Document:

Exhibit 10.2

 

EIGHTH
AMENDMENT TO CONSTRUCTION LOAN AGREEMENT

This Eighth Amendment to Construction Loan Agreement
is dated as of the 30th day of June, 2006, and is by and between DAKOTA ETHANOL, L.L.C., a South Dakota
limited liability company (“BORROWER”) and FIRST
NATIONAL BANK OF OMAHA (“BANK”), a national banking association
established at Omaha, Nebraska.

WHEREAS, BANK and BORROWER executed a Construction
Loan Agreement dated as of September 25, 2000 (the Construction Loan Agreement,
together with all amendments thereto is herein called the “AGREEMENT”);

WHEREAS, BORROWER’s only members are Lake Area Corn
Processors, LLC (“LACP”) and Jeff Broin, Rob Broin, Todd Broin, Lowell Broin
and Judy Broin (collectively “the BROINS”);

WHEREAS, BORROWER has requested, and BANK has agreed
to make available to BORROWER, a $19,100,000.00 loan which BORROWER will loan
to LACP to purchase the BORROWER’s units owned by the BROINS (“MEMBER LOAN”);

WHEREAS, BORROWER and BANK agree the MEMBER LOAN is
hereby included in the definition of OBLIGATIONS and is subject to all terms
and conditions of the AGREEMENT;

WHEREAS, the parties desire to further amend the
AGREEMENT,

Now, therefore, for valuable consideration, receipt
and adequacy of which is acknowledged, the parties agree as follows:

1.             All capitalized terms herein that are not otherwise
defined shall have the meanings assigned to them in the AGREEMENT. Any
requirements, covenants and obligations of BORROWER pursuant to the AGREEMENT
with regard to the CONSTRUCTION LOAN also apply to the TERM NOTES, REVOLVING
LOAN and MEMBER LOAN.

2.             Section 1.16 of the LOAN AGREEMENT is hereby amended to
read, effective immediately:

1.16         “LOAN
TERMINATION DATE” means the earliest to occur of the following: (i) as to TERM
NOTE 2 and TERM NOTE 5, September 1, 2011; as to the REVOLVING NOTE, April 20,
2007; as to the MEMBER NOTE, the earlier of LACP’s resale of the units it
purchases from the BROINS or 120 days from the date of this Amendment; (ii) the
date the OBLIGATIONS are accelerated pursuant to this AGREEMENT, and (iii) the
date BANK receives (a) notice in writing from BORROWER of BORROWER’s election
to terminate this AGREEMENT and (b) indefeasible payment in full of the
OBLIGATIONS.

 

 

3.             Section 1.28 of the LOAN AGREEMENT is hereby amended to
read, effective immediately:

1.28         “WORKING
CAPITAL” means current assets (less investments in or other amounts due from
any member, employee or any other person or entity related to or affiliated
with the BORROWER and prepayments) less current liabilities (less any portion
of such current liabilities that constitute debt that is expressly subordinated
to the BANK in a writing acceptable to the BANK or the MEMBER LOAN) plus the
amount available to BORROWER for drawing under TERM NOTE 5.

4.             Effective immediately, an additional paragraph shall be
added to the AGREEMENT, following existing paragraph 1.30, which additional
paragraph shall read:

1.31 “MEMBER NOTE” means that promissory note of
BORROWER to BANK evidencing the member loan described in Section 2.3.2 of this
AGREEMENT, its renewals, modifications and extensions.

5.             Effective immediately, additional paragraphs shall be
added to the AGREEMENT, following existing paragraph 2.3, such additional
paragraphs shall read:

2.3.1 MEMBER
LOAN.  BANK agrees to lend
$19,100,000.00 to BORROWER pursuant to this facility which BORROWER will in
turn loan to LACP, it majority member, to purchase the units owned by the
BROINS, the minority members.

2.3.2 THE
MEMBER NOTE. The LOAN COMMITMENT shall be evidenced by a MEMBER NOTE, in
the form attached hereto as Exhibit 8-A. Principal and interest shall be
payable according to the repayment schedule and interest rate accrual as
described in the MEMBER NOTE. The balance will be due and payable on LOAN
TERMINATION DATE.

6.             Effective immediately, Section 2.5 of the AGREEMENT is
hereby replaced in its entirety as follows:

2.5           Fees. BORROWER agrees to pay
BANK unused commitment fees equal to 37.5 basis points of the average unused
portion of the REVOLVING LOAN and of TERM NOTE 5, each fee payable quarterly in
arrears. In addition, BORROWER shall pay to the BANK upon execution of this
AMENDMENT a commitment fee of $143,250.00, which fee BORROWER agrees and
acknowledges has been earned by BANK.

7.             Effective immediately, an additional paragraph shall be
added to the AGREEMENT, following existing paragraph 6.2.4, which additional
paragraph shall read:

6.2.5  The
BORROWER shall maintain a debt ratio measured at the end of each calendar month
of no more than 1.50 : 10, for all periods following COMPLETION

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DATE.  For purposes of this covenant, to determine
such ratio, INDEBTEDNESS shall be compared to NET WORTH.

8.             BANK and BORROWER waive any prohibition to BORROWER
lending funds to its members as it relates to the MEMBER LOAN identified
herein. BANK further waives any violation of Section 6.4.5 and 6.4.10 of the
AGREEMENT as it relates to LACP purchasing the units owned by the BROINS and
subsequently selling such units.

9.             Section 6.4.12 of the AGREEMENT is hereby amended to
read, effective immediately:

6.4.12  Make or
pay, without the prior written consent of BANK, in any fiscal year,
distributions to members or shareholders of the BORROWER except as provided in
this paragraph.  BORROWER may make
distributions to members or shareholders of BORROWER if the following
conditions are met:

i.              The
MEMBER LOAN has been repaid in full to the BANK.

ii.             At
the time of, and immediately after, a distribution BORROWER must be in
compliance with each of the OBLIGATIONS and covenants set forth in this AGREEMENT.

iii.            Any
such distributions shall be made based upon the most current financials
statements furnished by BORROWER to BANK, as well as the most recent compliance
statements are required herein, and only on the additional condition that
BORROWER retains a minimum of $1,000,000 of available cash following any such
distributions.

iv.            In
such events, BORROWER may distribute up to 100% of EXCESS CASH FLOW, if after
such distribution, NET WORTH equals more than 55% of BORROWER’s Total
Assets.  BORROWER may distribute up to
75% of EXCESS CASH FLOW, if after such distribution, NET WORTH equals between
45% and 55% of BORROWER’s Total Assets. 
If any distribution or distributions by BORROWER result in NET WORTH
being less than 55% of BOWRROWER’s Total Assets following such distribution,
BORROWER shall provide prompt notice of such fact to BANK.  After notice to BANK, and receipt of BANK’S
approval, not to be unreasonably withheld, BORROWER may distribute up the
aggregate of 50% of EXCESS CASH FLOW in multiple distributions up to four times
per calendar year, if after such distribution(s), NET WORTH equals less than
45% of BORROWER’s Total Assets.

10.           BORROWER has had all of its members
acknowledge and consent to this Amendment.

11.           BORROWER certifies by its execution
hereof that the representations and warranties set forth in Section 5. of the
AGREEMENT are true as of this date, and that no EVENT OF DEFAULT under the
AGREEMENT, and no event which, with the giving of notice or passage of time or
both, would become such an EVENT OF DEFAULT, has occurred as of this date.

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12.           This Amendment may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which counterparts of each instrument or
agreement, taken together, shall constitute but one and the same instrument.

13.           Except as amended hereby the parties
ratify and confirm as binding upon them all of the terms of the AGREEMENT.

IN WITNESS WHEREOF, the
parties hereto have caused this AGREEMENT to be executed by their respective
officers or managers thereunto duly authorized, as of the date first above
written.

	
  Dakota Ethanol, L.L.C.

  	
   

  	
  First National Bank of Omaha

  
	
  By:

  	
  /s/Brian Woldt

  	
   

  	
   

  	
  By:

  	
  /s/Chris M. Reiner

  	
   

  
	
  Name:

  	
  Brian Woldt

  	
   

  	
   

  	
  Name: Chris M. Reiner

  
	
  Title:

  	
  Chairman

  	
   

  	
   

  	
  Title: Commercial Loan Officer

  
									

 

NOTARY ACKNOWLEDGMENT

	
  STATE OF South Dakota

  	
  )

  
	
   

  	
  ) ss.

  
	
  COUNTY OF Lake

  	
  )

  

 

On this 30 day of June 2006, before me,
the undersigned, a Notary Public, personally appeared Brian Woldt, the Chairman
of Dakota Ethanol, L.L.C., who executed the foregoing instrument, and
acknowledged that he executed the same as his voluntary act and deed, as well
as that of the company.

	
  /s/Alan E. May

  	
   

  
	
  Notary Public

  

 

 4
 

 

 

Exhibit 8-A

Member Note

 

 5

 

MEMBER
NOTE

	
  Note Date: June 30, 2006

  	
   

  	
  $19,100,000.00

  
	
  Maturity Date:
  October 28, 2006

  	
   

  	
   

  

 

FOR VALUE RECEIVED, DAKOTA
ETHANOL, L.L.C., a South Dakota limited liability company (“BORROWER”),
promises to pay to the order of First National Bank of Omaha (“BANK”), at its
principal office or such other address as BANK or holder may designate from
time to time, the principal sum of Nineteen Million One Hundred Thousand and
00/100 Dollars ($19,100,000.00), or the amount shown on the BANK’s records to
be outstanding, plus interest (calculated on the basis of actual days elapsed
in a 360-day year) accruing each day on the unpaid principal balance at the
annual interest rates defined below. Absent manifest error, the BANK’s records
shall be conclusive evidence of the principal and accrued interest owing
hereunder.

This promissory note is executed pursuant to a
Construction Loan Agreement (“CONSTRUCTION LOAN AGREEMENT”) between BORROWER
and BANK dated as of September 25, 2000, (the Construction Loan Agreement,
together with all amendments thereto is called the “AGREEMENT”). All
capitalized terms not otherwise defined in this note shall have the meanings
provided in the AGREEMENT.

INTEREST ACCRUAL. Interest
on the principal amount outstanding shall accrue at the BASE RATE in effect
from time to time until maturity (the “RATE”), and three per cent (3%) above
the BASE RATE in effect from time to time after maturity, whether by
acceleration or otherwise. For purposes hereof, BASE RATE shall mean the rate
announced by BANK from time to time as its “National Base Rate”.

Each time the BASE RATE shall change, the RATE shall
change contemporaneously with such change in the BASE RATE. Interest shall be
calculated on the basis of a 360-day year, counting the actual number of days
elapsed.

REPAYMENT TERMS. Interest
on the outstanding principal balance shall be due and payable monthly, in
arrears, with the first payment commencing on July 30, 2006. Principal and any
outstanding interest shall be due and payable upon the earlier of (i) Lake Area
Corn Processors, LLC reselling the units purchased from BORROWER’s minority
members; or (ii) 120 days from the Note Date identified above.

PREPAYMENT. The
BORROWER may prepay this promissory note in full or in part at any time. Such
prepayment shall not excuse the BORROWER from making subsequent payments
provided for herein until the indebtedness is paid in full.

ADDITIONAL TERMS AND CONDITIONS. The
AGREEMENT, and any amendments or substitutions, contains additional terms and
conditions, including default and acceleration provisions, which are
incorporated into this promissory note by reference. The BORROWER agrees to pay
all costs of collection, including reasonable attorneys fees and legal expenses

 

 

incurred by the BANK if this promissory note is not
paid as provided above. This promissory note shall be governed by the
substantive laws of the State of Nebraska.

WAIVER OF PRESENTMENT AND NOTICE OF
DISHONOR. BORROWER and any other person who signs, guarantees
or endorses this promissory note, to the extent allowed by law, hereby waives
presentment, demand for payment, notice of dishonor, protest, and any notice
relating to the acceleration of the maturity of this promissory note.

	
  

  	
  DAKOTA
  ETHANOL, L.L.C.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Brian Woldt

  	
   

  
	
   

  	
  Name:

  	
  Brian Woldt

  	
   

  
	
   

  	
  Title:

  	
  Chairman

  	
   

  
						

 

	
  STATE OF South Dakota

  	
  )

  
	
   

  	
  ) ss.

  
	
  COUNTY OF Lake

  	
  )

  

 

On this 30 day of June,
2006, before me, the undersigned, a Notary Public, personally appeared Brian
Woldt the Chairman of Dakota Ethanol, L.L.C., on behalf of said
entity, who executed the foregoing instrument, and acknowledged that he
executed the same as his voluntary act and deed and that of the Company.

	
  

  	
  /s/Alan E. May

  	
   

  
	
   

  	
  Notary Public

  

 

 2EXHIBIT 10.1

Fully
Disclosed Clearing Agreement

This agreement (the “Agreement”)
is made between RBC Dain Correspondent Services, a division of RBC Dain
Rauscher Inc., a Minnesota corporation (“Clearing Broker”), and the party
signing below (“Correspondent”), having the form of organization set forth
below.

Recitals

WHEREAS, Correspondent
desires that Clearing Broker shall provide certain services (the “Services”) to
Correspondent with respect to accounts of customers (individually, a “Customer”,
collectively, the “Customers”) and proprietary accounts (collectively, “Accounts”)
introduced to Clearing Broker by Correspondent, which include: (i) executing,
clearing and settling securities transactions (“Transactions”) on behalf of
Correspondent; (ii) preparing and delivering confirmations of Transactions
and periodic Account statements; (iii) extending credit (“Margin”) to Accounts; (iv) performing
cashiering functions, including, but not limited to, receiving and delivering
checks, funds and securities and collecting commissions and other fees of
Correspondent; (v) safeguarding
Account funds and securities;
and (vi) maintaining books and records with respect to the Accounts;

WHEREAS, the parties are
subject to certain state and Federal laws and regulations relating to
securities markets and transactions and the customs and usages, rules, by-laws,
and constitutions (collectively, the “Applicable Rules”) of the Securities and
Exchange Commission (the “SEC”), the National Association of Securities Dealers
(“NASD”), the New York Stock Exchange (“NYSE”), other securities exchanges
(individually, an “Exchange”, collectively, the “Exchanges”), any clearing
agencies, or the Board of Governors of the Federal Reserve System;

WHEREAS, the word “securities”
as used within this agreement shall have the same meaning and be defined in the
same manner as provided by Section 3(a)(10) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”); and

WHEREAS, Correspondent is
a securities broker dealer and desires to utilize the Services as provided in
this Agreement in accordance with the Applicable Rules.

