remain due and unpaid 30 days or more after any invoice date. ADP
expressly reserves the right to require payment by the Client of
additional security deposit funds whenever the amount on deposit is
reduced as a consequence of the operation of this Paragraph 3(H) or
whenever, in ADP's judgment, Client's ability to meet its obligations
under this Agreement becomes impaired. Any security deposit will be
refunded to Client, without interest, within 30 days after the
termination of the Schedule as to which it relates, provided that
Client has fulfilled all of the terms and conditions of this Agreement
and the applicable Schedule. ADP may, at its option, apply Client's
security deposit balance to Client's final invoice relating to such
terminated Schedule.
4. COMMUNICATIONS LINES AND EQUIPMENT.
A. ADP may order, on Client's behalf, the installation of appropriate
communications lines and equipment to enable Client to access the
Services.
B. ADP shall not be responsible for the reliability or continued
availability of the communications lines and equipment used by Client
in accessing the Services.
C. Client shall be exclusively responsible for, and shall pay (in the
manner set forth in the Schedules hereto), any and all installation,
monthly and other charges arising in connection with the installation
and use of communications lines and equipment used in connection with
the Services.
<PAGE>
5. CONVERSION TO THE SERVICES.
To the extent provided in the applicable Schedules, ADP will convert the
applicable "Client Files" (as defined in Paragraph 11(A) below) to make
them compatible with the Services being provided to Client. Client agrees
to cooperate with ADP and provide ADP with all necessary information and
assistance required for ADP to successfully convert all Client Files
necessary to obtain the applicable Services. Client will assign a liaison
person to assist and cooperate with ADP in any such conversion.
6. AVAILABILITY OF THE SERVICES AND SUPPORT.
A. ADP shall determine in accordance with its normal acceptance
procedures when the Services being provided to Client are operational
and available for Client's use.
B. The Services, and ADP's support thereof, will be provided on a daily
basis on each New York Stock Exchange trading day, and on any day on
which trading may be suspended on the New York Stock Exchange but on
which clearing activities are operational or on which the New York
Stock Exchange is otherwise open for business. Except for the
conversion services referred to in Paragraph 5 above and except as may
be otherwise mutually agreed to by ADP and Client, none of the
Services, and ADP's support thereof, shall be provided Saturdays,
Sundays or legal holidays. The term "trading day" means any day on
which the purchase or sale of securities, options and the like occurs.
C. Hours for accessing and/or using any particular Service, and ADP's
support thereof, will be those hours of those days that such
particular Service, and the related support services, are generally
made available by ADP. Such Service, and related support services,
may also be available at other than normally designated hours; in such
event Client may, at its option and subject to any additional charges
therefor, use such Service, and/or related support services, at such
other times.
7. SCOPE OF THE SERVICES AND TRAINING.
A. Client agrees that it will use the Services in accordance with such
rules as may be established by ADP from time to time as set forth in
any materials furnished by ADP to Client.
B. Client will use the Services only for its own internal and proper
business purposes and/or as an integral part of the services and/or
products it provides to third parties and will not, except as
permitted by the applicable Schedules, sell, lease, license or
otherwise provide, directly or indirectly, any of the Services or any
portion thereof to any third party.
C. Prior to obtaining any Services from ADP, Client will obtain approval
of each and every entity, if any, whose approval is required for the
receipt of such Services
<PAGE>
(including, but not limited to, securities and commodities exchanges,
associations of securities and/or commodities dealers, federal, state
and local governmental entities and data base suppliers). Client shall
comply with any conditions, restrictions, or limitations imposed by
any of the aforementioned entities and shall pay all fees or charges
such entities may impose. In addition, Client shall comply with the
reporting requirements of the securities and commodities exchanges and
associations of securities and/or commodities dealers. Such reporting
requirements include furnishing ADP such information as may be
required by the aforementioned entities. Failure of Client to comply
with the requirements of this Paragraph 7(C) shall constitute a
default under the provisions of Paragraph 20 below. CLIENT SHALL
INDEMNIFY AND HOLD ADP HARMLESS FROM AND AGAINST ANY LOSS OR DAMAGE
CAUSED BY REASON OF CLIENT'S FAILURE TO COMPLY WITH THE PROVISIONS OF
THIS PARAGRAPH 7(C).
D. ADP shall provide Client with training on using the Services in
accordance with, and to the extent provided by, ADP's then prevailing
practices and as may be further described in the Schedules to this
Agreement.
8. SOFTWARE.
A. Client acknowledges that it is a licensee and/or sublicensee of ADP of
the various Applications Software and Operating Software programs
contained in the Software; Client accepts such licenses and/or
sublicenses, as the case may be, from ADP for the Software upon the
terms and conditions set forth in this Agreement.
B. The licenses and/or sublicenses for the Software granted by ADP to
Client hereunder convey personal, non-exclusive, non-transferable
rights and licenses and/or sublicenses, as the case may be, to Client
to use the Software in conjunction with the Services and/or the
Equipment only.
C. Except for Software for which Client has been granted a perpetual
license as listed on the Schedules, all Software (including the
magnetic or other physical media on which it is originally or
subsequently recorded or fixed) will be returned by Client to ADP or
will be completely deleted, erased or otherwise destroyed by Client,
in accordance with ADP's instructions, promptly after the termination
of the Schedule as to which it relates. Client shall, with respect to
Software for which it has been granted a perpetual use license as
listed on the Schedules, own the magnetic or other physical media on
which the Software is originally or subsequently recorded or fixed;
provided that Client shall not have any interest in the Software
recorded on the original diskette copy(ies) and all subsequent copies
of the Software (regardless of the form or media in or on which the
original and other copies may subsequently exist), except to the
extent of the limited licenses and/or sublicenses granted it under
this Agreement.
<PAGE>
9. SOFTWARE SUPPORT SERVICES.
A. ADP shall provide the specific Support Services set forth in the
Schedules. As commercially released to its clients at no charge, ADP
shall make available to Client, free of charge, all improvements,
enhancements, modifications, updates, releases and revisions to the
Software. All improvements, enhancements, modifications, updates,
releases and revisions to the Software (which are not provided to
Client under the immediately preceding sentence and which are not
included in the Support Services) shall be provided to Client for
ADP's then prevailing charges therefor.
B. Client agrees to incorporate all improvements, enhancements,
modifications, updates, releases and revisions to the Software
delivered by ADP to Client into the Software. Client shall not,
without the prior written consent of ADP, change or otherwise modify
any Software.
C. Any custom programming or custom program maintenance requested by
Client will be provided by ADP on a time and materials basis at
charges, terms and conditions to be mutually agreed to by ADP and
Client (the "Client Software"). ADP reserves the right to determine
if it will provide any such Client Software programming or maintenance
services. ADP may independently develop software similar to the
Client Software provided it does not infringe upon Client's ownership
rights to the Client Software.
D. Client may request ADP, from time to time hereunder and for ADP's then
prevailing charges therefor, to approve Client Software developed by
Client or a third party, or other software owned by Client or licensed
by Client from a third party, for use in conjunction with the
Services, Software and/or Equipment. ADP shall perform such
procedures (as set forth in Paragraph 16 below), if any, as are, in
ADP's sole and absolute discretion, necessary for it to determine
whether it can give Client the approval sought by Client pursuant to
this Paragraph 9(D). ADP will not provide Support Services for the
software referred to in this Paragraph 9(D); any and all support for
such software shall be Client's responsibility. Client will not use
the software referred to in this Paragraph 9(D) in conjunction with
the Services, Software and/or Equipment prior to complying with the
steps set forth in Paragraph 15 below.
10. OWNERSHIP, USE AND CONFIDENTIALITY OF ADP PRODUCTS.
A. Client acknowledges that the Software, the data bases which are part
of the Services, and the systems used by ADP in connection with the
Services and related materials, and all copyrights, patents, trade
secrets and other intellectual and proprietary rights therein and
thereto (collectively, the "ADP Products") are and shall remain the
exclusive and confidential property of ADP or the third parties for
<PAGE>
whom ADP is acting as agent or from whom ADP has obtained the right to
use the ADP Products.
B. Client may use the ADP Products only in conjunction with the Services,
Software and Equipment. Client shall not copy, in whole or in part,
the ADP Products or related documentation, whether in the form of
computer media, printed or in any other form; provided, however, that
Client may make an appropriate number of copies of the ADP Products
for back-up purposes only. Client shall not make any alteration,
change or modification to any of the ADP Products without ADP's prior
written consent in each instance. CLIENT MAY NOT RECOMPILE,
DECOMPILE, DISASSEMBLE, REVERSE ENGINEER, OR MAKE OR DISTRIBUTE ANY
OTHER FORM OF, OR ANY DERIVATIVE WORK FROM, THE ADP PRODUCTS
(INCLUDING THE SOFTWARE).
C. Client shall treat as confidential and will not disclose or otherwise
make available any of the ADP Products or any trade secrets,
processes, proprietary data, information or documentation related
thereto (collectively the "Confidential Information"), in any form, to
any person other than employees of Client with a need-to-know. Client
will instruct its employees who have access to the ADP Products and
the Confidential Information to keep the same confidential, by using
the same care and discretion that Client uses with respect to its own
confidential property and trade secrets. Upon the termination of a
Schedule for any reason, Client shall, except as set forth in
Paragraph 8(C) above, return to ADP any and all copies of the ADP
Products and the Confidential Information which are in its possession
relating to such terminated Schedule.
11. CONFIDENTIALITY OF CLIENT FILES; FILE SECURITY AND RETENTION.
A. Any Client files or other information provided by Client to ADP for
use with the Services and identified in writing as confidential
(collectively the "Client Files") shall remain the exclusive and
confidential property of Client. ADP shall treat as confidential and
will not disclose or otherwise make available any Client Files to any
person other than employees of ADP with a need-to-know. ADP will
instruct its employees who have access to the Client Files to keep the
same confidential by using the same care and discretion that ADP uses
with respect to its own confidential property and trade secrets.
B. ADP will provide reasonable security provisions to ensure that access
to the Client Files is available only to Client. ADP reserves the
right to issue and change regulations and procedures from time to time
to improve file security.
C. ADP will take reasonable precautions to prevent the loss of or
alteration to the Client Files retained by ADP, but ADP cannot
guarantee against any such loss or alteration. Accordingly, Client
will keep copies of the source documents of the information delivered
to ADP and will maintain procedures external to the ADP
<PAGE>
system for the identification of such losses and for the
reconstruction of lost or altered Client Files, to the extent deemed
necessary by Client.
D. ADP shall retain the Client Files in accordance with, and to the
extent provided by, ADP's then prevailing records retention policies.
12. EQUIPMENT - RISK OF LOSS; OWNERSHIP.
A. Title to any Equipment purchased by Client shall pass to Client at the
point of shipment; title to any Equipment which is not purchased by
Client shall remain with ADP. Client shall have the option of
obtaining additional equipment (in addition to the Equipment) from any
third party; provided that, such equipment: (i) must be compatible to
the Equipment and have complied with the procedures set forth in
Paragraph 15 below (for which Client has paid ADP its then prevailing
charges therefor), and (ii) shall be maintained in the manner provided
for in Paragraph 14 below.
B. Client shall assume all risk of loss or damage to any Equipment on
which title has passed to Client. No loss, theft or damage to the
Equipment after the passage of title to Client shall relieve Client of
its obligations to pay the charges due, or perform any of its other
obligations under this Agreement.
C. ADP reserves a purchase money security interest in any Equipment being
purchased by Client in the amount of the unpaid balance of the
purchase price until payment in full of such purchase price. A
financing statement under the Uniform Commercial Code may be filed
with the appropriate public authorities and Client agrees to sign any
forms presented to it which are necessary to protect ADP's security
interest therein.
13. EQUIPMENT - INSTALLATION AND ENVIRONMENTAL SPECIFICATIONS.
A. Client shall provide a suitable installation environment for the
Equipment as described in ADP's environmental specifications set forth
in the Schedules (the "Environmental Specifications"). Client shall
provide and install all wiring and cabling required for installation
of the Equipment, shall provide an ordinary telephone extension within
10 feet of where the Equipment will be installed, and shall install
all electrical and other utilities specified in the Environmental
Specifications. The Equipment shall be installed and placed in good
working order by Client, ADP or ADP's designee, as indicated in the
Schedules.
B. Client will at all times maintain the location at which the Equipment
is installed in accordance with the Environmental Specifications.
