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Redacted portions have been marked with asterisks (****). Confidential treatment
has been requested for the redacted portions. The confidential redacted portions
have been filed separately with the Securities and Exchange Commission.
EXHIBIT 10.3
Proprietary and Confidential
FULLY DISCLOSED CLEARING AGREEMENT
This Fully Disclosed Clearing Agreement (the "Agreement") is executed
and entered into by and between Penson Financial Services, Inc. ("Penson"), a
division of Service Asset Management Company, a North Carolina corporation, and
CyBerBroker, Inc. ("Correspondent").
WHEREAS, Correspondent is in the process of registering or is
registered with the Securities Exchange Commission ("SEC") as a broker-dealer of
securities in accordance with Section 15(b) of the Securities and Exchange Act
of 1934 (the "Act") and is applying for membership or is a member of the
National Association of Securities Dealers, Inc. ("NASD"), and desires for
Penson to act as a clearing broker for Correspondent; and
WHEREAS, Penson meets all requirements of the SEC to function as a
clearing broker, and desires to enter into an agreement to clear and maintain
cash, margin, option or other accounts ("Accounts") for Correspondent or
customers ("Customers") of Correspondent.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and of the guarantee of this Agreement by any guarantor(s), and for
other good and valuable consideration the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
1. REPRESENTATIONS AND WARRANTIES
Correspondent represents and warrants to Penson that:
(a) Correspondent is a corporation duly organized, validly
existing and in good standing under the laws of the state of
its incorporation.
(b) Correspondent has all the requisite authority in conformity
with all applicable laws and regulations to enter into this
Agreement and to retain the services of Penson in accordance
with the terms hereof.
(c) Correspondent shall employ as a manager of its brokerage
operation only a person who has all requisite licenses and
experience in compliance with applicable securities laws and
regulations.
(d) Correspondent shall duly employ personnel ("Registered
Representatives") who have the requisite licenses and
experience in compliance with applicable securities laws and
regulations.
(e) Correspondent has advised Penson of any clearing arrangements
that have been made or are expected to be made with any other
clearing broker or dealer.
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Proprietary and Confidential
Penson represents and warrants to Correspondent that:
(a) Penson is a corporation duly organized, validly existing and
in good standing under the laws of the state of North
Carolina.
(b) Penson is registered as a broker-dealer with the SEC and is in
compliance with the rules and regulations thereof.
(c) Penson is a member corporation in good standing of the NASD
and is in compliance with the rules and regulations thereof.
(d) Penson is in compliance with the rules and regulations of each
national securities exchange of which it is a member.
2. CUSTOMER AND CORRESPONDENT ACCOUNTS
Responsibility for compliance with the provisions of the NASD Rules of
Fair Practice regarding opening, approving and monitoring Customer accounts
shall be allocated between Penson and Correspondent as set forth in this Section
2.
(a) ACCOUNT DOCUMENTATION. Correspondent will be responsible for
obtaining and verifying all required information about, and
the identity of, each potential Customer. Correspondent will
be responsible for obtaining all documents related to customer
accounts, and for the transmission of all required documents
to Penson on a timely basis. Penson may, in its discretion,
receive documents directly from the Customer. Correspondent
acknowledges the obligation to retain all documents in an
easily accessible place in accordance with SEC rules and
agrees to provide the original application by overnight
delivery or a legible copy by facsimile transmission within 24
hours of a request from Penson. Correspondent will be
responsible for complying with the requirement of SEC Rule
15g-9, if applicable.
(b) KNOWLEDGE OF CUSTOMER AND CUSTOMER'S INVESTMENT OBJECTIVES.
Correspondent will be responsible for learning and documenting
all the required information relating to each and every
Customer in order to insure compliance by Correspondent with
applicable rules and regulations. This required information
includes, but is not limited to, all of the information and
instructions submitted to Penson pursuant to Section 2(a), any
additional facts relative to the Customer's investment
objectives, and every person holding power of attorney over
any Customer Account. It shall be the responsibility of
Correspondent to ensure that those of its Customers who open
Accounts hereunder shall not be minors. Correspondent shall be
solely responsible for any issues regarding the suitability of
any investments for its Customers.
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(c) ACCEPTANCE OF ACCOUNTS. Prior to any Customer Account being
opened with Penson, it must be approved by Correspondent.
Penson reserves the right to withhold acceptance of, or to
reject, for any reason, any Customer, Customer Account,
Correspondent Account or any transaction for any Account and
to terminate any Account previously accepted by Penson.
Initial acceptance of each Account shall be conditioned upon
Penson's receipt of completed forms as required by Section
2(a). Correspondent shall not submit such forms with respect
to any Customer Account unless Correspondent has in its
possession the documentation of all information required
pursuant to Section 2(b). Penson shall be under no obligation
to accept any Account as to which any documentation required
to be submitted to Penson or maintained by Correspondent
pursuant to Sections 2(a) and 2(b) is incomplete. Prior to
acceptance of any Account, no action taken by Penson or any of
its employees, including, without being limited to, executing
or clearing a trade in any Account, shall be deemed to be or
shall constitute acceptance of such Account.
(d) SUPERVISION OF ORDERS AND ACCOUNTS. Penson will execute orders
for Correspondent's Customers after Correspondent's
appropriate principals have accepted and approved said
Accounts. Correspondent will be responsible for the review and
supervision of, and the suitability of, investments made by
each and every one of its Customers and Penson shall have no
responsibility. Correspondent shall be responsible for
insuring that all transactions in and activities related to
all Accounts opened by it with Penson, including discretionary
Accounts, will be in compliance with all applicable laws,
rules and regulations of the United States, the several
states, governmental agencies, securities exchanges and the
NASD, including any laws relating to Correspondent's fiduciary
responsibilities to Customers, either under the Employee
Retirement Income Security Act of 1974 or otherwise.
Correspondent shall diligently supervise the activities of its
officers, employees and representatives with respect to all
Accounts. Penson will perform the clearing services provided
for in this Agreement for Accounts accepted by it in
accordance with the terms of this Agreement, as it may be
amended from time to time, and otherwise in accordance with
its best business judgment. To the extent, if any, that Penson
accepts from Correspondent orders for execution in accordance
with Section 7(a), Correspondent shall be responsible for
informing Penson of the location of the securities that are
the subject of the order so that Penson may comply with the
provisions of Art. III, Sec. 21 of the NASD Rules of Fair
Practice.
