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  Chapman Spira & Carson, LLC.

Memo from the Chairman
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Venture Capital
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brokeranal.gif (25178 bytes)Broker Dealer Analysis

Wall Street can be a rewarding as well as frustrating experience. Principals of our firm have spent the better part of century involved in all aspects of the industry as members of the exchanges, chief executives of broker-dealers, arbitrators and officials for the NASD and exchanges and on the floor of the New York Stock Exchange itself. We have acted as consultants to people that want to get into the business, people that are in the business that want to get out of it and finally people that have been effected by it in one way or another.  

We are experts in transaction analysis, exchange and SEC rules and regulations, listing and delisting requirements, arbitration procedures and the circumstances under which it can be avoided, the proper firms to bring public certain types of financing and all of the accruements that go with being a full time member of the community.

Our associates have also been deeply involved in the banking community as both consultants, advisors, expert witnesses and strategists. We have been instrumental in arranging financing for a number of substantial bank re-financings. BS00904_.wmf (13478 bytes)

We thought that it would be of interest to our readers to have some insight into what a brokerage firms deem their own responsibilities to itself and to its customers. Each firm is obliged to have a manual which presents it's policies as they relate to salesman and customers. Often, these documents are used in litigation by savvy investors attempting to show that the firm did not follow its own internal policies. 

The case we are presenting is that of a firm that hires Independent Contractors instead of its own brokers in an attempt to avoid both the withholding of taxes and the responsibility for surveillance. 

Our "Alice In Wonderland" firm is affiliating with a firm that already has a clearing agreement and the new kid on the block is just going to "tuck in". This type of arrangement is probably the most complicated and is an attempt by a none-member firm to keep its own identity.

The document is semi-standard for what it is and serves to cover the firm to some degree when the employees go off on their own agenda. Policing salesmen to a large extent is impossible and if someone wants to take advantage of his role, there is almost no stopping him.

The material enclosed is representative but the names have been altered to protect the innocent.

If we can interpret any of the industry jargon for you, e-mail us at Chapman Spira & Carson. LLC.

and we will come right back at you. Happy reading

 

seminar.wmf (3600 bytes)    Merrill Goldman and Company Inc.

WRITTEN SUPERVISORY PROCEDURES

Member of:
NASD, NYSE, SIPC, MSRB & SIA

Date of Revision: November 1, 1998

DIRECTORY

Although these procedures offer a complete guide to firm procedures certain sections or topics may not be needed or used by certain personnel.  To that effect, certain section may be deleted from these manuals.

It should also be noted that certain appendixes may also be added.

SECTION 1: COMPLIANCE

SECTION 2: FIRM PROCEDURES & COMPLIANCE

SECTION 3: SALES PROCEDURES

SECTION 4: BRANCH OFFICES

SECTION 5: MARKET MAKING ACTIVITIES

SECTION 6: UNDERWRITING PROCEDURES

SECTION 7: MUNICIPAL SECURITIES

SECTION 8: OPTION PROCEDURES

SECTION 9: SALES FORCE SUPERVISION

APPENDIX 1: OPTION STRATEGIES AND CUSTOMER POLICIES

APPENDIX 11: BRANCH OFFICE PROCEDURES AND POLICIES

APPENDIX III: NEW YORK (19X) OFFICE PROCEDURES

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INTRODUCTION

Merrill Goldman and Company Inc. is a registered brokerage firm that was founded 1937.  The company offers quality investing services to clients across the country.  The company has raised over 500 million dollars in equity capital, and has participated in over 215 initial public offerings. 

Specialties of the firm and its management include, Order Execution, most aspects of Corporate Finance, Evaluation and Research of small to medium size companies, Equity Market Development,  and International Finance, Consulting and Management.

Merrill Goldman when dealing with retail customers strives to provide quality service, and to develop a relationship with each and every customer.  The company maintains its corporate headquarters in New York, from which the company manages its operations throughout the world.j0082605.wmf (28062 bytes)

BACKGROUND

Merrill Goldman conducts its securities transactions on a fully disclosed basis through Ajax, Gourgem and Cheat, Inc. in New York, New York. Merrill Goldman has put in place a communication and supervisory structure designed to facilitate open communication and cooperation.  To that end, brokers are encouraged to talk and meet regularly with their branch managers and off ice operations coordinators.   Communication with regional and corporate officers is also available.  Thus below are listed the organizational structure of Merrill Goldman Corporation.  Throughout these procedures Mr. Dirtender and Weasel will be referred to and considered the senior management of Merrill Goldman Corporation:

Rhufus A. Rulebender - President & CEO
Alphonso Trustmenot III - Vice President & CFO
Marjorie Misfeasance - Vice President & COO
Dickie Dirtender Administration and Operations
Chief Compliance Officer

Regarding supervision of:

OPERATIONS & SALES:

COMPLIANCE & BOOKS/RECORDS All compliance questions and procedural policies should be addressed to the immediate supervisor, who can then contact either Dirtender or Weasel.