<PAGE>
14. EQUIPMENT MAINTENANCE SERVICES.
A. ADP, or its designee, shall provide Maintenance Services for the
Equipment and additional equipment referred to in Paragraph 12 above
(to the extent set forth in the Schedules). Any and all maintenance
for Equipment and additional equipment referred to in Paragraph 12
above (to the extent set forth in the Schedules). Any and all
maintenance for Equipment and additional equipment not maintained by
ADP, or its designee, will be client's responsibility.
B. For the equipment and additional equipment it is maintaining, ADP, or
its designee, shall provide normal on-site remedial Maintenance
Services during the hours such on-site remedial Maintenance Services
are then generally provided by ADP to its clients and as may be
further described in the Schedules, excluding New York Stock Exchange
observed holidays; preventive Maintenance Services shall be provided
as determined necessary by ADP, or its designee, and shall be
performed during the same hours as on-site remedial Maintenance
Services are provided.
C. Maintenance Services include replacement of all unserviceable parts.
Replaced parts become the property of ADP.
D. Maintenance Services do not include (and ADP shall charge Client ADP's
then prevailing normal charges for providing):
(i) Electrical work external to the Equipment and additional
equipment.
(ii) Maintenance of accessories, attachments, or other devices not
covered by the Schedules.
(iii) Furnishing platens, ribbons, tapes, diskettes, supplies or
accessories, painting or refinishing, making specification
changes or performing services connected with installation,
removal or relocation of Equipment and additional equipment or
adding or removing accessories, attachments or other devices
unless specifically agreed to. The replacement of parts such as
cathode ray tubes is limited to failure of such parts and does
not include such occurrences as burnt phosphor of the CRT
screen.
(iv) Such other services which are impractical for ADP or its
designee to render because of alterations not approved by ADP
to the Equipment and additional equipment.
(v) Repair of any Equipment or additional equipment problem caused
by non-ADP representatives performing maintenance or repair of
such Equipment or additional equipment, unless approved by ADP.
<PAGE>
(vi) Repair or damage resulting from (a) fire, theft, disaster,
catastrophe or acts of God, transportation, neglect or misuse,
power failure, communications line or equipment failure, (b)
failure of foreign interconnect equipment, (c) use of the
Equipment or additional equipment for purposes other than for
which it was designed, (d) alterations or attachments to, or
the use of accessories or supplies not suitable for, the
Equipment or additional equipment, (e) operational errors,
fault or negligence of the Client or (f) causes other than
ordinary wear and tear.
(vii) Repair of damage or increase in repair service time caused by
non-compliance with the Environmental Specifications, or
Client's improper use, management or supervision of the
Equipment or additional equipment (including, without
limitation, the use of supplies, disc packs, diskettes, tapes
and tape cartridges not designated in writing by ADP as
suitable for use with the Equipment or additional equipment).
(viii) Repair of damage resulting from problems in the Software if,
without the approval of ADP, (a) the Software has been altered
in any way not permitted by Paragraph 9 above, or (b) software,
other than the Software and other software previously approved
by ADP in accordance with the provision set forth in Paragraph
15 below, has been installed in the Equipment or the additional
equipment.
E. Client shall permit ADP, or its designee, to have complete access to
the Equipment and the additional equipment being maintained by it
during normal business hours.
15. NON-ADP PROVIDED SOFTWARE AND EQUIPMENT.
When Client requests ADP to give it the approval referred to in Paragraphs
9(D) or 12(A) above, ADP will promptly notify Client if ADP reasonably
believes (after being advised of Client's intentions and having reasonable
time to review, to the extent it determines necessary in its sole and
absolute discretion, the likely effect of the proposed software or
equipment addition) that such software or equipment will degrade the
performance of the Services, Software and/or Equipment below their
respective specifications and/or will increase the Support Services and/or
Maintenance Services which ADP, or its designee, will have to perform on
the Software or the Equipment, and the reasons for such belief. Client
will, upon request, demonstrate to ADP that degradation in Services,
Software and/or Equipment performance or increase in Support Services or
Maintenance Services is unlikely. If ADP determines that such degradation
in Services, Software and/or Equipment performance or increase in Support
Services or Maintenance Services is likely, ADP shall demonstrate such
anticipated performance degradation in Services, Software and/or Equipment
or increased Support Services or Maintenance Services, and Client shall
have the option of:
<PAGE>
(i) responding to such problems and satisfying ADP, in accordance with
criteria to be mutually agreed to by ADP and Client, that the
performance of the Services, Software and Equipment will not be
degraded, and/or the Support Services or Maintenance Services
required to be performed by ADP, or its designee, will not be
increased, by such additional software or equipment, provided that
ADP's consent shall not be unreasonably withheld; or
(ii) as a condition of receiving ADP's approval for the use of the
software or equipment in question, agreeing with ADP as to
appropriate changes in ADP's warranties set forth in Paragraph 15
below, and in ADP's Support Services under Paragraph 9 above and/or
Maintenance Services under Paragraph 14 above (and ADP's charges
therefor), in order to enable ADP not to be in breach of its
obligations under Paragraphs 9, 14 and 16 hereof.
Client agrees it will not add any software or equipment that would degrade
the services ADP provides to its other clients, provided that ADP
demonstrates to Client such anticipated degradation.
16. WARRANTY.
A. ADP warrants that the Services, the Software and the Client Software
which may be developed by ADP pursuant to Paragraph 9(C) above will
conform to their respective functional and technical specifications.
Such specifications are subject to amendment, from time to time, by
ADP in which case the Services, Software and ADP-developed Client
Software will conform to their modified respective functional and
technical specifications. This warranty shall not extend to Software
and ADP-developed Client Software which has been altered, changed or
modified in any way, not permitted by Paragraph 9 above, without ADP's
prior written consent in each instance.
B. ADP represents and warrants that the Equipment and additional
equipment which is maintained by ADP, or its designee, will be in good
working order during the period it is maintained by ADP hereunder.
This warranty shall not extend to Equipment and/or additional
equipment that has been subjected to misuse, neglect or accident or
which shall have been altered or repaired other than by ADP, or its
designee.
C. ADP warrants to Client that, except as provided in Paragraph 12(C)
above, good title to the Equipment purchased from ADP shall be
transferred to Client, free and clear of all liens, claims,
encumbrances and security interests whatsoever.
D. EXCEPT AS SPECIFICALLY PROVIDED HEREIN, THERE ARE NO WARRANTIES,
EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES, THE SOFTWARE, THE
ADP-DEVELOPED CLIENT SOFTWARE, THE EQUIPMENT, THE ADDITIONAL
EQUIPMENT, THE
<PAGE>
SUPPORT SERVICES AND/OR THE MAINTENANCE SERVICES INCLUDING, BUT NOT
LIMITED TO, ANY IMPLIED WARRANTIES OF MECHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
17. LIMITATION OF LIABILITY.
A. ADP's sole liability to Client or any third party for any claims,
notwithstanding the form of such claims (e.g., contract, negligence,
or otherwise), arising out of errors or omissions in the Services
provided or to be provided by ADP hereunder and pursuant to the
Schedules and caused solely by ADP shall be to furnish the correct
report or data and to correct the applicable Client Files, provided
that Client promptly advises ADP thereof.
B. ADP will make every reasonable effort to have the Services available
during the hours referred to in Paragraph 8 above. However, ADP
cannot and does not guarantee such availability. Accordingly, ADP's
sole liability to Client or any third party for claims,
notwithstanding the form of such claims (e.g., contract, negligence or
otherwise), arising out of (i) the interruption in or delay of the
Services provided or to be provided by ADP hereunder and pursuant to
the Schedules of (ii) the unavailability of the ADP system, shall be
to use its best efforts to resume the Services and/or to make the ADP
system available, as promptly as reasonably practicable.
C. ADP shall not have any obligation or liability to Client or any third
party (i) relating to, or arising out of displaying or furnishing of
data bases and/or securities and/or commodities information and
prices, and related market and statistical information and prices
based on such data bases or securities and/or commodities information
and prices, (ii) for errors or omissions in collecting, processing,
disseminating or displaying the same, or (iii) for the accuracy of
data bases or securities or commodities information and prices, and
related market and statistical information and prices displayed,
carried or furnished by or through the Services, Software, Client
Software developed by ADP pursuant to Paragraph 9(C) above, Equipment
and/or additional equipment maintained by ADP. ADP shall not have any
liability or obligation for the accuracy or display of Client's data
and information, and with respect thereto Client shall defend,
indemnify, save and hold harmless ADP, its successors and assigns
against any and all actions, proceedings, claims, liabilities, demands
and costs, damages, losses and expenses (including, but not limited
to, reasonable attorney's fees) to which ADP may be subjected by
furnishing such data and information or by reason of, but not limited
to, any delays, errors, inaccuracies or omissions whatsoever with
respect to the furnishing of such data and information.
D. ADP shall not have any liability under this Agreement and the
Schedules hereto for any money damages resulting from claims made by
Client or any third party for any and all causes covered by Paragraphs
17(A), 17(B), and 17(C) above. ADP's
<PAGE>
sole liability under this Agreement and the Schedules hereto for money
damages resulting from claims made by Client or any third party
arising from or related to any and all causes not covered by
Paragraphs 17(A), 17(B) and 17(C) above shall not exceed the lesser of
(i) the amount of actual damages incurred by Client, and (ii) the
amount which will not exceed one month's average total monthly charges
paid by Client for the particular Services, Software, ADP-developed
Client Software, Equipment, Support Services or Maintenance Services
as to which Client's claim relates during the twelve months preceding
the month in which the damage or injury is alleged to have occurred,
or such lesser number of months if Client has not received twelve
months of the applicable Services, Software, ADP-developed Client
Software, Equipment, Support Services or Maintenance Services. Such
damages shall be the full extent of ADP's monetary liability under
this Agreement and the Schedules hereto regardless of this form in
which any such legal or equitable claim or action may be asserted
against ADP and shall constitute Client's sole monetary remedy.
E. ADP shall not be liable or deemed to be in default for any delay or
failure to perform under this Agreement and the Schedules hereto or
for interruption of the Services, Software, ADP-developed Client
Software, Equipment, additional equipment maintained by ADP, Support
Services and/or Maintenance Services resulting directly or indirectly
from any cause beyond ADP's reasonable control.
F. As used in Paragraphs 17(A), 17(B), 17(C), 17(D) and 17(E) above, the
term "ADP" shall be deemed to include each third party who provides
ADP with any portion of the Services, Software, ADP-developed Client
Software, Equipment, Support Services or Maintenance Services being
provided, or which will be provided to, Client. Such third party
shall not have any direct or indirect liability to Client for monetary
damage on account of the Services, Software, ADP-developed Client
Software, Equipment, Support Services or Maintenance Services
provided, or to be provided, by ADP hereunder.
G. IN NO EVENT WILL ADP BE RESPONSIBLE FOR SPECIAL, INDIRECT, INCIDENTAL
OR CONSEQUENTIAL DAMAGES WHICH CLIENT MAY INCUR OR EXPERIENCE ON
ACCOUNT OF ENTERING INTO OR RELYING ON THIS AGREEMENT AND THE
SCHEDULES HERETO, EVEN IF ADP HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.
18. LAWS AND GOVERNMENTAL REGULATIONS.
A. Client shall be responsible (i) for compliance with all laws and
governmental regulations affecting its business and (ii) for any use
it may make of the Services to assist it in complying with such laws
and governmental regulations, and ADP shall not have any
responsibility relating thereto (including, without limitation,
advising Client of Client's responsibilities in complying with any
laws or governmental regulations affecting Client's business). While
ADP shall not have
<PAGE>
any responsibility for Client's compliance with the laws and
regulations referred to above, ADP agrees to use its best efforts to
cause the applicable Services to be designed in such a manner that
they will be able to assist Client in complying with its applicable
legal and regulatory responsibilities; in no event shall Client rely
solely on its use of the Services in complying with any laws and
governmental regulations.
B. If after the date hereof any modifications to the Services shall be
legally required, ADP shall, except to the extent such changes may be
beyond the capability of ADP to implement, modify the Services
appropriately, if providing any of the Services to Client hereunder
violates, or in ADP's opinion is likely to violate, any laws or
governmental regulations, ADP may, upon written notice to Client,
immediately cease providing the affected Services to Client.
19. PROPRIETARY RIGHTS INFRINGEMENT.
A. With respect to the Equipment and all Software not developed by ADP,
to the extent permitted under ADP's agreement with manufacturers of
the Equipment and licensees of the non-ADP developed Software, ADP
agrees to pass on to Client the Equipment manufacturers' and non-ADP
developed Software licensors' proprietary rights infringement
indemnification obligations; provided, however, that Client
acknowledges that the Equipment manufacturers and non-ADP developed
Software licensors shall be fully responsible for the payment of any
award under the terms of their agreements with ADP and that ADP shall
not have any responsibility relating thereto.
