OTCBB and OTC EQUITIES REVOCATION OF DELEGATION AND ASSET TRANSFER AND SERVICES AGREEMENT

Exhibit 1.01

 

OTCBB and OTC EQUITIES REVOCATION OF DELEGATION

AND ASSET TRANSFER AND SERVICES AGREEMENT

 

THIS OTCBB and OTC EQUITIES TRANSFER AND SERVICES AGREEMENT (Agreement) is effective as of October 1^st, 2005, (“Effective Date”)(subject to Section 48 hereunder), by and between National Association of Securities Dealers, Inc. (“NASD”), a Delaware corporation having its principal place of business located at 1735 K Street, N.W., Washington, D.C. 20006, and The Nasdaq Stock Market, Inc. (“Nasdaq”), a Delaware corporation having its principal place of business located at One Liberty Plaza, New York, New York, 10006. Nasdaq and NASD may hereafter be referred to collectively as the “Parties.”

 

RECITALS

 

WHEREAS, pursuant to the Plan Of Allocation and Delegation Of Functions by NASD to Subsidiaries (“Delegation Plan”), NASD previously delegated to Nasdaq the responsibility of operating the Over The Counter Bulletin Board (“OTCBB”) and Over The Counter Equities (“OTC Equities”) businesses (collectively the “Businesses” ); and

 

WHEREAS, upon execution of this Agreement, the Parties will revoke the delegation of responsibility for operating the Businesses under the Delegation Plan and transfer certain assets of the Businesses as described in this Agreement; and

 

WHEREAS, the Parties intend for NASD to outsource to Nasdaq the operation of the Businesses as they exist as of September 30, 2004, was executed or as further modified by Enhancements or mutual agreement of the parties, upon the terms set forth in this Agreement and

 

WHEREAS, the Parties further intend to provide for the ability of NASD or its designated agent to continue to operate the Businesses after expiration or termination of any outsourcing arrangements between the Parties related to the Businesses.

 

NOW, THEREFORE, the parties desire to set forth in writing the terms and conditions of their understanding and agreement of their respective responsibilities for the operation of the Businesses and the provision of other, related services.

 

TERMS AND CONDITIONS

 

In consideration of the mutual covenants and conditions set forth in this Agreement and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties agree as follows:

 

Section 1. Definitions. The following initially capitalized words or phrases shall have the meanings set forth below when used in this Agreement:

Section 1.a. Acceptance Testing. “Acceptance Testing” shall mean a series of tests to be conducted by NASD and Nasdaq or their agents of changes to the OTC Systems, including without limitation, Enhancements, new releases, modifications and Other Services agreed to by the parties to be performed by Nasdaq to evaluate whether the Enhancements, new releases, modifications and Other Services satisfy the functional, operational, and performance requirements set forth in the BRD or this Agreement. Acceptance Testing shall be performed within the time frames set forth in the applicable Project Plan as defined in the Statement of Procedures (“SOP”) attached hereto as Exhibit 1.a. A description of Acceptance Testing is contained in the SOP.

 

Section 1.b. Build. A “Build” shall mean a fully testable configuration of components that provides defined functionality for one specific portion of a computer application as mutually agreed upon by the parties. Enhancements, modifications, releases and Other Services as agreed by the parties will be developed through a series of interrelated Builds.

 

Section 1.c. Business Continuity Plan. The “Business Continuity Plan” (“BCP”) is a document, which identifies procedures relating to an emergency or significant business disruption. Such procedures must be reasonably designed to enable the NASD to meet its obligations to customers, vendors, members or others and shall be developed in accordance with SEC guidance on BCPs. The BCP must, at a minimum, address: (1) data back-up and recovery (hard copy and electronic); (2) all mission critical systems; (3) financial and operational assessments; (4) alternate communications between employees, NASD, customers, vendors, members, others and the Businesses; (5) alternate communications among those employees of the Businesses (both Nasdaq’s and NASD’s if applicable) necessary to operate the BCP in accordance with the SEC guidance; (6) alternate physical location of Businesses’ employees necessary to operate the Businesses in accordance with the BCP; (7) regulatory reporting; and (8) communications with regulators. A copy of the current version of the BCP is attached hereto at Exhibit 1.c.

 

Section 1.d. Business Requirements. The term “Business Requirements” shall mean the defined business purposes (including without limitation, functional, performance and operational elements) that the development and operation of the OTC Systems is meant to satisfy. A copy of the current Business Requirements are contained in the Business Requirements Documents (“BRD”) copies of which are attached hereto as Exhibit 1.d.

 

Section 1.e. Business Subsystems. “Business Subsystems” shall mean those Systems, which are a subset of the OTC Systems, which relate to operation of the Businesses and which do not relate to the operation of other businesses or applications of Nasdaq. Business Subsystems along with any derivatives thereof or modifications thereto shall be owned by NASD.

Section 1.f. Change Procedures. “Change Procedures” shall have the meaning given to it in Exhibit 6.b.

 

Section 1.g. Combined OTC Software. “Combined OTC Software” shall mean the Software (object and source code) licensed or developed by Nasdaq (or a contracted service provider) for functions related to the Businesses and which satisfies functionality for other Nasdaq businesses which is set forth in Exhibit 1.z., and which is also included in the BRD. Combined OTC Software shall be owned by Nasdaq.

 

Section 1.h. Commercially Reasonable. “Commercially Reasonable” shall mean that a party will make such efforts as are reasonable in the light of the standards of the industry and of the other party’s reasonable expectations, provided, however, that meeting the standard of commercially reasonable does not and will not require a party to disregard its own interests. Meeting a standard of commercially reasonable may require a party to incur minor losses for the other party’s sake but in no event will it require the party to imperil its own existence or to make a total effort to fulfill the obligation irrespective of all other considerations.

 

Section 1.i. Confidential Information. “Confidential Information” shall have the meaning given to it in Section 18.

 

Section 1.j. Core Services. “Core Services” shall have the meaning given to it in Section 6.a.