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Merrill Goldman Corporation is engaged in business as a Broker/Dealer conducting a general securities business on a fully disclosed basis including general securities, municipal's, options and direct participation programs.

Merrill Goldman Corporation was incorporated in New York and maintains current registration or membership in the following:

1. A Broker/Dealer registered with the Securities & Exchange Commission - (SEC) -[Filing # 8-3948573
2. A member of the National Association of Securities Dealers, Inc. - (NASD) - [Rm. ID. # 00405685
3. A certified broker/dealer by the State of New York, Department of Corporations.
4. A member of the Municipal Securities Rulemaking Board - (MSRB)
5. A member of the Securities Investor Protection Corporation - (SIPC)
6. A member of the New York Stock Exchange and other principal exchanges.

While these procedures outline firm policies and guidelines, branch and/or regional managers do hold the right to enforce stricter policies.  These policies would be added as a supplement to these procedures.

SECTION 1 - COMPLIANCE -

The following section outlines the basic compliance principles expected by all personnel registered or unregistered to follow while associated by Fleecem and Howe.  Further information regarding compliance is available through the NASD manual, of which several copies are maintained in each office. 

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please consult either the manual or your General Securities Principle regarding compliance for specific questions. Throughout this manual any mention of review or approval by a Principal shall constitute a physical signature or initials of the first and last document for review in any series.

Section 1.1 - BASIC PRINCIPLE OF CONDUCT:

PE02066A.gif (1992 bytes)The firm adheres to the basic principles of conduct as outlined in the NASD Manual under Section III paragraph 1. However, due to the nature of business that Merrill Goldman conducts, service is of the utmost importance, and thus principles and conduct are expected to excel above those outlined in the Manual.  Personnel breaking the guidelines set forth by the firm will be subject to termination and or punishment by the NASD.

Section 1.2 - GIFTS AND GRATUITIES:

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The firm does not encourage the use of gifts or gratuities between brokers and clients.  Regulations regarding specifications of gifts and or gratuities may be found in the NASD Manual.  Before receiving a gift or gratuity personnel should consult with the appropriate principal within the firm, any gift or gratuity not approved in writing by a principle may result in termination or punishment.

Section 1.3 - SHARING OF ACCOUNT:

Merrill Goldman does not allow brokers to share accounts with clients.

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Section 1.4 - REGISTRATION AND LICENSING:

PE03258A.gif (3178 bytes)It is required that all personnel conducting securities business be registered with both the NASD and each state in which they wish to conduct business.  The firm also strongly encourages each registered representative to become a registered principle as to manage and supervise activities of other brokers at the firm.  To discuss these policies further please consult the NASD Manual under Section III paragraph 27 and the NASD By-Laws Schedule C. Please discuss registration within certain states or jurisdictions with your branch manager or the designated person appointed by Merrill Goldman Corporation.

Section 1. 5 - PRINCIPALS FOR SPECIFIC AREAS AND BOOKS AND RECORDS:

AG00029_.gif (4339 bytes)Most operational and procedural questions and supervision are managed by Louise Onenote and Helen Off-key.  Should any problem arise please contact either of them regarding operations, procedures or firm policies.  Louise Onenote is responsible for the finances and accounting of the firm and Merrill Goldman's books and records.

Section 1.6 - BACKGROUND INVESTIGATIONS:

The firm maintains the right and will conduct background investigationsBS01258_.wmf (13426 bytes) into prospective employees, to ascertain by investigation the good character, business repute, qualifications, and experiences, the firm will also request a "Form U-5" from previous employers in the  securities industry.  For further information, please refer to Section III, Paragraph 27 of the NASD Manual.

 

Section 1.7 - CURRENCY COMPLIANCE AND REPORTING:

The firm does not allow the use of cash currency to settle securities transactions.
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Section 1.8 - ANNUAL COMPLIANCE MEETING:

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The firm requires that all registered employees meet annually to discuss firm procedures, changes in rules or regulations and compliance standards.  Two meetings are conducted by the senior management of Merrill Goldman Corporation and will generally be held during the fall and spring of each year.

Section 1.9 - ACCEPTANCE OF NEW ACCOUNT:

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The firm will open accounts for new clients given the appropriate information is received, and the firm accepts the customer.  Each new account application will be approved by an officer (branch manager), [either signed or initialed] and will not be opened, nor will any business be conducted regarding said account without such approval.

Section 1.9(a) - REQUIRED PAPERWORK FOR ACCEPTANCE OF NEW ACCOUNTS

Merrill Goldman does allow its registered personnel to open new customer accounts without prior completed application with Branch Manager approval.   However, if in 30 days a completed new account application is not received a letter will be sent to the customer (copy to the RR) requesting a completed new account application. If in 60 days a completed new account application has not been received a report will be sent to the broker of record notifying that the account will be frozen in 30 days if a application form is not received. If in 90 days a new account application has not been received the account will be frozen and no further business will be conducted until the application is received.

