Illinois Administrative Code › Title 14 - COMMERCE › Part 130 - REGULATIONS UNDER ILLINOIS SECURITIES LAW OF 1953 › Subpart Q - PUBLIC INFORMATION › Appendix D - Subordinated Loan Agreement for Equity Capital

Current through Register Vol. 48, No. 28, July 12, 2024
Click here to view
				  image
SUBORDINATED LOAN AGREEMENT
AGREEMENT dated _____________to be effective
				  ______________ between _______________ (the "Lender") and ________________ (the
				  "Broker-Dealer).
In consideration of the sum of $______________ and subject to
				  the terms and conditions hereinafter set forth, the Broker-Dealer promises to
				  pay to the Lender or assigns on __________________ (the "Scheduled Maturity
				  Date") (the last day of the month at least one year from the effective date of
				  this Agreement) at the principal office of the Broker-Dealer the aforedescribed
				  sum and interest thereon payable at the rate of ____________ percent per annum
				  from the effective date of this Agreement, which date shall be the date so
				  agreed upon by the Lender and the Broker-Dealer unless otherwise determined by
				  the National Association of Securities Dealers, Inc. ("NASD"). This Agreement
				  shall not be considered a satisfactory subordinated agreement pursuant to the
				  provisions of 17 CFR 240.15c3-1d unless and until the NASD has found the
				  Agreement acceptable and such Agreement has become effective in the form found
				  acceptable.
The cash proceeds covered by this Agreement shall be used and
				  dealt with by the Broker-Dealer as part of its capital and shall be subject to
				  the risks of the business. The Broker-Dealer shall have the right to deposit
				  any cash proceeds of the Subordinated Loan Agreement in an account or accounts
				  in its own name in any bank or trust company.
The Lender irrevocably agrees that the obligations of the
				  Broker-Dealer under this Agreement with respect to the payment of principal and
				  interest shall be and are subordinate in right of payment and subject to the
				  prior payment or provision for payment in full of all claims of all other
				  present and future creditors of the Broker-Dealer arising out of any matter
				  occurring prior to the date on which the related Payment Obligation (as defined
				  herein) matures consistent with the provisions of 17 CFR 240.15c3-1 and
				  240.15c3-1d, except for claims which are the subject of subordinated agreements
				  which rank on the same priority as or are junior to the claim of the Lender
				  under such subordination agreements.
I.
PERMISSIVE PREPAYMENTS
				  (OPTIONAL)
At the option of the Broker-Dealer, but not at the option of
				  the Lender, payment of all or any part of the "Payment Obligation" amount
				  hereof prior to the Scheduled Maturity Date may be made by the Broker-Dealer
				  only upon receipt of the prior written approval of the NASD, but in no event
				  may any prepayment be made before the expiration of one year from the date this
				  Agreement became effective. No prepayment shall be made if, after given effect
				  thereto (and all payments of Payment Obligations under any other subordinated
				  agreements then outstanding, the maturity or accelerated maturity of which are
				  scheduled to fall due either within six months after the date such prepayment
				  is to occur or on or prior to the date on which the Payment Obligation hereof
				  is scheduled to mature, whichever date is earlier), without reference to any
				  projected profit or loss of the Broker-Dealer, either aggregate indebtedness of
				  the Broker-Dealer would exceed 1000 percent of its net capital or such lesser
				  percent as may be made applicable to the Broker-Dealer form time to time by the
				  NASD, or a governmental agency or self-regulatory body having appropriate
				  authority, or if the Broker-Dealer is operating pursuant to paragraph (f) of 17
				  CFR 240.15c3-1, its net capital would be less than 5 percent of aggregate debit
				  items computed in accordance with 17 CFR 240.15c3-3a, or, if registered as a
				  futures commission merchant, 7 percent of the funds required to be segregated
				  pursuant to the Commodity Exchange Act and the regulations thereunder, (less
				  the market value of commodity options purchased by option customers on or
				  subject to the rules of a contract market, provided, however, the deduction for
				  each option customer shall be limited to the amount of customer funds in such
				  option customer's account,) if greater, or its net capital would be less than
				  120 percent of the minimum dollar amount required by 17 CFR 240.15c3-1
				  including paragraph (f), if applicable, or such greater dollar amount as may be
				  made applicable to the Broker-Dealer by the NASD, or a governmental agency or
				  self-regulatory body having appropriate authority.