NOW, THEREFORE, in
consideration of the mutual covenants hereinafter set forth and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Clearing Broker and Correspondent hereby covenant and agree as
follows:

Section 1. General
Provisions

1.1   Incorporation
of Recitals. The above recitals are hereby incorporated as an
integral part of this Agreement as if fully set forth herein.

1.2   No
Agency or Partnership Created. Nothing contained in this
Agreement shall be deemed to create a partnership, joint venture or agency
relationship between Clearing Broker and Correspondent.

1.3   Allocation
of Responsibility. As between Clearing Broker and
Correspondent, Correspondent shall be responsible for the relationship with
each Customer. Clearing Broker’s function is limited to the provision to
Correspondent of the Services as described herein. Unless specifically
allocated to Clearing Broker, Correspondent shall be responsible for all duties
and functions with respect to Customers and concerning any Accounts.

Section 2. Services
to be Performed by Clearing Broker

2.1   Services.
The Services shall include the following:

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2.1.1     Opening
of Accounts. Clearing Broker shall establish Accounts for
Customers introduced by Correspondent, upon receipt from Correspondent of the
information described in Section 3.1. Upon receipt of information from
Correspondent changing or correcting any information with respect to the
Account, Clearing Broker will make such change or correction.

2.1.2     Execution.
Clearing Broker shall execute Transactions in accordance with orders and
instructions received from Correspondent pursuant to Section 3.2 below. If
Correspondent gives specific instructions with respect to routing of
Transactions, the Clearing Broker will follow those instructions. If
Correspondent does not give such specific instructions with respect to the
routing of Transactions, the Clearing Broker may (a) execute the order
itself, (b) execute the order with another brokerage firm that is a market
maker in the security involved, or (c) execute the order through a primary
or regional exchange, in each case in accordance with all Applicable Rules. In
return for routing an order to a specific market, the Clearing Broker may
receive cash payment, return order flow or favorable adjustments on trade
errors. Any remuneration received by the Clearing Broker will be considered a
reduction of its execution costs and will not accrue to Accounts. The Clearing Broker will comply with all Applicable Rules concerning
disclosure to Customers regarding order routing and payment for order flow.

2.1.3     Confirmations.
Except as may otherwise be agreed, Clearing Broker shall generate and mail
directly to Customers in accordance with instructions received and accepted
from Correspondent confirmations with respect to all Transactions. Clearing
Broker shall provide copies to Correspondent of all such confirmations and any
other written communications sent to and received from a Customer.
Correspondent understands and agrees that all such confirmations shall indicate
that the Account is introduced to Clearing Broker by Correspondent.

2.1.4     Books
and Records. Clearing Broker shall prepare and maintain books
and records with respect to Transactions and Accounts as required by the
Applicable Rules. Clearing Broker shall also maintain on behalf of
Correspondent such additional books, records, and other documents or
information as Correspondent shall request and Clearing Broker may agree.
Clearing Broker shall upon request of Correspondent provide Correspondent with
access to and, at Correspondent’s expense, originals or copies of any such
books, records, documents and information in the possession of Clearing Broker.
On an annual basis within thirty (30) days of July 1 of each year, the
Clearing Broker shall provide to Correspondent’s Chief Executive Officer and
Compliance Officer a list of reports offered to Correspondent, and shall
specify those reports actually requested by, or supplied to, Correspondent as
of the report date. Clearing Broker shall file a copy of such notice with
Correspondent’s designated examining authority.

2.1.5     Cashiering.
Clearing Broker shall perform
cashiering functions for Correspondent.
Said functions may include the receipt and deposit by Correspondent to bank accounts
established by and for the
benefit of Clearing Broker of customer
funds, checks and cash, and the receipt by
Correspondent of securities sold for the Accounts as well as certain
administrative functions relating thereto. All customer funds and securities shall be promptly forwarded by
Correspondent to Clearing Broker. Clearing Broker shall be responsible
for performing administrative and bookkeeping functions with respect to
deposits, fees and charges in the Accounts. Clearing Broker shall not be
responsible for any securities or funds until properly delivered to Clearing
Broker pursuant to Clearing Broker’s requirements.

2.1.6     Margin.
With respect to any Account in which Margin is requested to be extended,
Clearing Broker shall obtain from Correspondent an agreement executed by the
Customer in form and substance satisfactory to Clearing Broker (the “Margin
Agreement”). All Transactions shall be considered cash transactions until such
time as Clearing Broker has received the applicable executed Margin Agreements.
Clearing Broker shall generate and make all Margin maintenance calls in
accordance with the Applicable Rules. Clearing Broker shall have sole discretion
with respect to the amount of Margin maintained by any Account, and may, in its
sole discretion, impose higher Margin

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requirements than those imposed by the Applicable
Rules. Clearing Broker, as creditor, is responsible for compliance with
Regulation T, 12 CFR, part 220, the Federal Margin Regulations promulgated by
the Board of Governors of the Federal Reserve System (the “Board”), any
interpretive ruling issued by the Board, and any other applicable Margin and
maintenance requirements of the Applicable Rules with respect to Margin
Accounts. As provided in Section 3.5 herein, Correspondent is responsible
for obtaining all cash or securities required to be deposited in the Accounts,
whether to satisfy a debit balance or other liability arising in an Account
(individually and collectively, the “Account Debits”) or otherwise.
Notwithstanding the above, Clearing Broker may, at any time, and without
liability or obligation to do so (or to do so again in the future), contact any
Customer or collect funds or securities from any Customer with respect to any
Account Debit with or without prior
notice to Correspondent. Nothing contained in this Agreement shall relieve
Customer from his/her obligation to pay to Clearing Broker all amounts due in
his/her Account.

2.1.7     Account
Transfers. Pursuant to written notification executed by a
Customer and forwarded by Correspondent to Clearing Broker, any Customer may
choose to transfer its Account to another broker dealer. Upon receipt of such
notice, Clearing Broker shall have exclusive responsibility for compliance with
Rule 412 of the NYSE and any similar Applicable Rule. Clearing Broker may
accept and process directions received directly from the Customer with respect
to the transfer of the Account to another broker dealer; Clearing Broker may
refuse to accept any other orders or instructions received directly from a
Customer except those received on
behalf of Customer from Correspondent.

2.1.8     Correspondent
and Customer Service. Clearing Broker shall be responsible
for receiving and responding to all inquiries from Correspondent regarding the
Accounts and all confirmations and statements relating to the Accounts. Except
as otherwise required by the Applicable Rules, all such inquiries should
initially be directed to Clearing Broker’s Customer Service Department.

2.1.9     Fully
Disclosed Basis. Clearing Broker shall carry the Accounts on
a fully disclosed basis. Clearing Broker shall be responsible for making all
disclosures to Customers required by NYSE Rule 382.

2.1.10   Clearance
and Settlement of Trades. Clearing Broker shall clear and
settle Transactions in the Accounts in accordance with the Applicable Rules.
Clearing Broker shall receive from Correspondent or directly from Customer any
securities sold and will deliver such securities in accordance with the
Applicable Rules.

2.1.11   Statements.
Clearing Broker shall prepare and mail directly to Customers in accordance with
instructions received and accepted from Correspondent periodic statements for
the Accounts in accordance with the Applicable Rules. All such statements shall
indicate that the Account is introduced by Correspondent and carried by
Clearing Broker. Each such statement shall contain the name and telephone
number of the Customer Service Department at Clearing Broker that Customers can
contact with questions regarding the Account and shall disclose that all funds
and securities of Customers are in the
custody of Clearing Broker and not of Correspondent.

2.1.12   Safekeeping.
Clearing Broker shall hold in custody and safe-keeping all securities and
payments received for the Accounts, collect and disburse dividends and other
distributions with respect to securities within the Accounts and process in
accordance with any instructions received from Correspondent exchange offers,
rights offerings, warrants, tender offers, redemptions or proxy requests
received with respect to securities in the Accounts.

2.1.13   Exception
Reports. To the
extent provided by Applicable Rules, at the commencement of this
Agreement and annually thereafter, Clearing Broker shall furnish to
Correspondent a list of reports that
may assist Correspondent, in
Correspondent’s sole opinion, in supervising and monitoring Accounts,
including, but not limited to, exception reports. Correspondent shall promptly
notify Clearing Broker as to which of such reports should be furnished to
Correspondent. It is understood 

 3
 

 

that Clearing Broker shall not be responsible for
supervising Correspondent’s activities or compliance with Applicable Rules.

2.1.14   Customer
Complaints. To the
extent provided by Applicable Rules, Clearing Broker shall promptly
furnish to Correspondent and Correspondent’s designated examining authority any
written complaint from a Customer with respect to Correspondent’s
responsibilities and functions hereunder received by Clearing Broker. Clearing
Broker shall notify such Customer in writing that (i) Clearing Broker
received such complaint and furnished same to Correspondent for response and to Correspondent’s designated
examining authority, and (ii) Customer has the right, at Customer’s
discretion, to transfer Customer’s Account to another broker-dealer.

2.1.15   Access
to Electronic Order Entry Devices. To the extent that
Clearing Broker provides Correspondent with electronic order entry devices to
route orders to the NYSE, Clearing Broker shall assure itself that
Correspondent employs adequate written control procedures to minimize the
potential for errors.

2.1.16   Reporting Order Information. Subject
to the terms and conditions of this Agreement, Clearing Broker will be
responsible for submitting, in conformity with the Applicable Rules,
information provided by Correspondent regarding orders in NASDAQ Securities
placed and entered into by the Correspondent. Any records of Order Audit Trail
System (“OATS”) data prepared on behalf of Correspondent and maintained by
Clearing Broker are the property of Correspondent and shall be surrendered to
Correspondent promptly upon Correspondent’s request. Clearing Broker shall
permit, and Correspondent hereby authorizes Clearing Broker to permit, the
examination of any records of OATS data prepared on behalf of Correspondent and
maintained by Clearing Broker at any time or from time to time during business
hours by representatives of NASD and to promptly furnish to NASD or its
designee upon request true, correct, complete, and current hard copy of any or
all of any part of these records. Clearing Broker shall promptly notify
Correspondent upon the occurrence of any event, including physical damage to
Clearing Broker’s facilities, or legal proceedings involving Clearing Broker,
that would materially affect Clearing Broker’s ability to make OATS reports on
behalf of Correspondent. Correspondent shall promptly report to Clearing Broker
all necessary information required by the Applicable Rules respecting
orders in NASDAQ Securities which the Correspondent intends to submit to
Clearing Broker for execution so as to facilitate the reporting of such
transactions by Clearing Broker in conformity with the OATS Rules and all
other Applicable Rules. Correspondent shall cooperate with Clearing Broker and
provide Clearing Broker, its attorneys, accountants and authorized agents with
all appropriate data in its possession, including, without limitation, all
transaction and account documents, books and records, necessary for Clearing
Broker to comply with the OATS rules, and to permit Clearing Broker to defend
against any allegation of a violation of an OATS rule or any Applicable
Rule. The Correspondent understands and agrees that Clearing Broker cannot
perform its reporting and other obligations under this Agreement, and further
agrees that those obligations are waived, to the extent that any order data is
not entered or is improperly entered into by Correspondent, or received or improperly
received by Clearing Broker. Correspondent acknowledges and agrees that
Clearing Broker is performing its obligations under this Agreement as an
accommodation to Correspondent, and that the NASD takes the position that no
contractual arrangement, no matter how comprehensive, will relieve any member
(including Correspondent) of its responsibilities under the OATS rules.

2.2   Right
to Subcontract. In performing the Services, Clearing Broker
may contract with third party vendors to provide ancillary or support services
(the “Vendors”). With respect to certain Services designated by Clearing
Broker, Correspondent shall contract directly with Vendors identified by
Clearing Broker or as may be selected by Correspondent and approved by Clearing
Broker. Clearing Broker shall have no liability for the failure to perform,
errors, omissions or the delay, inadequacy or insufficiency of performance by
any Vendor but will cooperate with Correspondent in asserting such rights as
Correspondent may have pursuant to contracts with the Vendors.

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2.3   Limitations
and Restrictions.

2.3.1     Clearing
Broker expressly reserves the right, in its sole discretion, to limit and
restrict any of the Services including, without limitation, by rejecting any
order or transaction for any Account, by refusing to execute, clear or settle
any Transaction, to carry or to continue to carry any Account, or to provide
Margin for any Account.

2.3.2     Clearing
Broker may liquidate any and all Transactions or collateral held in an Account in the following circumstances: (i) upon the request of Correspondent; (ii) upon the death, incapacity,
insolvency, or bankruptcy of Customer; (iii) upon a Customer’s failure to honor any obligations with respect to
Transactions, the Account or Margin; (iv) in the event failure to do so
would result in a violation of the Applicable Rules; or (v) Clearing
Broker in its sole discretion determines to do so.