Section 1.10 - PRIVATE SECURITIES TRANSACTIONS:

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Before participating in any private securities transaction, any associated person shall provide written notice to the firm through the sales supervision principle, describing the proposed transaction and the proposed role of the employee.  Further information regarding NASD Regulation and firm procedures can be obtained in Article III Section 40 of the NASD Manual.

Section 1. 11 - OUTSIDE BUSINESS ACTIVITIES:

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Each person associated with the firm in any registered capacity that conducts outside business activities must inform the firm through written notice and will not enter into such outside activities without the written approval of the managing principal.

Section 1.12 - MAINTENANCE OF WRITTEN SUPERVISORY PROCEDURES (WSP's)

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Gordon Gooddog will be responsible for reviewing the Written Supervisory Procedures 's of the firm every 6 months.  During this review, updates regarding current procedures or regulations will be conducted.  Upon updating these procedures, the changes will be disseminated throughout the firm.

Section 1.13 - MAINTENANCE OF SERIES 7 LICENSE

Merrill Goldman Corporation is its efforts to comply with NASD guidelines against the hanging of securities licenses has implemented the following procedure. For a broker to be considered active, a nominal amount of commission must be generated every 6 months.  This amount of gross commission must equal at least $500.00.

Should a registered representative not generate said commissions a letter will be sent from the firms compliance department informing the broker of the NASD Guideline and our request for them to make their license active.

If in twelve months the nominal commission has not been generated the firm will begin termination

procedures.

Section 1.14 - NEW BROKER ORIENTATION MEETINGS

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Merrill Goldman requires that all registered personnel attend a company "New Broker Orientation" within the first 90 days of registration.  If this requirements is not met termination may result.

If unable to attend a extension may be granted in writing by a branch manager, or a local NBO meeting may be held.  Should this happen, a written exception or notice of attendance must be received by the firm's compliance department.

Section 1.14(a) -  NBO ENFORCEMENT POLICIES

If a broker has not attended a NBO meeting after 60 days, a letter will be sent by the firm's compliance to the broker informing them of firm policy.

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Section 1.15 - INDEPENDENT CONTRACTOR'S AGREEMENT

A signed and completed Independent Contractor's Agreement (ICA) must be on file with Merrill Goldman Corporation.  If an ICA is not on file termination may result.  The firm will notify all brokers that do not have an ICA on file and allow a 30 day time period to meet compliance.

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SECTION 2 - FIRM PROCEDURES AND COMPLIANCE-

Section 2.1 - REGULATION T:

Regarding Regulation T, customer extensions and buy-ins, the firm follows the procedures of its clearing agent, Gourgem and Cheat, Inc. . Information regarding Regulation T can be found in the NASD handbooks as well as by consulting a branch manager.

Section 2.2 - HANDLING OF CUSTOMER FUNDS, SECURITIES, AND DOCUMENTS:

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The handling of customer funds, certificates, and documents may only be conducted by a registered principle of the firm, or personnel authorized by the firm to handle such funds.  These funds are not held by the firm, and must be forwarded to Gourgem and Cheat, Inc. immediately, there will be no exceptions. All checks should be made payable to Gourgem and Cheat, Inc. . In the event that customer funds and/or securities are received by Fleecem and Howe, such funds and/or securities will be forwarded to Gourgem and Cheat  and full and complete documentation will be maintained by authorized and supervised personnel of the firm.

At no time may checks or money orders be deposited in the Representative's personal bank account. 

COMMINGLING OF CUSTOMER FUNDS ARE A DIRECT VIOLATION OF FIRM POLICY AND NASD RULES & REGULATIONS. 

Any violation of this policy is grounds for termination and will be reported to the appropriate regulatory agencies.

Section 2.3 - SALES LITERATURE AND CORRESPONDENCE:

All correspondence being sent out onj0157341.wmf (26620 bytes) behalf of the firm, or by an employee of the firm shall be reviewed and approved by an officer (branch manger), [either signed or initialed].

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All sales literature must be approved by the firm's compliance officer as well as the branch manager and advertisement department of the NASD in Washington D.C..

All incoming mail will be opened by either the branch manager, or a person designated by the branch manager.  Upon opening of the mail ft will be distributed to the appropriate personnel.

Section 2.4 - CUSTOMER COMPLAINTS-.

All customer complaints will be handled by the branch mangers, and copies of such complaints will be held at each branch office as well as the home office.   Immediate action will be taken by the branch manager and the firm's compliance officer to resolve any problems. 

WB01361_.gif (611 bytes)Gordon Gooddog is responsible for the handling of customer complaints.

Section 2.5 - FREE RIDING AND WITHHOLDING:

The firm does not allow any Free-Riding or Withholding and will take severe action against any employee discovered conducting such action.