II.
SUSPENDED REPAYMENTS
(a) The Payment Obligation of the Broker-Dealer
				  shall be suspended and shall not mature, if after giving effect to such payment
				  (together with the payment of any Payment Obligation of the Broker-Dealer under
				  any other subordination agreement scheduled to mature on or before such Payment
				  Obligation) the aggregate indebtedness of the Broker-Dealer would exceed 1200
				  percent of its net capital or such lesser percent as may be made applicable to
				  the Broker-Dealer from time to time by the NASD, or a governmental agency or
				  self-regulatory body having appropriate authority, or if the Broker-Dealer is
				  operating pursuant to paragraph (f) of 17 CFR 240.15c3-1, its net capital would
				  be less than 5 percent of aggregate debit items computed in accordance with 17
				  CFR 240.15c3-3a, or, if registered as a futures commission merchant, 6 percent
				  of the funds required to be segregated pursuant to the Commodity Exchange Act
				  and the regulations thereunder, (less the market value of commodity options
				  purchased by option customers on or subject to the rules of a contract market,
				  provided, however, the deduction for each option customer shall be limited to
				  the amount of customer funds in such option customer's account,) if greater, or
				  its net capital would be less than 120 percent of the minimum dollar amount
				  required by 17 CFR 240.15c3-1 including paragraph (f), if applicable, or such
				  greater dollar amount as may be made applicable to the Broker-Dealer by the
				  NASD, or a governmental agency or self-regulatory body having appropriate
				  authority.
(b) (OPTIONAL) The Broker-Dealer agrees that if
				  its obligation to pay the principal amount hereof is suspended for a period of
				  six months, the Broker-Dealer will thereupon commence a rapid and orderly
				  complete liquidation of its business. The date on which the liquidation
				  commences shall be the maturity date for each subordination agreement of the
				  Broker-Dealer then outstanding.
III.
LENDER'S RIGHT TO ACCELERATE THE MATURITY OF
				  THE PAYMENT OBLIGATION (OPTIONAL)
By written notice to the Broker-Dealer at its principal
				  office and to the NASD, no sooner than six months after the effective date of
				  this Agreement, the Lender may accelerate such Payment Obligation together with
				  accrued interest or compensation, to a date not earlier than six months after
				  giving of such accrued interest or compensation shall remain subordinate as
				  required by the provisions of 17 CFR 240.15c3-1 and 240.15c3-1d.
IV.
ACCELERATED MATURITY OF THE SUBORDINTION
				  AGREEMENT UPON THE OCCURRENCE OF AN EVENT OF ACCELERATION
				  (OPTIONAL)
By prior written notice delivered to the Broker-Dealer at its
				  principal office and to the NASD upon the occurrence of any Event of
				  Acceleration (as defined herein), given no sooner than six months from the
				  effective date of this Agreement, the Lender may accelerate such Payment
				  Obligation to the last business day of a calendar month not less than six
				  months after the receipt of such notice by both the Broker-Dealer and the NASD.
				  If, upon such accelerated maturity, the Payment Obligation of the Broker-Dealer
				  is suspended pursuant to paragraph II of this Agreement, and liquidation of the
				  Broker-Dealer has not commenced on or prior to such accelerated maturity date,
				  such Agreement shall mature on the day immediately following such accelerated
				  maturity date and, in any event, the Payment Obligations of the Broker-Dealer
				  with respect to all other subordination agreements then outstanding shall also
				  mature at the same time. Events of Acceleration which may be included shall be
				  limited to:
(a) Failure to pay interest or any installment of
				  principal on this Agreement as scheduled;
(b) Failure to pay when due other money
				  obligations of a specified material amount;
(c) Discovery that any material, specified
				  representation or warrant of the broker-dealer which is included in this
				  Agreement and on which this Agreement was based or continued was inaccurate in
				  a material respect at the time made; or
(d) The following specified and clearly
				  measurable event(s), which the Lender and Broker-Dealer agree (i) is a
				  significant indication that the financial position of the Broker-Dealer has
				  changed materially and adversely from agreed upon specified norms; or (ii)
				  could materially and adversely affect the ability of the Broker-Dealer to
				  conduct its business as conducted on the effective date of the subordination
				  agreements; or (iii) is a significant change in the senior management or in the
				  general business conducted by the Broker-Dealer form the date this Agreement
				  became effective; or (iv) constitute continued failure to perform agreed-upon
				  covenants included in this Agreement relating to the maintenance and reporting
				  by the Broker-Dealer of its financial position or relating to the conduct of
				  its business.