(e) ACCOUNTS OF ASSOCIATED PERSONS. Correspondent will not accept
Accounts for any persons that come within the express
provisions of Art. III, Sec. 28 of the NASD Rules of Fair
Practice unless Correspondent has complied with the provisions
of said Rule and, if applicable, provided evidence of employer
approval as required by said Rule.
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(f) ACCOUNT RESPONSIBILITY FOR CERTAIN PURPOSES. Notwithstanding
anything herein to the contrary, for purposes of the
Securities Investment Protection Act of 1970 and the financial
responsibility rules of the Securities and Exchange
Commission, the Customer Accounts are the responsibility of
Penson. For all other purposes, the Customer Accounts shall be
the full, total and sole responsibility of Correspondent.
3. EXTENSION OF CREDIT
Responsibility for compliance with the provisions of Regulation T
issued by the Board of Governors of the Federal Reserve System pursuant to the
Securities Exchange Act of 1934 ("Regulation T") and all other applicable rules,
regulations and requirements of any exchange or regulatory agency affecting the
extension of credit shall be allocated between Penson and Correspondent as set
forth in this Section 3.
(a) MARGIN AGREEMENTS. At the time of opening of each margin
account, Correspondent will furnish Penson with a Penson
Customer Margin and Short Account Agreement, executed by the
Customer, on the form furnished to Correspondent by Penson.
Correspondent may use a substitute form upon written approval
by Penson.
(b) MARGIN AND MARGIN MAINTENANCE. Correspondent is responsible
for assuring Customer's payment of Customer's initial margin
requirements and of all amounts necessary to meet subsequent
maintenance calls in each Customer Account, in order to insure
compliance with Regulation T and the house rules of Penson.
Such payment may be collected by Correspondent on Penson's
behalf, or made directly to Penson at Correspondent's option.
Correspondent is responsible for the payment of initial margin
and of all amounts necessary to meet subsequent margin calls
in each Correspondent Account. Penson shall have the unlimited
right to buy in or sell out positions in Accounts whenever
Penson, in its sole discretion, deems such action appropriate
and despite whether, if the Account is a Margin Account, any
such Account is then in compliance with applicable margin
maintenance requirement or has requested an extension of time
to make any payment required by Regulation T. Correspondent
acknowledges that Penson has the right to demand payment on
any debit balance and that Correspondent is responsible to
Penson for any unsecured debit balance resulting from any
failure of a Customer to make any such payments upon demand.
(c) MARGIN REQUIREMENTS. Initial margin and margin maintenance
requirements applicable to any margin account shall be in
accordance with the house rules of Penson, rather than in
accordance with any lower requirement of any law, any exchange
or any regulatory agency. Penson may change the margin
requirements applicable to any Account or class of accounts,
as described in its house rules;
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Correspondent shall be responsible for advising its Customer
of the changed requirements and for the payment by the
Customer of any additional margin necessary to insure
compliance with such increased requirements.
(d) LOSSES. In addition to, and not in limitation of,
Correspondent's agreement to indemnify Penson pursuant to the
provisions of Section 10, Correspondent indemnifies and holds
harmless Penson from and against any and all loss, cost,
expense and liability (including legal and accounting fees and
expenses) sustained by Penson arising out of any of the
following:
(i) any failure by any Customer to comply with the terms
of its Customer Margin and Short Account Agreement
with Penson;
(ii) The failure of Correspondent or any Customer to
comply with Regulation T;
(iii) the failure of Correspondent to satisfy its
obligations under this Section 3; or
(iv) The failure of delivery of securities sold or failure
of payment for securities purchased in accordance
with the provisions of Regulation T; the return to
Penson unpaid of any check given to Penson by
Correspondent or any Customer; or the payment for
and/or delivery of all "when issued" transactions
which Penson may accept or execute for the Accounts.
4. MAINTENANCE OF BOOKS AND RECORDS
Penson will maintain stock records and other records on a basis
consistent with generally accepted practices in the securities industry and will
maintain copies of such records in accordance with the NASD and SEC guidelines
for record retention in effect from time to time. Penson and Correspondent shall
each be responsible for preparing and filing the reports required by the
governmental and regulatory agencies that have jurisdiction over each and Penson
and Correspondent will each provide the other with such information, if any,
which is in the control of one party but is required by the other to prepare any
such report.
5. RECEIPT, DELIVERY AND SAFEGUARDING OF FUNDS AND SECURITIES
(a) RECEIPT AND DELIVERY IN THE ORDINARY COURSE OF BUSINESS.
Penson, acting on behalf of Correspondent, will receive and
deliver all funds and securities in connection with
transactions for Customer Accounts in accordance with the
Customer's instructions to Correspondent. Correspondent shall
be responsible for advising Customers of their obligations to
deliver funds or securities in
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connection with each such transaction. Correspondent shall be
responsible for any failure of any Customer to fulfill such obligation.
Penson shall be responsible for the safeguarding of all funds and
securities delivered to and accepted by it, subject to count and
verification by Penson. However, Penson will not be responsible for any
funds or securities delivered by a Customer or Correspondent, its
agents or employees, until such funds or securities are physically
delivered to Penson's premises and accepted by Penson or deposited in
bank accounts maintained in Penson's name. It is expressly understood
and agreed, however, that Correspondent is responsible for compliance
with the Currency and Foreign Transactions Reporting Act (31 U.S.C.
Section 5311. et seq.) and the rules and regulations promulgated
thereunder (31 C.F.R. Section 103.11, as amended, et seq.).
(b) CUSTODY SERVICES. Whenever Penson has been instructed to act as
custodian of the securities in any Correspondent or Customer Account,
or to hold such securities in "safekeeping," Penson may hold the
securities in the Customer's name or may cause such securities to be
registered in the name of Penson or its nominee or in the names of
nominees of any depository used by Penson. Penson will perform the
services required in connection with acting as custodian for securities
in Correspondent and Customer Accounts, such as (i) collection and
payment of dividends; (ii) transmittal and handling (through
Correspondent) of tenders or exchanges pursuant to tender offers and
exchange offers; (iii) transmittal of all proxy materials and other
shareholder communications; and (iv) handling of exercises or
expirations of rights and warrants, and of redemptions of securities.