Section 2.6 -   INSIDER TRADING:

The firm in no way or form approves of or makes available material, non-public information to its salespeople or its clients.  Both Rufus Watchguard and Maria Nosegrabber are responsible for reviewing the firms, employees and insiders, accounts.  These accounts are reviewed quarterly in an effort to uncover any unusual or illegal transactions.  These reviews include comparison of recent press releases and financial reports by the issuing companies to activities within each account to uncover such activities governed as insider trading.

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Merrill Goldman creates a complete "Chinese Wall" to restrict non-public information gained during corporate finance and research activities from reaching unauthorized personnel.  Any breach in this "Chinese Wall" will result in immediate action, and expulsion from the firm if necessary.

The firm will coordinate public information to support the activities of the firm on occasion, however this is in the due course of business.  Employees are required to undergo a program to explain the firms procedures regarding the above mentioned policies and such policies are reviewed annually at the compliance meeting in March. In the event that a

Registered Representative becomes aware of insider information, they shall report to the firms compliance officer, who will then contact if necessary the proper regulatory authorities for instructions.

Section 2.6(a) - OUTSIDE BROKERAGE ACCOUNTS

In and effort to enforce the above procedure Merrill Goldman Corporation requires that all employees and registered personnel maintain brokerage account only with Merrill Goldman Corporation.  In the event that a written exception is granted, duplicate confirmations and account statements must be sent to the firm's compliance officer. Merrill Goldman will require an annual update as to all accounts held by its registered and non-registered personnel.  Should any misstatements or conflicts arise immediate action will be  taken and termination could result.

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Section 2.7 - RESTRICTED STOCK AND RULE # 144:

Restricted stock is that which is currently unregistered under the Securities Act of 1933, or stock owned by an insider or officer of the issuing company.  Policy and procedure regarding restricted stock is as follows:

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1. Restricted stock must be held for one year before the stock is eligible for sale.

2. Upon verification of the holding period, the stock may be sold given the appropriate paperwork and authorization is completed.

3. Regarding stock restricted due to the position of the holder of the shares (i.e. Insider, Director, etc.) other restrictions apply:

4. The Insider is restricted to the number of shares he or she may sell.  These restrictions are as follows: The greater of 1% of the outstanding shares of stock or the average weekly volume of the previous four weeks.

Upon approval by a registered principal Rule #144 Forms should be completed and mailed as follows:

3 Original Copies to:

Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549

1 Original Copy to the:
NASD
NASDAQ Market Surveillance,
9513 Key West Ave.
Rockville, MD 20850

1 Original Copy to Gourgem and Cheat, Inc. :

1 Original Copy to be Held in our Files.


Section 2.8 - DISCRETIONARY ACCOUNTS

A discretionary account is one which a customer grants to the Registered Representative or registered Principal the authorization to transact securities on his/her behalf.

It is the policy of Merrill Goldman Corporation that discretionary accounts are not allowed.

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Section 2.9 - DIRECT PARTICIPATION PROGRAMS:

The following procedures should be observed in the distribution of any limited partnership (business related to retailing of private limited partnership interests).  All limited partnerships must be approved by the firm's corporate finance committee, as well as the compliance officer . 

Should a Direct Participation Program be approved in such a manner the following procedures will be implemented upon distribution.

Section 2.9a - OFFERING MEMORANDUM:

The offering memorandum i.e., prospectus will be kept, controlled and distributed by the designated person at the branch/OSJ.

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Section 2.9b - OFFERING MEMORANDUM LOG

The offering memorandum will be entered in log form and numbered.   Offering memorandum which do not result in a sale should be collected after the offering is closed.

Section 2.9c - OFFEREE QUESTIONNAIRE

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The salesperson desiring to have a copy of the memorandum delivered to a potential purchaser should complete the form of Offeree Questionnaire, or sufficient substitute, and return  to the appropriate person in the branch/OSJ for mailing.

Section 2.9d - COVER LETTER - PROSPECTIVE PURCHASER

A cover letter will be prepared for the prospective purchaser and sent along with a copy of the memorandum.  This cover letter will request the prospective purchaser to indicate receipt of the memorandum by signing and returning a duplicate of the letter in the envelope provided.

Section 2.9e - SAMPLE COPY - NOT FOR DISTRIBUTION

Occasionally an attorney, accountant or other financial or legal advisor may be in need of a copy of the offering memorandum.  At such time the offering memorandum should be stamped "sample copy - not for distribution" and the cover letter should also designate this when sent.

Section 2.9f - CLOSE OF OFFERING

At the close of the offering, copies of letters, logs and any return copies of the offering memorandum should be returned to the home office - attention Compliance Department.