2.3.3     Unless
otherwise expressly agreed to in a
writing signed by both parties,
Clearing Broker shall not be responsible for providing any of the following
services: (i) accounting, bookkeeping or record keeping, cashiering or
other services with respect to commodity transactions or other transactions not
involving securities; (ii) preparation of Correspondent’s payroll records,
financial statements or any analysis thereof; (iii) preparation or
issuance of checks in payment of Correspondent’s expenses, other than expenses
incurred by Clearing Broker on behalf of Correspondent; (iv) payment of
commissions, salaries or other remittances to Correspondent’s salespersons or
other employees or agents; (v) preparation or filing of any of
Correspondent’s reports to the SEC or any state securities commission or any
Exchange, provided, however, that Clearing Broker will, at the request of
Correspondent, furnish Correspondent with any necessary information contained
in records kept by Clearing Broker and not otherwise available to Correspondent
for use in making such reports; (vi) delivery of prospectuses or other
disclosure documents required pursuant to Applicable Rules other than
disclosures required to be made pursuant to NYSE Rule 382, or any similar rule of
any Exchange, or SEC Rule 10b-16, (vii) making and maintaining
reports and records required by the Currency and Foreign Transactions Reporting
Act of 1970, as amended, and the regulations thereunder, or any other similar
provisions within the Applicable Rules; (viii) verification of address
changes of Customers; and (ix) any other function, task or service not
specifically allocated to it in this Agreement.

2.3.4     Solely
for purposes of the Securities Investor Protection Act of 1970 and the SEC’s
financial responsibility rules, Customers are deemed customers of Clearing
Broker and not of Correspondent.

Section 3. Functions
and Obligations of Correspondent

Correspondent
shall perform the following functions and obligations with respect to the
Accounts:

3.1   Opening
and Approving of Accounts. Correspondent shall open and
approve an Account for each Customer only upon obtaining, verifying and
retaining current and correct documentation containing the financial and
personal information and agreements for each Account (“Account Documents”)
required by the Applicable Rules. Correspondent shall introduce the Accounts
for acceptance by Clearing Broker by furnishing to Clearing Broker the basic
information required to open the account (including, without limitation, the
name, address, tax identification number, standing instructions, representative
number and such other information or agreements as Clearing Broker may deem
necessary to perform the Services) and such Account Documents as Clearing
Broker may require. Correspondent shall promptly furnish to Clearing Broker any
changes or corrections to the Account information of Account Documents
necessary to keep such information and Account Documents current and correct.

3.2   Execution
of Trades, Confirmations and Periodic Statements.
Correspondent may forward Customer orders and instructions for Transactions to
Clearing Broker for execution pursuant to Section 2.1.2. If Correspondent executes Transactions “away” from the Clearing Broker, or if
the Correspondent provides specific instructions to the Clearing Broker with
respect to order routing, Correspondent will comply with and be

 5
 

 

responsible for
all Applicable Rules concerning best execution and disclosure to Customers
of order routing or payment for order flow. Correspondent shall provide
Clearing Broker with all necessary information to generate and mail directly to
Customers confirmations with respect to any Transactions. Correspondent
understands and agrees that all confirmations shall indicate that the Account
is carried, and Transactions are cleared and settled, by Clearing Broker. It is understood that Clearing Broker shall
accept, without any inquiry or investigation, all directions from
Correspondent, as agent of each Customer, regarding Transactions in Accounts,
and any other instructions from Correspondent, as agent of each Customer,
concerning Accounts or the property therein, including the transfer of funds to
third parties.

3.3   Disclosure
to Customers. Correspondent shall provide to the Customers notices, disclosure
documents and prospectuses required pursuant to the Applicable Rules.

3.4   Supervision
of Accounts. Correspondent acknowledges that Clearing Broker’s
relationship with Correspondent and with Customers shall be strictly limited to
the provision of the Services hereunder and that Clearing Broker shall only
perform and be responsible for such Services. Correspondent shall have the
exclusive responsibility for ascertaining the investment objective of each
Customer, “knowing the Customer,” the suitability of Transactions effected for
Customers, and Clearing Broker shall have no such responsibility with respect
thereto. Correspondent shall have the exclusive responsibility for compliance
with Rule 405 of the NYSE and any similar rule of any other Exchange
in which Correspondent is a member or any similar rule of the NASD with
respect to each Account and every order, Transaction or instruction.
Correspondent has established and maintains, and shall have exclusive
responsibility for adherence to, compliance and supervisory procedures adequate
to assure compliance by Correspondent, its agents, servants and employees with
the Applicable Rules and this Agreement, which procedures for supervision
include provisions with respect to: (i) the opening, approving and
monitoring of Accounts including the suitability of Transactions; (ii) the
reasonable basis for recommendations made and investment advice and investment
strategies provided to Customers; (iii) the orders and execution of orders
for Transactions in compliance with Customer instructions; (iv) the
frequency of trading in the Accounts, whether or not such Transactions are
instituted by Correspondent, its partners, officers, employees or any
registered investment adviser; (v) discretionary Accounts; (vi) restricted
Accounts as defined by the Applicable Rules; (vii) compliance with
restricted or control stock requirements of the Applicable Rules; and (viii) securing
and transmitting orders in a form and format as specified by Clearing Broker.

3.5   Customer
Payments. While each Customer is directly responsible to the
Clearing Broker with respect to payment for all securities purchased, and for
the delivery of all securities sold, for his or her Account, the Correspondent
shall be responsible for obtaining from each Customer such funds or securities
as are required to be deposited or maintained in Accounts. Correspondent shall
be responsible to the Clearing Broker for payment for securities purchased in
the Accounts until actual and complete payment therefor has been made.
Correspondent shall be responsible to Clearing Broker for delivery of
securities in the Accounts until acceptable deliveries of such securities have
been completed. If Correspondent maintains minimum net capital of less than
$250,000, it shall direct Customers to make all payments for Transactions
directly to Clearing Broker. If Correspondent maintains minimum net capital of less
than $50,000, Correspondent shall also direct Customers to deliver all
securities directly to Clearing Broker for Transactions within the Account and
shall notify Customers that Correspondent is prohibited from receiving funds
(other than checks made payable to third parties, including Clearing Broker) or
securities. Correspondent shall deposit in bank accounts established for the
benefit of Clearing Broker prior to the close of business on the day of receipt
all funds and checks received by Correspondent with respect to any Account as
specified by Clearing Broker to enable Clearing Broker promptly and properly to
record such remittances and receipts in the Account. Correspondent shall send
all securities received by it to Clearing Broker by overnight delivery service
on the day of receipt, or as specified by Clearing Broker. Correspondent is
responsible for the collection of the initial Margin required pursuant to the
Applicable Rules to support each Margin transaction for an Account, the
amount of any Margin maintenance requirement pursuant to the Applicable Rules and
the timely payment of all Account Debits, interest and other charges incurred
in an Account. Correspondent is also responsible to Clearing Broker for the
collection of funds or securities required to settle any Transactions. If
requested by Clearing Broker, Correspondent shall promptly transmit to
Customers all requests for initial and maintenance Margin and for funds or
securities to settle Transactions or pay Account Debits. Correspondent shall be
liable for any loss, liability, damage, cost or expense (including but not
otherwise limited

 6
 

 

to fees and
expenses of legal counsel) incurred or sustained by Correspondent or Clearing
Broker, or both, as a result of the failure of any Customer to timely make
payments or deposits of securities to satisfy Account Debits, settle
Transactions or to comply with any Margin calls or any term or provision of a
margin agreement with Clearing Broker, and/or consent to loan and hypothecation
of securities. In its sole discretion, at any time, Correspondent may effect a “buy-in”
or “sell-out” of a Transaction or liquidate an Account Debit and collect from
the Customer any deficiency resulting from the “buy-in” or “sell-out” or
liquidation.

3.6   Waiver
of Procedures.

3.6.1     Subject
to the Applicable Rules, Correspondent may request Clearing Broker to alter or
waive compliance with any one or more of Clearing Broker’s practices or
policies with respect to one or more Accounts or Transactions. Upon making a
request for waiver, Correspondent undertakes to reimburse, indemnify and hold
harmless Clearing Broker from any loss of any kind that may result from such
waiver and the accommodation of the request by Clearing Broker.

3.6.2     Correspondent
may request that Clearing Broker extend, or continue to extend, credit to an
Account in excess of the credit that Clearing Broker would otherwise be willing
to extend. In connection with such an extension of credit, Correspondent shall
deposit to the Account established solely for this purpose and maintained by
Correspondent at Clearing Broker (the “Margin Collateral Account”) such
Acceptable Securities or Cash as Clearing Broker may request in an amount
determined by Clearing Broker from time to time in order to secure such extension
of credit. “Cash” means immediately available United States dollars; and “Acceptable
Securities” means: (1) any security which is issued or fully guaranteed as
to principal and interest by the United States of America; and (2) such
other securities acceptable to Clearing Broker in its sole discretion.

3.6.3     In
the event any such deposit into the Margin Collateral Account is not timely
made, Clearing Broker may in its sole discretion and regardless of whether the
Margin Collateral Account is then in compliance with applicable margin
requirements, pledge, re-pledge, hypothecate or re-hypothecate without prior
notice any or all securities which Clearing Broker may hold in an account of
the Correspondent at Clearing Broker (either individually or jointly with
others), separately or in common with other securities or any other property,
for the sum then due or for a greater or lesser sum and without retaining in
its possession and control for delivery a like amount of similar securities;
sell out any or all securities which Clearing Broker may hold for such Account
or in an Account of the
Correspondent at Clearing Broker (either individually or jointly with others),
or buy in any or all securities required to make delivery; or apply to an
appropriate committee of any national securities exchange or association for an
extension of the time within which payment or delivery is due. Any sale,
purchase or cancellation authorization hereunder may be made, in Clearing
Broker’s sole discretion, on an exchange or other market where such business is
then usually transacted, or at public auction, or at a private sale without
advertising the same and without any notice, prior tender, demand or call; and
Clearing Broker may purchase the whole or part of such securities free from any
right of redemption and the Account and the Correspondent shall remain liable
for any deficiency. The election as to whether to enforce the foregoing
provisions against either the Account or the Correspondent, or the allocation
between such Accounts, is at
Clearing Broker’s sole discretion, and any decision to act or not to act will
not limit or supersede Clearing Broker’s rights under section 9 of this
Agreement.

3.7   Validity
and Authority of Information. Correspondent shall obtain and
maintain the necessary documents, information, systems and interfaces with
Clearing Broker’s systems in order to perform the functions and obligations
allocated to Correspondent pursuant to this Agreement. Correspondent represents
and warrants to Clearing Broker that: (i) all Accounts, orders,
Transactions, instructions, Margin and Account Debits established, entered,
incurred or maintained have been duly and validly authorized and are legally
binding and enforceable according to their terms against the Customer; (ii) all
securities delivered by a Customer or Correspondent to Clearing Broker are
genuine, will be in good delivery form, free of liens, claims and encumbrances
and have not been reported lost, missing or stolen; and (iii) all
documents delivered to Clearing Broker will be genuine and duly executed by the
parties named therein.

 7
 

 

3.8   Customer
Correspondence. All Customer correspondence shall be
reviewed, responded to and resolved by Correspondent; provided, however, that
to the extent any Customer correspondence contains any inquiry or complaint
relating to Services provided by Clearing Broker, Correspondent shall promptly
provide Clearing Broker with copies of the correspondence. Clearing Broker
shall cooperate with Correspondent by providing such information and copies of
documents and records as are reasonably necessary for Correspondent to respond
to such Customer.

3.9   Negotiable
Instruments. In the event that the Services provided herein
shall allow Correspondent to issue to Customers negotiable instruments such as
drafts or checks, for which Clearing Broker is the drawer or maker,
Correspondent hereby represents that it currently has, and covenants that it
shall maintain and shall enforce, supervisory procedures satisfactory to
Clearing Broker with respect to the issuance of such instruments.

3.10 DVP/RVP
and Prime Brokerage Transaction.

3.10.1   Correspondent
agrees that all Customers who engage in delivery versus payment (“DVP”) or
receipt versus payment (“RVP”) transactions (and their agents) will utilize the
facilities of a securities repository for the confirmation, acknowledgment, and
book entry settlement of all depository eligible transactions, subject to the
exceptions of Rule 387 of the NYSE with respect to all DVP/RVP
transactions, except for the delivery of confirmations.

3.10.2   Correspondent
shall not engage in any prime brokerage transactions without the prior approval
of Clearing Broker.

3.10.3   Correspondent
agrees that all transactions where Correspondent acts as an executing broker
for Accounts that utilize a prime broker (“Prime Brokerage Customers”), shall
be conducted in accordance with the requirements of the SEC No-Action Letter,
dated January 25, 1994 (the “SEC No-Action Letter”).

3.10.4   Correspondent
shall notify Clearing Broker with respect to each Prime Brokerage Customer for
which Correspondent intends to act as an executing broker and Correspondent
shall be solely responsible for conducting its own credit review with respect
to such Prime Brokerage Customer. Correspondent shall promptly notify Clearing
Broker, but in no event later than 3:00 p.m. Eastern Standard Time of
trade date, in a mutually acceptable fashion, of such trades in sufficient
detail for Clearing Broker to be able to report and transfer any trade executed
by Correspondent on behalf of a Prime Brokerage Customer to the relevant prime
broker. Correspondent understands and agrees that if the prime broker shall
disaffirm or DK any trade executed by Correspondent on behalf of a Prime
Brokerage Customer, Correspondent shall, if it has not already done so, open a
margin Account for such Prime Brokerage Customer and shall transfer or deliver
the trade to such margin Account for the risk and expense of Correspondent to
the same extent as for any Account introduced by Correspondent pursuant to this
Agreement. Correspondent understands and agrees that for certain Prime
Brokerage Customers, Dain Rauscher Incorporated (“Dain Rauscher”) may act as
both Clearing Broker and prime broker (the “Prime Broker”). Dain Rauscher as
Prime Broker will not disaffirm or DK a transaction for Correspondent’s Prime
Brokerage Customers but will notify Correspondent that a problem exists and, as
permitted under the SEC No-Action Letter, that it is unable to settle the trade.
Dain Rauscher as Clearing Broker will request that Correspondent open a margin
Account for such Prime Brokerage Customer and transfer or deliver the trade to
such margin account for the risk and expense of Correspondent to the same
extent as for any Account introduced by Correspondent pursuant to this
Agreement.

3.10.5   Correspondent
agrees to indemnify and hold harmless Clearing Broker and its controlling
persons, officers, directors, agents, servants and employees from and against
costs, losses, claims, liabilities, fines, penalties, damages and expenses
(including reasonable attorney and accountant fees) arising out of or resulting
from Correspondent’s activities as an executing broker.