(c) RECEIPT AND DELIVERY PURSUANT TO SPECIAL INSTRUCTION. Upon instruction
from Correspondent or a Customer, Penson will make such transfers of
securities or Accounts as may be requested. Correspondent shall be
responsible for determining if any securities held in Correspondent or
Customer Accounts are "restricted securities" or "control stock" as
defined by the rules of the SEC and that orders executed for such
securities are in compliance with applicable laws, rules and
regulations.
(d) DRAFT-ISSUING AUTHORITY. At its discretion Penson may authorize certain
of Correspondent's employees to sign drafts as drawer payable to
Correspondent's Customers in amounts and pursuant to conditions as may
be determined by Penson from time to time. Correspondent agrees that it
will not request Penson to authorize someone to sign drafts who is not
an employee of Correspondent. Correspondent agrees to fully indemnify
Penson from the negligence, fraud, or mistakes of Correspondent or
Correspondent's employees in connection with any draft issuing
authority granted to them and Correspondent authorizes Penson to charge
any Correspondent Account or any other assets of Correspondent held by
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Penson with the amount of any such losses. Notwithstanding Section
5(a), Penson will not be responsible for the safeguarding of funds
withdrawn by Correspondent or Correspondent's employees pursuant to
such draft issuing authority. Penson may withdraw this draft issuing
privilege without notice at any time during the term of this Agreement.
Notwithstanding anything herein to the contrary, Penson may at any
time, at its sole discretion, despite any prior authorization, refuse
payment on any draft for which Correspondent is drawer and Penson is
drawee.
6. CONFIRMATIONS AND STATEMENTS
(a) PREPARATION AND TRANSMISSION. Penson will prepare and send to Customers
monthly statements of account (or quarterly statements if no activity
occurs in an account during any quarter covered by such statement),
which statements shall meet Penson's requirements as to format and
quality and will indicate that Correspondent is the introducing broker
for the Account. Penson will be responsible for preparing and
transmitting confirmations. Upon prior written approval from Penson,
Correspondent may assume the responsibility of preparing and
transmitting confirmations, including the responsibility for compliance
with the provisions of Art. III, Section 12 of the NASD Rules of Fair
Practice. Copies of all monthly or quarterly statements sent by Penson
to Customers will be send to Correspondent. Penson will also provide to
Correspondent monthly statements of clearing services performed by
Penson for Correspondent and Customer Accounts showing the fees charged
for such services during the month, as provided in Section 8.
(b) EXAMINATION AND NOTIFICATION OF ERRORS. Correspondent shall examine
promptly all monthly statements of account, monthly statements of
clearing services and other reports provided to Correspondent by
Penson. Correspondent shall notify Penson of any error claimed by
Correspondent in any Account in connection with (i) any transaction
prior to the settlement date of such transaction, (ii) information
appearing on daily reports within seven days of such report, and (iii)
information appearing on monthly statements or reports within 30 days
of Correspondent's receipt of any monthly statement or report. Any
notice of error shall be accompanied by such documentation as may be
necessary to substantiate Correspondent's claim. Correspondent shall
provide promptly upon Penson's request any additional documentation
which Penson reasonably believes is necessary or desirable to determine
and correct any such error.
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7. ACCEPTANCE OF ORDERS, EXECUTION OF TRANSACTIONS, OTHER SERVICES
(a) CUSTOMERS' ORDERS. Orders received by Correspondent can be
executed by Correspondent or forwarded to Penson for
execution. The party executing the order shall be responsible
for errors in execution. Acceptance of orders from Customers
shall be the responsibility of Correspondent, and
Correspondent shall be responsible for the authenticity of all
orders. Correspondent shall advise each of its Customers that
its relationship with Penson is solely that of an introducing
broker to a clearing broker and that, except as set forth in
Section 2(f) above, Correspondent bears all responsibility for
the Customer's Account. Penson is not obligated to accept for
execution any orders placed directly with Penson by a
Customer. In addition, Penson is not obligated to accept any
orders from Correspondent if Penson determines in good faith
that it should not. Correspondent assumes the risk of failure
by an over-the-counter dealer with which Correspondent
executes an order in the event such dealer fails to perform,
and will reimburse Penson for any loss incurred by it in the
transaction.
(b) TRANSACTIONS CLEARING. During the term of this Agreement,
Penson will clear transactions on a fully disclosed basis for
Accounts of Correspondent and the Customers that Correspondent
introduces and Penson accepts as provided in Section 2(b);
provided, however, that Penson is not obligated to clear any
transactions for Correspondent or Correspondent's Customers if
Penson determines in good faith that it should not.
(c) OTHER SERVICES. Penson will perform such other services, upon
such terms and at such prices, as Penson and Correspondent may
from time to time agree.
8. FEES AND SETTLEMENTS FOR SECURITIES TRANSACTIONS
(a) COMMISSIONS: FEES FOR CLEARING SERVICES.
(i) Correspondent has provided to Penson its basic
commission schedule and Penson will charge each
Customer the commission shown on such schedule or
which Correspondent otherwise directs Penson to
charge on each transaction. Correspondent's basic
commission schedule may be amended from time to time
by written instructions to Penson from Correspondent.
Penson shall be required to implement such changes
only to the extent that they are within the usual
capabilities of Penson's data processing and
operations systems and only over such reasonable time
as Penson may deem necessary or desirable to avoid
disruption of Penson's normal operational
capabilities. Penson may charge Correspondent for
changes in the basic commission schedule.
Correspondent's basic
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commission schedule shall be within the format of Penson's
computer system.
(ii) Penson will charge Correspondent for clearing services
according to the fee schedule set forth in Schedule A attached
hereto and incorporated herein for all purposes. Clearing
charges may be modified from time to time by Penson without
re-execution of this Agreement. To implement new charges,
Penson will mail or telecopy a new Schedule A to
Correspondent. If Correspondent does not object to the new
charges within ten (10) days of such mailing or telecopying,
as provided below, the new charges shall become effective and
the new Schedule A shall become a part of and modify this
Agreement without any further action by the parties. Upon such
event, Penson and Correspondent shall replace the previous
Schedule A with the new Schedule A. Correspondent may object
to new charges by giving notice canceling this Agreement as
provided under Sections 12 and 19(m). During the pendency of
such notice period, the previous charges shall continue to be
effective until termination.