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Section 2.9g -(K) (2) (D ACCOUNT - SPECIAL RESERVE BANK ACCOUNT FOR THE EXCLUSIVE BENEFIT OF CUSTOMERS

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As required by SEC Rule 15c3-3 (e) the home office will maintain a copy and forward all checks which will be made payable to the issuer or issuers escrow agent.   Should customers mistakenly make checks or bank drafts payable to Merrill Goldman Corporation instead of the issuer or issuers escrow agent the (k) (2) (i) account will be utilized (in and out same day).

Section 2.9h - SUBSCRIPTION AGREEMENT - SUITABILITY

QUESTIONNAIRE

As required by Section 28 (c) a subscription agreement and suitability questionnaire per issue will be reviewed and endorsed by the Registered Representative and approved by a Principal of the firm for each accredited and non-accredited investor.  The branch will maintain a copy and forward originals to the home office.

Section 2.10 - NASD RULE 88-84

In accordance with NASD rule 88-84, wherein all registered representatives must have a designated supervisor, Merrill Goldman Corporation has the following procedures to comply: Upon any person or persons becoming classified as registered representatives with Merrill Goldman Corporation they will be assigned to a specific branch/OSJ office.  

Each branch/OSJ has a branch manager who will be a General Securities Principal and therein responsible for said registered representative's direct supervision.

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Each branch office will maintain a list of all registered representatives assigned to their specific branch/OSJ office.  In addition, the home office will maintain a master list that contains all registered representatives company wide with their respective branch/OSJ office and thus their direct supervisor.  The home office will also maintain a list of all branch managers and their designated branch/OSJ office.

In addition, each registered representative, individually or collectively and not less than annually, at an interview or meeting will participate wherein compliance matters will be discussed.

Section 2.11 - OUT OF STATE REQUIREMENTS/PROCEDURES

Merrill Goldman Corporation will have available at its principal/main office all records for each state in which the firm has registered. All states will receive updates and/or amendments through the Central Registration Depository

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System (CRD).  Furthermore, where required, applicable states shall receive copies of

  1. An annual audit ninety (90) days after fiscal year ends

  2. Renewal of Registration filed on annual basis through the CRD

  3. A copy of all amendments to Form BD

Section 2.12- OUT OF STATE CLIENTS

All Registered Representatives are reminded that neither sales or sale solicitation may be made in any state in which the Registered Representative and firm is not licensed, and the securities which are offered must be qualified for sale in the state. Solicitation is defined to include communication, written or verbal, which may be construed as an offer to sell any security. A new Registered Representative or one who has just transferred from another securities firm is not authorized to do business for Merrill Goldman Corporation in another state until the Representative receives a written statement from our firm advising that he/she is property registered.

Section 2.13 - STATE REGISTRATION FEES

It is the responsibility of the registered representative to pay for all registration fees in connection with securities business conducted in any particular state.

SECTION 3 - SALE PROCEDURES -

Section 3.1 - EXECUTION OF ORDERS:

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To execute securities orders the ticket must be submitted to the firm wire operator.  Upon his/her receipt the order will be wired to Gourgem and Cheat, Inc.   Alternatively, the appropriate exchange where they will be executed in a timely fashion. Merrill Goldman Corporation also holds the right to execute customer orders itself on NASDAQ Issues or in those issues in which the firm makes a market.

Reporting of execution will happen upon execution directly from the exchange or Gourgem and Cheat to the branch office from which the order originated. The home office will keep copies of all tickets and execution reports entered by the firm, as well as all Good Till Cancel orders and Day Orders in behalf of the branch offices. All International,

Bond and Mutual Fund orders will be telephoned upon execution to the appropriate branch personnel. All tickets will be reviewed by a principal.

Section 3.2 - NEW ACCOUNT FORMS AND REQUIREMENTS:

The firm will open accounts for new clients given the appropriate information is received, and the firm accepts the customer.  Each new account application will be approved by the branch manager [either signed or initialed] and will not be opened, nor will any business be conducted regarding such account without required approval. The representative that opens an account will be required to understand the investment objectives of the customer. The customer will also need to sign a W-9 or W-8 for the Internal Revenue Service.  Should this form not be completed upon the generation of sales proceeds 31% will be withheld for possible tax consequences.

Section 3.3 - ACCOUNT REVIEW AND UPDATE:

All account information including customer account statements will be reviewed and updated no less than every 12 months.  During this review, necessary account information will be confirmed and review for any unusual or illegal activity will also be conducted.  This review will be conducted by Gordon Gooddog or personnel designated by him.

Section 3.4 - RECOMMENDATIONS TO CUSTOMERS:

The firm demands that each broker know their customers and understand their objectives to investing. Any malpractice, or misconduct will be grounds for dismissal. Recommendations should be made to achieve the client's investment objectives in the most cost efficient manner.Any disregard for the wishes of a customer and their investment objectives will be immediately reviewed by the direct supervisor.

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Section 3.5 - REVIEW OF BUSINESS DOCUMENTS:

The firm does conduct an annual review of ALL business documents and materials.  Eli Elliott is responsible for this review, and will either sign or initial documents that have been reviewed.