The events of Acceleration as discussed in paragraph (a)
				  through (d) with respect to this Agreement are enumerated below:
V.
ACCELERATED MATURITY OF THE SUBORDINATION
				  AGREEMENT UPON THE OCCURRENCE OF AN EVENT OF DEFAULT
				  (OPTIONAL)
(a) If the liquidation of the business of the
				  Broker-Dealer has not already commenced, the Payment Obligation shall mature,
				  together with accrued interest or compensation, upon the occurrence of an Event
				  of Default, as hereinafter defined.
(b) Further, if liquidation of the business of
				  the Broker-Dealer has not already commenced, the rapid and orderly liquidation
				  of the business of the Broker-Dealer shall then commence upon the happening of
				  an Event of Default, and the date of said Event of Default shall be the date on
				  which the Payment Obligations of the Broker-Dealer with respect to all other
				  subordination agreements then outstanding shall mature.
Events of Default which may be included shall be
				  limited to:
(i) The filing of an application by the
				  Securities Investor Protection Corporation for a decree adjudicating that
				  customers of the Broker-Dealer are in need of protection under the Securities
				  Investor Protection Act of 1970 and the failure of the Broker-Dealer to obtain
				  the dismissal of such application within 30 days;
(ii) The aggregate indebtedness of the
				  Broker-Dealer exceeding 1500 percent of its net capital or, in the case of a
				  Broker-Dealer which has elected to operate under paragraph (f) of 17 CFR
				  240.15c-1, its net capital computed in accordance therewith is less than 2
				  percent of its aggregate debit items computed in accordance with 17 CFR
				  240.15c3-3a, or, if registered as a futures commission merchant, 4 percent of
				  the funds required to be segregated pursuant to the Commodity Exchange Act and
				  the regulations thereunder, (less the market value of commodity options
				  purchased by option customers on or subject to the rules of a contract market,
				  provided, however, the deduction for each option customer shall be limited to
				  the amount of customer funds in such option customer's account,) if greater,
				  throughout a period of 15 consecutive business days, commencing on the day the
				  Broker-Dealer first determines and notifies the Lender and the NASD, or the
				  NASD or the Commission first determines and notifies the Broker-Dealer of such
				  fact;
(iii) Revocation by the Commission of the
				  registration of the Broker-Dealer;
(iv) Suspension by the NASD (without reinstatement
				  within 10 days) or revocation of the Broker-Dealer's status as a member
				  thereof; and,
(v) Receivership, insolvency, liquidation
				  pursuant to the Securities Investor Protection Act of 1970 or otherwise,
				  bankruptcy, assignment for the benefit of creditors, reorganization whether or
				  not pursuant to bankruptcy laws, or any other marshalling of the assets and
				  liabilities of the Broker Dealer.
VI.