(b) SETTLEMENTS. Penson will collect commissions from Customers on behalf
of Correspondent and through Correspondent. Penson may make payments to
Correspondent against such commissions in advance of the monthly
settlement contemplated by this Section 8(b), the amount of such
payments to be determined in Penson's sole discretion based upon
Penson's experience with Correspondent.
As soon as practicable after the end of each month, Penson
will forward to the Correspondent a statement showing the amount of
commissions and other amounts collected by Penson on Correspondent's
behalf, and all amounts due to Penson from Correspondent (including,
without being limited to, clearing charges, other charges, other fees
and Customer's unsecured debit items, however arising), together with
the amount by which the total owed Correspondent exceeds the total owed
Penson. If such statement indicates that Correspondent owes monies to
Penson, Correspondent shall promptly pay Penson the amount by which the
total owed Penson exceeds the total owed Correspondent. If
Correspondent fails to make such payment on a timely basis, Penson
shall have the right to charge any other Account maintained by Penson
for Correspondent or any other assets of Correspondent held by Penson
(including the deposit required pursuant to Section 9 and positions and
balances in Correspondent Accounts) for the net amount due Penson. Any
failure by Penson to charge any Account or assets of Correspondent held
by Penson shall not act as a waiver of Penson's right to demand payment
of, or to charge Correspondent's Accounts for, the full amount due at
any time.
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9. DEPOSIT
Contemporaneously with the signing of this Agreement, Correspondent
will deliver cash or securities to Penson, as specified in Schedule A attached,
for deposit in an account maintained by Penson. If at any subsequent time
Penson, in its sole discretion, requires an additional deposit, Correspondent
will deposit additional cash or securities in an amount specified by Penson.
Instead of making such additional deposit, Correspondent may reduce
Correspondent's business volume or modify the nature of the securities involved
in the Correspondent's transactions ("business mix") as specified by Penson. Any
failure by Penson to demand compliance with the requirement that Correspondent
either deposit additional amounts or modify Correspondent's business mix shall
not act as a waiver of Penson's right to demand compliance with such
requirements at any time. If the deposit is not adequately funded as required by
Penson, Penson may, in addition to all other rights under this Agreement,
transfer cash or securities of Correspondent held by Penson to the deposit
account. Correspondent agrees that if Penson, at its sole discretion, determines
it to be necessary, Penson shall accept only liquidating transactions for
Customer Accounts and that Correspondent will give notice of such fact to
Customers. If such notice is not given to Customers by Correspondent,
Correspondent agrees that Penson may give such notice to Customers. Penson shall
be entitled to set-off against any deposit in addition to any and all other
rights or remedies Penson may have under this Agreement or otherwise.
Correspondent agrees that if this Agreement is terminated for any reason, Penson
may liquidate securities deposited and deduct from such deposit any amounts
Correspondent owes Penson because of failure to meet any of Correspondent's
obligations under this Agreement.
10. INDEMNIFICATION
(a) INDEMNITY.
(i) Correspondent agrees to indemnify and hold harmless
Penson, each person who controls Penson within the meaning of
the Securities Exchange Act of 1934 and any directors,
officers, employees, agents and attorneys of Penson ("Penson
Indemnified Persons") from and against all claims, demands,
proceedings, suits and actions and all liabilities, losses,
expenses and costs (including any legal and accounting fees
and expenses) relating to Penson's defense of any failure, for
any reason, fraudulent or otherwise, by Correspondent,
Correspondent's employees, independent agents or contractors,
or Customers to comply with any obligation under this
Agreement or any other agreement executed and delivered to
Penson in connection with Penson's performance of services
hereunder and any act or failure to act by Penson Indemnified
Persons, except any act or failure to act which is the result
of gross negligence or willful misconduct on the part of any
such Penson Indemnified Person. Without limiting the
generality of the foregoing, such failure is explicitly
intended by the parties to include failure resulting from (i)
suspension of trading or bankruptcy or insolvency of any
company, securities of
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which are held in a Customer's Accounts; (ii) failure by any
Customer to maintain adequate margin; or (iii) breach of any
obligation existing between Correspondent and a Customer of
Correspondent or any law, rule or regulation of the United
States, a state or territory thereof, the SEC the Federal
Reserve Board or other authority, applicable to any
transaction contemplated by this Agreement.
(ii) Penson shall indemnify and hold Correspondent harmless
against any losses, claims, damages, liabilities or expenses
including without limitation those asserted by Customers
(which shall include, but not be limited to, all costs of
defense and investigation and all attorney's fees) to which
Correspondent may become subject, insofar as such losses,
claims, damages, liabilities or expenses arise out of, or are
based upon the gross negligence or willful misconduct of
Penson or its employees in providing the services contemplated
hereunder.
(iii) Upon receipt by any indemnified party under this Section
of notice of the commencement of any action, if a claim is to
be made against the indemnifying party under this Section, the
indemnified party will promptly notify the indemnifying party.
The omission to notify the indemnifying party will not relieve
it from any liability that it may have to any indemnified
party otherwise than under this Section 10(a)(iii). In any
such action brought against any indemnified party, the
indemnifying party will be entitled to participate in and, to
the extent that it may wish, to assume the defense thereof,
subject to the provisions herein stated, with counsel
satisfactory to such indemnified party. After notice from the
indemnifying party to such indemnified party of its election
so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section for
any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other
than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees
and expenses of such counsel shall not be at the expense of
the indemnifying party if the indemnifying party has assumed
the defense of the action with counsel satisfactory to the
indemnified party.