Section 3.6 - MISUSE OF CONFIRMATION OR STATEMENTS:

Any misuse of confirmations or statements will result in severe action by the firm and may result in termination.

Section 3.7  REVIEW OF  - TRANSACTIONS:

All transactions will be reviewed by the branch manager on the trade date.  This comparison will include a review of the ticket information as compared to the confirmation information, to define any discrepancies and to assure that no illegal conduct has taken place. Should a discrepancy be uncovered the operational staff will take the necessary steps to either canceled or reverse the order.AG00060_.gif (18393 bytes)

Section 3.8 - RECORD-KEEPING:

All salesmen are required to maintain current and accurate records of their customer's investment objectives, as well as investment positions. A history of transactions, trades, deposits and withdrawals will be maintained by each registered representative for their customers.  The records must be kept readily accessible for two years. All records will be periodically reviewed by supervising principals who will include branch managers and head office principals.

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SECTION 4 - BRANCH OFFICES -

Merrill Goldman maintains several branch offices, each registered with the NASD.  Each office is managed by a General Securities Principal, and each office maintains current NASD/MSRB Manuals as well as the Firm's Written Supervisory Procedures.  The SIPC logo and sign will be displayed at all Offices of Supervisory Jurisdiction.

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Merrill Goldman has branch office locations at the following addresses:

CORPORATE OFFICES
41 Bowery  Street, Suite 711
New York, New York 10283`
Branch Manager - Wiggle Free
Office Number - 2364Q

The branch manager and his/her designates (qualified General Securities Principal's) will manage the office and Its day to day operations.  On a weekly basis, communication will be conducted from the home office to discuss the weeks, business and any problems or issues that should be addressed.

Any compliance problems will be copied to the home office, where action will be initiated. Each branch office will be visited and reviewed no less than once a year by Ruby Oswald or his/her designate (qualified General Securities Principal).  All branch coordination and compliance will be assisted by Judith Latefordindin..

Section 4.1 - BRANCH OFFICE RESPONSIBILITIES:

Each branch office will be assigned a Branch Manager, an Assistant Branch Manager, an Order Clerk, and an office support person.  The branch manager will be responsible for the day to day operations of the branch office.

Currently the firms has 31 Branch Office(s).

Section 4.2 - BRANCH RECORDS AND FILES FS:

Section 4.2a - DAILY TRANSACTION BLOTTER:

Copies of trade tickets and the daily transaction blotter will be maintained by the branch office/OSJ with applicable information.

Section 4.2b- CASH RECEIPT & DISBURSEMENTS / SECURITIES

RECEIVED &  DELIVERED BLOTTERS

Cash Receipts and Disbursements Blotter - A chronological record of the receipt and disbursement of monies.

Securities received and Delivered Blotter - A chronological record of the receipt and delivery of securities to the clearing firm Both blotters will be maintained at the home and branch offices of Merrill Goldman Corporation.  All securities and funds should be forwarded on the same day received.

Section 4.2c - ORDERS/TRADE TICKETS

OSJ off ices will transmit all orders to the home off ice for entry and execution.  Upon execution the home office will report to the OSJ for confirmation of execution.

Section 4.2d - SALESMEN RECORD-KEEPING

Each Representative must keep a record of transactions for each customer.

Section 4.2e - CORRESPONDENCE FILE

A separate chronological correspondence file will be maintained by the branch/OSJ.  Per Section 27 (c) a review of correspondence of salesmen pertaining to solicitation sent to members of the public will have written approval (by signature or initial) by the designated Principal.

Section 4.2f - CUSTOMER COMPLAINT FILE

The branch/OSJ will maintain a customer compliant file as part of its books and records. It is the firm's policy that the home office will respond quickly to written customer complaints and to maintain copies of such complaints along with the written response, including all appropriate support documents as may be necessary. 

All written customer complaint information will be cross filed with the home office.  All complaints must be communicated to the home office - Compliance Department immediately.

Section 4.2g - ADVERTISEMENT

Advertising and promotional communications must be approved in advance by the Compliance Department located at the home office.  Such approval is to be received in writing following a review of the actual advertisement or promotional literature.  This rule extends to any and all sales literature, newsletters, brochures, display advertisements, promotional articles, and other communications intended to further the activities of the branch/OSJ and its representatives.

SECTION 5 - MARKET MAKING ACTIVITIES -

Cheatem and Howe Securities Corporation Market Making Symbol -- CHEAT

Section 5.1 - SUPERVISION OF ACTIVITIES

The supervision of Trading and Market Making activities will be conducted by Maria Nosegrabber, Vice President of Operations for Merrill Goldman Corporation.   Decisions regarding firm policies and guidelines will be directed by Mr. Nosegrabber on a day to day basis.