3.11 Underwriting;
Syndicates. Correspondent shall provide to Clearing Broker a
written list of

 8
 

 

securities as to which Correspondent intends to act as
underwriter, or as to which Correspondent intends to enter into, or join, a
syndicate (whether as part of the underwriting or selling group) relating to
the issuance or placement of those securities. Clearing Broker shall have the
right to limit or prohibit Correspondent’s underwriting or syndicate activities
with respect to any security. Under no circumstances may Correspondent act as
underwriter or join a syndicate without the prior written approval of Clearing
Broker. Clearing Broker may impose certain conditions upon Correspondent’s
serving as an underwriter, or its participation in any syndicate.

3.12 Marketmaking.
Upon the execution of this Agreement, Correspondent shall
provide to Clearing Broker a written list of all securities with respect to
which Correspondent is a marketmaker. Correspondent shall give prior written
notice of any proposed changes in its marketmaking activities. Correspondent
shall provide Clearing Broker on a timely basis with information sufficient to
ensure that any confirmations sent to Customers by Clearing Broker on
Correspondent’s behalf contain correct information regarding Correspondent’s
role in the transaction. Clearing Broker shall have the right to limit or
prohibit Correspondent’s marketmaking activities with respect to any security.

3.13 Secondary
Correspondents. Correspondent covenants that it shall not,
without the prior written approval of Clearing Broker, enter into or execute
any agreement with another broker-dealer, including an affiliated broker-dealer
(each, a “Secondary Broker-Dealer”), which would have the effect of extending
to such Secondary Broker-Dealer any service or product provided by Clearing
Broker to Correspondent. Correspondent further understands, acknowledges and
agrees that (a) it bears sole responsibility for satisfying any additional
or supplementary regulatory requirements relating entering into a relationship
with the Secondary Broker-Dealer, including, without limitation, the
obligation, if any, to obtain the prior approval of the Correspondent’s
designated examining authority, the Secondary Broker-Dealer’s designated
examining authority, or both, and (b)  Clearing Broker may require that
Correspondent accept additional responsibilities or obligations as a condition
of its consent to allow such Secondary Broker-Dealer to receive such services
and products through or with Correspondent, including, without limitation, that
Correspondent guaranty the obligations of such Secondary Broker-Dealer, or that
Correspondent increase the amount of the deposit required under section 6.2 of
this Agreement.

3.14 Use of “Dain
Correspondent Services” Name. Each and every use by
Correspondent of any of the names “Dain Rauscher”, “Dain Rauscher Incorporated”,
or “Dain Correspondent Services”, or the name of any affiliated entity, or any
abbreviation or acronym relating to or made up from any of these names, or any
amended name based on or derived from any of these names, in any external
communication from Correspondent, including, without limitation, any marketing
materials, client communications, account documents, or usage in a proprietary
or non-proprietary web-site or other Internet usage, shall be submitted to
Clearing Broker prior to use for review and approval. Clearing Broker reserves
the right to withhold its consent to any such usage, or to restrict or place
conditions on such usage.

3.15 Amendments
to Form BD. Correspondent shall provide Clearing Broker
with at least one written copy of each amendment, modification or change to
Correspondent’s Form BD at least (i) fifteen (15) days before its
effective date or (ii) five (5) days prior to its submission to the
SEC, whichever occurs earlier.

3.16 Anti-Money
Laundering Compliance.

3.16.1   Correspondent
hereby acknowledges and agrees that it is obligated to and hereby represents
and warrants that it now does and will continue to comply with anti-money
laundering laws and regulations, including any future obligations that may be
imposed on Correspondent by law or regulation, to know its customers, their
source and use of funds, and to monitor for and identify suspicious activity.
Correspondent acknowledges that these obligations include but are not limited
to:

(a)    Establishing
and maintaining a compliance program, appropriately customized for
Correspondent’s business, that satisfies all applicable U.S. anti-money
laundering laws and regulations, including but not limited to: (i) Customer
Identification Program rules (“CIP”), and Correspondent will not do
business with a client that does not satisfy Correspondent’s CIP; (ii) providing
notice to clients

 9
 

 

upon Account opening regarding the use of personal
information to verify identity, as set forth in CIP; (iii) monitoring for
suspicious activity by Correspondent’s clients and promptly filing suspicious
activity reports (“SARs”) where appropriate; (iv) providing ongoing
anti-money laundering training to appropriate personnel; (v) implementing
an independent audit program to evaluate the effectiveness of Correspondent’s anti-money
laundering compliance program; and (vi) complying with all anti-money
laundering recordkeeping requirements.

(b)    Providing
Clearing Broker an annual certification by Correspondent’s CEO or President (or
other mutually agreed upon principal), in a form to be reasonably determined by
Clearing Broker, that it has complied with its AML requirements and that it has
performed its AML duties under the Agreement;

(c)    With
respect to certain types of high-risk accounts described by AML rules or
interpretations from time to time, disclosing such accounts to Clearing Broker,
clearly identifying the nature of the account in account records, and
conducting enhanced due diligence on such accounts. Such accounts currently
include: (i) foreign banks and foreign financial service entities; (ii) accounts
held by senior political officials of foreign countries, their immediate
families and close associates; (iii) private banking accounts; (iv) unregistered
financial firms or entities which receive third party funds for the purpose of
investing.

(d)    Closing
all accounts for prohibited foreign shell banks, and obtaining
certifications/recertifications regarding accounts for foreign banks, to
include appropriate representations concerning foreign shell banks and
information concerning the foreign bank’s ownership and U.S. agent for service
of process;

(e)    Consulting
and cooperating with Clearing Broker to satisfy anti-money laundering
requirements, including but not limited to: (i) notifying Clearing Broker
and any relevant regulatory authority of Correspondent’s designated AML
officer; (ii) consulting and cooperating with Clearing Broker when
required to file any SARs or other information as necessary with appropriate
regulatory agencies or law enforcement; (iii) providing to RBC Dain, where
permissible: copies of all Forms CTR, CMIR, and SAR-SF, and any other reports
Correspondent is required to file, concerning any introduced Account; copies of
notices to Financial Crimes Enforcement Network (“FINCEN”); and copies of certifications/
recertifications regarding accounts for foreign banks; (iv) providing
prompt notice to Clearing Broker of any circumstances requiring Correspondent
to terminate an introduced Account due to anti-money laundering reasons; and (v) where
Clearing Broker’s client screening process results in a match, Correspondent
must promptly provide written confirmation either that the client was not a
true match, or that appropriate government notification was given.

(f)     Submitting
a notice to FINCEN concerning voluntary information sharing and complying with
all requirements concerning the confidentiality of shared information.

3.16.2   Clearing
Broker shall be solely responsible for:

(a)    Establishing
and maintaining an appropriate compliance program that satisfies all applicable
U.S. anti-money laundering laws and regulations, including but not limited to: (i) providing
ongoing anti-money laundering training to appropriate Clearing Broker
personnel; (ii) implementing an independent audit program to evaluate the
effectiveness of Clearing Broker’s anti-money laundering compliance program;
and (iii) complying with all anti-money laundering recordkeeping
requirements.

(b)    Consulting
and cooperating with Correspondent to satisfy anti-money laundering
requirements, including but not limited to: (i) notifying Correspondent
and any relevant regulatory authority of Clearing Broker’s designated AML
officer; (ii) consulting and cooperating with Correspondent, when
permissible and appropriate, to file any SARs or other information as necessary
with appropriate regulatory agencies or law enforcement; (iii) providing
Correspondent, where

 10
 

 

permissible, with
information it needs in order to file required reports, including Forms CTR,
CMIR and SAR-SF, and, where appropriate, filing such reports. Copies of any
reports files by RBC Dain with respect to Correspondent customers will be
provided to Correspondent, where permissible; (iv) providing prompt
notice, where permissible, to Correspondent of any circumstances requiring
Clearing Broker to terminate an introduced Account due to anti-money laundering
reasons;

(c)    Screening,
or providing resources to permit Correspondent to screen, electronic customer
account data stored by RBC Dain on behalf of Correspondent against various
databases through third-party service providers, or against other sources, for
purposes of detecting names of OFAC prohibited individuals, entities and
countries, and other adverse information about the customer; and

(d)    Conducting
system screening to detect suspicious activity and notifying Correspondent,
where permissible, of any suspicious activity detected.

(e)    Submitting
a notice to FINCEN concerning voluntary information sharing and complying with
all requirements concerning the confidentiality of shared information.

3.16.3   Correspondent’s
obligations set forth in this Section 3.16 shall apply to its business and
any secondary introducing firms for which it makes available clearing services
from Clearing Broker.

3.16.4   Should
Correspondent fail to satisfy its material obligations set forth in this Section 3.16,
Clearing Broker shall have an immediate right to terminate the Agreement for
breach.

Section 4. Representations
and Warranties

The parties make
the following representations and warranties:

4.1   Organization.
Each party is duly organized and in good standing under the laws of the
jurisdiction pursuant to which it was formed and is qualified to do business in
each state in which it does business and is required to qualify.

4.2   Power
and Authority. Each party has the requisite power and
authority to enter into, execute and perform its obligations under this
Agreement and, when so executed and delivered, this Agreement shall constitute
a legal, valid and binding obligation enforceable in accordance with its terms.

4.3   Registration.
Each party and its employees, when so required, are registered as a broker,
dealer or agent under the applicable state “blue sky” laws and the Exchange Act
and is a member in good standing of the NASD and any Exchange of which it is a
member.

4.4   Net
Capital and Financial Reporting. Each party is in compliance
with and maintains in excess of the minimum net capital required by Rule 15c3-1
under the Exchange Act and is in compliance with the capital and financial
reporting requirements of every Exchange and the NASD as well as all capital
requirements of every state in which it is registered as a broker or dealer.

4.5   Compliance
and Litigation. Each party, its officers, directors, agents,
employees and servants are in material compliance with all Applicable Rules.

4.5.1     Correspondent
further represents and warrants that, except as set forth in a letter of even
date herewith, there is no claim, action, proceeding, investigation or inquiry
pending or threatened before any court, tribunal, administrative judge or
hearings officer alleging a violation of an Applicable Rule, or seeking
suspension or cancellation of its broker or dealer registration with any state
or the SEC or its membership in any Exchange or the NASD.

 11

 

4.5.2     Correspondent
further represents and warrants that, except as set forth in a letter of even
date herewith, there is no claim, action, proceeding or arbitration pending or
threatened in any court or tribunal seeking damages in excess of $ 10,000.

4.6   Reliance.
Each party in acting hereunder may rely upon the oral or written instructions
of the officers, agents, employees and servants of the other party.

4.6.1     Correspondent
further represents that Clearing Broker may rely on any written or oral
instructions, communications or orders furnished by Correspondent with respect
to any Customer or Account.

Section 5. Information
and Cooperation

5.1   Financial
Information. Each party shall promptly furnish to the other
copies of the audited financial statements and such other financial statements
as are required to be furnished to Customers under the Applicable Rules.
Correspondent shall provide copies to Clearing Broker simultaneously with
filing any financial information, Form BD or other reports with any Exchange,
the NASD, or the SEC, including, but not otherwise limited to, monthly and/or
quarterly, whichever is applicable, financial and operational combined uniform
single reports (“FOCUS Reports”), and shall promptly provide Clearing Broker
with such other information and reports of operations and financial condition
as Clearing Broker may request.

5.2   Litigation
and Claims. Promptly after Correspondent knows or has reason
to believe it is the subject of any claim, action, suit, proceeding,
arbitration, investigation or inquiry before any court, tribunal,
administrative agency, Exchange, NASD, or private arbitration panel alleging a
violation of the Applicable Rules or seeking suspension or cancellation of
any registration or license of Correspondent or damages in excess of $10,000,
Correspondent shall furnish Clearing Broker with a statement setting forth the
material facts and circumstances with respect to such claims, and any other
information, including without limitation, a copy of the summons and complaint,
if any, which Clearing Broker may request.

5.3   Cooperation.
Each party shall cooperate with the other and provide the other with all
appropriate data in its possession pertinent to the proper performance of any
function, obligation or Services allocated pursuant to this Agreement.
Correspondent shall make available to Clearing Broker, its attorneys,
accountants and authorized agents such Account Documents, books and records or
other information as necessary to comply with the Applicable Rules or to
defend against any allegation of a violation of an Applicable Rule.

5.4   Advertising.
Correspondent shall not advertise or make any public statement with respect to
this Agreement, the Services or the existence of any relationship with Clearing
Broker without the prior written consent of Clearing Broker. Correspondent
shall not make this Agreement or any document, schedule or information
incorporated by reference available to any third party except as required by
the Applicable Rules.

5.5   Confidentiality.
Each party shall use its best efforts to prevent unauthorized access to, or disclosure of, and shall keep confidential, any
information received pursuant to this Agreement which is private, confidential
or proprietary in nature to the other party and is not otherwise publicly
available, including, without limitation, any information relating to a party’s
existing or prospective retail or institutional businesses and clients,
including, without limitation, information relating to business strategies and
concepts, information relating to clients’ accounts, the names, address, age,
financial information, and all other information in the possession or under the
control of a party pertaining to client accounts, and all documentation and
other tangible or intangible discoveries, ideas, concepts, software, customer
lists of any type or nature, research reports, designs, drawings,
specifications, techniques, models, information, source code, object code,
diagrams, flow charts, procedures, and “know-how” owned by a party. This shall
not preclude disclosing information required for the performance of the
Services or obligations required by this Agreement, or as required under the
Applicable Rules (“Disclosure Requests”). Upon receiving notification of a
Disclosure Request, a party will notify the other party unless expressly
prohibited under Applicable Rules.

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Section 6.
Payment and Deposit Accounts

6.1   Payment
Account. Upon execution of this Agreement, Clearing Broker
shall establish an Account for
Correspondent entitled the “Payment Account”. Clearing Broker shall collect for
Correspondent and hold in the Payment Account all commissions, fees and other
charges established by Correspondent from time to time and paid by the
Customers together with any other income of Correspondent. Clearing Broker
shall make payments to the Correspondent from the Payment Account in accordance
with Section 8.1 of this Agreement.