(b) SECURITY INTEREST AND AUTHORIZATION TO CHARGE. Correspondent
grants to Penson a first lien and security interest in any
Correspondent Account maintained by Penson and any other
assets of Correspondent now or hereafter held by Penson and
authorizes Penson to discharge such lien by charging such
Account and assets with all amounts owing to Penson including,
but not limited to, (i) any cost or expense resulting from
failures to deliver or failures to receive, (ii) any losses
resulting from unsecured debit balances in any Customer or
Correspondent Account and (iii) any amounts to which Penson is
otherwise entitled pursuant to the provisions of Section
10(a). Penson shall have discretion to liquidate or sell any
securities without notice to Correspondent, and to determine
which securities
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to sell. Such charge may be made against Correspondent Account
or assets at any time and in such amount as Penson deems
appropriate. No delay in charging any Correspondent Account or
asset shall operate as a waiver of Penson's right to do so at
any future time as and when Penson deems appropriate. Penson
shall have the unlimited right to set-off any indebtedness or
other obligations of Correspondent under this Agreement or
otherwise (absolute or contingent, matured or unmatured)
against any obligations of Penson to Correspondent, including
from the Deposit (as described in Section 9 and/or any other
money, securities, or other property of Correspondent in
Penson's possession).
(c) RESERVES. In connection with any claim that does or could give
rise to a claim for indemnification under this Section 10 for
Penson or a Penson Indemnified Person, Penson may, in its
discretion, in addition to any and all other rights and
remedies under this Agreement, reserve and retain any money,
securities or other property of Correspondent pending a
determination of such claim. The money, securities or other
property of Correspondent set aside in such a reserve shall be
subject to Penson's standard lien and security interest
described in Section 10(b) above.
11. UNDERTAKINGS OF CORRESPONDENT
(a) FINANCIAL STATEMENTS AND OTHER REPORTS. Correspondent will
furnish to Penson as soon as possible a copy of
Correspondent's balance sheet and statement of earnings for
the current fiscal year and for each of Correspondent's
subsequent fiscal years. Each such balance sheet and statement
of earnings shall be certified by independent public
accountants. Correspondent also shall furnish Penson with
copies of its monthly and quarterly Focus filings promptly
after filing.
(b) OTHER CLEARING SERVICES. During the term of this Agreement,
Correspondent will not sign a clearing agreement with another
clearing broker or dealer without prior written approval by
Penson.
(c) SUSPENSION OR RESTRICTION. In the event that Correspondent or
any employee of Correspondent shall become subject to
suspension or restriction by any regulatory body having
jurisdiction over Correspondent and Correspondent's securities
business, Correspondent will notify Penson immediately and
Correspondent authorizes Penson to take such steps as may be
necessary for Penson to maintain compliance with the rules and
regulations to which Penson is subject. Correspondent further
authorizes Penson, in any event, to comply with directives or
demands made upon Penson by any exchange or regulatory body
relative to Correspondent and Customers. In connection with
such directives or demands, Penson may seek advice or legal
counsel and Correspondent will reimburse Penson for reasonable
fees and expenses of such counsel.
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(d) FIXED PRICE OFFERINGS. Correspondent agrees that in making
sales of Securities, as a part of a fixed price offering, it
will comply with all applicable rules of the NASD, including,
without limitation, the NASD's Interpretations with respect to
Free-Riding and Withholding under Article III, Sections 1 and
24, of the NASD's Rules of Fair Practice.
(e) CUSTOMER ORDERS. Correspondent represents that all orders
received by Penson will be in accordance with its Customers'
instructions. The parties hereto expressly agree that Penson
shall not be responsible for investigation into the facts
surrounding any transaction that it may have with
Correspondent, or that Correspondent may have with its
Customers or other persons, nor shall Penson be under any
responsibility for compliance by Correspondent with any laws
or regulations which may be applicable to Correspondent.
(f) INQUIRIES ON CERTIFICATES. Penson agrees to act as
Correspondent's direct inquirer under the Lost and Stolen
Securities Program under Rule 17f-1 (l7CFR 240.17f-1).
12. TERMINATION OF AGREEMENT: TRANSFER OF ACCOUNTS
(a) EFFECTIVENESS. Unless earlier terminated as provided herein,
this Agreement shall remain in force for a five (5) year
period from the date Correspondent first processes
transactions with Penson. Subsequent to this initial five year
term, either party may terminate this Agreement by giving
forty-five (45) days prior written notice to the other party.
(b) TERMINATION BY PENSON. Notwithstanding Section 12(a), Penson
may terminate this Agreement at any time on five (5) days
written notice to Correspondent in the event that
Correspondent:
(i) fails to comply with the terms of this Agreement and
upon notification by Penson fails to begin compliance
within 10 days from said notification; or
(ii) is enjoined, prohibited or suspended, as a result of
an administrative or judicial proceeding, from
engaging in securities business activities
constituting all or portions of Correspondent's
securities business, which injunction, prohibition or
suspension in Penson's judgment makes impracticable
the fully disclosed clearing relationship established
in this Agreement.
(c) AUTOMATIC TERMINATION. In addition to any other provisions for
termination herein, this Agreement shall terminate immediately
in the event that either Correspondent or Penson ceases to
conduct its business or that Penson:
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(i) is no longer registered as a broker/dealer with the
SEC; or
(ii) is no longer a member in good standing of the NASD;
or
(iii) is suspended by any national securities exchange of
which Penson is a member for failure to comply with
the rules and regulations thereof.
(d) CONVERSION OF ACCOUNTS. In the event that this Agreement is
terminated for any reason, it shall be Correspondent's
responsibility to arrange for the conversion of Correspondent
and Customer Accounts to another clearing broker.
Correspondent will give Penson notice (the "Conversion
Notice") of:
(i) the name of the broker that will assume
responsibility for clearing services for Customers
and Correspondent;
(ii) the date on which such broker will commence providing
such services;
(iii) Correspondent's undertaking, in form and substance
satisfactory to Penson, that Correspondent's
agreement with such broker provides that such broker
will accept on conversion all Correspondent and
Customer Accounts, then maintained by Penson; and
(iv) the name of an individual within that organization
who Penson can contact to coordinate the conversion.
The Conversion Notice shall accompany Correspondent's
notice of termination given pursuant to Section 12(a)
or within thirty (30) days of the occurrence of an
event specified in Section 12(c).