Section 5.2 -   MARK-UP POLICIES

The firms mark-up policies regarding Market Making Activities are as follows: In general a 5% markup will be considered to be excessive although the firm will hold the right to charge more than 5% on transactions that warrant such a fee.  However in calculating the mark-up the firm will evaluate, all relevant circumstances, including market conditions with respect to such security at the time of the transaction, the expenses involved, and the fact the firm is entitled to a profit; and if the firm acts as agent for the customer in any such transaction, the firm will not charge the customer, more than a fair commission or service charge.

Section 5.3 -  REPORTING

The firm's market makers will report all volume and quotation information as designated by Schedule D in the NASD By-Laws.  This will include reporting of all volume, purchases and sales, no later than 5:00 PM Eastern Standard Time in the securities which it is a market maker.  If the firm conducts no transactions then a number of "O" will be reported for daily volume.  These  volume reports shall be entered via a NASDAQ terminal, in the case of equipment  malfunction or failure, volume reports shall be telephoned to the NASDAQ Operations-Members.

Regarding National Market System, securities in which the firm makes a market, the firm will report transactions through the Transaction Reporting System within 90 seconds of execution as required by Schedule G by the NASD By-Laws.

Regarding "Non-NASDAQ" securities, the firm will report on a daily basis at the end of the day all volume in principal transactions.  The firm will report in the case of the Non-NASDAQ securities through the reporting system, the highest price at which ft sold and the lowest price at which it was   purchased any non--NASDAQ security, the total volume of purchases and sales executed by ft in any Non-NASDAQ security, and whether these transactions were conducted with customers or other broker/dealers.  These reports will be as specific as described in Schedule H to the NASD By-Laws.

The firm will also report any information regarding its market making activities as the Association shall require. On a monthly basis the firm will report to the NASDAQ System such data on securities quoted in the NASDAQ System as the Association shall require.

Section 5.4 - REPORTING OF SHORT INTEREST

In accordance with ARTICLE III Section 41 in the NASD Rules of Fair Practice, the firm will report a total of "short" positions in all customer and proprietary firm accounts in securities included in the NASDAQ System and shall regularly report such information to the Corporation in such a manner as may be prescribed by the Corporation.  Reports shall be made as of the close on the settlement date falling on the 15th of each month, or, where the 15th is a non-settlement date, on the preceding settlement date.

Section 5.5 - HOURS OF BUSINESS

The firm's market makers will be open for business from 9:30 Eastern Standard Time and will close no earlier than 4:00 PM Eastern Standard Time.

Section 5.6 - CLEARING OF TRANSACTIONS

The firm will clear all transactions conducted as a market maker through Gourgem and Cheat, Inc., through which the firm operates under a fully disclosed basis.

Section 5.7 - CRITERIA FOR THE FIRM TO MAKE MARKETS

The firm will only make markets in securities, in which it believes there is a fundamental growth available and a reasonable profit could be made.  Generally ft will also consider securities in which its sales force is active in.  Currently the company plans to make markets in either National Market system Securities, or NASDAQ Securities or Non-NASDAQ Over the Counter Securities. 

The company will not make markets in the shares of designated securities, defined as a company with less than 2 Million dollars in Net Tangible Assets and a stock trading below $5.00.he decision in which securities to make a market in will be made by the trader, however his will be reviewed by the Management every quarter.

Section 5.8 - SHORT-SELLING

The firm will allow short-selling on securities, and will open margin accounts for such transactions.Currently the firm verifies through Its clearing agent, Gourgem and Cheat, Inc.  that the stock is available in its Stock Loan Department, allowing the short order to be placed.  Thus, each short transaction is reviewed by a registered principal at Fleecem and Howe.

Section 5.9 - LIMIT ORDERS

Regarding Limit Orders the firm will always execute customer orders over the firm's proprietary orders.

Section 5.10- LONG & SHORT TICKETS

All tickets executed and entered shall be marked as to whether the seller is long or short the stock.  If the sell is a short sell, the firm's procedures regarding such sales shall be implemented.

Section 5.11 - FREE RIDING

Under no circumstances does the firm allow free riding.  Such action will result in immediate action by the firm and could lead to termination.

Section 5.12 - DOCUMENTATION AND SEC RULE 211

The firm's trading activities will be the result of Its opinion as to the direction of the price of said security.This opinion will be the result of continued due diligence on the company.  The firm will maintain due-diligence files on all companies that A makes a market in, and will update these files as often as possible given the performance of the underlying company.

Section 5.13 - BEST EXECUTION COMPARISON

In executing orders from the Trading Department the firm will take the following procedures to try and insure the best execution possible for its clients.  This task will be handled via the video terminal of the NASDAQ System.  On this system all quotes from current Market Makers will be compared and the execution will take place at the best possible location.  In the event that a security is not listed on the NASDAQ System and information is not available via the video terminal the firm will contact at least 3 market makers to ascertain as to the best possible execution price.