B. With respect to the Software, and/or the Client Software, developed by
ADP, ADP warrants that such Software and/or ADP-developed Client
Software is free from any claim or infringement of any United States
patent, copyright, trademark or trade secret. ADP shall indemnify and
hold Client harmless from any and all losses, claims, damages,
liabilities, costs and expenses (including reasonable attorney's fees)
arising out of any infringement by such Software and/or ADP-developed
Client Software of any United States patent, copyright, trademark or
trade secret of any third party providing that:
(i) promptly after becoming aware of the existence of any claim or
litigation for which indemnity may be sought under this
Paragraph 19(B), Client shall give ADP written notice thereof,
together with any and all documentation related to such claim
or litigation;
(ii) ADP shall have full control over the defense and settlement of
any claim or litigation for which indemnification is sought
under this Paragraph 19(B); and
<PAGE>
(iii) Client shall cooperate with ADP in every reasonable way, at
ADP's expense, to facilitate the defense or settlement or any
such claim or litigation.
If Client is enjoined or otherwise prohibited from using such Software
and/or ADP-developed Client Software, ADP shall, at its sole expense
and at ADP's option, (x) procure for Client the right to continue
using such Software and/or ADP-developed Client Software, or (y)
substitute a non-infringing version of such Software and/or ADP-
developed Client Software in a manner satisfactory to Client so that
such Software and/or ADP-developed Client Software becomes non-
infringing and still performs to its applicable functional and
technical specifications.
C. ADP shall have no liability for any claims of patent, copyright,
trademark or trade secret infringement based on Client's use of the
Equipment, the Software, and/or ADP-developed Client Software, in
combination with software, equipment, data or services not supplied by
ADP as part of this Agreement and the Schedules hereto (even if the
procedures set forth in Paragraph 15 above have been complied with in
connection therewith) or resulting from any modification or attempted
modification of such Equipment, Software or ADP-developed Client
Software made by anyone other than ADP, or its designee.
20. DEFAULT BY CLIENT; REMEDIES UPON DEFAULT.
Should Client (a) fail to pay when due any sums of money due hereunder or
pursuant to any of the Schedules hereto, (b) default in the performance of
any of its other obligations under this Agreement or any of the Schedules
hereto, or (c) commit an act of bankruptcy or become the subject of any
proceeding under the Bankruptcy Act or any state bankruptcy law, or become
insolvent, or have any substantial part of its property become subject to
any levy, seizure, assignment, application or sale for or by any creditor
or governmental agency, then, in any such event, ADP, at its option, may,
upon written notice thereof, (i) terminate this Agreement and/or any or all
of the Schedules hereto, (ii) declare all amounts due and to become due
under this Agreement and/or any or all of the Schedules hereto immediately
due and payable, (iii) whether or not this Agreement and/or any or all of
the Schedules hereto are terminated take immediate possession of any or all
of the items of purchased Equipment not fully paid for, wherever situated
and for such purpose enter upon any premises without liability for so
doing, and (iv) sell, dispose of, hold, use or lease any items of purchased
Equipment not fully paid for, as ADP, in its sole discretion, may decide.
Client agrees to reimburse ADP for any and all expenses ADP may incur,
including reasonable attorney fees, in taking any of the foregoing actions.
The remedies contained in this Paragraph 20 are cumulative and are in
addition to all other rights and remedies available to ADP under this
Agreement and the Schedules hereto, by operation of law or otherwise.
<PAGE>
21. PURCHASE OR FINANCING OF EQUIPMENT.
A. ADP agrees that, for the purposes of purchasing and financing of
Equipment to be purchased from ADP, Client may, at its option, either
(i) purchase the Equipment directly from ADP, (ii) purchase the
Equipment directly from ADP and then resell it to a third party
financing organization, which will then lease the Equipment to Client
or (iii) arrange to have a third party financing organization purchase
the Equipment directly from ADP for the sole purpose of leasing the
Equipment to Client under the conditions set forth in Paragraph 21(B)
below.
B. (i) ADP's obligations under this Agreement and the applicable
Schedules relating to the Equipment shall run solely to Client.
ADP shall have no obligations under this Agreement and the
applicable Schedules relating to the Equipment to any third
party (including without limitation obligations for Maintenance
Services);
(ii) Any Equipment sold to third parties in accordance with this
Paragraph 21 shall have the sole warranty that the Equipment
will be in good working order when delivered to the applicable
third party and, except to the extent set forth in Paragraph
12(C) above, will be, at the time of such delivery, free and
clear of all liens, claims and encumbrances. EXCEPT AS STATED
ABOVE AND AS SET FORTH IN THIS AGREEMENT AND THE APPLICABLE
SCHEDULES, THERE ARE NO OTHER WARRANTIES, EXPRESS OR IMPLIED,
WITH RESPECT TO THE EQUIPMENT (INCLUDING, BUT NOT LIMITED TO,
ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE).
(iii) Client shall guarantee all obligations of the third party
purchasing the Equipment hereunder to ADP, including timely
payment.
22. GENERAL.
A. Client acknowledges that it has not been induced to enter into this
Agreement and the Schedules hereto by any representation or warranty
not set forth in this Agreement and the Schedules hereto. This
Agreement and the Schedules hereto contain the entire agreement of the
parties with respect to their subject matter and supersede all
existing agreements and all other oral, written or other
communications between them concerning their subject matter. This
Agreement and the Schedules hereto shall not be modified in any way
except by a writing signed by both parties.
B. This Agreement and the Schedules hereto may not be assigned by Client,
without ADP's prior written consent. This Agreement and the Schedules
hereto shall be
<PAGE>
binding upon and shall inure to the benefit of ADP and Client and
their respective successors and permitted assigns.
C. If any provision of this Agreement and the Schedules hereto (or any
portion hereof or thereof) shall be held to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the
remainder of this Agreement and the Schedules hereto shall not in any
way be affected or impaired thereby.
D. All notices shall be in writing and shall be forwarded by registered
or certified mail and sent to ADP and Client at the addresses set
forth on the first page of this Agreement or to any other address
designated in writing hereafter. Any notice to ADP shall be sent:
Attention: President, Brokerage Information Services Group, and shall
include a copy to Automatic Data Processing, Inc., One ADP Boulevard,
Roseland, New Jersey 07088, Attention: General Counsel.
E. The headings in this Agreement and the Schedules hereto are intended
for convenience of reference and shall not affect their
interpretation.
F. The individuals executing this Agreement and the Schedules hereto on
behalf of ADP and Client each represent and warrant that they are duly
authorized by all necessary action to exercise this Agreement and the
Schedules hereto on behalf of their respective principals.
G. A breach of any provision of Paragraph 10 or 11 of this Agreement will
cause ADP or Client, as the case may be, irreparable injury and damage
and therefore may be enjoined through injunctive proceedings in
addition to any other rights or remedies which may be available to
such party, at law or in equity.
H. This Agreement and the Schedules hereto shall be governed in all
respects by the laws of the State of New Jersey, without giving effect
to principles of conflicts of law.
- -------------------------------------------------------------------------------
ADP CLIENT
SECURITIES INDUSTRY SOFTWARE WEB STREET SECURITIES, INC.
Approved by: /s/ Frederick J. Koczwara Approved by: /s/ Stuart Cohn
Name: Frederick J. Koczwara Name: Stuart Cohn
Title: Senior Vice President Title: Executive Vice President
Date: 3/24/00 Date: 3/10/00
- -------------------------------------------------------------------------------
THIS AGREEMENT SHALL BECOME EFFECTIVE UPON BEING SIGNED BY AN AUTHORIZED OFFICER
OF BOTH ADP AND CLIENT.
- -------------------------------------------------------------------------------
<PAGE>
AMENDMENT NO. 1
Reference is made to the Master Services Agreement dated the date hereof (the
"Agreement"), between ADP FINANCIAL INFORMATION SERVICES, INC. ("ADP") and WEB
STREET SECURITIES, INC. ("Client").
Unless otherwise defined herein, all capitalized terms defined in the Agreement
shall have the same meanings when used herein.
1. The Agreement is hereby amended as follows:
(a) Paragraph 3.G is amended and restated as follows:
"Client, by using any of the Services, Software, Support Services,
Equipment and Maintenance Services agrees to pay, within 10 days of
receipt of any invoice from ADP, the then applicable charges for the
Services, Software, Support Services, Equipment and Maintenance
Services covered thereby, provided that Client will not be deemed to
be in default of this Agreement if Client pays such invoice afer such
10 day period, but only if (i) such payment is made to ADP within 60
days after receipt of such invoice and (ii) such payment is made
together with interest accrued on the invoiced amount from the 10th
day after receipt of such invoice. Interest on any overdue amounts
hereunder shall accrue at the rate of 1-1/2% per month (but in no
event more than the highest interest rate allowable by law) from the
date due through and including the date of payment. Further, for the
purposes of this Agreement, an invoice will be presumed to have been
received by Client by the fifth day following ADP's deposit of such
invoice in the U.S. mail, or the day following ADP's deposit of such
invoice in the U.S. mail, or the day following ADP's delivery of such
invoice to a nationally recognized overnight courier service, as the
case may be."
(b) Paragraph 3.H is deleted in its entirety.
(c) Paragraph 4.A is amended and restated as follows:
"Upon receipt of Client's prior written consent, ADP will arrange (at
Client's cost) the installation of appropriate communications lines
and equipment to enable Client to access the Services. In the event
that ADP recommends Client install communications lines and/or
equipment and Client does not provide such consent, ADP shall not be
responsible for any degradation of the Services."
(d) Paragraph 11 is amended by deleting the words "in writing" from the
first sentence.
<PAGE>
2. General.
-------
(a) Except as expressly amended and supplemented by this Amendment No. 1,
the Agreement remains in full force and effect.
(b) In the event of any conflict between the terms and conditions of this
Amendment No. 1 and the terms and conditions of the Agreement, the
terms and conditions of this Amendment No. 1 shall prevail.
ADP FINANCIAL INFORMATION WEB STREET SECURITIES, INC.
SERVICES, INC.
By: /s/ Frederick J. Koczwara By: /s/ Stuart Cohn
Name and Name and
Title: Frederick J. Koczwara Title: Stuart Cohn
Senior Vice President Executive Vice President
Date: 3/24/00 Date: 3/10/00
THIS AMENDMENT NO. 1 SHALL BECOME EFFECTIVE UPON BEING SIGNED BY AN AUTHORIZED
OFFICER OF ADP.
<PAGE>
Schedule to the Master Services Agreement for Web Street Securities, Inc.
- --------------------------------------------------------------------------------
Schedule No. 1
to Master Services Agreement (the "Agreement")
between Securities Industry Software and
Web Street Securities, Inc. (the "Client")
Client: Web Street Securities, Inc.
Address: 510 Lake Cook Road, 4th Floor
City: Deerfield State: IL Zip Code: 60015
Securities Industry Software, a division of ADP Financial Information Services,
Inc. ("ADP"), agrees to provide Client with the services set forth on the
Exhibits attached hereto and made a part hereof pursuant to and in accordance
with the terms and conditions of the above Master Services Agreement (the
"Agreement") to which this Schedule forms a part. All terms defined in the
Agreement shall have the same meanings when used herein.
TERM OF SCHEDULE
The initial term of this Schedule shall be for the period commencing the date
this Schedule is signed by an authorized officer of ADP (the "Effective Date")
and ending six years after the date the services are first provided by ADP to
Client on a live basis (the "Initial Schedule Term") and shall continue
thereafter unless terminated by either party upon at least 180 days prior
written notice to the other.
CHARGES
A. Client shall pay ADP such charges as are indicated in each of the Exhibits
attached hereto, as applicable (collectively, "Charges"). ADP may increase
Charges at any time and from time to time, but not more often than once in
any 12-month period, by an amount equal to the greater of (i) 5% and (ii)
the cumulative percentage increase of the United States Consumer Price
Index for Urban Households, published by the Bureau of Labor Statistics,
United States Department of Labor (or its successor index) (the "CPI")
during the period beginning on the date of the prior increase (or, in the
case of the initial increase, the date the Services are first provided by
ADP to Client on a live basis) and ending on the latest day included in the
latest CPI calculation published at the time of such price increase.