If Correspondent fails to give the Conversion Notice
to Penson, Penson may give to Customers such notice as Penson
deems appropriate of the termination of this Agreement and may
make such arrangements as Penson deems appropriate for
transfer or delivery of Customer and Correspondent Accounts.
In addition, Correspondent shall pay any costs incurred by
Penson as billed by any third party vendors such as transfer
agents, etc.
(e) SURVIVAL. Termination of this Agreement shall not affect
Penson's rights or liabilities relating to business transacted
prior to the effective date of such termination. From the date
of termination until transfer or delivery of all Customer and
Correspondent Accounts, Penson's rights and liabilities
relating to business transacted after such termination shall
be governed by the same terms as those set forth in this
Agreement.
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(f) NO OBLIGATION TO RELEASE. Penson shall not be required to
release to Correspondent any securities or cash held by Penson
for Correspondent in one or more Correspondent Accounts until
any amounts owing to Penson pursuant to the provisions of this
Agreement are paid; and Correspondent's outstanding
obligations hereunder to Penson are determined, including
determination of any disputed amounts, and satisfied; and any
property of Penson in the possession of Correspondent is
returned to Penson.
(g) TERMINATION FOR SELF CLEARING. Correspondent at its option may
terminate this Agreement upon forty five (45) days written
notice to Penson if:
(i) Correspondent has processed transactions with Penson
for at least a thirty month period; and
(ii) ****
13. CONFIDENTIAL NATURE OF DOCUMENTS
All agreements, documents, papers, and data in any form, supplied by
Correspondent concerning Correspondent's business or Customers shall be treated
by Penson as confidential. To the extent such documents or data are retained by
Penson, they shall be kept in a safe place and shall be made available to third
parties only as authorized by Correspondent in writing or pursuant to any order
or request of a court or regulatory body having appropriate jurisdiction. Penson
shall give Correspondent prompt notice of the receipt by Penson of any such
order or subpoena, unless prohibited from doing so by the issuing authority
which notice shall be given prior to Penson's compliance therewith. Such
documents shall be made available by Penson for inspection and examination by
Correspondent's auditors, by properly authorized agents or employees of any
regulatory bodies or commissions or by such other persons as Correspondent may
authorize in writing. Notwithstanding anything herein to the contrary,
Correspondent expressly authorizes Penson to supply any information requested
relating to Correspondent, its business, or its Customers to any regulatory body
having appropriate authority.
14. NOTICE TO CUSTOMERS
Subject to the requirements of the NASD Rules of Fair Practice,
Correspondent shall provide, or cause to be provided to every Customer upon the
opening of a Customer Account, notice of the existence and general terms of this
Agreement.
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15. CUSTOMER COMPLAINT PROCEDURES
Correspondent will be responsible for the initial handling of all
Customer complaints. Any Customer who initiates a complaint with Penson will be
referred by Penson to Correspondent. If any such complaint is based upon an
alleged act or failure to act by Penson, Correspondent will notify Penson
promptly of such complaint and the basis therefor; and will consult with Penson;
and the parties will cooperate in determining the validity of such complaint and
the appropriate action to be taken.
16. REMEDIES CUMULATIVE
The enumeration herein of specific remedies shall not be exclusive of
any other remedies. Any delay or failure by any party to this Agreement to
exercise any right, power, remedy or privilege herein contained, or now or
hereafter existing under any applicable statute or law, shall not be construed
to be a waiver of such right, power, remedy or privilege, nor to limit the
exercise of such right, power, remedy or privilege, or shall it preclude the
further exercise thereof or the exercise of any other right, power, remedy or
privilege.
17. GUARANTEE
The corporation or individual(s) who guarantee the obligations of
Correspondent under this Agreement by executing the signature lines designated
for such purpose at the end of this Agreement (the "Guarantor(s)"), in
consideration of Penson's entering into the Agreement, do(es) hereby personally
guarantee(s) (jointly and severally, if more than one) the performance by
Correspondent of the provisions of the Agreement (including without limitation
the indemnification provisions of Section 10) and shall promptly pay any amount
that is not paid by Correspondent to Penson under the Agreement. This is an
absolute, unconditional and unlimited guarantee of payment and may be proceeded
upon by Penson or a Penson Indemnified Person before filing any action against
Correspondent or after any action against Correspondent has been commenced.
Guarantor(s) grants to Penson a first lien and security interest on any and all
money and securities of a Guarantor(s) held by Penson. Penson shall have the
unlimited right to set-off any amounts owed to it by Guarantor(s) against any
obligation of Penson to Guarantor(s). Penson also shall have the unlimited right
to set-off any amounts owed to it by Guarantor(s) against any obligation of
Penson to Guarantor(s). Penson also shall have the absolute and unlimited right
to sell, transfer, or liquidate any of the assets in any of Guarantor(s)'
accounts with Penson for any amounts owed to it by Correspondent or
Guarantor(s). The obligations of the Guarantor(s) shall not be discharged or
impaired or otherwise affected by the failure of Penson or a Penson Indemnified
Person to assert, claim, demand or enforce any remedy under this Agreement, nor
by waiver, modification or amendment of this Agreement or any compromise,
settlement or discharge of obligations of Correspondent under this Agreement, or
any release or impairment of any collateral by Penson or a Penson Indemnified
Person.
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18. RESPONSIBILITY FOR ERRORS; LIMIT ON LIABILITY; NO CONSEQUENTIAL DAMAGES
In the general course of business, Penson and Correspondent shall each
be responsible for correcting their own errors. In any action by Correspondent
against Penson for any claim arising out of the relationship created by this
Agreement, Penson shall only be liable to Correspondent in cases of gross
negligence or willful misconduct, and in such cases Penson shall only be liable
for the amount or actual monetary losses suffered by Correspondent.
Correspondent, shall not, in any such action or proceeding, or otherwise, assert
any claim against Penson for consequential damages on account of any loss, cost,
damage or expense which Correspondent may suffer or incur related to
transactions in connection with this Agreement or otherwise, including, but not
limited to, any lost opportunity claims.
19. MISCELLANEOUS
(a) TAX REPORTING. Penson shall be responsible for providing IRS
Form 1099 and other information required to be reported by
federal, state or local tax laws, rules or regulations, to
Accounts solely with respect to events subsequent to the
effective date of this Agreement and for the mailing of same
at Penson's expense.