6.2   Deposit
Account. Upon execution of this Agreement, Clearing Broker
shall establish an Account for,
and in the name of, Correspondent entitled the “Deposit Account”. Correspondent
shall deliver to Clearing Broker for deposit to the Deposit Account cash and
securities which are (a) direct obligations of, or guaranteed as to the
timely payment of principal and interest by, the United States, (b) acceptable
to Clearing Broker, and (c) registered in the name specified by Clearing
Broker or in good deliverable form and which in the aggregate have a fair
market value, as determined solely in the discretion of Clearing Broker, equal
to the Minimum Balance set forth at the end of this Agreement. Clearing Broker
shall not be obligated to perform any of the Services at any time that the
aggregate fair market value of the Deposit Account is less than the Minimum
Balance. Correspondent shall be obligated to deposit additional cash or
securities acceptable to Clearing Broker to cause the fair market value of the
Deposit Account to be maintained in an amount equal to the Minimum Balance.
Clearing Broker, upon 10 days’ notice to the Correspondent, may require the
Minimum Balance to equal the aggregate of all claims for which indemnity may be
sought by Clearing Broker pursuant to Section 9.

6.3   Nature
of Deposit Account. The Deposit Account is not part of the
capital of Clearing Broker, does not constitute a partnership or equity
interest in Clearing Broker, will not be subordinated to the claims of the
creditors of Clearing Broker, and shall not be deemed to be Margin for any
Account, unless specifically agreed to in writing by the parties. Clearing
Broker may use the funds and securities in the Deposit Account in the course of
its business and shall not be obligated to pay Correspondent any fee or
interest received on or derived from such use, except for interest payable on
the securities therein and interest on the cash balances at the rate set forth
in the attached Fee Schedule.

6.4   Clearing
Broker Rights to Accounts. For any claim Clearing Broker may
have against Correspondent or any Customer or Account, Correspondent grants
Clearing Broker a continuing security interest and general lien upon the
Deposit Account and Payment Account, and acknowledges Clearing Broker shall
have a right of setoff against any Accounts to the extent of any Account Debit
or claim. In connection therewith, Correspondent further grants Clearing Broker
a security interest and right of setoff against all the moneys, securities and
other property belonging to Correspondent in the possession or control of
Correspondent or a financial intermediary for the account of Correspondent and
authorizes Clearing Broker to perfect such security interest by giving notice
thereof to such financial intermediary. In the event Clearing Broker has a
claim against Correspondent or against any Account or Customer which has not
been promptly paid, Clearing Broker shall have the right to satisfy the claim
by liquidating any securities or other property and withdrawing the amount, in
any order, from the following: (i) the relevant Account; (ii) the
Payment Account; (iii) the Deposit Account; and (iv) other
securities, cash, and property held by Clearing Broker for the Account,
Customer or Correspondent. Clearing Broker shall notify the Correspondent of
any such liquidations and withdrawals.

6.5   Disposition
upon Termination. Upon the termination or expiration of this
Agreement, Clearing Broker shall deliver to Correspondent the contents of the
Deposit Account and Payment Account on or before the 30th day of said
termination or expiration, less any withdrawals or deductions made pursuant to
this Agreement, and less any amount Clearing Broker deems appropriate until a
final resolution of any open items, claims or proceedings regarding any
Account.

Section 7. Compliance
with PAIB Provisions

7.1   Compliance
with No-Action Letter. In order to comply with the SEC
No-Action Letter, dated November 3, 1998 (the “No-Action Letter”),
relating to the capital treatment of assets in the proprietary account of a
Correspondent (“PAIB”), and to permit Correspondent to use PAIB assets in its
net capital computations, 

 13
 

 

Correspondent
understands, acknowledges and agrees that it shall identify to Clearing Broker
in writing all accounts that are, or from time to time may be, proprietary
accounts of Correspondent. The parties shall continue to adhere to the terms of
the No-Action Letter, including the Interpretations set forth therein, in all
respects.

7.2   Computation.
Clearing Broker shall perform a computation for PAIB assets
(the “PAIB Reserve Computation”) of Correspondent in accordance with the
customer reserve computation set forth in Rule 15c3-3 (the “customer
reserve formula”) with the following modifications:  (a) any credit (including a credit
applied to reduce a debit) that is included in the customer reserve formula may
not be included as a credit in the PAIB reserve computation; (b) note E(3) to
Rule 15c3-3a which reduces debit balances by 1% under the basic
method and subparagraph (a)(1)(ii)(A) of the net capital rule which
reduces debit balances by 3% under the alternative method shall not apply; and (c) neither
Note E(1) to Rule 15c3-3a nor NYSE Interpretation /04 to Item
10 of Rule 15c3-3a regarding securities concentration charges shall
be applicable to the PAIB reserve computation. The PAIB reserve computation
shall include all proprietary accounts of Correspondent. All PAIB assets shall
be kept separate and distinct from customer assets under the customer reserve
formula in Rule 15c3-3. The PAIB reserve computation shall be
prepared within the same time frames as those prescribed by Rule 15c3-3
for the customer reserve formula.

7.3   Creation
of Special Reserve Account. Clearing Broker shall establish
and maintain a separate “Special Reserve Account for the Exclusive Benefit of
Customers” with a bank in conformity with the standards of paragraph (f) of
Rule 15c3-3 (the “PAIB Reserve Account”). Cash and/or qualified
securities as defined in the customer reserve formula shall be maintained in
the PAIB Reserve Account in an amount equal to the PAIB reserve requirement.

7.4   Deposit
Requirement. If the PAIB reserve computation results in a
deposit requirement, the requirement may be satisfied to the extent of any
excess debit in the customer reserve formula of the same date. However, a
deposit requirement resulting from the customer reserve formula shall not be
satisfied with excess debits from the PAIB reserve computation.

7.5   Failure
to Satisfy Deposit Requirement. Upon discovery that any
deposit made to the PAIB Reserve Account did not satisfy its deposit
requirement, Clearing Broker shall by facsimile or telegram immediately notify
its designated examining authority and the SEC. Unless a corrective plan is
found acceptable by the SEC and the designated examining authority, Clearing
Broker shall provide Correspondent with written notification within five (5) business
days of the date of discovery that PAIB assets held by Clearing Broker shall
not be deemed allowable assets for net capital purposes. The notification shall
also state that if Correspondent wishes to continue to count its PAIB assets as
allowable, it has until the last business day of the month following the month
in which the notification was made to transfer all PAIB assets to another
clearing broker. However, if the deposit deficiency is remedied before the time
at which Correspondent must transfer its PAIB assets to another clearing
broker, the Correspondent may choose to keep its assets at Clearing Broker.

7.6   Treatment
of Commissions. Commissions receivable and other receivables
of Correspondent from Clearing Broker (excluding clearing deposits) that are
otherwise allowable assets under the net capital rule may not be included
in the PAIB reserve computation, provided that the amounts have been clearly
identified as receivables on the books and records of Correspondent and as
payables on the books of Clearing Broker.

Section 8. Fees

8.1   Deduction of and Change in Fees. Clearing
Broker shall charge Correspondent, and Correspondent shall pay Clearing Broker, the fees set forth
in the attached Fee Schedule. Clearing Broker shall deduct the fees and all other
sums Correspondent owes to Clearing Broker from the Payment Account, the
Deposit Account or any other money or property of Correspondent held by or in
the possession and control of Clearing Broker. After the deduction of fees and
charges, Clearing Broker shall pay the balance in the Payment Account to the
Correspondent within five (5) days
after the final settlement date of each month. Clearing Broker may amend the
Fee Schedule at any time to add new or expanded Services at prices contained
within a notice to Correspondent. Effective no

 14
 

 

sooner than six (6) months
from the date of this Agreement, Clearing Broker may amend the Fee Schedule to
increase the fees upon ninety (90)
days’ notice to Correspondent.

8.2   Additional
Consideration. As additional consideration for performing the
Services, Clearing Broker shall be entitled to retain the benefit of utilizing
the funds and securities in the Accounts and of carrying Account Debits. Except
as otherwise agreed by the parties, no interest shall be paid or credit given
for any credit balances which may be left on deposit with Clearing Broker.
Interest income earned through charges on Account Debits in any Account shall
be proprietary to and fully retained by Clearing Broker. Clearing Broker shall
bear the costs of any Margin to effect stock borrows.

Section 9. Indemnification

9.1   Indemnity.
Each party shall indemnify and hold harmless the other, and its controlling
persons, officers, directors, agents, servants and employees (the “Indemnified
Party”), from and against costs, losses, claims, liabilities, fines, penalties,
damages and expenses (including reasonable attorney and accountant fees)
(individually, a “Claim”, collectively, the “Claims”) arising out of or
resulting from any actual or alleged breach of this Agreement, the enforcement of this Agreement,
or any failure or omission to fully carry out any duties or obligations under
this Agreement by the indemnifying party or any breach of any representation or
warranty herein; provided, however, that Clearing Broker shall be liable to indemnify the Correspondent only in
the event of its willful misconduct or gross negligence.

9.2   Notice
of Claim. The Indemnified Party shall give prompt notice of a
Claim (the “Notice of Claim”) to the indemnifying party and, when known, the
facts forming the basis for the Claim, and the indemnifying party shall
promptly pay such Claim. If a Claim involves any claim or demand by a third
party, the indemnifying party shall be entitled (without prejudice to the right
of any Indemnified Party to participate at its own expense through counsel of
its own choosing) to defend or prosecute such a Claim at its expense and
through counsel of its own choosing, if it gives written notice to the
Indemnified Party within fifteen (15) days after the Notice of Claim is given.
If the indemnifying party has assumed the defense of a Claim, the Indemnified
Party shall not settle or compromise such Claim without the prior written
consent of the indemnifying party, which consent shall not be unreasonably
withheld; provided, however, that an Indemnified Party may settle or compromise
any Claim without such consent if the Indemnified Party does not seek
indemnification therefore.

9.3   Payment
of Expenses. The indemnifying party shall promptly pay the
expenses of an Indemnified Party on a continuing basis in defending against a
Claim. All such proper expenses not paid within thirty (30) days after an
invoice is rendered therefor shall bear interest at a rate equal to one hundred
twenty-five percent (125%) of the interest rate charged for Margin.

9.4   Claims
not Covered. Clearing Broker shall not be responsible or
liable for any Claim or damages arising out of or caused, directly or
indirectly, by a failure to perform, or delay in performance of any obligations
under this Agreement caused by circumstances beyond Clearing Broker’s
reasonable control, including, without limitation: (i) acts of God; (ii) interruption,
delay in, loss (partial or complete) of computer hardware or software, public
utility or telecommunication service, (iii) act of civil or military
authority; (iv) sabotage, riot, natural emergency, epidemic, war,
government action, civil disturbance, explosion, earthquake, flood, fire or
other catastrophe; (v) strike or other labor disturbance; (vi) Exchange,
NASD or government order, rule or regulation; (vii) energy or natural
resource difficulty or shortage; and (viii) inability to obtain materials,
equipment or transportation.

Section 10. Fixed
Income Inventory Access

10.1 Bond
System. At the request of Correspondent, Clearing Broker may
make available to Correspondent an interactive electronic trading system and
data network (the ”Bond System”) which provides trade and quotation
information and order execution capabilities relating to fixed income securities
(the ”Securities”). Clearing Broker reserves the right to limit or
withhold, in its absolute discretion, Correspondent’s access to the Bond
System.

 15
 

 

10.2 Services.
(a) Correspondent understands and agrees that:

(i)                It
shall employ the Bond System only to receive market information relating to the
Securities and to purchase such Securities from Clearing Broker’s
inventory(ies);

(ii)             All
transactions effected through the Bond System are inter-dealer transactions;

(iii)          Neither Correspondent nor its employees or
agents shall offer to or effect transactions for its customers at prices higher
than permitted by applicable law;

(iv)         Clearing
Broker shall have no oversight of, or rights, responsibilities or obligations
relating to, Correspondent’s duty to comply with Applicable Rules, including,
without limitation, Section 4 of the NASD Rules of Fair Practice and
the related NASD Markup Policy in selling to its customers Securities purchased
by Correspondent through the Bond System; and

(v)            Clearing
Broker shall have the right to contract with a third party, including another
dealer, to provide services similar to those offered through the Bond
System.

(b)           Clearing
Broker understands and agrees that:

(i)                Subject
to the terms and conditions of this Agreement, Clearing Broker will use its
best efforts to provide accurate, current and fair information under prevailing
market circumstances;

(ii)             Clearing
Broker will make the Bond System available to Correspondent during the same
hours its is available for other clients of Clearing Broker, subject to market
conditions.

(iii)          Correspondent shall have the right to utilize
similar services, including those provided by other brokers or third-party
vendors, to obtain access to other bond inventories.

10.3 Confidentiality. Correspondent and
Clearing Broker understand, acknowledge and agree that: (a) any
information obtained through the Bond System shall be confidential and
proprietary information of Clearing Broker (“Clearing Broker Confidential
Information”); (b) Correspondent shall use at least the same standard of
care in the protection of Clearing Broker Confidential Information as it
uses to protect its own confidential or proprietary information; (c) Correspondent
shall use such Clearing Broker Confidential Information only in connection with
the purposes of this Agreement and shall make such Clearing Broker Confidential
Information available only to its employees, employees of its subsidiaries and
affiliates, subcontractors or agents having a “need to know” with respect to
such purpose (it is presumed that an employee of Correspondent will have a “need
to know” the facts concerning a particular bond that may relate to a
transaction that the employee may wish to effect, but that an employee will not
have a “need to know” anything else concerning Clearing Broker’s bond
inventory); (d) the obligations in this Section 10 shall not restrict
any disclosure by Correspondent required by any applicable law, or by order of
any court or government agency (provided that the disclosing party shall give
prompt notice to the non-disclosing party of such order); (e) in the event
of a breach or threatened breach of any of the provisions of this Section 10.3,
the non-breaching party may have no adequate remedy in damages and,
accordingly, shall be entitled to seek an injunction to prevent such breach or
threatened breach; and (f) each party shall notify the other party
promptly of any unauthorized possession, use or knowledge, or attempt thereof,
of any Clearing Broker Confidential Information by any person or entity which
may become known to it, and shall promptly furnish to the other party full
details of the unauthorized possession, use or knowledge, or attempt
thereof, and use reasonable efforts to assist the other party in investigating or
preventing the reoccurrence of any unauthorized possession, use or
knowledge of Clearing Broker Confidential Information.