 

Section 1.k. Cure Period. “Cure Period” shall have the meaning given to it in Section 15.a.

 

Section 1.l. Data. “Data” shall mean information that is collected, processed, distributed or stored by the OTC Systems pursuant or related to the operation of the Businesses either now or in the future including without limitation, all security and archival procedures associated with the storage, communication and protection of such information. Data shall also include databases that are used solely to support the Businesses and are not shared with other Nasdaq Systems. At the time of execution of this Agreement the following are examples of Data:

 

•

Businesses data including trades, quotes and positions (this should include all OTCBB data on a real-time as well as a T+1 basis)

 

•

Businesses billing data

 

•

Businesses company information

 

•

OTCBB.com ecommerce database

 

•

Businesses participant Data

 

•

OTC Equities trades (this should include all OTC Equities data on a real-time as well as a T+1 basis)

Section 1.m. Delegation Plan. “Delegation Plan” shall have the meaning set forth in the recitals of this Agreement. A copy of the Delegation Plan as amended for the purposes of this transaction is attached hereto at Exhibit 1.m.

 

Section 1.n. Development Testing. “Development Testing” shall mean the series of development tests conducted by Nasdaq as set forth in detail in the SOP.

 

Section 1.o. Disaster Recovery Plan. “Disaster Recovery Plan” or “DRP” shall mean that plan of contingency for the seamless failover of the operation of the Businesses to an alternative site or step-by-step procedures to get the Businesses up and operational at a backup site within a designated time in the event of a failure of the OTC Systems or the Business Subsystems. Currently the BCP attached at Exhibit 1.c. contains the DRP.

 

Section 1.p. Due Date. “Due Date” shall have the meaning given to it in Section 12.a.

 

Section 1.q. Enhancements. “Enhancements” shall mean any improvement, enhancement, addition or modification to and of the OTC Systems or any component(s) thereof, excluding those related solely to the maintenance of the OTC Systems which do not affect functionality.

 

Section 1.r. Fully Operational. “Fully Operational” shall mean the condition of the OTC Systems when performing all of their designated functions as more fully set forth in this Agreement, the TDD, OPM and the BRD and in accordance with the Minimum System Performance and Minimum Operational Standards.

 

Section 1.s. Historical Data. “Historical Data” shall mean information that was collected, processed, distributed or stored by or pursuant to the operation of the OTC Systems, or any predecessor thereof, pursuant to the operation of the Businesses prior to the Effective Date of this Agreement, including without limitation, all databases, security and archival procedures associated with the storage, communication, and protection of such information. At the time of execution of this Agreement the following are examples of Historical Data :

 

•

Businesses data including trades, quotes and positions (this should include all OTCBB data on a T+1 basis)

 

•

Businesses company information

 

•

OTCBB.com ecommerce database

 

•

Businesses participant Data

 

•

Businesses billing data

 

•

OTC Equities trades (this should include all OTC Equities data on a real-time as well as a T+1 basis)

 

Section 1.t. Independent OTC Software. “Independent OTC Software” shall mean the Software (object and source code) licensed by NASD or developed by

Nasdaq or NASD (or their contracted service provider) for functions related to the OTC System or in conjunction with the OTC Systems as set out in the BRD, paid for by NASD, which is not NASD OTC Software, Nasdaq OTC Software or Combined OTC Software. All rights title and interest in and to the Independent OTC Software along with any derivatives thereof and modifications thereto shall belong to NASD. A listing of Independent OTC Software is attached hereto at Exhibit 1.z.

 

Section 1.u. Minimum Operational Standards. “Minimum Operational Standards” shall mean the lowest level at which the OTC Systems can operate and still be Fully Operational. The Minimum Operational Standards shall be those operational standards which existed on September 30, 2004, and are set forth in further detail in the SOP.

 

Section 1.v. Minimum Performance Standards. “Minimum Performance Standards” shall mean the lowest level at which the Services can be performed while ensuring that the OTC Systems remain Fully Operational. The Minimum Performance Standards shall be those system performance standards which existed on September 30, 2004, and are set forth in further detail in the OPM.

 

Section 1.w. Nasdaq’s OTCBB/OTC Equities Product Manager. “Nasdaq’s OTCBB/OTC Equities Product Manager” shall mean the individual so designated by Nasdaq as NASD’s primary point of contact for all technical/operational questions and information requests related to Nasdaq’s provision of services hereunder and to oversee that the operations procedures are followed to ensure the accuracy of the Businesses processing, in accordance with the SEC and NASD rules, guidelines and best practices. Nasdaq shall notify NASD promptly following a change to the identity of Nasdaq’s OTCBB/OTC Equities Product Manager.

 

Section 1.x. Nasdaq Systems. “Nasdaq Systems” shall mean all of the applications that Nasdaq, or a Nasdaq affiliate, or any agent on behalf of Nasdaq or any Nasdaq affiliate, operates in the performance of Nasdaq’s business. For the purposes of clarification, unless specifically set forth in the Change Order document, Nasdaq Systems shall not include Business Subsystems or Independent OTC Software. Nasdaq Systems and all derivatives thereof and modifications thereto are owned by Nasdaq.

 

Section 1.y. Nasdaq OTC Software. “Nasdaq OTC Software” shall mean the Software (object and source code) other than NASD OTC Software and Independent Software which is set forth in Exhibit 1.z and which is licensed or developed by Nasdaq (or a contracted service provider), is used to operate the Businesses, and has the functionality set forth in the BRD. Nasdaq OTC Software and all derivatives thereof and modifications thereto shall be owned by Nasdaq.

 

Section 1.z. NASD OTC Software. “NASD OTC Software” shall mean the Software (object and source code) licensed by NASD or developed by Nasdaq or NASD (or their contracted service provider) for functions solely related the Businesses or Independent OTC Software and which are also included in the BRD. NASD OTC Software and all derivatives thereof and modifications thereto shall be owned by NASD. NASD OTC Software is specifically set forth in Exhibit 1.z.