(b) SCOPE OF SERVICES. Penson shall limit its services pursuant to
the terms of this Agreement to those services expressly set
forth herein and related thereto.
(c) MODIFICATION. This Agreement may be modified only by a writing
signed by both parties to this Agreement. Such modification
shall not be deemed as a cancellation of this Agreement.
Subject to the NASD Rules of Fair Practice, this agreement and
all modifications may be required to be submitted to the NASD
for approval prior to effectiveness. It is expressly
understood that brokerage services cannot be provided by
Correspondent under this Agreement until such approval, if
required, is received.
(d) ASSIGNMENT. This Agreement shall be binding upon all
successors, assigns or transferees of both parties hereto,
irrespective of any change with regard to the name of or the
personnel of Correspondent or Penson. Any assignment of this
Agreement shall be subject to the requisite review and/or
approval of any regulatory or self-regulatory agency or body
whose review and/or approval must be obtained prior to the
effectiveness and validity of such assignment. No assignment
of this Agreement shall be valid unless the non-assigning
party, in its sole discretion consents to such an assignment
in writing. Neither this Agreement nor any operation hereunder
is intended to be, shall not be deemed to be, and shall not be
treated as a general or limited partnership, association or
joint venture or agency relationship between Correspondent and
Penson.
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(e) ACCOUNT DOCUMENTATION. Applicable laws and regulations require
that Penson must have proper documentation and support for any
Account opened on its books. If, after reasonable requests,
the necessary documents to enable Penson to comply with such
account documentation requirements of the laws and regulations
have not been received by Penson, Correspondent shall receive
notification that no further orders will be accepted for the
Account involved.
(f) CONSTRUCTION. The construction and effect of every provision
of this Agreement, the rights of the parties hereunder and any
questions arising out of the Agreement, shall be subject to
the statutory and common law of the state of Texas.
(g) ARBITRATION. In the event of a dispute between the parties,
such dispute shall be settled by arbitration before
arbitrators sitting in Dallas, Texas, in accordance with the
rules of the Arbitration Committee of the NASD then in effect.
The arbitrators may allocate attorneys' fees and arbitration
costs between parties, and such award shall be final and
binding between the parties and judgment thereon may be
entered in any court of competent jurisdiction.
(h) HEADINGS. The headings preceding the text, articles and
sections hereof have been inserted for convenience and
reference only and shall not be construed to affect the
meaning, construction or effect of this Agreement.
(i) ENTIRE AGREEMENT. This Agreement shall cover only the types of
services set forth herein and is in no way intended nor shall
it be construed to bestow upon Correspondent or Penson any
special treatment regarding any other arrangements, agreements
or understandings that presently exist between Correspondent
and Penson or that may hereinafter exist. Correspondent shall
be under no obligation whatsoever to deal with Penson or any
of its subsidiaries or any companies controlled directly or
indirectly by or affiliated with Penson, in any capacity other
than as set forth in this Agreement. Likewise, Penson shall be
under no obligation whatsoever to deal with Correspondent or
any of its affiliates in any capacity other than as set forth
in this Agreement.
(j) SEVERABILITY. If any provision or condition of this Agreement
shall be held to be invalid or unenforceable by any court, or
regulatory or self-regulatory agency or body, such invalidity
or unenforceability shall attach only to such provision or
condition. The validity of the remaining provisions and
conditions shall not be affected thereby and this Agreement
shall be carried out as if any such invalid or unenforceable
provision or condition were not contained herein.
(k) FORCE MAJEURE. In addition to any excuse provided by
applicable law, all parties hereto shall be excused for
liability for non-performance of this Agreement arising from
any event beyond any party's control, whether or not
foreseeable by
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either party, including but not limited to, labor disturbance,
war, fire, accident, adverse weather, inability to secure
transportation, governmental act or regulation, inability to
obtain raw materials or other causes or events beyond either
party's control, whether or not similar to those enumerated
above.
(l) INTERPLEADER. If Penson receives conflicting claims from
Correspondent, a Customer and/or other persons regarding
money, securities or other property held by Penson, Penson
may, in its sole discretion, tender such money, securities or
other property to a court of competent jurisdiction and
institute an action in interpleader or other appropriate legal
proceeding to determine the rights of the respective
claimants. Penson shall have no liability to Correspondent or
Customers in connection with any such action, and shall be
entitled to reimbursement for its costs and expenses in
connection with such action from Correspondent.
(m) NOTICE. For the purposes of any and all notices, consents,
directions, approvals, restrictions, requests or other
communications required or permitted to be delivered
hereunder, Penson's address shall be:
Attention: Daniel P. Son
President
Penson Financial Services, Inc.
8080 N. Central, Suite 1010
Dallas, Texas 75206
and Correspondent's address shall be:
Mr. Mark Stryker
CyBerBroker, Inc.
1601 Rio Grande, Suite 440
Austin, TX
Either party may provide such notice or change its address for
notice purposes by giving written notice pursuant to
registered or certified mail, return receipt requested, of the
new address to the other party.
(n) COUNTERPARTS: NASD APPROVAL. This Agreement may be executed in
one or more counterparts, all of which taken together shall
constitute a single agreement. When each party hereto has
executed and delivered to the other a counterpart, this
Agreement shall become binding on both parties, subject only
to any required approval by the NASD. If required by the NASD,
Penson will submit this Agreement to the NASD promptly
following execution and will notify Correspondent, or cause
Correspondent to be notified promptly upon receipt of such
approval.
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Proprietary and Confidential
MADE AND EXECUTED AT DALLAS THIS 3RD DAY OF OCTOBER, 1997.
Penson: Penson Financial Services, Inc.
By: /s/ DANIEL P. SON
----------------------------------
Daniel P. Son, President
8080 N. Central, Suite 1010
Dallas, Texas 75206
CORRESPONDENT:
INDIVIDUAL:
----------------------------------
[Signature]
----------------------------------
[Print name]
----------------------------------
[Address]
----------------------------------
ENTITY: CYBERBROKER, INC.
----------------------------------
[Name]
CORPORATION
----------------------------------
[Type of Entity, i.e., corporation
partnership, etc.]