 16
 

 

Section 11.
Provision of Technology

11.1 Execution
of Letter Agreements. From time to time, Clearing Broker will
make available to Correspondent, at Clearing Broker’s sole discretion, one or
more Technology Services, the License, uses, fees and scope of which will be
governed by the terms of (a) this Agreement and (b) one or more
letter agreements (each, a “Letter Agreement”) relating specifically to the
individual Technology Services purchased from Clearing Broker. Correspondent
agrees that it will negotiate in good faith the terms of the specific
Technology Services that it elects to purchase from Clearing Broker. Correspondent
will inform Clearing Broker of any objections to the terms of a Letter
Agreement within fifteen (15) days of receipt thereof, and the terms of such
Letter Agreement shall be binding upon Correspondent in the event that it fails
to reject such Letter Agreement, in whole or in part, within such time period. Clearing
Broker reserves the right to require that Correspondent provide a copy of the
Letter Agreement counter-signed by the chief executive officer or another
principal of the Correspondent prior to installing, or permitting Correspondent
to use, any Technology Services. In the event of a conflict between the terms
of a Letter Agreement and those of this Agreement, the terms of this Agreement
shall govern.

11.2 Ownership
of Technology Services. Clearing Broker (or the licensor to
Clearing Broker) shall at all times be and remain the sole and exclusive owner
of the Technology Services, including, without limitation, any proprietary
computer software, home page design(s), methodologies, techniques,
software libraries, and know-how used by Clearing Broker or incorporated into
the Technology Services, and further including all improvements, modifications,
or enhancements thereto. Except with respect to intellectual property rights in
trademarks and copyrights belonging to Correspondent or the licensor of
Technology Services to Clearing Broker, Clearing Broker retains all rights,
title and interest in and to the Technology Services, including without
limitation, all applicable copyrights (including without limitation, the
exclusive right to reproduce, distribute copies of, display and perform the
copyrighted work and to prepare derivative works), copyright registrations and
applications, trademark rights (including without limitation, registrations and
applications), patent rights, trademarks, mask-work rights, trade secrets,
moral rights, authors’ rights, and all renewal and extensions thereof,
regardless of whether any of such rights arise under the laws of the United
States or any other state, country or jurisdiction. Any and all changes or
modifications to any Technology Services by Correspondent shall be undertaken
only with the prior written consent of Clearing Broker, and Clearing Broker
shall own all right, title and interest to and in all such changes, modifications
or enhancements, which shall be deemed to have been and will be treated as a
work made for hire at the direction of Clearing Broker within the meaning of
the Copyright Act of 1976, as amended.

11.3 Licenses.
Correspondent understands and agrees that the Technology
Services may be subject to a license from Clearing Broker, or a sub-license
from Clearing Broker if Clearing Broker has licensed the Technology Services
from an unaffiliated vendor (collectively, a “License”), which will be governed
by the terms of one or more Letter Agreements. Correspondent further
understands and agrees that (a) each such License shall govern its use of
the Technology Services relating thereto; (b) Clearing Broker reserves the
right in its sole discretion to revoke such License for cause; (c) such
vendor(s) may impose conditions or restrictions on the use of such
Technology Services by Correspondent, and such conditions or restrictions may
substantially limit the scope of, or result in the termination of,
Correspondent’s ability to use the Technology Services; and (d) it shall
assume and be solely responsible for complying with the obligations and
responsibilities imposed by such vendor as a condition of the use of the
License.

(a)    Limitation
on License. Correspondent may use the Technology Services only in its own
retail securities brokerage operations. Other than as specifically authorized
by this Agreement, Correspondent may not re-license, sub-license, sell, lease,
or in any other manner convey any rights in, grant permission to use, provide
access to, or make available to others the Technology Services without Clearing
Broker’s express written consent. Correspondent may not use the Technology
Services to operate or support the operations of a service bureau. Correspondent
may not publish, disclose, display, provide access to or otherwise make
available any part of the Technology Services, or any screens, formats, reports
or printouts used, provided, produced or supplied from or in connection
therewith, to any person, entity, or third-party, other than an employee,
independent contractor, or affiliate of Correspondent without the prior written
consent of, and on terms acceptable to, Clearing Broker. Correspondent further
agrees that the License granted by Clearing Broker, and the use of such related

 17
 

 

Technology
Services, shall be subject to payment of the fees determined by Clearing Broker
and governed by the terms and conditions of this Agreement.

(b)    Modifications
to or Rescission of License(s). Correspondent understands and acknowledges
that: (a) Clearing Broker has licensed one or more of the components of
the Technology Services from one or more vendors; (b) such vendors have
entered into one or more master license agreements with Clearing Broker
pursuant to which Clearing Broker is permitted to license such technology to
firms with which Clearing Broker has a correspondent clearing relationship,
such as Correspondent; and (c) one or more such vendors may, without
notice to Clearing Broker or to Correspondent, unilaterally change, modify or
rescind the terms of such master lease agreements with Clearing Broker, with
the result that Clearing Broker is no longer permitted to license to
Correspondent the Technology Services. Correspondent further understands and
agrees to accept the risk of such changes, modifications and adjustments.

(c)    Site of
Technology Services.   Correspondent may
use the Technology Services only at its main business office or processing
facility at the address identified on the signature page of this Agreement.

(d)    No
Modifications; No Use of Non-Standard Software. Correspondent understands,
acknowledges and agrees that it shall make no modification to the Technology
Services, or any component thereof, unless such modification is performed by
Clearing Broker. Correspondent further agrees that it will not use, or permit
any of its employees to use, software provided by a person other than Clearing
Broker with the Technology Services.

11.4 Term of
License; Termination. A License will be effective on the date
on which the applicable Letter Agreement is executed, unless otherwise noted,
and, unless sooner terminated, is granted in perpetuity; provided, however,
that Clearing Broker reserves the right to terminate any such License for
cause, or if this Agreement is terminated for any reason.

11.5 Transferability
of License. Correspondent may not transfer any License
granted by Clearing Broker (or any licensor to Clearing Broker) without the
prior written consent of Clearing Broker (or the relevant licensor, as applicable).

11.6 Enhancements.
Notwithstanding any other provision of this Agreement to the
contrary, Clearing Broker has no obligation to provide Correspondent with
enhancements, upgrades or new releases to any or all components of the
Technology Services that Correspondent purchases from Clearing Broker. Any such
enhancements, upgrades or new releases (a) made available to Correspondent
shall be at prices determined, in its sole discretion, by Clearing Broker, and (b) shall
remain the exclusive proprietary property of Clearing Broker or the vendor
supplying such technology.

11.7 Use of
Internet Domain Name. Correspondent understands, acknowledges
and agrees that, as a condition precedent to (a) the installation of the
Technology Services and (b) the successful use of the Technology Services,
the Correspondent may be required to identify and register a unique Internet
domain name for its use. Correspondent further agrees that it shall bear all
costs and expenses, including, without limitation, the payment of any relevant
fees and charges, associated with registering such domain name.

11.8 Equipment and Hardware; Other Services.
Correspondent understands and agrees that:

(a)    It is
solely responsible for obtaining, installing at its premises, and maintaining
all equipment and hardware, including telecommunications equipment, necessary
for using any Technology Services which it acquires or licenses from Clearing
Broker;

(b)    As part of
the Technology Services to be provided under the terms of this Agreement and/or
any Letter Agreement, an unaffiliated vendor may require that Correspondent
execute one or more

 18
 

 

separate
agreements with such vendor, and that Clearing Broker may or may not be a party
to such agreement(s).

11.9 Acess
and Access Security. Correspondent shall determine whether
and which of its customers, employees or agents shall have access to the
Technology Services. Correspondent shall be solely responsible for the
assignment, distribution, and maintenance of all passwords, codes, and other
security measures designed to ensure that access to such Technology Services is
granted only to those individuals who are authorized by Correspondent. Nothing
in this paragraph shall affect or diminish Clearing Broker’s right, in its sole
discretion, to refuse to provide any or all Technology Services to
Correspondent, its agents, employees, or any customer(s) of Correspondent.

11.10 No Unauthorized Use of Technology Services. Correspondent
will not copy, modify, distribute or transfer (by any means), display,
sublicense, rent, reverse engineer, decompile or disassemble any software or
other technology that is included in the Technology Services.

11.11 Installation and Training. Subject
to the terms of a Letter Agreement, Clearing Broker shall provide Correspondent
with basic installation assistance and training regarding the Technology
Services acquired by Correspondent. Correspondent is responsible for providing
physical space and facilities sufficient, in the reasonable judgment of
Clearing Broker, for Clearing Broker to install, and for Correspondent to
operate, the Technology Services. Correspondent further agrees that it shall
pay the costs and travel expenses, if any, incurred by Clearing Broker’s
personnel in connection with such installation assistance and training provided
by Clearing Broker’s personnel.

11.12 Duty of Cooperation. Correspondent
is also obligated to cooperate in good faith in the conversion process and to
provide such resources and access to Correspondent’s present systems, data and
operations as Clearing Broker may require to perform its duties hereunder.

11.13 Technical Services for Problems and User
Help. As part of the Technology Services, Clearing Broker
may, in its discretion, make available to Correspondent assistance through one
or more Help Desk(s) operated by Clearing Broker  or the vendor from which Clearing Broker has
licensed the technology; provided, however, that Clearing Broker reserves the
right to terminate such Help Desk at its discretion, without notice to
Correspondent.

11.14 Charges and Payments.

(a)    Correspondent
agrees that it shall pay all License fees payable from its purchase of the
Technology Services within thirty (30) days of the date of the applicable
invoice from Clearing Broker. Correspondent hereby authorizes Clearing Broker
to deduct from its Clearing Deposit, or any other source of funds on deposit
with, or in the possession of, Clearing Broker, such funds as necessary to
satisfy its obligations under such invoice.

(b)    All
charges payable under this Agreement and/or any Letter Agreement shall be
exclusive of any federal, state or local sales, use, excise, ad valorem,
personal property or other taxes (other than taxes based upon the net income of
Clearing Broker) levied, or any fines, forfeitures or penalties assessed in
connection therewith, as a result of this Agreement or the installation or use
of any Technology Services hereunder. Any such taxes that may be applicable
will be paid by Correspondent.

11.15 Proprietary Information; Indemnification.

(a)    Correspondent
understands, acknowledges and agrees that (i) the Technology Services
licensed from Clearing Broker, including, without limitation and as applicable,
any enhancements thereto, and all screens and formats used in connection
therewith, are the exclusive proprietary property of Clearing Broker, and (ii) the
Technology Services licensed to Clearing Broker and sub-licensed to
Correspondent, including, without limitation and as applicable, any
enhancements thereto, and all screens

 19
 

 

and formats used
in connection therewith, are the exclusive proprietary property of the vendor
from whom such Technology Services are licensed.

(b)    Correspondent
further agrees that it shall not publish, disclose, display, provide access to
or otherwise make available any Technology Services (including, without
limitation, the content, source-code, object-code embodiments, plans,
specifications, and designs of any of the Technology Services), or products
thereof, or any screens, formats, reports or printouts used, provided, produced
or supplied from or in connection therewith, or any recommendations,
strategies, requirements, discoveries, designs, inventions, computer software,
processes, improvements, developments, methods, formulae, factors and
parameters and values of such factors and parameters used in formulae,
techniques, engineering, know-how, trade secrets, systems, documentation,
drawings, renderings, plans, artwork, descriptions, specifications, historical
or technical or research data, custom-designed computer codes, proprietary computer
codes, and proprietary information of third parties (regardless of whether any
such item is susceptible to patent, copyright, or any other form of
protection), to any person or entity other than an employee of Correspondent,
without the prior written consent of, and on terms acceptable to, Clearing
Broker, which consent shall not be unreasonably withheld. Notwithstanding any
term or provision in this Agreement to the contrary, Clearing Broker may use
and disclose compiled statistical information for planning and other purposes,
provided that the identity of Correspondent and Correspondent’s customers is
not discernible. In addition, Clearing Broker may disclose information with
respect to Correspondent to third parties in connection with Clearing Broker’s
development of the Technology Services, including Correspondent’s home page.

(c)    Correspondent
understands that the unauthorized publication or disclosure of any of the
Technology Services, or any underlying software or other technology, or the
unauthorized use of the Technology Services, would cause irreparable harm to
Clearing Broker for which there is no adequate remedy at law. Correspondent
therefore agrees that in the event of unauthorized disclosure or use, Clearing
Broker may, at its discretion and at Correspondent’s expense, terminate this
Agreement, obtain immediate injunctive relief in a court of competent
jurisdiction, or take such other steps as it deems necessary to protect its
rights. If Clearing Broker, in its reasonable, good faith judgment, determines
that there is a material risk of such unauthorized disclosure or use, it may
demand immediate assurances, satisfactory to Clearing Broker, that there will
be no such unauthorized disclosure or use. In the absence of such assurance,
Clearing Broker may immediately terminate this Agreement and take such other
steps as it deems necessary. The rights of Clearing Broker hereunder are in
addition to any other remedies provided at law or in equity.