NOTICE OF MATURITY OR ACCELERATED
				  MATURITY
The Broker-Dealer shall immediately notify the NASD if, after
				  giving effect to all payments of Payment Obligations under subordination
				  agreements then outstanding which are then due or mature within six months
				  without reference to any projected profit or loss of the Broker-Dealer, wither
				  the aggregate indebtedness of the Broker-Dealer would exceed 1200 percent of
				  its net capital, or in the case of a Broker-Dealer operating pursuant to
				  paragraph (f) of 17 CFR 240.15c3 - 1, its net capital would be less than 5
				  percent of aggregate debit items computed in accordance with 17 CFR 240.15c3 -
				  3a, or, if registered as a futures commission merchant, 6 percent of the funds
				  required to be segregated pursuant to the Commodity Exchange Act and the
				  regulations thereunder, (less the market value of commodity options purchased
				  by option customers on or subject to the rules of a contract market, provided,
				  however, the deduction for each option customer shall be limited to the amount
				  of customer funds in such option customer's account,) if greater, and in either
				  case, if its net capital would be less than 120 percent of the minimum dollar
				  amount required by 17 CFR 240.15c3 - 1 including paragraph (f), if applicable,
				  or such greater dollar amount as may be made applicable to the Broker-Dealer by
				  the NASD, or a governmental agency or self-regulatory body having appropriate
				  authority.
VII.
BROKER-DEALERS CARRYING THE ACCOUNTS OF
				  SPECIALISTS AND MARKET MAKERS IN LISTED OPTIONS
A Broker-Dealer who guarantees, endorses, carries or clears
				  specialist or market-maker transactions in options listed on a national
				  securities exchange or facility of a national securities association shall not
				  permit a reduction, prepayment or repayment of the unpaid principal amount if
				  the effect would cause the equity required in such specialist or market-maker
				  accounts to exceed 1000 percent of the Broker-Dealer's net capital or such
				  percent as may be made applicable to the Broker-Dealer from time to time by the
				  NASD or a governmental agency or self-regulatory body having appropriate
				  authority.
VIII.
BROKER-DEALERS REGISTERED WITH
				  CFTC
If the Broker-Dealer is a futures commission merchant or
				  introductory broker as that term is defined in the Commodity Exchange Act, the
				  Organization agrees, consistent with the requirements of 1.17(h) of the
				  regulations of the CFTC (
				  17
				  CFR 1.17(h) ), that:
(a) Whenever prior written notice by the
				  Broker-Dealer to the NASD is required pursuant to the provisions of this
				  Agreement, the same prior written notice shall be given by the Broker-Dealer to
				  (i) the CFTC at its principal office in Washington, D.C., attention Chief
				  Accountant of Division of Trading and Markets, and/or (ii) the commodity
				  exchange of which the Organization is a member and which is then designated by
				  the CFTC as the Organization's designated self-regulatory organization the
				  "DSRO");
(b) Whenever prior written consent, permission or
				  approval of the NASD is required pursuant to the provisions of this Agreement,
				  the Broker-Dealer shall also obtain the prior written consent, permission or
				  approval of the CFTC (and/or of the DSRO); and,
(c) Whenever the Broker-Dealer receives written
				  notice of acceleration of maturity pursuant to the provisions of this
				  Agreement, the Broker-Dealer shall promptly give written notice thereof to the
				  CFTC at the address above stated and/or to the DSRO.
IX.
SUBORDINATION OR ACCRUED INTEREST PAYABLE
				  (OPTIONAL)
The Lender and the Borrower hereby elect to have all eligible
				  accrued interest payable on this loan considered as additional subordinated
				  capital for purposes of computing net capital, subject to the terms and
				  conditions set forth in the instructions. The amount of accrued interest
				  payable per month is $ _______________ and the aggregate total of all eligible
				  monthly amounts will be $____________.
____________________________
_____________________________
(Borrower's Initials)
(Date)
(Lender's Initials)
(Date)
X.
GENERAL
This Agreement shall not be subject to cancellation by either
				  the Lender or the Broker-Dealer, and no payment shall be made, nor the
				  Agreement terminated, rescinded, or modified by mutual consent or otherwise if
				  the effect thereof would be inconsistent with the requirements of 17 CFR
				  240.15c3 - 1 and 240.15 c 3 - 1d.
The Agreement may not be transferred, sold, assigned,
				  pledged, or otherwise encumbered or otherwise disposed of, and no lien, charge
				  or other encumbrance may be created thereon without the prior written consent
				  of the NASD.