Section 5.14 - PAYMENT FOR ORDER FLOW

Currently the company does not have a relationship in which ft is compensated for the direction of order flow.  Should the company in the future enter into such a relationship the necessary steps would be taken to inform its clients of such a relationship.

Section 5.15 - CURRENCY REPORTING

The firm does not allow the use of cash currency to settle securities transactions.

Section 5.16 - SOES SYSTEM PROCEDURES AND GUIDELINES

Merrill Goldman intends to make a market in National Market System Securities will also participate in the Small Order Execution System or SOES.  The firm recognizes the purpose of this system to aid in an efficient manner the execution of small orders by retail customers.   The firm will utilize this system for such transactions.To comply with NASD regulations the firm will do the following: The firm will not execute orders using the SOES system for professional traders.

When evaluating whether certain transactions are in compliance with the rules regulating SOES, with regards to size, the firm will undertake to decide if the transaction(s) are from one decision maker of the investment, either from a single account, or from numerous accounts with common control.The firm will not enter agency orders into SOES in which the firm currently is a market maker.

The firm will make all the necessary reporting requirements as set forth in the SOES System, which in general are the same as NMS Securities.  This will include reporting the trade, price and volume within 90 seconds of execution and daily volume to the appropriate market authorities.

SECTION 6 - UNDERWRITING PROCEDURES -

Section 6.1 - GUN JUMPING

When the firm participates in an underwriting, ft will not begin its marketing efforts until the appropriate registration statement has been filed.  Then during this 'Cooling Off' Period the firm will allow the dissemination of Preliminary Prospectuses "Red Herrings" to potential investors and will accept Indications of Interest.  However, in no way will the firm sell securities, or openly market this issue to the general public.  All information will be reviewed by a registered principal to ensure that all regulations are met.

Section 6.2 -    HOT ISSUES

A Hot issue is any offering that trades at an immediate premium in the after market.  The firm will not withhold any shares of a Hot Issue for:

  1. The Firms Accounts
  2. Officers, Directors, partners, employees or agents of a member.
  3. Immediate family of the above mentioned people.
  4. Anyone acting in a fiduciary manner regarding the offering.
  5. Officers of banks, insurance companies, or institutional accounts or their immediate families.

However, the firm may sell insubstantial amounts to the people mentioned above in Numbers (3),(4), and (5) if securities were sold in accordance to their normal investment practices.If the firm is the acting managing underwriter ft will take the responsibility to ensure that the above criteria and that compliance to regulations regarding Hot Issues are followed.

Section 6.3 -    HAIRCUT

Merrill Goldman will take a 30% haircut on securities positions realized through a firm commitment underwriting.  Upon entering into such an agreement the firm will take a 30% haircut on the entire position the firm will place less its selling concession.  The firm will maintain this haircut as long as any of these securities remain in Its inventory.

Section 6.4 - CHINESE WALL

Merrill Goldman has erected a "Chinese Wall" so that confidential and inside information received during Corporate Finance and Underwriting work will not be realized to its general sales force.  Any breach in this wall may result in termination with the firm or punishment.  The procedures to protect this information will be reviewed by Maria Nosegrabber, and Rufus Watchguard on a quarterly basis to ensure that the non-public information obtained by the firm will remain non-public.

SECTION 7 - MUNICIPAL SECURITIES -

Section 7.1 - MUNICIPAL SECURITIES RULEMAKING BOARD

The term "Board' shall mean Municipal Securities Rulemaking Board.

The annual fee will be paid to the Board by Merrill Goldman Corporation with respect to each fiscal year end of the Board in which the firm conducts a municipal securities business.  Such fee must be received at the office of the Board in Washington, D.C. no later than February 15th of the fiscal year for which the fee is being paid along with a written statement listing the name, address and SEC registration number (8-22805).

Section 7.2 - MUNICIPAL SECURITIES PRINCIPAL

Chip Vincent Claxton Overton IV is the qualified Municipal Securities Principal who will review the following:

  1. Each municipal security transaction
  2. Customer complaints involving municipal securities
  3. All correspondence regarding municipal securities

Section 7.3 - MSRB MANUAL

The firm will maintain a copy of the updated MSRB Manual and will also maintain the appropriate records on all Municipal Principals.

Section 7.4 - MUNICIPAL SECURITY - CUSTOMER COMPLAINTS

Merrill Goldman Corporation maintains an MSRB customer complaint file as part of its books and records. It is the firm's policy to respond quickly to written customer complaints and to maintain copies of such complaints along with the written response including all appropriate support documents as may be necessary.

Section 7.5 - INVESTOR BROCHURE

Pursuant to MSRB Rule G10, an investor brochure will be delivered to all customers that file complaints regarding Municipal Securities transactions.

Section 7.6 -   GENERAL

Municipal securities activity is subject to the guidelines outlined under Home Office records and Files.

SECTION 8 - OPTION & PROCEDURES - Next Page

 

 

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