(d)    In the
event of any claim by a third party against Clearing Broker arising from or
relating to, directly or indirectly, (i) Correspondent’s use of the
Technology Services; (ii) damages incurred as a result of an act or
omission with respect to security procedures applicable to the Technology
Services then in effect by Clearing Broker, by Correspondent, by a customer of
Correspondent, or by any other individual or entity accessing any account or
information of a customer of Correspondent; or (iii) any alleged or actual
violation by Correspondent or employee(s) of Correspondent of any person’s
patent, trademark, copyright, or other intellectual property rights,
Correspondent assumes full responsibility for and shall defend such claim,
action or proceeding and hold harmless Clearing Broker, its officers, agents,
employees, assigns, and successors in interest, or any of them, from and
against any and all liability, including, without limitation, any tax
liability, and pay all damages, costs, losses, claims, demands, attorney’s fees
and expenses, or any of them, arising out of such action or proceeding and
irrespective of whether such claim is successful. The obligations of
Correspondent hereunder shall survive termination of this Agreement.

11.16 DISCLAIMER OF WARRANTIES. CORRESPONDENT
EXPRESSLY AGREES THAT CORRESPONDENT’S
USE OF ANY OR ALL COMPONENTS OF THE TECHNOLOGY SERVICES OFFERED TO IT BY
CLEARING BROKER IS AT CORRESPONDENT’S SOLE RISK. NEITHER CLEARING BROKER NOR
ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, CONTRACTORS, AFFILIATES,
INFORMATION PROVIDERS, LICENSORS, OR OTHER

 20
 

 

SUPPLIERS
PROVIDING DATA, INFORMATION, SERVICES OR SOFTWARE, INCLUDING, BUT NOT LIMITED
TO, THE NEW YORK STOCK EXCHANGE, INC., WARRANTS THAT SUCH SERVICE, TECHNOLOGY
OR DATA WILL BE UNINTERRUPTED OR ERROR FREE; NOR DO ANY OF THEM MAKE ANY
WARRANTY AS TO THE RESULTS THAT MAY BE OBTAINED FROM THE USE OF SUCH
SERVICE, TECHNOLOGY OR DATA, OR AS TO THE TIMELINESS, SEQUENCE, ACCURACY,
COMPLETENESS, RELIABILITY OR CONTENT OF ANY DATA, INFORMATION, SERVICES, OR
TRANSACTIONS PROVIDED THROUGH THE TECHNOLOGY SERVICES. THE TECHNOLOGY SERVICES
ARE PROVIDED ON AN “AS IS,” “AS AVAILABLE” BASIS, WITHOUT WARRANTIES OF ANY
KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THOSE OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, OTHER THAN THOSE
WARRANTIES WHICH ARE IMPLIED BY AND INCAPABLE OF EXCLUSION, RESTRICTION OR
MODIFICATION UNDER THE LAWS APPLICABLE TO THIS AGREEMENT.

11.17 No Professional Users. Correspondent
acknowledges that certain information available via one or more Technology
Services cannot be viewed by an individual who is a member of any exchange or
the NASD, or of any corporation of which an exchange owns a majority of the
capital stock, or of a member firm or member corporation of any exchange or the
NASD, or of any corporation, firm or individual engaged in the business of
dealing either as a broker or a principal in securities, bills of exchange,
acceptances or other forms of commercial paper (collectively, a “Professional
User”). Correspondent acknowledges that Correspondent is solely responsible for
ensuring that no such individual views that information except in his or her
capacity as a public customer. Correspondent represents and warrants that
Correspondent will not use or permit any other Professional User to access
those features of the Technology Services from which they are prohibited from
viewing except in their capacity as public customers.

11.18 Termination of Technology Services. Clearing
Broker may restrict, block, or terminate access to the use of the Technology
Services, or any component or feature thereof, without prior notice in the
event such services are discontinued due to circumstances beyond Clearing
Broker’s control or to avoid systems or mechanical failure or due to regulatory
or legal mandate.

Section 12. Effectiveness
and Termination.

12.1 Effectiveness.
Subject to the approval of the NYSE and any other self-regulatory organization
or entity as required under the Applicable Rules, this Agreement shall be
effective as of the date first written below, and shall have an initial term of
sixty (60) months (the “Initial Term”) from the effective date hereof unless
and until terminated as hereinafter provided in this Section 12. This
Agreement will automatically renew for successive periods (each, a “Renewal
Term”) equal to the Initial Term unless it is terminated in accordance with the
provisions of this Section 12.

12.2 Termination
by Notice. Subject to the terms and conditions of this
Agreement, this Agreement may be terminated without cause by either party upon
ninety (90) days’ written notice to the other party. In the event Correspondent
terminates this Agreement, Correspondent shall pay the expenses of Clearing
Broker in connection with transferring, converting or closing the Accounts. Correspondent
may terminate this Agreement upon notice given sixty (60) days’ prior to any
date established by Clearing Broker for the effective date of an increase in
fees in accordance with Section 8.1.

12.3 Termination
upon Default. In the event either party defaults in the
performance of their respective obligations under this Agreement, the
non-defaulting party may terminate this Agreement by delivering written notice to the defaulting party specifying
the nature of such default and notifying the defaulting party that the default
must be cured within the following thirty (30) days. If the defaulting party
fails to cure the default within the prescribed 30-day period, the
Agreement shall be deemed terminated forthwith
without further notice.

 21

 

12.4 Immediate
Termination. This Agreement shall be deemed terminated
immediately in the event the Correspondent or Clearing Broker shall: (i) become
or be declared insolvent; (ii) voluntarily file or be the subject of, a
petition commencing a case under any chapter of Title 11 of the United States
Code; (iii) make a general assignment for the benefit of its creditors; (iv) admit
in writing its inability to pay its debts as they mature; (v) sell or
enter into negotiations to sell all or substantially all of its assets; (vi) file
an application or consent to the appointment of, or there is appointed, any
receiver, or a permanent or interim trustee of that party or any of its
subsidiaries, as the case may be, or all or any portion of its property,
including, without limitation, the appointment or authorization of a trustee,
receiver or agent under applicable law or under a contract to take charge of
its property for the purpose of enforcing a lien against such property or for
the purpose of general administration of such property for the benefit of its
creditors; (vii) file a petition seeking a reorganization of its financial
affairs or to take advantage of any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation law or statute or file an
answer admitting the material allegations of a petition filed against it in any
proceeding under any such law or statute; (viii) take any corporate action
for the purpose of effecting any of the foregoing; or (ix) determine that any statement,
representation, warranty or covenant made herein or any document provided in
connection with this Agreement shall be, or was at the time made, false or
misleading in any material respect.

12.5 Termination
by Clearing Broker. Clearing Broker may terminate this
Agreement at any time upon notice to Correspondent in the event Clearing Broker
determines, in its sole discretion, that: (i) there has been a material
adverse change in the financial condition or results of operations of
Correspondent; (ii) there has been a material adverse change in the
creditworthiness of Correspondent; or (iii) it has or may have Claims
arising out of a breach of the obligations of the Correspondent under this
Agreement, including those under Sections 3 and 8 hereof, in excess of ninety
percent (90%) of the aggregate balances in the Payment Account and Deposit
Account. Should Clearing Broker elect not to terminate this Agreement
notwithstanding a default by Correspondent of any provision herein, Clearing
Broker may choose to limit the availability of the Services so as to enable
Clearing Broker to limit its exposure to any risks posed to Clearing Broker by
the Accounts. Such limitations on Services may include, but are not limited to:
1) the refusal by Clearing Broker to accept additional orders for any Accounts
or restricting orders to liquidating orders only; 2) the refusal to take or
make delivery on one or more Transactions or to finance such Transactions; 3)
the termination of Clearing Broker’s relationship with any Accounts; or 4) the
imposition by Clearing Broker of higher Margin requirements in any or all
Accounts. Any determination by Clearing Broker not to terminate this Agreement
pursuant to this Section 12.5 shall not act as a waiver of Clearing Broker’s
rights hereunder.

12.6 Effect
of Termination. Any termination of this Agreement shall not
release Clearing Broker or Correspondent from any liability or responsibility
to the other with respect to Transactions effected prior to the effective date
of the termination, whether or not claims relating to such transactions shall
have been made before or after the termination.

12.7 Termination
Fee. If, for any reason, Correspondent terminates this
Agreement, or if Clearing Broker terminates this Agreement for Correspondent’s
breach hereof, Correspondent shall pay to Clearing Broker: (a) the
termination fee (the “Termination Fee”) as liquidated damages, and not as a
penalty, specified on the attached Fee Schedule; and (b) the expenses of
Clearing Broker in connection with transferring, converting or closing the
Accounts. Notwithstanding the foregoing right to claim liquidated damages in
the form of Termination Fees and expenses in the event of termination, the
Clearing Broker subordinates such claims to the Securities Investors Protection
Corporation (“SIPC”) in the event of a regulatory referred liquidation
proceeding.

Section 13. Arbitration

Any
dispute or controversy between Correspondent and Clearing Broker relating to or
arising out of this Agreement shall be settled by arbitration before and under
the rules of the NASD. In the event that the NASD shall decline or refuse
jurisdiction of such dispute or controversy, the arbitration shall be conducted
before and under the rules of the American Arbitration Association. Any
arbitration hearing shall be held in Minneapolis, Minnesota. Any arbitration
award may be entered in any court of competent jurisdiction.

 22
 

 

Section 14. General
Provisions

14.1 Applicable
Law. This Agreement shall be governed by and construed in
accordance with the laws applicable to contracts made and to be performed
within the State of Minnesota.

14.2 Invalid
Provisions. To the extent any provision of this Agreement is
inconsistent with or in violation of an Applicable Rule, that provision shall
be deemed deleted as part of this Agreement and shall not otherwise affect any
other provision of this Agreement. The parties shall use their best efforts to
agree upon a valid and enforceable provision which shall be a reasonable
substitute for such deleted provision in light of the tenor of this Agreement.
Any provision of this Agreement that is invalid or unenforceable in any
jurisdiction shall, with respect to such jurisdiction, be ineffective to the
extent of such invalidity or unenforceability without affecting the remaining
provisions of this Agreement or affecting the validity or enforceability of
that provision in any other jurisdiction.

14.3 Notices.
Notices shall be in writing delivered to the party at the address set forth
herein or such other address as each shall designate to the other and shall be
deemed given when mailed by first class mail or courier, or by facsimile
transmission.

14.4 Assignment.
This Agreement shall be binding upon all successors, assigns or transferees of
Clearing Broker or Correspondent, irrespective of any change with regard to the
name or the personnel of Clearing Broker or Correspondent. Any assignment of
this Agreement shall be subject to the requisite review, approval and consent
of any regulatory or self-regulatory agency or body whose review, approval and
consent must be obtained prior to the effectiveness and validity of such
assignment. No assignment of this Agreement by Correspondent shall be valid
unless Clearing Broker consents to such an assignment in writing. Any
assignment by Clearing Broker to any subsidiary that it may create or to a
company affiliated with or controlled directly or indirectly by it will be
deemed valid and enforceable without consent from Correspondent.

14.5 Amendments.
This Agreement represents the entire Agreement between the parties with respect
to the subject matter contained herein. This Agreement may not be changed
orally but only by an agreement in writing and signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought. This
Agreement represents the entire agreement among the parties, and supersedes all
prior agreements and understandings with respect to the subject matter
contained herein. The waiver or failure to act by a party with respect to a
breach by the other party of any provision of this Agreement shall not
constitute a waiver of any subsequent breaches of that or any other provisions
of this Agreement and shall not constitute an amendment of this Agreement.

14.6 Headings.
The headings contained in this Agreement are for convenience only and shall not
be deemed to be a part of the Agreement, or affect the meaning or
interpretation of any provision of this Agreement.

14.7 Counterparts.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original and all of which together shall constitute one and the
same Agreement.

14.8 Beneficiaries.
The imposition or allocation of any burden or duty on or to one or the other
party by this Agreement does not and is not intended to impose or create any
burden, right or duty in favor of or for the benefit of any person or entity
not a party to this Agreement.

14.9 Non-Solicitation
of Employees. During the term of this Agreement and for a
period of three (3) years after its termination, Correspondent agrees to
refrain from directly or indirectly soliciting, or causing to be solicited, any
employee of Clearing Broker, or any affiliated entity or entities, for the
purpose of inducing such person to become employed by or associated with Correspondent
or any affiliated entity in any capacity. Any breach of this section shall be
deemed a default by Correspondent entitling Clearing Broker to terminate this
Agreement pursuant to Section 12.3 above. In such event Correspondent
shall pay the reasonable out-of-pocket expenses of Clearing Broker in
connection with converting and/or closing the Accounts. During the term of this
Agreement Clearing Broker and affiliated entities agree to refrain from
directly or indirectly soliciting any 

 23
 

 

employee of
Correspondent to become employed by or associated with such firm in any
capacity. Any breach of this section shall be deemed a default by Clearing
Broker entitling Correspondent to terminate this Agreement pursuant to Section 12.3
above. In such event Clearing Broker shall pay the reasonable out of pocket
expenses of Correspondent in connection with converting and/or closing the
Accounts.

14.10 Insurance. Correspondent
agrees to maintain, and to provide Clearing Broker with written evidence (in
the form of an insurance certificate) thereof, of a Financial Institution Bond
for Broker-Dealers, Standard Form No. 14, or its equivalent, (a) in
the amount of at least $___________ covering any and all losses directly from
any dishonest or fraudulent acts and/or omissions of Correspondent’s employees
and agents, and (b) issued by an insurance company with an A.M. Best
rating of no less than A-.

 24
 

 

BOTH PARTIES
HERETO REPRESENT THAT THEY HAVE READ THIS AGREEMENT, UNDERSTAND IT, AGREE TO BE
BOUND BY ALL TERMS AND CONDITIONS STATED HEREIN, AND ACKNOWLEDGE RECEIPT OF A
SIGNED, TRUE, AND EXACT COPY OF THIS AGREEMENT.

IN WITNESS WHEREOF,
Clearing Broker and Correspondent have executed this Agreement as of the date
set forth below.