B. Notwithstanding the foregoing, (i) ADP shall not increase Service Charges
indicated on Exhibit A for a period of 24 months commencing on the date the
Services are first provided by ADP to Client on a live basis, and (ii)
Charges (excluding pass-throughs) will automatically increase by 10% upon
expiration of the initial Schedule Term and the subsequent continuance of
this Agreement.
<PAGE>
Schedule to the Master Services Agreement for Web Street Securities, Inc.
- --------------------------------------------------------------------------------
C. ADP shall be entitled to the recovery of charges incurred as a result of
special requests for reports made by authorized government agencies.
D. There will be minimum monthly charges as set forth in the Exhibits attached
hereto.
E. Client shall be entitled to a credit equal to ***, to be applied
against processing charges on a monthly basis, pro-rated over the first six
months of the Initial Schedule Term beginning with the month during which
the Services are first provided by ADP to Client on a live basis (the
"Processing Credit"), provided that Client continues to process trades and
cancels through the Brokerage Accounting System ("BAS") as provided for in
Exhibit A of this Schedule. Should Client cease processing trades and
cancels through the BAS, then, notwithstanding the fact that the Agreement
remains in full force and effect, the Processing Credit shall thereupon be
terminated, and may not be applied against charges for any other Service or
combination of Services provided for in the Agreement.
F. ADP will initially convert the applicable Client Files in accordance with
the terms of the Agreement to make them compatible with the Services
purchased by Client pursuant to this Schedule. Actual conversion and de-
conversion services and pricing will be in accordance with ADP's normal
charges for such work or as set forth in the Exhibits attached hereto.
G. Subject to the conditions described herein, Client may purchase a License
Agreement for the use of the Services on an in-house basis. Client shall
accrue credits equaling 10% of annual Service Charges, to be applied
towards purchase of the License Agreement. The accrued credit shall not
exceed $2,000,000 and may be applied to such purchase no earlier than the
25th month of the Initial Schedule Term.
CHANGE OF CONTROL AND EARLY TERMINATION
Client may terminate this Agreement without penalty prior to the expiration of
the Initial Schedule Term in the event that Client has been (or has entered into
an agreement to be) acquired by, or merged or consolidated with, an unaffiliated
third party (a "Change of Control Event"). Client will notify ADP in writing at
least 90 days prior to the effective date of such Change of Control Event, which
date shall be deemed the date of termination of this Agreement (the "Termination
Date"), provided (1) Client (or its successor or acquirer, as the case may be)
has demonstrated to ADP's reasonable satisfaction that such Change of Control
Event has occurred, (2) Client has discontinued use of ADP's Services effective
the Termination Date and (3) Client has paid in full all amounts owing hereunder
through the Termination Date.
Should Client terminate the Agreement prior to the expiration of the Initial
Schedule Term or cease use of ADP's Brokerage Accounting System ("BAS"), for any
other reason, Client shall pay to ADP an Agreement Termination Penalty fee equal
to the number of months remaining in the term
***This information is omitted pursuant to a confidential treatment request
filed with the SEC.
<PAGE>
Schedule to the Master Services Agreement for Web Street Securities, Inc.
- --------------------------------------------------------------------------------
of the Agreement multiplied by $225,000. In this event, the Agreement
Termination Penalty fee shall replace the Monthly Service Processing Minimum.
SERVICE LEVEL PERFORMANCE AND EARLY TERMINATION
ADP intends to provide its Services set forth herein, during the normal course
of business, within its best ability and control such that (i) during market
hours when an exchange is functioning, the real-time order entry (OMS) and
brokerage accounting system (BAS) will remain available to the client without
loss of functionality or degradation of timeliness, or under certain high
activity market conditions an acceptable linear degradation of timeliness, (ii)
during the batch cycle (approximately 6 p.m. to 7.a.m. MST) OMS order entry and
inquiry and BAS inquiry will remain available to the client without loss of
functionality or degradation of timeliness and the batch cycle will be completed
with system unrestricted by 7 a.m. MST.
Systems and events outside of ADP's control shall include, but not be limited
to:
. Hardware components and operating system failures
. Telecommunication failures
. Third party processes or systems like exchanges, SIAC, pricing
Services, ECNs or third market execution providers
. Software and/or hardware owned or controlled by Client
In the event service levels with the control of ADP fall below what ADP normally
provides to its three largest volume service bureau customers, or to a level
that Client believes in good faith has or will cause a material loss of
customers and/or revenues, ADP shall within 15 business days after receipt of
written notice by Client, cure the problem and take all reasonable measures
necessary to prevent a similar problem from occurring again. If ADP fails to
provide such cure within 15 business days, Client, at its option, may terminate
this Agreement without penalty at any time after the 18-month anniversary of the
date the Services are first provided by ADP to Client on a live basis, provided
(1) Client delivers a written notice of termination to ADP at least 90 days
prior to the proposed Termination Date and (2) Client has paid in full all
amounts owing hereunder through the Termination Date.
In the event of early termination at the option of Client pursuant to this
section, ADP agrees to cooperate fully and in good faith for a period of up to
12 months after the Termination Date to assist Client in converting its order
processing and related back office accounting systems to a different vendor.
Client agrees that to the extent ADP performs any transition services after the
Termination Date, Client will pay for such transition services on a monthly
basis, within 10 days of receipt of an invoice, in accordance with ADP's then-
current rates.
<PAGE>
Schedule to the Master Services Agreement for Web Street Securities, Inc.
- --------------------------------------------------------------------------------
AVAILABILITY OF THE SERVICES
The Services will generally be made available 24 hours per day, 7 days per week.
However, the Services will not be available during the following periods:
1. Batch restrictions, daily. Client and ADP shall agree upon a specific
------------------
time for the commencement of batch processing. At such agreed-upon
time, the Services will be unavailable for a period of approximately 5
minutes in order to change the computer system data. Upon completion
of the date change, and throughout the batch processing period, the
Services will be limited to inquiry, account setup, security master
setup, and order entry functions. Upon completion of batch
processing, the Services will be available on an unrestricted basis,
except as noted below.
2. Full system backups, monthly. Client will be notified prior to
-------------------
occurrence - maintenance will normally be scheduled between 5:00 p.m.
MST on Saturday and 10:00 a.m. on Sunday, during which time Services
will be unavailable.
3. Database reorganization, as required. Client will be notified prior
-----------------------
to occurrence.
4. Periodic Hardware/Software Maintenance, as required. Client will be
--------------------------------------
notified prior to occurrence - maintenance will normally be scheduled
between 5:00 p.m. MST on Saturday and 10:00 a.m. on Sunday, during
which time Services will be unavailable.
5. Testing and implementation of Commission Schedules and new Real-Time
--------------------------------------------------------------------
Software, which would interrupt availability of Real-Time Services.
--------
Occurrences will be scheduled as necessary, with prior Client
notification.
6. Emergency System Maintenance Procedures may occasionally require an
---------------------------------------
interruption of Service availability without Client notification.
RETURN OF RECORDS
Upon termination of the Agreement for any reason, ADP, at Client's request, will
provide a magnetic tape of all of Client's records then retained by ADP,
provided that ADP has been paid for all amounts owing hereunder and, provided
further, that ADP is paid at its then standard prices for providing the services
necessary to return such records.
<PAGE>
Schedule to the Master Services Agreement for Web Street Securities, Inc.
- --------------------------------------------------------------------------------
ATTACHED EXHIBITS
Exhibit A: Service Bureau Services
Exhibit B: Special Services
THIS SCHEDULE IS SUBJECT TO, AND PART OF, THE AGREEMENT AS FULLY AS IF IT WERE
SET FORTH THEREIN IN ITS ENTIRETY, IF THERE IS ANY CONFLICT BETWEEN THE
PROVISIONS OF THE AGREEMENT AND THE PROVISIONS OF THIS SCHEDULE, THE PROVISIONS
OF THIS SCHEDULE SHALL PREVAIL.
Securities Industry Software Web Street Securities, Inc.
By: /s/ Frederick J. Koczwara By: /s/ Stuart Cohn
Name and Name and
Title: Frederick J. Koczwara Title: Stuart Cohn
Senior Vice President Executive Vice President
Date: 3/24/00 Date: 3/10/00
<PAGE>
Schedule to the Master Services Agreement for Web Street Securities, Inc.
- --------------------------------------------------------------------------------
EXHIBIT A - SERVICE BUREAU SERVICES
Monthly Service Processing Minimum/1/ ***
BROKERAGE ACCOUNTING SYSTEM
PRODUCT OVERVIEW
- ----------------
The Brokerage Accounting System (BAS) is a real-time, integrated system which
encompasses a wide range of brokerage accounting requirements. Parameters are
used to customize the system to reflect Client's organization, policies,
operational procedures, etc. Client management will establish the information
to be used for major calculations, report production, automatic entries and
customer-related file maintenance.
TRADE/2/ /CANCEL CHARGE
- -----------------------
Electronic/2/ Trades and Cancels
First 300,000 trades/cancels per month *** each
Next 150,000 trades/cancels per month *** each
Next 150,000 trades/cancels per month *** each
Next 150,000 trades/cancels per month *** each
Over 750,000 trades/cancels per month *** each
_________________
/1/ Monthly Service Processing Minimum relates to the service bureau processing
activity for the ADP products listed in Exhibit A. The following fees may
not be applied toward the monthly minimum charge: taxes, freight,
communication or equipment fees, special requests, terminal/printer
adjustment fees, port charges, blue sheet reporting, out-of-pocket
expenses, Year-End processing charges, and third party charges.
/2/ A "Trade" is defined as an execution, cancellation after execution or
correction after execution.
/3/ An Electronic Trade is a retail customer trade execution, cancellation
after execution, or correction after execution, which originates via
electronic media and is electronically transmitted to the ADP Internet
interface for processing.
*** This information is omitted pursuant to a confidential treatment request
filed with the SEC.
<PAGE>
Schedule to the Master Services Agreement for Web Street Securities, Inc.
- --------------------------------------------------------------------------------
ACH SUBSYSTEM
PRODUCT OVERVIEW
- ----------------
The ACH subsystem ("ACH") provides Client with the ability to make outbound
electronic transfers of funds to Client's customers' (each a "Customer") bank
checking or savings accounts. For Client-defined cash transactions for Customer
accounts coded "ACH" (cash accounts only), the back office will create a debit
or a credit which is then transmitted to each Client's originating depository
financial institution ("ODFI"), where a settlement account is maintained.
Authorized transactions are then forwarded through ACH to the correct
destination, and the appropriate Customer account is debited or credited.
STANDARD FEATURES/SERVICES
- --------------------------
. Transactions supported include:
- Requests for withdrawals and deposits for trade buy/sell funds
- Client dividends/bond interest payables and receivables
. Real-time access to ACH balance inquiry through Function 7
. Parameters can be set for Client and customer-level processing
. Management sets limits on types of trades and other options, making the
system customized for each user (at the Client level)
. Bank pre-notification of new Customer ACH processing is automatically
initiated
. Inquiry options show account status, last activity, type of activity
allowed, etc.
. On-line edits and audit checks reduce entry errors
. Access control and security options help prevent unauthorized entries
. Customized trailer messages can appear on the Customers' bank statements
. Pending ACH transmissions can be accessed on-line for inquiries, additions,
changes, or deletions until transmitted and used to update general ledger
and customer money balance files
. Reports detail postings, exceptions, audit trails and pending activity,
etc. are easy-to-read
. Funds are available within 24-48 hours
DISCLOSURE STATEMENT: ACH does not contain any system of reconciliation of bank-
rejected ACH transactions (i.e. NSF). By design, ACH does not receive input
concerning rejected items from the Originating Depository Financial Institution,
the Receiving Depository Financial Institution, or the Federal Reserve Bank, nor
will any reports of such items be generated by the subsystem. Client should
solicit prompt notification of any rejected ACH transactions from the ODFI,
RDFI, or Federal Reserve Bank, and should reconcile all ACH activity with its
primary financial institution.
<PAGE>
Schedule to the Master Services Agreement for Web Street Securities, Inc.
- --------------------------------------------------------------------------------
NOTE: ADP requires Client to meet certain standards regarding formats and
communications protocols in developing interfaces to the ODFIs.
CHARGES
- -------
Set-up Charge:
If ADP communications standards are not used, set-up charges will apply.
---
If a non-standard protocol is required, time and materials will be charged
for each ODFI or correspondent set-up. If ADP communication and protocol
standards are used, no set-up charges will be incurred.
---
Monthly Fee/4/:
$0.25 per ACH transaction, with a minimum of $500.00/month per ODFI or per
correspondent.