Section 1.aa. NASD’s OTCBB/OTC Equities Product Manager. “NASD’s OTCBB/OTC Equities Product Manager” shall mean the individual so designated by NASD as Nasdaq’s primary point of contact for all technical/operational questions and information requests related to Nasdaq’s provision of services hereunder. NASD shall notify Nasdaq promptly following a change to the identity of NASD’s OTCBB/OTC Equities Product Manager.

 

Section 1.bb. NASD’s OTCBB/OTC Equities Operations Manager. NASD’s OTCBB/OTC Equities Operations Manager” shall mean the individual designated by NASD to set up and direct the operations policies and procedures that support the Businesses in accordance with the OPM, SEC and NASD rules, guidelines and industry best practices.

 

Section 1.cc. OTCBB and OTC Equities Business. “OTCBB and OTC Equities Business” means all activities of or related to operating the business of the OTCBB and the OTC Equities including without limitation, trade reporting, comparison, quote collection and dissemination of over-the-counter securities quoted on either the OTCBB or OTC Equities (including Pink Sheets), and Technology and OTC Operations Services related to or in support of trade reporting, comparison, quote collection and dissemination services related to the trading of over-the-counter securities as defined in Section 1.x.

 

Section 1.dd. OTCBB Eligible Securities. “OTCBB Eligible Securities” shall have the meaning given to it in NASD Rule 6530 as such rule may be amended from time-to-time. A current copy of NASD Rule 6530 is attached hereto at Exhibit 1.dd.

 

Section 1.ee. OTC Equity Security. “OTC Equity Security” shall have the meaning given to it in NASD Rule 6610 as such rule may be amended from time-to-time. A current copy of NASD 6610 is attached hereto at Exhibit 1.ee. The definition of OTC Equity Security shall also include non-Nasdaq securities as defined in NASD Rule 6710(c) to the extent such securities are not included in the Nasdaq Stock Market nor traded on any national securities exchange nor included in a Transaction Reporting Plan pursuant to SEC Rule 240.11Aa3-1 or SEC Rule 242.601 and direct participation programs as defined in NASD Rule 6910(c) that are subject to the provisions of the NASD Rule 6900 series.

Section 1.ff. OTC Operations Services. “OTC Operations Services” shall mean responsibilities for Listing Qualification Services, User Services and Subscriber Services (as such terms are described below), including without limitation, the following as they relate to the Businesses:

 

(i) automated (A) handling of quotations, transaction reports, and comparisons of transactions, (B) trade reporting services described in the OTC Operations Procedures Manual (“OPM”) attached hereto as Exhibit 1.ff., and (C) dissemination of trade and quote data;

 

(ii) collecting, processing, consolidating, and providing to NASD Regulation, Inc. (or otherwise as designated by NASD) the information requisite to operation of the surveillance audit trail related to subsection (i)(A), as set forth in the OPM;

 

(iii) OTC Data integrity functions as set forth in the OPM;

 

(iv) services provided by Nasdaq under this Agreement of or relating to the quoting requirements and quoting of securities on the Businesses, including without limitation, quoting requirements, actions to assure OTC Data integrity, billing and customer support functions (“Listing Qualification Services”). The Listing Qualification Services that Nasdaq shall provide to NASD under this Agreement are set out in the OPM;

 

(v) services provided by Nasdaq of or relating to the facilitation of the use of the OTC Systems by approved individuals and entities, including without limitation, trading operations, MarketWatch, assistance with necessary Interfaces, customer support and billing (“User Services”). The User Services that Nasdaq shall provide to NASD under this Agreement are set out in the OPM;

 

(vi) services provided by Nasdaq of or relating to the facilitation of the use of the Data of the Businesses, including without limitation, OTC Operations, assistance with necessary Interfaces, billing, OTC data audits and customer support (“Subscriber Services”). The Subscriber Services that Nasdaq shall provide to NASD under this Agreement are set out in the OPM; and

 

(vii) all other day to day operational support as set forth in the OPM.

 

Section 1.gg. OTC Systems. “OTC Systems” shall mean the systems comprised of Nasdaq OTC Software, NASD OTC Software, Combined OTC Software, Independent OTC Software, and certain third party Software that have the functionality as set forth in the most recent version of the BRD and the TDD. The most current versions of the BRD and TDD are attached hereto as Exhibits 1.d. and 1.rr. respectively.

 

Section 1.hh. Preventative Maintenance. “Preventative Maintenance” shall mean the resources required by Nasdaq to undertake activities designed to forestall the OTC Systems not being Fully Operational.

 

Section 1.ii. Regulatory Fees. “Regulatory Fees” shall mean the NASD fees associated with the regulation of OTCBB and OTC Equities securities that accrued prior to the Effective Date.

Section 1.jj. Remedial Maintenance. “Remedial Maintenance” shall mean the resources required by Nasdaq to keep the OTC Systems Fully Operational as soon as commercially reasonable after a problem is detected and in accordance with the Emergency Procedures attached hereto at Exhibit 13.a.

 

Section 1.kk. Revised Operational Support Fee. “Revised Operational Support Fee” shall have the meaning given to it in Section 10.c.

 

Section 1.ll. Services. “Services” shall mean the Core Services, Enhancements, Other Services, Transition Support and additional services Nasdaq shall provide NASD in accordance with Section 6 and as agreed to by the parties.

 

Section 1.mm. Significant Business Interruption. “Significant Business Interruption” shall be defined by way of example and without limitation, data center outage, OTC Systems or Business Subsystems component failure, network outage or degradation that makes the OTC Systems or Business Subsystems unable to perform at or above the Minimum Performance Standards, inability to perform Core Services at or above the Minimum Performance Standards or inaccessibility of support site to key support personnel of NASD or Nasdaq.