	
  

  	
  RBC DAIN CORRESPONDENT SERVICES,

  A DIVISION OF RBC DAIN RAUSCHER INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ CRAIG A. GORDON

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Craig A. Gordon, President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  60 South Sixth Street

  Minneapolis, MN 55402

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PAULSON INVESTMENT COMPANY

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ TRENT DAVIS

  	
   

  
	
   

  	
   

  	
   

  
	
  Its:

  	
  President and Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  811 S.W. Naito Pkwy, Suite 200

  Portland, OR 97204

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

	
  

  	
  A (check one)

  	
   

  
	
   

  	
  x

  	
  Corporation

  	
   

  
	
   

  	
  o

  	
  Limited Partnership / General Partnership

  	
   

  
	
   

  	
  o

  	
  Limited Liability Company

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

	
  State of Organization:

  	
  Oregon

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Minimum Balance:

  	
  No Clearing Deposit Required

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
     Clearing Broker will pay
  Correspondent interest    monthly at current money fund rates
  on this

     balance.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Dated:

  	
  June 15, 2006

  	
   

  

 

 25
 

 

Supplement
to Fully Disclosed Clearing Agreement

(BondDesk)

This Supplement to the
Fully Disclosed Clearing Agreement (the “Agreement”) is made as of June 15,
2006 by and between RBC Dain Correspondent Services, a division of RBC Dain
Rauscher Inc. (“RBC DCS”) and Paulson Investment Company Inc.(“Correspondent”)

WHEREAS, RBC DCS has
licensed and implemented an internet-based bond or fixed income securities
electronic trading platform (the “Platform”) using BondDesk’s proprietary
Internet-based BondExchangeTM Software and data link system architecture and
related system support mechanisms; and

WHEREAS, RBC DCS desires
to make such Platform available to Correspondent, subject to the terms and
conditions set forth herein, and Correspondent desires to obtain access to the
Platform;

THEREFORE, the parties
hereto enter into this Supplement and agree to the terms and conditions set
forth herein.

Section 1.0             Nature of Services.
Correspondent acknowledges that the terms of this Supplement shall be in
addition to those set forth in the Agreement, and the execution of this
Supplement does not restrict, limit, or constitute a waiver of, each party’s
rights and obligations set forth in the Agreement. In the case of a conflict
between this Supplement and the Agreement, the terms of the Agreement shall
prevail.

Section 2.0             Term and Termination. This
Supplement shall become effective as of the date hereof and shall continue in
effect until otherwise terminated. This Supplement may be terminated: (i) by
either party upon thirty (30) days written notice; or (ii) immediately by
RBC DCS upon a material breach of this Supplement or the Agreement by
Correspondent. In addition, this Supplement shall automatically terminate upon:
(i) termination or expiration of the Agreement; or (ii) termination
or expiration of RBC DCS’s agreement with BondDesk.

Section 3.0             Platform Functionalities and
Related Obligations. RBC DCS has negotiated the following functionalities
and standards with BondDesk.

3.1           Functionalities. The Platform
provided hereunder includes all functionality inherent to the BondDesk Platform
as currently deployed at the desktop level to execute retail, secondary, and
fixed income transactions, excluding external primary market functionality and
MPA Analytics. Correspondent may access the ATS and the Platform as an ATS
Distributor. “ATS” means BondDesk’s Alternative Trading System, which is the
anonymous bid/offer system on the Platform; “ATS Distributor” means a person or
entity who participates on the Platform (i) by buying and/or selling fixed
income products on the ATS from or to ATS Contributors, and/or (ii) by
posting bid/offer requests on the ATS for ATS Contributors; and “ATS
Contributor” means a person or entity who participates on the Platform (i) by
posting bids and/or offers for fixed income products on the ATS, or (ii) by
responding to bid/offer requests posted on the ATS. Any bid or offer of bonds
on a Firm Basis received by BondDesk Trading through the Platform that is
accompanied by a valid user identification and a valid access code assigned to
Correspondent shall be deemed a binding bid or offer by Correspondent, and
Correspondent shall be bound by any transaction matched by the ATS as a result
thereof. Any bid (or offer) of bonds on a Subject to Basis shall be deemed a
solicitation for an offer (or bid), and Correspondent may accept, counter, or
reject such offer (or bid) at its discretion.

3.2           Correspondent Obligations.
Correspondent will be bound by any User Orders. “User Orders” mean any Orders
that are accompanied by a valid user identification and a valid access code
assigned to Correspondent. Correspondent shall be obligated to maintain the
security and confidentiality of its assigned user identifications and access
codes. Neither RBC DCS nor BondDesk shall have any duty to verify whether any
such User Order has been authorized by Correspondent. Correspondent shall be
deemed to have given a User Order to BondDesk when BondDesk receives such User
Order through the Platform  (whether or
not Correspondent receives from the Platform, or actually becomes aware of, any
acknowledgment of such User Order). BondDesk may act on such User Orders, and
any resulting trades, transactions, or other related rights and obligations
shall be

 26
 

 

binding on Correspondent. RBC DCS shall have the right
to enforce this provision on Correspondent. Correspondent shall not transfer
its rights under this Supplement to any other person or entity.

3.3           Disclosure of Correspondent
Information. Subject to applicable law, Correspondent shall supply BondDesk
and/or RBC DCS with all information reasonably requested by either such party
concerning Correspondent and its access to and use of the Platform. Correspondent
understands and agrees that BondDesk and/or RBC DCS may report such information
to such regulatory authorities as BondDesk and/or RBC DCS determines in its
sole discretion to be necessary.

3.4           Limitation to Fixed Income
Securities Transactions. Correspondent shall be limited to using the
Platform for accessing information relating to the fixed income securities and
facilitating transactions in such securities. Correspondent acknowledges that
the Platform will not be used to clear such transactions. Correspondent agrees
and acknowledges that BondDesk: (i) will not maintain customer accounts
relating to such transactions; (ii) is not directly or indirectly a party
to any such transaction; and (iii) does not assume responsibility for, or
otherwise guarantee, the performance of any such transaction. Correspondent
agrees to proceed solely against its counterparty to collect or recover any
amounts owed to it or to enforce any of its rights in connection with or as a
result of any transaction facilitated by the Platform. Correspondent
acknowledges and agrees that neither RBC DCS nor BondDesk shall have any
obligation to provide any service, or any replacement therefore, after such
time that RBC DCS or BondDesk has ceased providing such services to all of
their customers.

3.5           Restricted Securities. Correspondent
acknowledges and agrees that the Platform is not intended to be used to
facilitate transactions in “Restricted Securities” as that term is defined in Rule 144(a)(3) under
the Securities Act of 1933. Correspondent shall not access the Platform to (i) offer
or sell Restricted Securities or (ii) make available information about
Restricted Securities. Correspondent shall be solely responsible for (i) determining
that orders entered by Correspondent comply with the registration requirements
under Applicable Law and (ii) implementing any procedures that
Correspondent deems necessary or appropriate to guard against the offer or sale
of a security in violation of such registration requirements. Correspondent
acknowledges and agrees that neither RBC DCS nor BondDesk is acting on behalf
of any offeror or seller of securities, whether restricted or otherwise.

3.6           Control of the Platform.
Correspondent acknowledges that BondDesk and RBC DCS shall at all times have
the right, in each party’s sole discretion, to limit access to the Platform, to
limit or suspend transactions on, or users’ access to, the Platform, or in any
other manner to control the Platform.

3.7           Equipment. Correspondent
acknowledges and agrees that Correspondent is solely responsible for acquiring,
installing, maintaining, and supporting any hardware and/or software necessary
to access and use the Platform.

3.8           Scheduled Maintenance Time.
Platform maintenance will be Saturdays from 6:00am to 8:00am ET, or as
otherwise scheduled upon no less than two business days’ notice. Emergency
Maintenance will be scheduled on an as-required basis.

3.9           Third Party Data Providers. Correspondent
acknowledges that the Platform includes data from third party vendors,
including Interactive Data Corporation, Standard & Poor’s Rating
Services, CUSIP, and other data providers (collectively, “Data Providers”).
None of RBC DCS, BondDesk or the Data Providers shall have any liability to
Correspondent or any other person or entity for errors, omissions or
malfunctions in any data or services provided by such Data Providers.
Correspondent agrees and acknowledge that the CUSIP database and the
information contained therein are and shall remain valuable intellectual
property owned by, or licensed to, Standard & Poor’s CUSIP Service
Bureau (“CSB”) and the American Bankers  
Association   (“ABA”), and that no
proprietary rights are being transferred to Correspondent in such materials or
in any of the information contained therein. Correspondent agrees that
misappropriation or misuse of such materials will cause serious damage to CSB
and ABA and that in such event money damages may not constitute sufficient
compensation to CSB and ABA; consequently, Correspondent agrees that in the
event of any misappropriation or misuse, CSB and ABA shall have the right to
obtain injunctive relief in addition to any other legal or financial remedies
to which CSB and

 27
 

 

ABA may be entitled. Correspondent agrees not to
publish or distribute in any medium the CUSIP database or any information
contained therein or summaries or subsets thereof to any person or entity
except in connection with the normal clearing and settlement of security
transactions. Correspondent further agrees that the use of CUSIP numbers and
descriptions is not intended to create or maintain, and does not serve the
purpose of the creation or maintenance of, a master file or database of CUSIP
descriptions or numbers.

3.10         Intellectual Property. All
intellectual property and proprietary rights in and to the Platform and the
information provided therein are and shall be the sole and exclusive property
of RBC DCS, BondDesk and/or the Data Providers, and neither Correspondent nor
any other person or entity shall have any rights in or to the Platform or such
information except as expressly provided herein.

Section 4.0             Disclaimer of Warranties.
NONE OF RBC DCS, BONDDESK OR THE DATA PROVIDERS, NOR ANY OF THEIR RESPECTIVE
DIRECTORS, OFFICERS, EMPLOYEES, OR AGENTS MAKE ANY WARRANTY TO CORRESPONDENT AS
TO THE SERVICES, WHETHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR ANY
WARRANTY REGARDING THE USE OR THE RESULT OF THE SERVICES WITH RESPECT TO THEIR
CORRECTNESS, QUALITY, ACCURACY, RELIABILITY, PERFORMANCE, COMPLETENESS,
TIMELINESS, CONTINUED AVAILABILITY, OR OTHERWISE.

Section 5.0             Limitation of Liabilities.
CORRESPONDENT ACKNOWLEDGES THAT RBC DCS DOES NOT OPERATE THE PLATFORM AND
COULD NOT OFFER ACCESS TO THE PLATFORM WITHOUT THE FOLLOWING PROVISION:
NONE OF RBC DCS, BONDDESK OR THE DATA PROVIDERS SHALL HAVE ANY LIABILITY TO
CORRESPONDENT OR TO ANY THIRD PARTIES FOR THE CORRECTNESS, QUALITY, ACCURACY,
RELIABILITY, PERFORMANCE, COMPLETENESS, TIMELINESS OR CONTINUED AVAILABILITY OF
THE PLATFORM OR RELATED SERVICES, OR FOR DELAYS OR OMISSIONS THEREIN, OR
FOR INTERRUPTIONS IN THE DELIVERY OF THE SERVICES. RBC DCS SHALL NOT BE
RESPONSIBLE FOR DIRECT LOSS OR DAMAGE INCURRED BY CORRESPONDENT OR CUSTOMERS AS
A RESULT OF ERRORS IN TRANSMISSION AND/OR PROCESSING. IN NO EVENT SHALL ANY
PARTY HERETO OR BONDDESK OR THE DATA PROVIDERS BE LIABLE FOR ANY SPECIAL,
INDIRECT, EXEMPLARY, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES RELATING IN
ANY MANNER TO THIS SUPPLEMENT OR THE PLATFORM, EVEN IF SUCH PARTIES HAVE BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN ADDITION, CORRESPONDENT
ACKNOWLEDGES AND AGREES THAT THE SERVICES DERIVED FROM THE PLATFORM DO NOT
AND SHALL NOT SERVE AS THE PRIMARY BASIS FOR ANY INVESTMENT DECISIONS MADE BY
CORRESPONDENT WITH RESPECT TO CORRESPONDENT’S ACCOUNTS OR CUSTOMER ACCOUNTS,
AND THAT NEITHER BONDDESK NOR RBC DCS IS OR SHALL BE AN ADVISOR OR A FIDUCIARY
OF CORRESPONDENT OR OF CORRESPONDENT’S MANAGED OR FIDUCIARY ACCOUNTS.

Section 6.0             Indemnification.
Correspondent shall indemnify, defend and hold harmless BondDesk and BondDesk’s
subsidiaries, affiliates and their respective directors, officers, employees
and agents from and against any and all losses, damages, liability, costs,
including attorney’s fees, resulting directly or indirectly from any suit,
proceeding, claim or demand against BondDesk or its subsidiaries, affiliates
and their respective directors, officers, employees and agents by a third party
arising out of or related to the accuracy or completeness of any security
descriptive data or other information received by BondDesk from Correspondent,
or any data, information, service, report, analysis or publication derived
therefrom.

Section 7.0             General.

7.1  Compliance with Laws. Each party agrees
to comply with all applicable laws, rules, and regulations in connection with
its activities under this Agreement. If the Services are for use outside the
United States, Correspondent agrees to comply fully with all relevant laws,
rules, and regulations in such foreign country, and to ensure that all software
and media comprising such materials are not exported in violation of U.S. law.

 28
 

 

7.2  Relationship Between the Parties. There
is no joint venture, partnership, agency, or fiduciary relationship existing
between the parties, and the parties do not intend to create any such
relationship by the Supplement. The Supplement does not create, and shall not
be construed to create, any right for the benefit of any third party.

IN WITNESS WHEREOF, RBC Dain
Correspondent Services and Correspondent have executed this Supplement as of
the date set forth below.

	
  

  	
  RBC DAIN CORRESPONDENT SERVICES,

  A DIVISION OF RBC DAIN RAUSCHER INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/CRAIG A. GORDON

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Craig A. Gordon, President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PAULSON INVESTMENT COMPANY

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ TRENT DAVIS

  	
   

  
	
   

  	
   

  	
   

  
	
  Its:

  	
  President and Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   June 15,
  2006

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 29

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00108-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00108-of-00352.parquet"}]]