DISCLAIMER: ADP reserves the right to charge Client for time and materials in
connection with assistance in solving posting or other problems related to ODFI
non-receipt or incorrect receipt of transmissions.
AUTOMATED AREA CODE CHANGE PROCESS
PRODUCT OVERVIEW
- ----------------
Service automates the process of changing telephone area codes to Client's
Customer Master file. All prefixes for a new area code are entered at one time,
and then the new area code is applied through the system (multiple area codes
can be entered in a single update run). These changes are automatically
reflected in Account Master (F2) and all other areas that display telephone
numbers. Three screens in the Parameters Function (F16-C) facilitate the
process. In addition, the Area Code Changes Report lists the name, account
number, and old and new business and home phone numbers of Client's customers
that are affected by the area code change. This report can be run in no-update
mode for review purposes.
CHARGES
- -------
Automated Area Code Change Process $75 per Update Run
____________________
/4/ third party charges may apply
<PAGE>
Schedule to the Master Services Agreement for Web Street Securities, Inc.
- --------------------------------------------------------------------------------
AUTOMATED CUSTOMER ACCOUNT TRANSFER SUBSYSTEM (ACATS)
PRODUCT OVERVIEW
- ----------------
Automates the transfer of Client's customer ("Customer") account assets
(including mutual funds) between firms. The subsystem interfaces with the
National Securities Clearing Corporation ("NSCC") ACATS system. The ACATS
process ultimately results in the receipt and delivery of all Customer account
assets through the NSCC System.
A retail Customer initiates an account transfer by submitting a completed
Transfer Initiation Form (TIF) to the new (receiving) broker. The receiving
broker enters the transfer information into ACATS. NSCC assigns a control number
and sends control reports to both the delivering and receiving brokers. NSCC
sends detailed assets reports to both the delivering and receiving firms, and
monitors the process to ensure that transfers will be concluded within
prescribed time frames. The receiving broker reviews this data to determine
whether the account meets the firm's credit policy requirements. If the account
is acceptable, all positions in it are frozen until the transfer of assets is
complete.
NOTE: Client must be an NCSS ACATS participant to use ACATS.
CHARGES
- -------
ACATS Included in Trade/Cancel charges
AUTO TRANSFER UNITS
PRODUCT OVERVIEW
- ----------------
The ADP Auto Transfer function allows the system to handle transfers of
securities in Client's customer name through depositories. During the batch
process, records for eligible positions build a preliminary transfer file, which
can be checked and altered if necessary. Using this functionality, a Client can
add, change, or delete standard instructions. The file is automatically
transmitted to the designated depository on the third day after becoming
eligible.
STANDARD FEATURES/SERVICES
- --------------------------
. Automates tedious search for eligible transfers
. Streamlines transfer and reallocation processes
. New or one-time instructions easy to add or change
. Daily reports show pending, rejected and transferred securities
<PAGE>
Schedule to the Master Services Agreement for Web Street Securities, Inc.
- --------------------------------------------------------------------------------
. Transfer fanfolds are created and held until requested
. Reallocation feature allows creation of two or more transfer units from one
original transfer instruction
. Stock record locations are updated
. Direct mail to customer instructions included
CHARGES
- -------
Auto Transfer Units Included in Trade/Cancel charges
BATCH CONFIRMS
PRODUCT OVERVIEW
- ----------------
The process uses two batch programs that are run on a daily basis to process
trades and produce the associated confirmations for customers. One program
process sorts files from Standard Trades and the other program generates the
confirmation for trades. Normally, the batch programs produce confirmations for
each trade entered into the system except for same day cancellations/corrections
and next day cancellations/corrections. The confirms are available on the same
day as the activity occurs after the close of the market. A confirm report is
also produced at the same time as the batch confirms stating the number of
confirms the system processed.
CHARGES
- -------
Batch Confirms Included in Trade/Cancel charges
BATDAYLY/BATWEKLY
PRODUCT OVERVIEW
- ----------------
The daily activity file is entry sequenced, ASCII format, 336 characters in
length. The file contains eight records, plus Header and Total:
. Trade Detail Record (1)
. Cash Detail Record (3)
. Stock Money Detail Record (5 and 9)
. Customer Record (6)
. Stock Detail Record (7)
<PAGE>
Schedule to the Master Services Agreement for Web Street Securities, Inc.
- --------------------------------------------------------------------------------
. Name & Address Detail Record (N)
. Security Detail Record (S)
. Control Total Record (*)
The weekly position and balance file program produces an entry sequenced file,
ASCII format, 380 character. The file contains five records, plus Header and
Total:
. Customer Record (6)
. Customer Name & Address Detail Record (N)
. Security Detail Record (S)
. Balance Report (B)
. Position Record (P)
CHARGES
- -------
BATDAYLY/BATWEKLY
$1,500 per month
CENTRAL ASSET ACCOUNTING (CAA)
PRODUCT OVERVIEW
Central Asset Accounting (CAA) processes Client transactions that directly debit
brokerage account credit balances in all account types (free cash or earnings on
money market accounts). In addition, credit transactions for Automated Clearing
House (ACH) can also be processed. All processing for CAA accounting is keyed to
a debit card number or an account number against which postings are made. CAA
allows a broker to offer four types of transaction services/5/ which Client may
elect to use:
. ATM withdrawals
. Check writing
. Debit card transactions
. Automated Clearing House (ACH) credit transactions
The CAA account permits centralized transactions using one card or check book to
make debit transactions against several fund accounts. The accounting process
is designed to track the
___________________
/5/ The Client clears the CAA transaction activity for these services through a
bank or processor.
<PAGE>
available cash in all of a Client's accounts and notify the processor of daily
liquidity changes. All CAA transaction activity, regardless of where it
originates, can be reported on one customer statement for each Client's
customer. Client may establish yearly usage charges or card fees for CAA
services. An additional fee may be added for ATM transactions according to each
Client's requirements. If the Client chooses, maintenance fees and minimum check
amounts may be waived for accounts selecting certain override parameters.
Daily transmissions that pass information concerning Client's customer liquidity
are sent by Client to the processor. Transmissions sent by the bank to the
Client pass the charges made by the Client against the available funds in
Client's customer account. Incoming and outgoing transmissions are
automatically processed during the Client's batch cycle.
Client is responsible for accommodating all account registration requirements -
ADP will not collect or transmit or otherwise provide registration data to banks
or other third party providers.
STANDARD FEATURES/SERVICES
- --------------------------
. One card or check book provides Client access to multiple fund accounts
. Information from multiple accounts can be combined on one statement
. Parameters allow Client to set fees for selected accounts (and override those
fees if desired)
. The following six CAA reports are produced on a daily basis:
- CAA Activity Report - lists transaction activity by type and amounts for
each account
- Rejected Activity Report - lists detailed rejected transactions for each
account
- Liquidity Report - lists account balances for each account number
- File Conversion Report - lists numbers of detail records processed from
the banks transmissions and any errors encountered in processing
- Trailer Update Report - lists payee descriptions that have been updated,
not updated, or unmatched for check transactions
- Card Processing Report - lists card fees charged to accounts and charges
against specific fund number.
CHARGES
- -------
...if client pays for Money Market/Shareholder Accounting:
Central Asset Accounting Included in Trade/Cancel charges
One-time development fee for new interface to bank, $6,000
if necessary (up to a maximum of 60 development hours.
Development in excess of 60 hours will be charged at $100 per hour.)
<PAGE>
...if client does not pay for Money Market/Shareholder Accounting:
--------
Transaction fee $0.15 per transaction/6/
Monthly minimum $1,500 per month
One-time development fee for new interface to bank, $6,000
if necessary (up to a maximum of 60 development hours.
Development in excess of 60 hours will be charged at $100 per hour.)
CNS RECONCILIATION
PRODUCT OVERVIEW
- ----------------
On a daily basis, this function reconciles the ADP continuous net settlement
("CNS") account against the NSCC CNS account. It reconciles all outstanding
fails on CUSIP basis for individual accounts.
CHARGES
- -------
CNS Reconciliation Included in Trade/Cancel charges
CUSTOMER INQUIRY POSITIONS PRICING
PRODUCT OVERVIEW
- ----------------
In the Inquiry Positions Pricing functionality, the positions inquiry screen
shows the price for a particular position on the Client's customer master.
CHARGES
- -------
Customer Inquiry Positions Pricing Included in Trade/Cancel charges
DATA RETRIEVAL INTERFACE
___________________________
/6/ Fee applies to Check and Debit Card activity, Sweeps activity, Interest
Posting, and Receipts/Disbursements/Journal entries.
<PAGE>
PRODUCT OVERVIEW
- ----------------
The Data Retrieval Interface allows Client to extract customer account
information directly from ADP database(s) on a real-time basis. Client will be
able to obtain information from the customer master, customer name and address,
positions, open orders, and account activity files. The Data Retrieval
interface will utilize TCP/IP and ADP's Single Socket Interface.
AVAILABILITY OF THE SERVICE
- ---------------------------
The Service will generally be made available 24 hours per day, 7 days per week.
The Service will not be available during the following periods:
1. Data base reorganization, as required. Client will be notified prior
------------------------
to occurrence.
2. Periodic Hardware/Software Maintenance, as required. Client will be
--------------------------------------
notified prior to occurrence - maintenance will normally be scheduled
between 5:00 p.m. MST on Saturday and 6:00 am on Sunday, during which
time Services will be unavailable.
3. Testing and implementation of Commission Schedules and new Real-Time
--------------------------------------------------------------------
Software, which would interrupt availability of Real-Time Services.
--------
Occurrences will be scheduled as necessary, with prior Client
notification.
4. Emergency System Maintenance Procedures may occasionally require an
---------------------------------------
interruption of Service availability without Client notification.
CHARGES
- -------
Data Retrieval Interface
Monthly Fee $3,000
Inquiry Fee
Five inquiries are provided free of charge for each Electronic
trade/cancel processed during the billing month (the "Inquiry
Formula"). All inquiries in excess of those provided for by the
Inquiry Formula will be charged at $0.05 each.
<PAGE>
DEPOSIT AUTOMATION MANAGEMENT INTERFACE
PRODUCT OVERVIEW
- ----------------
The ADP Deposit Automation Management (DAM) Interface provide Client with an
interface to the Depository Trust Corporation (DTC) Deposit Automation
Management System. The ADP DAM interface will electronically transmit deposit
information to DTC, and will receive back rejected items. The DTC DAM System
produces bar coded labels for deposit tickets, in order to expedite processing
and reduce related costs.
The ADP DAM interface will utilize a new field, DAM CODE, in the online Stock
Receipt and Delivery screens. When this new field is populated, a record is
transmitted to the DTC DAM System where a preliminary edit check is performed.
For accepted records, DTC will transmit deposit information directly to
dedicated printers at the Client's site, where bar coded deposit tickets will be
printed. Client will then match tickets to stock to be deposited and submit to
DTC for final review and acceptance. A Rejected Records file will be
transmitted to ADP, where a Rejected Records Report will be output to Client's
spooler for review and correction.
CHARGES
- -------
Deposit Automation Management Interface Included in Trade/Cancel charges
DEPOSITORY POSITION RECONCILIATION - DTC
PRODUCT OVERVIEW
- ----------------
A transmission is received by ADP from the appropriate depository/exchange
listing stocks and bonds that it shows on file for Client. Comparison is made
from that transmission to what Client's stock record shows. The subsystem
provides a BATDCOMP Comparison Report which will list any differences which need
to be reconciled.
CHARGES
- -------
Position Reconciliation - Weekly to DTC Included in Trade/Cancel charges
<PAGE>
DIVIDEND RECORD DATE POSITIONS RECONCILIATION
PRODUCT OVERVIEW
- ----------------
Allows Client to reconcile dividend record date positions against a nightly file
from DTC. This process compares the values in the Record Date, Share Amount,
and Rate fields on Client's records and on DTC's records. Two reports are
produced from this process. The DTC Record Date Notices-Compared Records Report
lists all records that matched the DTC file. The DTC Record Date Notices-
Uncompared Report lists any records that did not match the records on the DTC
file.
CHARGES
- -------
Dividend Record Date Positions Reconciliation Included in Trade/Cancel charges
DIVIDEND REINVESTMENT SUBSYSTEM
PRODUCT OVERVIEW
- ----------------
The Dividend Reinvestment subsystem allows Client to automate the process of
reinvesting dividends and/or capital gains for its customers who would like to
increase their number of shares in paying security, rather than to be paid cash.
The subsystem automates reinvestment for mutual funds and equities.