By: /s/ MARK STRYKER
----------------------------------
Its: CHIEF OPERATING OFFICER
----------------------------------
1601 RIO GRANDE
----------------------------------
[Address]
SUITE 440
----------------------------------
AUSTIN, TX 78701
----------------------------------
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Proprietary and Confidential
GUARANTEE: The undersigned individual(s) or corporation hereby guarantee(s) the
obligations of Correspondent under the Agreement as provided in Section 17 of
the Agreement.
INDIVIDUAL GUARANTOR(S):
----------------------------------
[Signature]
[Print name]
----------------------------------
----------------------------------
[Signature]
----------------------------------
[Print name)
----------------------------------
[Signature]
----------------------------------
[Print name]
CORPORATE GUARANTOR:
----------------------------------
[Name of Corporation]
By:
----------------------------------
Its:
----------------------------------
----------------------------------
[Address]
----------------------------------
----------------------------------
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Proprietary and Confidential
SCHEDULE A
TO CLEARING AGREEMENT BETWEEN PENSON FINANCIAL SERVICES, INC. ("PENSON")
AND CYBERBROKER, INC. ("CORRESPONDENT")
****
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AMENDMENT TO THE FULLY DISCLOSED CLEARING AGREEMENT
BETWEEN
PENSON FINANCIAL SERVICES, INC.
AND
CYBERBROKER, INC.
(NAME OF CORRESPONDENT)
This is an Amendment dated July 19, 1999, ("Amendment") to the Fully Disclosed
Clearing Agreement ("Agreement") between Penson Financial Services, Inc., a
division of Service Asset Management Company, a North Carolina corporation and
CyBer Broker, Inc. (Name of Correspondent)
BACKGROUND
In light of recent amendments to NASD Rule 3230, revisions have been made to
certain provisions of the Agreement to incorporate the requirements of these
amendments.
As such the following provisions of the Agreement are hereby amended to read as
follows (revisions are noted in bold print):
4. MAINTENANCE OF BOOKS AND RECORDS
Penson will maintain stock records and other records on a basis
consistent with generally accepted practices in the securities industry
and will maintain copies of such records in accordance with the NASD
and SEC guidelines for record retention in effect from time to time. AT
THE TIME THIS AGREEMENT IS EXECUTED AND ANNUALLY THEREAFTER, PENSON
WILL PROVIDE CORRESPONDENT WITH A LIST OR DESCRIPTION OF ALL EXCEPTION
OR OTHER REPORTS THAT IT OFFERS TO CORRESPONDENT. ANNUALLY, PENSON WILL
PROVIDE CORRESPONDENT WITH A LIST OF THOSE REPORTS REQUESTED BY OR
SUPPLIED TO CORRESPONDENT AND WILL PROVIDE A COPY OF SUCH NOTICE TO
CORRESPONDENT'S DEA. Penson and Correspondent shall each be responsible
for preparing and filing the reports required by the governmental and
regulatory agencies that have jurisdiction over each and Penson and
Correspondent will provide the other with such information, if any,
which is in the control of one party but is required by the other to
prepare any such report.
5. RECEIPT, DELIVERY AND SAFEGUARDING OF FUNDS AND SECURITIES
(d) Draft-Issuing Authority. At its discretion Penson may authorize
certain of Correspondent's employees to sign drafts as drawer payable
to Correspondent's Customers in amounts and pursuant to conditions as
may be determined by Penson from time to time. Correspondent agrees
that it will not request Penson to authorize someone to sign drafts who
is not an employee of Correspondent. CORRESPONDENT FURTHER AGREES THAT
THIS AUTHORITY SHALL NOT BE GRANTED BY PENSON UNTIL CORRESPONDENT HAS
NOTIFIED PENSON IN WRITING THAT IT HAS ESTABLISHED AND WILL MAINTAIN
AND ENFORCE SUPERVISORY PROCEDURES WITH RESPECT TO THE ISSUANCE OF SUCH
INSTRUMENTS. Correspondent agrees to fully indemnify Penson from the
negligence, fraud, or mistakes of Correspondent or Correspondent's
employees in connection with any draft issuing authority granted to
them and Correspondent authorizes Penson to charge any Correspondent
Account or any other assets of Correspondent held by Penson with the
amount of any such losses. Notwithstanding Section 5(a), Penson will
not be responsible for the safeguarding of funds withdrawn by
Correspondent or Correspondent's employees pursuant to such draft
issuing authority. Penson may withdraw this draft issuing privilege
without notice at any time during the term of this Agreement.
Notwithstanding anything herein to the contrary, Penson may at any
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time, at its sole discretion, despite any prior authorization, refuse
payment on any draft for which Correspondent is drawer and Penson is
payee.
15. CUSTOMER COMPLAINT PROCEDURES
Correspondent will be responsible for the initial handling of all
Customer complaints. Any Customer who initiates a complaint with Penson
will be referred by Penson to Correspondent. PENSON WILL FORWARD ANY
COMPLAINTS RECEIVED TO CORRESPONDENT'S DESIGNATED EXAMINING AUTHORITY
("DEA"). PENSON WILL ALSO NOTIFY THE CUSTOMER IN WRITING THAT THE
COMPLAINT WAS RECEIVED AND WAS FORWARDED TO CORRESPONDENT AND TO
CORRESPONDENT'S DEA. If any such complaint is based upon an alleged act
or failure to act by Penson, Correspondent will notify Penson promptly
of such complaint and the basis therefor; and will consult with Penson;
and the parties will cooperate in determining the validity of such
complaint and the appropriate action to be taken.
Please note that these revisions supercede Sections 4, 5(d), and 15 reflected in
the original Agreement. All other terms and conditions of the Agreement remain
in full force and effect.
PENSON FINANCIAL SERVICES, INC. CyBerBroker, Inc.
------------------------------------
(Name of Correspondent)
By: /s/ PHILIP A. PENDERGRAFT By: /s/ MARK K. STRYKER
-------------------------------- --------------------------------
Printed Name: Philip A. Pendergraft Printed Name: Mark K. Stryker
---------------------- ----------------------
Title: EVP Title: CEO
----------------------------- -----------------------------
Date: 7/29/99 Date: 7/27/99
------------------------------ ------------------------------