 

Section 1. nn. Software. “Software” shall mean the object and source code (excluding Nasdaq OTC Software and Combined OTC Software which shall include the object code, only, with regard to licensing of the same to NASD either during or following the Term of this Agreement) versions of any applications programs, operating system software, computer software languages, utilities, other computer programs and Related Documentation, in whatever form or media, including the tangible media upon which such applications programs, operating systems software, computer software languages, utilities, other computer programs and Related Documentation are recorded or printed.

 

Section 1.oo. Subsystem. A “Subsystem” shall mean a computer system or systems that are organized into significant functional elements that comprise distinct performance and operation objectives. The OTC Systems is made up of Subsystems including without limitation Business Subsystems.

 

Section 1.pp. System Testing. “System Testing” shall mean the series of tests described in the SOP to determine whether all of the portions of a completed software program work together to satisfy its stated Business Requirements and Technical Specifications as set out in the BRD.

 

Section 1.qq. Technological Services. “Technological Services” shall mean those services necessary to ensure that the OTC System and Business Subsystems remain Fully Operational, including without limitation project support, engineering and development services, Telecommunication, Network Services, technical support inclusive of system Interfaces, Preventive and Remedial Maintenance, Enhancements, error correction and bug fixes, Acceptance Testing, BRD updates, Development Testing, Performance Analysis, System Testing, User Testing, capacity planning, Disaster Recovery, and Business Continuity.

Section 1.rr. Technical Design Document. “Technical Design Document” or “TDD” is a detailed description of the Technical Specifications which define the specific requirements each component of the overall system must meet in order for the overall business requirements of the system to be met, including, without limitation, types of hardware or software, communications, systems interfaces, data management and information flows within the program, and the Minimum Performance Standards for each Subsystem. The parties acknowledge that they have been provided with a copy of the current version of the TDD entitled “Nasdaq Automated Confirmation Transaction Design Specification” which was last revised on July 18, 2005, prior to execution of this Agreement.

 

Section 1.ss. Technical Specifications. “Technical Specifications” shall mean detailed descriptions of the parts and configuration of each piece of a computer system which comprise the OTC Systems and the Business Subsystems including, without limitation, types of hardware or software, communications, systems interfaces, data management and information flows within the program. Technical Specifications define the specific requirements each component must meet in order for the overall Business Requirements of the system to be met. Unless otherwise set forth herein, Technical Specifications shall be maintained by Nasdaq and shall be maintained and updated to reflect the then current Business Requirements contained in the BRD.

 

Section 1.tt. Term. Absent any qualification to the contrary herein, “Term” shall mean the Initial Term, plus any Renewal Term plus any Transition Period. “Initial Term” and “Renewal Term” shall have the meanings given to them in Section 14.

 

Section 1.uu. Transition Period. “Transition Period” shall have the meaning given to it in Section 7.

 

Section 1.vv. Transition Support. “Transition Support” shall consist of the provision of Core Services, Other Services and Enhancements in accordance with this Agreement.

 

Section 1.ww. Users. “Users” shall mean NASD, Businesses’ participants, NASD vendors and NASD subscribers in connection with the Businesses and NASD internal staff.

 

Section 1.xx. Website. “Website” shall mean any domain name, trade dress, trademark, service mark, hardware used to run any website of the Businesses’ website, object code and source code of any software that is used to run and maintain the website (other than interfaces between Nasdaq Systems and the website), all data which is used on the website or from which the data on the website derived, and all reports and records generated on, by or through the Businesses’ website.

Section 2 . Transfer and Sale of Businesses

 

Section 2.a.i. Transfer. The Parties hereby revoke the portion of the Delegation Plan delegating responsibility from NASD to Nasdaq for conducting the Businesses and hereby transfer the assets of the Businesses to NASD, subject to the terms and conditions of this Agreement.

 

Section 2.a.ii. Sale. Nasdaq hereby represents and warrants that it has the legal right and title to, and does in fact transfer to NASD all rights, title and interest in and to all of the assets of the Businesses, tangible or intangible, including without limitation NASD OTC Software, that exists as of the Effective Date, Websites, Data, Historical Data, the BRD, and the Assets listed in Exhibit 2.a. In addition, Nasdaq transfers to NASD all rights, title and interest in and to documentation relating to and regarding the Businesses Subsystems (including without limitation all internal and external management reports and economic analysis reports), all revenue streams generated by the Businesses, any business opportunities, or portions thereof, related to the Businesses (regardless of whether those business opportunities have been exercised), and all quid pro quo consideration generated from the Businesses and goodwill associated with each asset and existing in the Business and any residual value of the Businesses not otherwise addressed in this Agreement, in such percentage as the foregoing are attributable to the Businesses. Further, in the event the SEC determines that markets can own symbols assigned to companies, as between NASD and Nasdaq, NASD will own any symbols assigned to companies that trade in the over-the-counter markets and are not listed on The Nasdaq Stock Market or an exchange. All assets described in this section shall collectively be referred to as the “Businesses’ Assets”. Exhibit 2.a. list specifically enumerated Business Assets transferred pursuant to this Agreement. In the event the parties discover additional assets that should have been considered to be the Businesses’ Assets but are not listed in this Agreement or Exhibit 2.a., the parties shall reform Exhibit 2.a. to reflect the transfer and sale of such additional asset(s) under this Agreement. Nasdaq will assign to NASD all third party agreements necessary to effectuate the purposes of this Section 2.a. ii. including without limitation agreements related to the operation of the Websites to the extent each relevant vendor consents to such assignment. In addition, to the extent that the Businesses have ownership rights in any names, trademarks, trade names, trade dress, service marks, domain names or copyrights (other than copyrights in source or object code) that relate solely to the Businesses and do not contain a word, phrase, design or mark that is used by Nasdaq in any other context in an ordinary non-source identifying capacity, Nasdaq hereby transfers to NASD such assets AS IS with no warranty of any kind. By way of example and not limitation, in the event there were to be a mark that was identified as “Nasdaq OTCBB”, Nasdaq would retain use of the trademark “Nasdaq”; NASD would retain use of the term “OTCBB”; and neither party would be permited to use the mark “Nasdaq OTCBB” without the other’s permission. In the event the parties cannot reach agreement as to whether additional assets are Businesses’ Assets, they will use the Dispute Resolution procedures set out in Section 30 herein to so determine.