STANDARD FEATURES/SERVICES
- --------------------------
. Client can specify which securities to reinvest
. Parameters can be set for Client and customer-level processing
. Eligible securities include equities and mutual funds
. Client can customize fee structures - equities only (commission, fees or
combinations)
. Inquiry options show real-time account status by security or Client
. Error reports and adjustment options reduce errors
. Client decides on minimum dividend allowed to be reinvested
. Customized trailer messages appear on the customers' statements
. Customers can reinvest dividends or capital gains (for eligible mutual funds,
and dividends for equities)
. Easy-to-read reports detail payable dates, record dates, reinvestment record
and payment dates for equities and mutual funds, plus error reports
<PAGE>
CHARGES
- -------
Dividend Reinvestment Included in Trade/Cancel charges
ENCHANCED INSTITUTIONAL DELIVERY SUBSYSTEM
PRODUCT OVERVIEW
- ----------------
The Enchanced Institutional Delivery (ID) subsystem facilitates the processing
and monitoring of trades for institutional accounts. Once identified by the
system, institutional trades are automatically routed to the Depository Trust
Company (DTC). ID trade activity can be easily viewed, and affirmations and
exceptions are noted throughout the settlement period. In addition, the
subsystem will automatically clean up trades in the ADP system if an exact match
and no overage exists. For Clients with institutional accounts, the Enhanced ID
Subsystem provides reporting tools to maintain control of trade information.
STANDARD FEATURES/SERVICES
- --------------------------
. Five reports track trades affirmed, not affirmed, and exceptions. Each
report is broken down by receive, deliver and settlement date
. Trade information can be accessed via the ID Trade Detail Screen, the
Customer Activity Screen, or the Customer Positions Screen
. Confirms are generated by DTC and then sent to ADP in order to update the ID
trades file
. ID cancels and rebills can be processed without affecting customer accounts
. Inquiry options show real-time account status by security or customer
. Transmission reports identify errors on T+1
. Client's institutional trades stay in synch with DTC
. ID trade tracking is easy through verification and exception reporting
. Clean ups of matched orders are automated
. Prime Broker functionality
NOTE: If Client does not currently have a relationship with DTC, Client should
contact them as there may be fee/contractual requirements.
CHARGES
- -------
Enhanced ID/7/ Included in Trade/Cancel charges
___________________
/7/ third party charges apply
<PAGE>
FUND/SERV INTERFACE
PRODUCT OVERVIEW
- ----------------
NSCC's Fund/SERV links broker-dealers and mutual funds, and serves as a central
hub for mutual fund transaction processing. Client sends orders and account
registration information to the Fund/SERV system, which forwards the information
to the individual funds electronically. Confirmation and settlement information
is then passed back to the broker/dealers.
ADP's electronic interface enables Client to transmit Fund/SERV transaction data
directly from the ADP BAS. In addition, incoming transactions update back
office records automatically, saving time and reducing manual input errors.
Client can also be linked directly into the Fund/SERV system via screens in
ADP's Order Management System (OMS).
NOTE: Client must subscribe to NSCC's Fund/SERV and will be required to contact
its NSCC representative to authorize the hand off of data between SIAC and ADP.
It will also be necessary for Client to make arrangements with each fund
distributor.
STANDARD FEATURES/SERVICES
- --------------------------
. Orders are delivered to the fund through the NSCC and back office files are
automatically updated with data from transactions that are transmitted back
from the NSCC to Client's accounting files
. Orders settle automatically
. Client's security options and levels restrict access to appropriate
personnel
. Extended correction processing is available
. 60 day order inquiry or corrections capability is standard, additional on-
line order history is optional
. Direct order entry link is available through the Order Management System
(OMS)
. Test transaction indicators ensure proper transmissions to the fund
. On-line processing rules and optional profile fields edit information
during order entry
. 45 reports are available for monitoring daily transactions, transmissions,
acknowledgments, rejects, etc.
CHARGES
- -------
Fund/SERV Interface $0.65 per trade
Note: Fund/SERV charges are in addition to associated Trade/Cancel
charges.
<PAGE>
HAIRCUTS SUBSYSTEM
PRODUCT OVERVIEW
- ----------------
The automated Haircuts subsystem allows Client to accurately determine is
hedging and haircut requirements for applicable security categories. In
addition, the process produces detailed reports listing positions and haircut
amounts. By accurately knowing which positions may be hedged. Client can
segregate the minimum funds necessary to meet regulatory requirements.
The batch process produces reports that group haircut information for securities
by security type. The information listed on the Haircut reports aids the Client
in maintaining an accurate picture of its overall positions each month and in
tracking undue exposure.
STANDARD FEATURES/SERVICES
- --------------------------
The subsystem processes security categories grouped as follows:
. Government
. Municipal Bond Trusts and Liquid Asset Funds
. Non-Convertible Debt Securities
. Preferred Stock
. Limited Market Securities
. Collateralized Mortgage Obligations transmission to SIAC
. Commercial Paper, Banker Acceptances, and CDs
. Single Payment Municipals
. Other Municipals
. All Other Securities
. Non-Marketable Securities
. Options (only Equity Options)
. Automatic haircuts calculation for use in net capital requirement
- Permits detailed, precise treatment of maturity periods and
percentages for various instruments
- Includes full hedging capabilities
- Applies excess short ruling for 15% securities
- Performs undue concentration reporting
- Performs haircuts on "fails to receive and deliver"
. Precise Control of Calculations for Client
- Allows trial calculations to be made numerous times
- Permits haircuts on a trade date basis, settlement date basis, or
both
- Allows hedging capabilities to be turned on or off
- Facilitates segregation of correspondent inventory
<PAGE>
CHARGES
- -------
Haircuts Subsystem Included in Trade/Cancel charges
JJ KENNY CALLED BOND SUBSYSTEM
PRODUCT OVERVIEW
- ----------------
This service produces a weekly list of all called bonds with inventory, customer
or control positions on Client files. When a bond is being called, the report
lists when, why and for what price a bond is being called. It also ties into
the reorganization subsystem for bonds, so if the Client tries to receive,
transfer, make an internal movement, etc., an edit message will appear.
CHARGES
- -------
J J.Kenny Called Bond Subsystem/8/ Included in Trade/Cancel charges
LARGE OPTION POSITION REPORTS
PRODUCT OVERVIEW
- ----------------
LOPRs allow Client to electronically transmit required information to SIAC
regarding customers with large option positions.
CHARGES
- -------
Large Option Position Reports Included in Trade/Cancel charges
LOANET INTERFACE
PRODUCT OVERVIEW
- ----------------
ADP provides an interface to Loanet, an organization which is a clearinghouse
for brokers who borrow or lend stock.
The Loanet function in the ADP BAS uses Client data for the following
activities:
__________________
/8/ third party charges apply
<PAGE>
. Process borrow opens and closes and partials
. Process loan opens and closes and partials
. Process mark to markets
CHARGES
- -------
Loanet Interface/9/ Included in Trade/Cancel charges
MARGIN SUBSYSTEM
PRODUCT OVERVIEW
- ----------------
The Margin subsystem is used to update margin and interest information on Client
customer accounts. Through the margin subsystem, any security in the Security
Master can be manually priced, and pricing received through a pricing service
can be changed. Additionally, Self-Directed IRA year-end reporting prices are
also updated via the Margin subsystem. A number of reports are produced during
batch processing to help the Client monitor margin accounts.
Specific functions of this subsystem include:
. Interest Adjustment and Posting Screen
. Special Miscellaneous Account Update
. Segregation Movement Format
. Margin/Price Update
. Initial Maintenance Call Adjustment
. Concentration Listing by CUSIP
CHARGES
- -------
Margin Subsystem Included in Trade/Cancel charges
___________________
/9/ third party charges apply
<PAGE>
MEMO SEGREGATION
PRODUCT OVERVIEW
- ----------------
On a daily basis, Memo Seg transmits instructions to DTC on the amount of
customer fully paid shares by CUSIP number that must be segregated. By using
the Memo Seg product, a Client can obtain a daily calculation of its customers'
securities segregation requirements based on Client's excess and deficiency
reports.
STANDARD FEATURES/SERVICES
- --------------------------
. Client can choose to add the following items to its daily seg calculation:
-Unpaid retail stock purchases
-ACAT receive/delivery activity that settles the next business day
plus one
-Box locations, specified via parameter, that are in addition to a
Client's regular DTC locations or eligible securities
. Daily detail reports of the Client's segregation requirements by CUSIP, and
a comparison of the Client's segregated requirements against the amount
segregated at DT C
. Segregation instructions are automatically sent to DTC to ensure Client's
segregation requirements are met while allowing maximum availability of
shares for delivery
. A computer to computer interface with DTC saves Client personnel time, as
well as providing an efficient cash management tool
CHARGES
- -------
Memo Segregation Included in Trade/Cancel charges
MONEY MARKET/SHAREHOLDER ACCOUNTING
PRODUCT OVERVIEW
- ----------------
The Money Market/Shareholder Accounting subsystem gives Client the ability to
provide a full cash management product. This subsystem includes processing for
credit and debit cards, and lines of credit, as well as interfacing with bank
systems and money market funds. Using the Money Market/Shareholder Accounting
subsystem results in all money market activity appearing on a combined monthly
statement. The subsystem allows for accruing of the daily income and posting of
accrued income upon full liquidation or upon request. Automatic Rate Posting
Upload will accept and process a daily upload of money market fund rates.
<PAGE>
CHARGES
- -------
Money Market/Shareholder Accounting
The greater of $1,000 (minimum monthly charge) for first two money market
funds or $.00001 x total end of month balance of the two money market
funds.
Each additional money market fund will be at ADP's then-standard prices.
Checkwriting: Transmission charge of $500 per month for each fund family.
Additional charge for programming is on time/material basis.
Debit Card: Transmission charge of $500 per month for each fund family.
Additional charge for programming is on time/material basis.
Demographic File: Transmission charge of $500 per month for each fund
family. Additional charge for programming is on time/material basis.
Automatic Rate Posting Upload: Transmission charge of $150 per month for
each fund family. Additional charge for programming is on time/material
basis.
MUTUAL FUND PROCESSING
MUTUAL FUND REGULATORY AND SALES COMPLIANCE REPORTS
- ---------------------------------------------------
The Mutual Fund Sales and Regulatory reports provide account tracking on mutual
fund purchases and redemptions. These reports may be generated on any day of
the month. The three reports are:
. Mutual Fund Monthly Purchase/Redemption Report
. Mutual Fund Surveillance Report (Networked and Non-Networked)
. Mutual Fund Monthly Purchase/Redemption by Account Report
Monthly and annual reports are available upon request (REQ00514).
SWP/PAC PROCESSING
- ------------------
Service allows Client to establish either a Systematic Withdrawal Plan ("SWP")
or a Pre-Authorized Checking ("PAC") for Client's mutual fund customer
("Customer"). Client can set up either two PAC or two SWP schedules per mutual
fund for a Customer account. Based on the dates established in the schedules,
Fund/SERV orders are created in a pending file for Client review. Client can
add/delete/change orders, and then release the orders to the next Fund/SERV
transmission. If Client takes no action, orders are automatically transmitted
on the established
<PAGE>
trade date, and normal Fund/SERV and Brokerage Accounting System processing
takes place. Two reports are produced: an audit of trades in the SWP/PAC file,
and a list of errors in the SWP/PAC file.
CHARGES
- -------
Mutual Fund Regulatory And Sales Compliance Reports $100 per report per run
SWP/PAC Processing $1.75 per trade/10/
--
NSCC NETWORKING
PRODUCT OVERVIEW
- ----------------
NSCC Networking allows the sharing of account information between Client and a
Mutual Fund Company for mutual fund transactions. Depending on the level of
Networking chosen, Client has the flexibility to control all or only part of
customer transaction information. ADP offers an interface to its clients to
allow full participation in NSCC Levels 1, 2, 3 & 4. By using NSCC Networking,
Client will have access to an automated conversion process, automatic updates,
comparison reports, related customer tax information, Fund-Client
reconciliations, and more.
STANDARD FEATURES/SERVICES
- --------------------------
Level 1: Client Controlled Margin/IRA Account
Client's customer has limited access to the Fund. The Client issues all
confirms and statements, making it important that Client and Fund records match.
The Fund is responsible for all tax reporting, except 1099B wire orders.
Proxies are mailed by the Fund, and dividends are typically paid to Client, for
disbursement to the customer.
Level 2: Customer Name Brokerage Account
At this level, the Client's customer has unrestricted access to the Fund.