In the event of the appointment of a receiver or trustee of
				  the Broker-Dealer or in the event of its insolvency, liquidation pursuant to
				  the Securities Investor Protection Act of 1970 or otherwise, bankruptcy,
				  assignment for the benefit of creditors, reorganization whether or not pursuant
				  to bankruptcy laws, or any other marshaling of the assets and liabilities of
				  the Broker-Dealer, the Payment Obligation of the Broker-Dealer shall mature,
				  and the holder hereof shall not be entitled to participate or share, ratably or
				  otherwise, in the distribution of the assets of the Broker-Dealer until all
				  claims of all other present and future creditors of the Broker-Dealer, whose
				  claims are senior hereto, have been fully satisfied.
The Lender irrevocably agrees that the loan evidenced hereby
				  is not being made in reliance upon the standing of the Broker-Dealer as a
				  member organization of the NASD or upon the NASD surveillance of the
				  Broker-Dealer's financial position or its compliance with the By-Laws, rules
				  and practices of the NASD. The Lender has made such investigation of the
				  Broker-Dealer and its partners, officers, directors and stockholders as the
				  Lender deems necessary and appropriate under the circumstances. The Lender is
				  not relying upon the NASD to provide any information concerning or relating to
				  the Broker-Dealer and agrees that the NASD has no responsibility to disclose to
				  the Lender any information concerning or relating to the Broker-Dealer which it
				  may now, or at any future time, have.
The term "Broker-Dealer" as used in this Agreement shall
				  include the broker-dealer, its heirs, executors, administrators, successors,
				  and assigns.
The term "Payment Obligation" shall mean the obligation of
				  the Broker-Dealer to repay cash loaned to it pursuant to this Subordinated Loan
				  Agreement.
The provisions of this Agreement shall be binding upon the
				  Broker-Dealer and the Lender and their respective heirs, executors,
				  administrators, successors and assigns.
Any controversy arising out of or relating to this Agreement
				  may be submitted to and settled by arbitration pursuant to the By-Laws and
				  rules of the NASD. The Broker-Dealer and the Lender shall be conclusively bound
				  by such arbitration.
This instrument embodies the entire agreement between the
				  Broker-Dealer and Lender and no other evidence of such agreement has been or
				  will be executed without the prior written consent to the NASD.
This Agreement shall be deemed to have been made under, and
				  shall be governed by, the laws of the State of ___________________ in all
				  respects.
IN WITNESS WHEREOF the parties have set their hands and seal
				  this ______ day of ________________________, 19 ____.
Click here to view
				  image
SUBORDINATED LOAN AGREEMENT
LENDER'S ATTESTATION
It is recommended that you discuss the merits of this
				  investment with an attorney, accountant or some other person who has knowledge
				  and experience in financial and business matters prior to executing this
				  Agreement.
1. I have received and reviewed NASD Form SLD,
				  which is a reprint of Appendix D of 17 CFR 240.15c3 - 1, and am familiar with
				  its provisions.
2. I am aware that the funds or securities subject
				  to this Agreement are not covered by the Securities Investor Protection Act of
				  1970.
3. I understand that I will be furnished financial
				  statements pursuant to SEC Rule 17a-5(c).
4. On the date this Agreement was entered into,
				  the broker-dealer carried funds or securities for my account. (State Yes or No)
				  ____________
5. Lender's business relationship to the
				  broker-dealer is: _________________
6. If not a partner or stockholder actively
				  engaged in the business of the broker-dealer, acknowledge receipt of the
				  following:
a. Certified audit and accountant's certificate
				  dated ____________.
b. Disclosure of financial and/or operational
				  problems since the last certified audit which required reporting pursuant to
				  SEC Rule 17a-11. (If no such reporting was required, state "none")
c. Balance sheet and statement of ownership equity
				  dated ___________.
d. Most recent computation of net capital and
				  aggregate indebtedness or aggregate debit items dated ________________,
				  reflecting a net capital of $____________ and a ratio of ____________.
e. Debt/equity ratio as of _____________________
				  of _____________.
f. Other disclosures:
				  _______________________________________.
Dated: ____________________
____________________________L.S.
(Lender)