Section 2.a.iii. Assignment of Agreements. Nasdaq and NASD shall use commercially reasonable efforts to cooperate with each other either to assign specified portions of Nasdaq’s Workstation II Agreements as well as their Distributor Agreements, or to give NASD third party beneficiary rights under those agreements. In the event the parties agree that Nasdaq will assign portions of the agreements to NASD and a claim arises directly under the portion of the agreement which was assigned by Nasdaq under this Section 2.a.iii. and a competent legal authority with jurisdiction over the matter determines that Nasdaq can no longer enforce its rights under the portion of the agreement that was assigned to NASD, NASD will, as part of the assignments, agree to indemnify Nasdaq up to and to the extent of protection that Nasdaq would have had if a portion of the portion of the agreement had not been assigned to NASD.

 

Section 2.b. Upon execution of this Agreement, all right, title and interest in and to the intellectual property listed in Exhibit 2.a. will be transferred by Nasdaq to NASD. Nasdaq agrees to use commercially reasonable efforts to give NASD and any persons designated by NASD any assistance reasonably required in order to perfect any of the intellectual property rights assigned within five (5) business days following a request by NASD.

 

Section 2.c. Consideration for Transfer of Businesses. The parties hereto acknowledge and agree that NASD’s agreement to outsource the operation of the Business to Nasdaq, in accordance with this Agreement, the waiver of Regulatory Fees from NASD to Nasdaq, the receipt and sufficiency of which is acknowledged by Nasdaq, as well as NASD’s assumption of the responsibility for the operation of the Businesses shall serve as adequate and fair consideration for the transfer of the Businesses’ Assets. As further consideration for the transfer of certain assets in the Businesses from Nasdaq to NASD, NASD agrees that it will waive any fee incurred by Nasdaq for the regulation of the Businesses but not billed prior to the Effective Date.

 

Section 3. Protocols and Interface Use; Symbol Assignment Procedures; License to use NASD OTC Enhancements and Historical Data.

 

3.a. Protocols and Interface Use.

 

3.a.i. During the Term of this Agreement, Nasdaq shall provide protocols and interfaces and related services (collectively “Interfaces”) necessary for operating the Businesses directly to authorized users of the Businesses (“User or Users”) on terms and conditions determined solely and exclusively by Nasdaq, however, in no event shall Nasdaq charge Users more for these Interfaces than it charges its own customers for the same or similar Interfaces. A current listing of the Interfaces is attached hereto at Exhibit 3.a. Exhibit 3.a. shall be updated as new Interfaces are developed and implemented. Fees for the Interfaces shall be determined solely and exclusively by Nasdaq. All revenue generated from the provision of Interfaces to Users by Nasdaq shall belong to Nasdaq. Nasdaq reserves the right to terminate access to the Interfaces to Users who fail to pay any of the fees owed for the provision of Interfaces to the Businesses to Nasdaq. Ten (10) business days prior to withdrawing access to the

Interfaces from a User, Nasdaq shall provide NASD with written notice of its intent to withdraw access to the Interfaces. If such User, or NASD, pays Nasdaq all amounts due on User’s account, including without limitation all amounts that accrue during the ten day notice period and all amounts relating to the provision of Interfaces for the Businesses, Nasdaq shall not withdraw access to the Interfaces from said User. NASD assumes no liability for the quality or implementation of the Interfaces and Nasdaq hereby agrees to indemnify, defend and hold NASD harmless from third party claims based upon the quality or implementation of the Interfaces.

 

3.a.ii. Nasdaq hereby grants a perpetual, royalty-free, world-wide license and right to use, during the Term, all of the formats of the protocols and the Interfaces listed on Exhibit 3.b. to support the Businesses (“Protocol License”). Nasdaq hereby grants to NASD a perpetual, royalty-free, world-wide license and right to NASD to use and sublicense the formats of the Interfaces and Protocols listed on Exhibit 3.a. and 3.b. at the expiration or termination of the Term, in support of the Businesses. Exhibit 3.b. is a current list of the Protocol Licenses. Exhibit 3.b. shall be amended and updated from time to time by Nasdaq with nine (9) months’ notice to NASD to reflect the retirement and/or substitution of any protocol(s) or Interface(s). All changes to Interfaces or Protocols shall follow the Enhancement process set out in Section 6. Nasdaq shall support all Protocols during the Term. In the event NASD agrees to any changes proposed by Nasdaq to any of the Protocols or Interfaces listed in Exhibit 3.a. or 3.b., Nasdaq shall pay all costs incurred by a user associated with any user acceptance testing necessary as a result of the change..

 

3.b. Symbol Assignment Procedures. The Parties shall coordinate the assignment of symbols to securities, counterparties and participants to ensure uniqueness in the market place and to avoid conflicts that could effect the operations of the Nasdaq System or the OTC Systems and subsystems. Nasdaq shall not issue a symbol in either the Businesses or any other business area in which Nasdaq operates which conflicts with symbols already issued in the Businesses or with any symbol which has previously been issued by NASD. In the event a Nasdaq listed entity wishes to use a symbol which is already in use by the Businesses or which has already been issued by NASD, Nasdaq and NASD will work together to reach a solution.

 

3.c. NASD hereby grants to Nasdaq a royalty-free, world-wide license and right to use, during the Term, the NASD OTC Software, Data, Historical Data, the BRD, and any and all other of the Businesses’ Assets for use in meeting Nasdaq’s obligations under this Agreement.

 

3.d. Nasdaq hereby grants to NASD a perpetual, royalty-free, world-wide license and right to use, and sublicense the TDD and OPM for use in the Businesses.