Client issues confirms and statements, but the Fund provides full service to the
customer and is responsible for all tax reporting.
___________________________
/10/ A SWP/PAC trade generates one Fund/SERV trade, one Customer Principal
--
trade and one Streetside Principal Trade. Charges include processing
of these trades.
<PAGE>
Level 3: Client Controlled Brokerage Account
Client's customers deal with Client in handling direct purchases, liquidations,
exchanges, and other shareholder privileges. Client has total responsibility
for trade confirmations, statements and tax reporting.
Level 4: Fund Controlled Brokerage Account
The Fund has responsibility for trade confirmations, statements and tax
reporting. Client's customers can deal directly with the Fund in handling
direct purchases, liquidations, exchanges, and other shareholder privileges.
. Allows Client to select a level of control consistent with its business
strategy
. Automatically reports account balances, activity, and dividend detail to
the BAS files
. Provides Client with the ability to effect account maintenance transactions
via electronic transmission
. Builds network master records for exchange activity automatically
. Recaps tax info for the year for each Fund with the Year End Networking Tax
report
. Provides flexibility in the reporting of networking activity on statements
and to the IRS
CHARGES
- -------
NSCC Networking/11/
--
<TABLE>
<S> <C>
Levels 1, 2, 4 $0.10 per position per month
Level 3 $0.15 per position per month/12/
--
Monthly Minimum $1,000
Custom Code Conversions on NSCC Networking $1,500 per record layout
AutoPurge of Networking Positions $0.10 per record deleted
</TABLE>
NOTE: Charges begin when records are added to the network master. Prior to
implementation, Client must sign an agreement with the NSCC for its Networking
service, specifying which matrix levels will be used. If Client subsequently
wishes to begin using a matrix level not specified in the original NSCC
agreement, an additional NSCC agreement must be signed. Depending upon the
requirements of each fund, the Client may also be required to sign a separate
Networking
_____________________
/11/ Third party charges apply
--
/12/ Includes Level 3 Dividend Reinvestments
--
<PAGE>
agreement directly with the fund. Client should periodically review networked
accounts and delete those with no current activity or positions.
OCC RECONCILIATION
PRODUCT OVERVIEW
- ----------------
On a daily basis, this function reconciles the ADP OCC account representing the
OCC position continuous net settlement to the OCC. It reconciles all
outstanding fails on CUSIP basis for individual accounts.
CHARGES
- -------
OCC Reconciliation Included in Trade/Cancel charges
OPEN ORDER RECONCILIATION
PRODUCT OVERVIEW
- ----------------
Provides comparison of open order file received from the order executor to the
OMS ORDRMSTR file and generates a report listing discrepancies between the two
files. Orders appearing on one file, but not the other are listed on the
report, as are exchange-related information (order qualifiers) differences.
CHARGES
- -------
Open Order Reconciliation Weekly- $50 per execution destination per run
Trimark Securities
Knight Securities
Chicago Stock Exchange (MAX)
Herzog, Heine, Geduld
Mayer & Schweitzer
OPTION BUILDING PROGRAM
PRODUCT OVERVIEW
- ----------------
ADP receives a file ("File") of all options from IDSI on a daily basis. The
Auto Options Generator builds the security master for each of these options
provided that the underlying symbol is on the File. ADP provides the Client
with an error report that notifies Client if an option is not
<PAGE>
set up in the security master. If the Client uses the Order Management System,
the Options Generator also establishes the exchange routing which should be used
for each option.
CHARGES
- -------
Option Building Program Included In Trade/Cancel charges
OPTION EXPIRATION WEEKEND PROCESSING
PRODUCT OVERVIEW
- ----------------
The Option Expiration Weekend Process allows Client to define and control the
exercise and/or assignment of options during the option expiration weekend, as
well as trading off all non-exercised/assigned expiring options. Client sets
parameters for In-the-Money thresholds on options to determine whether or not
such options will be exercised on expiration day. If an option's
characteristics fall within the parameters set by Client, the option will be
Auto Exercised. Reports are generated that allow for notification of Client's
Customers of the pending option exercise. In the event that Client's Customer
chooses not to exercise such an option, Client can send Contrary Exercise
Instructions to the OCC. Client can choose to price options at the in-the-money
amount or at zero. Final output is available for Client review and adjustment,
prior to generation of the resulting trades and entry into the BAS.
CHARGES
- -------
Option Expiration Weekend Processing $500 per month
PORTFOLIO SUBSYSTEM
PRODUCT OVERVIEW
- ----------------
The ADP Portfolio Management Subsystem is an integrated tax lot accounting
system. For the accounts carried on the Portfolio Subsystem, Client is provided
with real-time trade BAS updates, and daily updates for cash and non-trade
account activity, as well as position pricing. Performance measurement and
reporting includes monthly customer statements and monthly tax lot, net
security, realized/unrealized gain/loss and estimated income reports.
Additionally, on-line inquiry/access to all portfolio accounts, reflecting
current day trade activity and positions is available through this subsystem.
<PAGE>
STANDARD FEATURES/SERVICES
- --------------------------
. Tax lot accounting of portfolio positions
. Tax recognition of customer sells by LIFO, FIFO or on a selected trade
basis
. Ability to carry both Client and externally held positions
. Integration with the ADP BAS for real-time updates to security transactions
. On-line inception-to-date tax lot history
. On-line 18 month money and stock movement detail history; 15 month trade
history on-line (through the BAS)
. Parameters establish reporting conventions for portfolio accounts. Client
can:
- Designate up to five external money funds
- Customize miscellaneous and external holding disclaimers
. Securities can be established and limited for certain types of data entry
and updates
. On-demand and batch performance/portfolio reporting facilities
COST BASIS ON STATEMENTS
- ------------------------
A data file will be created from the tax lot file containing cost basis detail
for security positions held by Client's customers. This information can be
reported on Client's customers' monthly statements, along with the standard
information currently being printed on customers' monthly statements. A switch
will be implemented in the account master (F2) to enable Client to designate an
account for cost basis statement generation.
Client may choose one of the following two cost basis options
---
Tax Lot Cost Basis: The inclusion of tax lot cost detail for each
------------------
statement position. This detail will be comprised of:
acquisition date
number of shares
original cost
calculation of unrealized profit and loss for each open tax lot
(For positions sold in the previous month, original price, and realized
profit and loss will also be included. Positions for which the original
cost cannot be calculated will be designated.)
Net/Average Cost Basis: (Individual tax lot detail will not be displayed)
----------------------
original (total) cost of the net position
average unit cost
unrealized profit or loss of the net position
<PAGE>
CHARGES
- -------
<TABLE>
<CAPTION>
Portfolio Subsystem (includes Cost Basis on Statements)
Account Charge
--------------
<S> <C>
First six months Included in Trade/Cancel charges
Thereafter $0.15 per account per month/13/
--
$1,200 monthly minimum
Real-time Account Report or Download/14/ Charge $1.00 per request per account
- ----------------------------------------------
Automated History Conversion of Open Positions/15/ (optional) $250.00 for up to 10 Accounts
- -------------------------------------------------------------
</TABLE>
POST TRADE ACCOUNTING
PRODUCT OVERVIEW
- ----------------
Reconciles any option or non-option trade between NSCC, SSCP or OCC and a
Client's customer account with respect to CUSIP, settlement date, size and price
CHARGES
- -------
Post Trade Accounting Included in Trade/Cancel charges
REORGANIZATION SUBSYSTEM
PRODUCT OVERVIEW
- ----------------
The Reorg subsystem provides Client with the ability to define and post
characteristics for the following types of reorganization actions: cash in lieu,
tenders, exchanges, spin offs, redemptions, mergers, reverse splits, conversions
and principal payments. Once reorg data is
_________________
/13/ Monthly Account charge includes: Storage, Processing, Quarterly and
-- Annual Reports
/14/ System Reports on Request, Account Reports or Download Request
--
/15/ Standard conversion process is limited to the following: 1) process
-- converts-current positions on stock record file, in order to build tax
lot information; 2) process creates cost basis information, based
solely upon production history currently available for current
positions.
<PAGE>
entered, all positions affected by the action are identified and can be
selectively chosen for manual action, or automatically chosen to be included in
batch update.
Also included is a partial call lottery feature that can be used to randomly
select positions to be called, and a call bond processing function that provides
automated processing for full and partial bond calls. The corporate action
processing function automates the process of listing eligible positions, showing
status, and batch processing. Customer advices on involuntary and pre-advices
on voluntary actions are included, as is account executive notification.
STANDARD FEATURES/SERVICES
- --------------------------
. Manual processing options include selective manual or full position batch
posting
. Parameters can be set to Client-specific policies
. Adjustment of positions to an "as of" position is simplified for partial
calls
. On-line edits and audit checks reduce costly entry errors
. Stock positions to be actioned can be segregated, preventing unauthorized
sales
. Customized trailer messages can appear on the customers' statements and
advices
. Reorg activity is reflected automatically on statements
. Partial call lottery capabilities can be used to run an impartial lottery
. Processing of call bond for full and partial calls is automated
. Branch and home office reports detail stock record listings, daily
activity, account executive and customer notifications, lottery selections,
etc.
. Client can input info as it comes in and let the system automatically
process on the correct date
. Advices can be printed on standard laser printer - no special forms
required
. Client can customize its fee structure by type of action, or by office
. Notifications to customers and account executives are automated
CHARGES
- -------
Reorganization Subsystem Included in Trade/Cancel charges
REORGANIZATION NOTIFICATION PROGRAM
- -----------------------------------
When a corporation undergoes reorganization, DTC sends files of the DTC
reorganization notices ("Reorg Notices") to ADP. A DTC Reorg Notice Report will
be generated from programs in the batch stream.
The Reorg Notices Report contains two sections including:
<PAGE>
. All information received in the Corporate Action and the new Redemption
file from DTC via CCF transmission ("Information") including reorg dates,
other information, related comments and agent information.
. Information pertaining only to those securities in which Client holds a
position
NOTE: At Client's request, ADP can obtain the DTC Agent Listing of agent
information in 3 x 5 card format.
CHARGES
- -------
Reorganization Notification Program Included in Trade/Cancel charges
AUTOMATED FEED INTERFACE - FII
- ------------------------------
An interface to Financial Information, Inc. ("FII"), that utilizes FII Daily
Card (reorganization) and Daily Called Bond files to automatically declare and
process necessary reorganization/redemption movements. Third party pass-through
charges will apply.
NOTE: In order to authorize installation of the Service, and to confirm that
Client has made all necessary arrangements with FII, Client agrees to provide to
ADP a copy of Client's Agreement with FII. Such copy should be submitted with
this Schedule/Addendum.
CHARGES
- -------
FII Automated Feed Interface
Level 3 (0-1,000 Trades/Cancels per Day) $750 per month
-------
Level 2 (1,001-5,000 Trades/Cancels per Day) $1,000 per month
-------
Level 1 (Over 5,000 Trades/Cancels per Day) $1,500 per month
-------
SALES INQUIRY SUBSYSTEM
PRODUCT OVERVIEW
- ----------------
The Sales Inquiry subsystem provides a variety of information for both
management and account executives. The subsystem helps the account managers
keep better track of their own production and assists the branch managers in
monitoring their offices.
<PAGE>
STANDARD FEATURES/SERVICES
- --------------------------
. View important data on-screen, on-line, rather than searching through the
printed batch for report
. Allows managers access to on-line information/16/ to better monitor
AE/branch/office productivity more efficiently:
- Gross commission ranked within office (or within company)
- Commission budget goal
- Average commission
- Account executive's percentage of office's gross commission
. Allows account executives to access customer information (available both in
real-time and in batch the following day) giving AE's better control over
their accounts:
- Customer available funds - This report displays a condensed overview of
accounts with funds available for investment such as working balance and
buying power
- Customer requirements (based on T+3) - Alerts the sales reps to open
items in accounts requiring attention, informs the sales reps of the
requirement involved (i.e., whether money, securities or agreements are
due) and lists customer phone numbers.
- Gross commission
- Margin balances - Shows real time margin accounts by Account executive
in account sequence, includes trade date balance, market value, buying
power or call amount, and percent equity
CHARGES
- -------
Sales Inquiry Subsystem - Sales & Management Tools Included in Trade/Cancel
charges
SELF-DIRECTED IRA SUBSYSTEM
PRODUCT OVERVIEW
- ----------------
The Self-Directed IRA subsystem provides the processing needed for Client to
conform to all record keeping and reporting requirements for Self-Directed
Individual Retirement Arrangements (IRAs, SEPs) and Self-Employed Retirement
Plans (Keoghs). The subsystem also handles annual custodian fee billing
services.