 

Section 4. Collection and Pass Through of Revenue. Commencing on the Effective Date and continuing until such time as NASD collects such revenue directly, on the first of each month during the Term, Nasdaq will pass through to NASD the revenue streams collected for the prior month as described on Exhibit 4 that are generated by the

Businesses and actually collected by Nasdaq subsequent to the Effective Date (“NASD Revenues”). NASD Revenues includes OTCBB.com historical report fees, OTCBB position fees, OTC/OTCBB ACT fees (Compare/Accept fees, T+1/T+N transactions Locked-in/QSR fees, Internalized Trade Reporting fees, Cancel/Correct fees, Autolock Automated Give Up (AGU) fees), and OTCBB/OTC data feed fees (6.25% of Level One Data Feed fees). Nasdaq shall use commercially reasonable efforts to collect such pass through revenue, but in any event, not less than the level of effort that it uses to collect its own revenue. Nasdaq will not be responsible to NASD for any revenue that is generated by the Businesses but not actually collected by Nasdaq, unless such failure to collect and/or pass through is a result of the negligence of Nasdaq. In the event Nasdaq fails to collect any revenue that is generated by the Businesses as a result of Nasdaq’s negligence, the Core Services Fees shall be offset by such amount which was not collected as a result of Nasdaq’s negligence. The parties agree that in the event that Nasdaq receives a preference claim in bankruptcy that seeks return of any revenue passed through to NASD hereunder, Nasdaq will have sole discretion as to any settlement or defense of such claim. Upon final resolution of such claim by settlement or court order, NASD will promptly refund to Nasdaq an amount equal to the amount of such settlement multiplied by the percentage of revenue passed through to NASD under which such claim is based (i.e. Nasdaq settles a preference claim for $100.00 of which they had passed through revenue of $15. NASD’s obligation is to pay $15 to Nasdaq).

 

4.a. Monthly Accounting. Commencing on the first of each month starting the month after the Effective Date, and continuing through the Term, Nasdaq shall send NASD all NASD Revenues collected during the previous month along with a monthly accounting reflecting NASD Revenues (both collected and uncollected) for that month (Revenue Report). If NASD disputes any of the NASD Revenues or Nasdaq’s collection thereof, it will notify Nasdaq of its dispute within ten (10) business days of its receipt of the NASD Revenues. Nasdaq’s OTCBB/OTC Equities Product Manager(s) and NASD’s OTCBB/OTC Equities Product Manager will then attempt to resolve such discrepancies. If the parties are unable to resolve any such dispute within twenty (20) business days of NASD’s receipt of such NASD Revenues, then the parties will then resolve any remaining disagreements through the procedures set forth in Section 30 herein. All NASD Revenues may be paid by electronic funds transfer

 

4.b. Late Fees. Nasdaq shall pay a late fee charge equal to one half of one percent (1/2%) per month from the date such revenues were due on any NASD Revenues collected or which should have been collected but were not due to Nasdaq’s negligence, and which were not remitted to NASD (i) in accordance with Section 12 or (ii) following the resolution of the dispute pursuant to the procedures set forth in Section 30, as appropriate.

 

4.c. Billing Tax System. Nasdaq will maintain the billing tax application for NASD. All tax decisions will be made by NASD, communicated in writing to Nasdaq, and entered into the billing tax system by Nasdaq. Nasdaq will prepare and send to NASD, and NASD will review a monthly report showing billing tax information. NASD will have five (5) business days following transmission of the report to notify

Nasdaq of any errors. If NASD does not respond within such 5 days the report shall be deemed to be accurate as is. Nasdaq shall not have any liability for a data entry error that was shown on the report and which was not brought to Nasdaq’s attention by NASD. Nasdaq will remain liable for failures to correct data entry errors brought to their attention by NASD and failures to follow NASD’s instructions with respect to the correction of initial data entry errors.

 

Section 5. Sharing of Revenue. If, during the Initial Term, NASD implements fees which relate solely to issuers, trade reporting, comparison, quote collection and dissemination of OTCBB Eligible Securities and OTC Equity Securities and which are not related to adjustments or modifications to pre-existing fees (“New Fees”), NASD will remit to Nasdaq (if NASD collects fees directly) or Nasdaq shall withhold from passing through to NASD (if Nasdaq collects fees on NASD’s behalf) fifteen percent (15%) of the incremental increase in gross revenues driven solely by the new fees during the Initial Term. Nasdaq shall report such additional fees and provide an accounting of any such additional fees in a separate section on the Revenue Report in accordance with Section 4 supra. In the event NASD decides to implement New Fees and needs Nasdaq to bill for such New Fees, the parties will handle the matter as an Enhancement and as part of the Change Control Procedures.

 

Section 6. Service Levels. During the Term of this Agreement, Nasdaq shall provide Services to the Businesses via the OTC Systems with a service level that is not less than the service level that it provides to its critical systems such as ACT. In the event NASD believes that Nasdaq fails to meet the standards set out in this Section for the provision of Services, including without limitation Core Services, NASD shall withhold payment of the Core Services fee and the parties shall resort to Dispute Resolution to determine whether Nasdaq is in fact failing to meet the standards. During such time NASD shall pay the Core Services fee to a third party escrow agent agreed to by the parties. If Dispute Resolution results in an agreement or determination that Nasdaq is not failing to meet the standards the third party escrow service shall remit to Nasdaq the Core Services fees. If Dispute Resolution results in a determination that Nasdaq is in fact failing to meet the standards, NASD shall not be liable for the Core Services fee in the month (or any portion thereof) in which Nasdaq did not meet it Service Levels. Nasdaq warrants and represents that the services performed by Nasdaq (and, if relevant, its subcontractors) for NASD will be of good and workman-like quality, but in no event less than generally accepted industry standards good and workman-like quality. Nasdaq shall perform the Services set forth in this Section 6 upon payment and other terms set forth in this Agreement:

 

6.a. Core Services. The following services under this Section 6.a. shall be defined for the purposes of this Agreement as “Core Services”:

 

6.a.i. Nasdaq shall provide to NASD and NASD shall accept services and program support described herein and as further set out in the SOP, the OPM, the Change Procedures and the Emergency Procedures. Such services and program support shall be provided via the OTC Systems and shall include adequate resources, including

personnel, to support all aspects of the Businesses, including but not limited to Technological Services, OTC Operations Services, Production, Disaster Recovery, Business Continuity, Remedial Maintenance, Preventative Maintenance, website maintenance and operation, error correction, bug fixes, support as necessary for Interfaces, Subsystems, business continuity, disaster recovery and capacity planning as more fully set forth in this Agreement and the Exhibits; project support; technical support; engineering and development services and other services as agreed to by the parties to the OTC Systems in order to ensure that the Businesses operate in accordance with this Agreement, the OPM and the BRD, up to the Minimum Service Levels agreed to by the parties in the SOP, but in any event, not less than the service level that Nasdaq provides to its critical systems such as ACT and the quoting functionality of SuperMontage and in accordance with the Emergency Procedures.

 

6.a.ii. Preparation and Delivery of Documents. Nasdaq warrants and represents as of the date of execution of this Agreement, the documents that it is obligated to provide to NASD prior to execution of this Agreement including without limitation, the BRD, DRP, BCP and the OPM, are up-to-date, complete and accurate statements of the Business Rules, Technological Services and OTC Operations Services that it currently performs in furtherance of the Businesses.

 

6.a.ii.A. Business Requirements Document. Nasdaq has prepared and delivered to NASD a Business Requirements Document (“BRD”) for NASD’s acceptance for each of the Businesses, broken up in to two sections (i) Business Requirements and (ii) Technical Specifications. NASD has reviewed the BRD for the purposes of ensuring that it captures all of the operational and technical elements of the OTC Systems and the Business Subsystems and contains the necessary information as set out herein. NASD hereby approves the BRD. Nasdaq shall update the BRD and Technical Design Document during the Term as changes are made to the Businesses and prior to any work beginning on any Enhancement.

 

6.a.ii.A.1. In the event NASD elects to take over updating all or any portion of the BRD, Nasdaq shall provide appropriate training, not to exceed 3 days, consulting, data, procedures and documentation for the BRD to NASD or its designated agent in order to allow NASD or its designated agent to take over updating all or any portion of the BRD. Any work beyond the three days will be completed at a time and materials basis at the rate of the Nasdaq group doing the work. In the event NASD does take over updating all or any portion of the BRD, the parties shall meet and negotiate in a commercially reasonable fashion any reduction in the budget for Core Services. In the event the Parties cannot agree to a reduction or an amount for a reduction, the Parties shall resort to the Dispute Resolution procedures.

 

6.a.ii.B. Business Continuity Plan. (a) Nasdaq must create and maintain a written business continuity plan identifying procedures relating to an emergency or significant business disruption. Such procedures must be reasonably designed to enable Nasdaq to provide the Services at or above the Minimum Performance Standards under and in accordance with this Agreement and provide for NASD to meet its obligation to operate the Businesses.

(b) During such time as Services are outsourced to Nasdaq, Nasdaq must update its plan with respect to such outsourced Services in the event of any material change to the Nasdaq’s operations, structure, business or location with respect to the delivery of Services under this Agreement. Nasdaq must conduct an annual review of its business continuity plan to determine whether any modifications are necessary in light of changes to its operations, structure, business, or location.

 

(c) If Nasdaq relies on another entity for any one of the specifically enumerated elements of their BCP, or any mission critical system, Nasdaq’s business continuity plan must address this relationship.

 

(d) Nasdaq will provide NASD current business continuity plans (BCP) and procedures for the Business Subsystems and the OTC Systems which shall be agreed on by the parties using commercially reasonable discretion on or before the date of execution of this Agreement. NASD will make any necessary modifications and return the updated BCP to Nasdaq who shall incorporate NASD’s changes. This procedure shall continue until such time as the parties have, using commercially reasonable discretion, agreed on the BCP. Nasdaq must designate a member of senior management to approve the plan and he or she shall be responsible for conducting the required annual review. The member of senior management must also be an officer.

 

(e) For purposes of this Section, the following terms shall have the meanings specified below:

 

(1) “Mission critical system” means any system that is necessary to ensure that the Services provided by Nasdaq under this Agreement meet or exceed the Minimum Performance Standards.

 

(2) “Financial and operational assessment” means a set of written procedures that allows Nasdaq to identify changes in its operational, financial, and credit risk exposures.

 

6.a.ii.C. Disaster Recovery Plan. Nasdaq will provide NASD with a current copy of the DRP and procedures that support the OTC Systems and the Business Subsystems which shall be agreed to by the parties in the exercise of their mutually commercially reasonable discretion on or before the date of execution of this Agreement. NASD will review the DRP to ensure that it satisfies current SEC criteria and NASD’s internal audit requirements for the Businesses. NASD will make any necessary modifications and return the updated Disaster Recovery information to NASDAQ for review. In the event of a significant business disruption, the updated disaster recovery plan will be in effect. If the NASD updates require any operation or system enhancements, they will be done in accordance with the terms and conditions of this agreement. NASD shall not be liable for the cost of any Core Services unless and until such time as the DRP has been delivered by Nasdaq and accepted by NASD.

6.a.iii. Preparation and Delivery of OTC Operations Procedures Manual. Prior to the date of execution of this Agreement, Nasdaq shall prepare and deliver to NASD an OTC Operations Procedures Manual which shall contain the procedures and policies necessary to perform the OTCBB Operations Services for NASD’s acceptance. NASD shall review each department’s operational procedures for the purposes of ensuring that it accurately reflects the daily operations performed by each department including but not limited to maintaining appropriate checks and balances at a service level that is not less than the service level that it provides to its critical operations such as ACT and the quoting functionality of SuperMontage. In the event NASD identifies deficiencies in the OPM during its initial review or thereafter, Nasdaq shall use commercially reasonable efforts to remedy such deficiency at no additional cost to NASD. Once approved by NASD, Nasdaq shall update the OPM during the Term as changes are made to the Businesses or at the direction of NASD’s Operations Manager. NASD shall not be liable for the cost of any Core Services unless and until such time as the OPM has been delivered by Nasdaq and accepted by NASD.