_____________________
/16/ Information is current as of close of previous day's business.
<PAGE>
STANDARD FEATURES/SERVICES
- --------------------------
. SDIRA transactions are automatically reflected in:
- Cage subsystem (Security Receipt and Delivery)
- Cash Movement subsystem (Cash Receipts, Cash Disbursements and Cash
Journals)
- Account Master subsystem
. Account beneficiaries can be established through the use of the Fee
Parameters screen
. SDIRA is integrated with the Money Market/Shareholder Accounting subsystem
to permit reporting and tracking of money market as well as brokerage
transactions
. Edit Features provide error messages for:
- Transactions not allowed in a particular plan (for example, a rollover
contribution made to a contributory Keogh account)
- Transactions allowed in one year but disallowed in another
- Transactions entered in an account designated "No more business"
- Contributions which exceed the limit allowed for a particular retirement
plan
- Insufficient credit problems
- TEFRA violations
. SDIRA Reports details year-to-date contributions for retirement plan in a
customer's account
- Annual valuation of account assets
- Annual account activity summary
- Year-end market value statement
. Interest is credited to retirement accounts, updating all relevant dividend
accounts, and distinguishing between taxable and non-taxable dividends
. On-demand reports identify accounts for customers reaching age 70 1/2
. 5498 and 1099R information is transmitted to the Federal Government
CHARGES
- -------
Self-Directed IRA Subsystem $0.60 per account per month
$500 per month minimum
Additional charge for each annual customer
statement at then-standard prices
SIAC REPORTS
PRODUCT OVERVIEW
- ----------------
SIAC Reports provide Client with daily reports as generated by SIAC in print
image format via the Client's spooler.
<PAGE>
CHARGES
- -------
SIAC Reports Included in Trade/Cancel charges
SIS ADVANTAGE
PRODUCT OVERVIEW
- ----------------
SIS Advantage is a data distribution system that takes advantage of relational
database formats to provide Client access to Client's customer account
information (active accounts, positions, and balances on the Tandem files). The
relational database format offers direct access to Client's customer account
data for ad hoc queries and reports, using Rapid Application development tools.
ADP supplies and maintains a master Advantage database, which is replicated to
Client's site. The master database is not accessible by Client. Therefore, any
queries or applications written by Client have to use the replicated Client
database. The Client database is updated in a nightly batch processing
environment.
NOTES: Client must have existing resources to support and maintain a complex
server system, including Sun computer system of sufficient capacity to support
the Advantage database, communications facilities to support database
replication, and system and database administration capability. Client must use
the fixed-format name and address functionality in the ADP BAS.
Client acknowledges and agrees that the Sybase SQL Server Program and the Sybase
Replication Server Program (the "Programs") used in connection with ADP's SIS
Advantage product shall only be used by the Client as set forth below to read,
in a view-only format, the Services, and the Programs shall not be downloaded or
used to create or alter tables, schemas or databases or otherwise develop or
modify in any way the applications or performance of other programming tasks.
Notwithstanding the foregoing, Client may access the Programs through ADP tools
or third party tools; provided, that any access shall be restricted to the
following: Client may access the Services embedding a copy of the Programs which
are deployed on ADP's premises or Client's site, provided that in either
instance, Client shall not (i) copy the application(s) embedding the Programs,
(ii) use the Programs other than to process Client's own transactions and
transactions for entities that operate on a fully disclosed basis through Client
as correspondents, or (iii) access the Programs for general development. Client
may also develop applications against the SIS Advantage database using the tools
supplied by ADP, Sybase or other third parties. If the Client desires to use
any of the Programs in a manner restricted or not expressly permitted hereunder,
then the Client must enter into an appropriate license or other agreement
therefor directly with Sybase.
<PAGE>
CHARGES
- -------
SIS Advantage
First 25,000 accounts $0.20 per account
Next 25,000 accounts $0.15 per account
Next 25,000 accounts $0.10 per account
Over 75,000 accounts $0.05 per account
Monthly minimum $3,000
TRANSACTION UPLOAD PROCESS
PRODUCT OVERVIEW
- ----------------
Transaction Upload Process provides transmission of data such as trades, journal
entry, and stock movement entry to emulate manual screen entry of various
transactions. In general, a transaction entered as a Transaction Upload is
subject to the same validation processing as if the transaction were entered
directly on the screen.
The two programs (BATPRFCT and BAT1DRFL) involved in the Transaction Upload
Process contain safeguards to prevent processing of the transaction when an
improper file for a Client is encountered, a data file is missing records, a
file is outdated, or the same file is being processed multiple times.
An audit trail of successful transaction input is produced. Furthermore, each
function produces an error report of invalid transactions for that function.
CHARGES
- -------
Transaction Upload Process Included in Trade/Cancel charges
ORDER MANAGEMENT SYSTEM
PRODUCT OVERVIEW
- ----------------
The Order Management System takes each order from the entry phase through
execution to the final hand-off to the BAS. Additionally, as an outgrowth of
the networking capabilities of this subsystem, Client can establish an
electronic mail functionality for messages outside the realm of order
processing.
<PAGE>
A typical order being processed by the OMS System follows this path:
. Entry of order into the OMS System
. Order routing - direct trade to be executed through the automated
exchanges, exchange floors or Client's trading department
. Message switching - routes, monitors and queues orders entered onto the
system
. Execution - trades executed automatically when possible
. Order Matching - ensures that orders are executed exactly as entered
. Execution Reporting - real-time hand off of transaction data to the BAS
. Posting Trades to Account Department
CHARGES
- -------
Fund/SERV Order Entry Included in Trade/Cancel
charges/17/
--
Mutual Fund Admin. Message (Screen Q) Order Entry Included in Trade/Cancel
charges/17/
--
Order Activity/18/ Charge
First 300,000 orders per month *** each
Next 150,000 orders per month *** each
Next 150,000 orders per month *** each
Next 150,000 orders per month *** each
Over 750,000 orders per month *** each
Remote Locations/19/ Included in Trade/Cancel charges
Automated Execution Interfaces
Pershing $500 per month
Automated Interfaces, CRT/Printer Drop $165 per interface per month
Points, and ACT Interface
NOTE: Any testing fees charged to ADP by exchanges will be passed on
to Client.
_______________
/17/ Regular Fund/SERV trade charges apply.
/18/ Order activity is defined as ***.
/19/ The OMS System allows the connection of Client's remote locations
(branch offices) providing direct order entry to the home office.
***This information is omitted pursuant to a confidential treatment request
filed with the SEC.
<PAGE>
Blocked Order Processing No charge
BOPS gives Client the ability to allocate large block orders to many accounts
and update BAS records - all from one screen.
. Orders can be entered either through the regular order entry system or
through the BOPS subsystem
. Executions can be accumulated and allocated at one time. For example, if
partial executions are received, they can be accumulated prior to
allocation.
. If executions are accumulated for allocation, the subsystem automatically
calculates the average price. Each time the ENTER key is pressed, a total
amount executed and average price fields are updated
. The allocated screen may be used as a worksheet; Client can alter or delete
allocations at any time prior to submitting the trade - allowing the
account executive to "start over"
Execution Call Back Subsystem No charge
The Execution Call Back feature reminds account executives to call customers
back upon order execution, and provides a screen for the account executives to
input follow-up notes. If an order is tagged for call back, when that order is
executed, the Call Back feature will store execution information in a call back
file, which can be displayed by account, account executive number or office
code. Reports can be generated by customer account range for: today's
successful call backs, today's unsuccessful call backs, today's executions for
which no call was attempted, all unsuccessful call backs (for today and two days
previous), and all executions for which no call was attempted.
Maintenance Reports No charge
This function first determines if each order is a day order or not, purges all
expired orders, and then processes all open order entries for the day; open
order positions, next day cancels, order changes, order expirations, order
executions, cash dividends, stock dividends, original orders entered today,
order partial executions, price variations, possible orders missed, GTC orders
entered today, order cancellations, executions out of range.
Order Open Confirmation No charge
This report lists all activity for an account for that day's business. The
confirms generate a formal copy that can be mailed to Client's customer.
<PAGE>
Open Orders on Statements No charge
Provides the flexibility of parameterized functionality enabling open orders to
be reflected on monthly customer statements.
Underwritings No charge
The Integrated Underwriting subsystem allows the Syndicate Department to perform
the following functions:
. Solicit and record indications of interest from branches
. Regulate orders against the allocation
. Facilitate process of booking trades
POSSIBLE ORDERS MISSED
PRODUCT OVERVIEW
- ----------------
A daily report provides Client with comparison of the price of orders on the
Open Order file with the orders' daily high/low price from the quote process.
CHARGES
- -------
Possible Orders Missed Included in Trade/Cancel charges
<PAGE>
EXHIBIT B - SPECIAL SERVICES
ANNUAL CHARGES
- --------------
End-of-Year Processing will be charged at ADP's then-standard prices.
COMMUNICATION CHARGES
- ---------------------
Communication charges are to be determined based on Client's choice of
communication provider, either the ADP Network or Client's own communication
lines.
Terminals
One terminal Connection (defined below) is provided free of charge (the
"Free Terminal Connection") for each 25 Customer and Internet
trades/cancels daily (the "Terminal Formula"). An additional charge of
$25 per month will be assessed for each terminal Connection made in
addition to Free Terminal Connections, based on ADP's then-standard
prices.
Printers
One printer Connection is provided free of charge (the "Free Printer
Connection") for each 25 Customer and Internet trades/cancels daily (the
"Printer Formula"). An additional charge of $25 per month will be made
for each printer Connection made in addition to Free Printer Connections,
based on ADP's then-standard prices.
A "Connection" is defined as the linkage that provides a physical device
(printer or terminal) with access to the Services.
NOTE: Only Electronic Trades/Cancels will apply in connection with the
Terminal and Printer Formulas.
Tandem and Ethernet Port Charges
First two Ports No Charge
Additional Ports $350 per port per month
TCP/IP Communications Protocol Charges
Any Client communications configuration using TCP/IP protocol will be
charged at ADP's then-standard prices.
Network Charges
Circuit/Line Charges Cost + 20% Administration Fee
<PAGE>
MISCELLANEOUS CHARGES
- ---------------------
All equipment, data lines, printing, supplies, and third party charges are the
responsibility of Client.
Audits, Retraining, Conversions and Deconversions
For the initial conversion, no conversion fee will be charged, and all
applicable man-day charges will be waived.
All other services will be made available to Client upon request, and
will be charged at ADP's then-standard prices.
All out-of-pocket expenses will be fully reimbursed by Client. Out-of-
pocket Expenses include, but are not limited to:
- Standard internal per diem (meals, miscellaneous)
- Round-trip Coach air fare from the appropriate ADP facility to
Client's site.
Lodging at a suitable hotel in close proximity to Client's offices.
- If an ADP employee has been working at the Client site for two
consecutive work weeks and is required to continue to work at the
Client site for any additional period of time, then Client shall pay
the round-trip airfare for such employee to return to his home base
once after each such two-week period.
- An additional fee equal to 10% of all out-of-pocket expenses will be
charged for administrative costs.
Systems and Programming ("S&P")
Customer development projects related to the initial Conversion that are
mutually agreed upon by Client and ADP will be completed at no charge, up
to a total amount that shall not exceed $25,000.
S&P services will be made available to the Client upon request, and will
be charged at ADP's then-standard prices. These services include
requested programming, ENFORM programming, emergency and commission
schedule programs.
Computer Processing and Transmission Charges
Computer processing time for S&P items, Blue Sheet Reporting and
transmission charges will be charged at ADP's then-standard prices.
<PAGE>
Documentation
A variety of user manuals are available to Client upon request, and will
be charged at ADP's then-standard prices.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET/STATEMENT OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 32,008,412
<RECEIVABLES> 4,473,011
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 0
<PP&E> 5,590,288
<TOTAL-ASSETS> 44,537,135
<SHORT-TERM> 0
<PAYABLES> 3,398,135
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 257,028
<OTHER-SE> 39,149,494
<TOTAL-LIABILITY-AND-EQUITY> 44,537,613
<TRADING-REVENUE> 12,077,940
<INTEREST-DIVIDENDS> 734,549
<COMMISSIONS> 0
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 242,727
<INTEREST-EXPENSE> 0
<COMPENSATION> 966,935
<INCOME-PRETAX> (3,791,964)
<INCOME-PRE-EXTRAORDINARY> (3,791,964)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,791,964)
<EPS-BASIC> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