 

6.a.iv. System Operation. Nasdaq will perform all Services and provide all infrastructures necessary to ensure that the OTC Systems will remain Fully Operational during the Term of this Agreement. The infrastructure requirement shall include, but is not limited to, sufficient bandwidth capacity to accommodate a full load from each of the Businesses simultaneously and in conjunction with other Nasdaq applications which share bandwidth with the Businesses’ full load.

 

6.a.v. System Infrastructure. Nasdaq will maintain the infrastructure of the OTC Systems at or above a level necessary to accommodate the Businesses in accordance with the operating levels and Minimum Performance Standards set out in this Agreement during the Term (Infrastructure). Infrastructure may include, but is not limited to: (i) the server platform(s) upon which the OTC Systems are launched and operated; (ii) adequate facilities for equipment and staff under normal operating and disaster recovery conditions; (iii) utilities (including backup contingencies); (iv) Network Support; and (v) auxiliary supplies and services necessary to sustain the daily operation of the OTC Systems and any Enhancements thereto, including, without limitation, power generation equipment, batteries, cooling facilities and related items.

 

6.a.vi. Software Maintenance. Nasdaq will furnish all Remedial and Preventative Maintenance services as may be reasonably required to satisfy its obligations hereunder or requested by NASD hereunder and necessary to keep any and all software comprising or relating the OTC Systems or any subsequent Releases, in Fully Operational condition during the Term of this Agreement. Such maintenance shall include, but is not limited to: (i) configuration; capacity management; reliability and performance tuning; (ii) elimination of system anomalies; reasonable changes to accommodate alterations made in third-party operation systems, applications, infrastructure, networks and utilities; (iii) reasonable changes to accommodate alterations in processing volume requirements; (iv) reasonable revisions required to accommodate changing NASD Business Requirements. The parties in good faith will determine if the changes made under sections (iii) and (iv) must be done on a time and material basis and the increase, if any, in the cost of Core Services.

6.b. Enhancements. Nasdaq may, from time to time, create and install Enhancements to the OTC Systems. Nasdaq shall follow the procedures set out in Exhibit 6.b. Section A. when making Enhancements to the OTC Systems. Additionally, NASD may request Enhancements to the OTC Systems in accordance with the process set forth in Exhibit 6.b. (“Change Procedures”). Subject to the terms of this Agreement, Nasdaq will perform all Enhancements requested by NASD. NASD shall set the priority for Enhancements. In the absence of NASD setting any such priority, Enhancements shall be done in the following order, SEC Enhancements, NASD Rules Driven Enhancements, and Industry Enhancements. To the extent commercially reasonable, Nasdaq will create Enhancements to the OTC Systems using an open architecture approach. Enhancements funded in full or in part by NASD shall be done on a time and materials basis in accordance with the rates and manner as set out in Section 10.b. Additionally, if NASD requests an Enhancement, Nasdaq shall include the cost for resources and the cost of materials to support the Enhancement and net change in Core Services fees in any estimate that is submitted to NASD under the Change Procedures. If such Change Order is accepted by NASD, any additional cost for resources and cost of materials to support the Enhancement on an ongoing basis shall be added to the annual fee for Core Services. In the event NASD accepts the Change Order, Nasdaq shall amend the BRD (unless the NASD has chosen to do the requirements work) and TDD to reflect the Enhancement prior to commencing work on the Enhancement.

 

6.b.i. Funding and Noncompete Designation. Any Enhancement which is fully funded by NASD other than an Enhancement to NASD OTC Software or Independent OTC Software which shall be owned by NASD and which shall not be used in any manner by Nasdaq unless the parties agree in a separate writing to a license agreement, shall be considered to be a “NASD Enhancement” for the purposes of Section 17 (“Noncompete”). Any Enhancement partially funded by NASD, other than an Enhancement to NASD OTC Software or Independent OTC Software which shall be owned by NASD and which shall not be used in any manner by Nasdaq unless the parties agree in a separate writing to a license agreement, shall be considered a “Partially Funded Enhancement” for the purposes of Section 17 (“Noncompete”). Any Enhancement fully funded by Nasdaq shall be considered a “Nasdaq Enhancement” shall not be subject to the restrictions of Section 17 (“Noncompete”). The parties shall use commercially reasonable efforts to determine the allocation of funding of Enhancements prior to any work being started on the Enhancement. In the event the Parties do not agree to the allocation of funding for an Enhancement the parties agree to use the Dispute Resolution procedures set out in Section 30 herein to determine the allocation of costs. Nasdaq may commence work on any such Enhancement and the allocation of costs shall be as determined under the Dispute Resolution Process. Other than with respect to Businesses Subsystems and Independent OTC Software, NASD shall have a perpetual, world-wide, royalty free, irrevocable right and license to use in support of the Businesses, the business rules and requirements behind any Enhancement which was initiated or fully funded by NASD. In the event Nasdaq elects to use an NASD Enhancement, Nasdaq shall reimburse to NASD fifty percent (50%) of the total development cost associated with such Enhancement.

6.b.ii. Nasdaq Initiated Enhancements. If Nasdaq initiates an Enhancement that will or could be used in the operation of the Businesses, it will provide NASD with a detailed description of the Enhancement, including the Business Requirements, net effect on Core Services fees and Technical Specifications. Following such notice, NASD shall notify Nasdaq in writing whether it accepts or rejects such Enhancement. In the event NASD rejects any Nasdaq Initiated Enhancement, NASD shall not be liable for the cost of development of such Enhancement or any incremental cost caused by such Enhancement and Nasdaq sh