UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
THE JOCKEY CLUB, INC
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(Name of Issuer)
Common Stock, no par value
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(Title of Class of Securities)
477731103
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(CUSIP Number)
James W. Giddens, solely in with a copy to: Richard M. Siegel, Esq.
his capacity as trustee for the Hughes Hubbard & Reed LLP
liquidation of the business of One Battery Park Plaza
A.R. Baron & Co., Inc. New York, New York 10004-1482
P.O. Box 359 212-837-6000
Bowling Green Station
New York, New York 10274
212-425-3005
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(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
July 11, 1996
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box .
Check the following box if a fee is being paid with the statement |X|. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent of less of such class.)
(See Rule 13d-7.)
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2
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
SCHEDULE 13D
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CUSIP No. 477731103
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
James W. Giddens, solely in his capacity as trustee under SIPA
pursuant to the court order described herein
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |_|
(b) |_|
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) |_|
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
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7 SOLE VOTING POWER
NUMBER OF 236,000 shares
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SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY ----- -----------------------------------------------------
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EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 236,000 shares
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WITH 10 SHARED DISPOSITIVE POWER
75,000 shares
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3
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
311,000 shares
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* |_|
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
12.0%
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14 TYPE OF REPORTING PERSON*
IN
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Item 1. Security and Issuer
This statement on Schedule 13D (this "Statement") relates to shares of
common stock, no par value ("Common Stock"), of The Jockey Club, Inc. (the
"Issuer"), which has its principal executive offices at Biscayne Point, 11111
Biscayne Boulevard, Miami, Florida 33161.
Item 2. Identity and Background
(a) The person filing this statement is James W. Giddens, solely in his
capacity as trustee for the liquidation of the business of A.R. Baron & Co.,
Inc., a broker-dealer registered under Section 15 of the Securities Exchange Act
of 1934, as amended (the "Act") and a Delaware corporation ("ARB"), pursuant to
the Court Order (as defined and further described below) under section
78eee(b)(3) of the Securities Investor Protection Act ("SIPA"), with all the
duties and powers of a trustee as prescribed in SIPA (the "Trustee"). The
Trustee was appointed pursuant to an order of the United States District Court
for the Southern District of New York, dated July 11, 1996 (the "Court Order"),
attached hereto as Exhibit 1. By operation of law, the Trustee is in possession
and effective control of the assets of ARB. Those assets include the shares of
Common Stock described in Item 5 as to which the Trustee may have beneficial
ownership.
(b) The Trustee's business address is One Whitehall Street, 18th Floor,
New York, NY 10004 and his mailing address is P.O. Box 359, Bowling Green
Station, New York, New York 10274.
(c) Mr. Giddens, in his individual capacity, is a member of the law
firm of Hughes Hubbard & Reed LLP, a New York limited liability partnership,
whose principal place of business is One Battery Park Plaza, New York, NY 10004.
(d)-(e) During the past five years, the Trustee (and Mr. Giddens, in
his individual capacity) has not been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or been a party to any
civil proceedings of a judicial or administrative body of competent jurisdiction
as a result of which the Trustee (or Mr. Giddens, in his individual capacity)
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, federal or
state securities laws or finding any violation with respect to such laws.
(f) The Trustee is a United States citizen.
Item 3. Source and Amount of Funds
As described in Item 2(a) above, the Trustee succeeded to the Shares
(as defined below) pursuant to the Court Order.
Item 4. Purpose of Transaction
The Trustee was appointed to fulfill the duties of a trustee under
SIPA, and is acting solely in connection therewith. In his capacity as Trustee,
the Trustee intends to dispose of the Shares in an orderly fashion in order to
maximize the value realized for the estate of ARB consistent with applicable law
and his duties and powers as prescribed in SIPA.
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4
Other than as stated above, the Trustee has no plans or proposals which
relate to or would result in any of the following:
(a) The acquisition by any person of additional securities of the
Issuer;
(b) An extraordinary corporate transaction such as a merger,
reorganization or liquidation, involving the Issuer or any of its
subsidiaries;
(c) A sale or transfer of a material amount of assets of the Issuer
or any of its subsidiaries;
(d) Any change in the present board of directors or management of the
Issuer, including any plans or proposals to change the number or
term of directors or to fill any existing vacancies on the board;
(e) Any material change in the present capitalization or dividend
policy of the Issuer;
(f) Any other material change in the Issuer's business or corporate
structure;
(g) Changes in the Issuer's charter, by-laws or instruments
corresponding thereto or other actions which may impede the
acquisition of control of the Issuer by any person;
(h) Causing a class of securities of the Issuer to be delisted from a
national securities exchange or to cease to be authorized to be
quoted in an inter-dealer quotation system of a registered
national securities association;
(i) A class of equity securities of the Issuer becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the
Securities Exchange Act of 1934; or
(j) Any action similar to any of those enumerated above.
Item 5. Interest in Securities of the Company
(a) The Trustee believes that, for the purposes of Rule 13d-3(a) under
the Act, the Trustee may be the beneficial owner of a total of 311,000 shares
(the "Shares") of Common Stock representing approximately 12% of the total
outstanding shares of Common Stock (based on the Issuer's most recently
available filing with the Securities and Exchange Commission). As of the date of
the Court Order, 236,000 of the Shares (the "Proprietary Shares") were directly
owned by ARB and 75,000 of the Shares (the "Pledged Shares") were pledged to ARB
by Eric Broadley (the "Note Obligor") pursuant to a Secured Demand Note
Collateral Agreement for Equity Capital dated September 4, 1995 (the "Security
Agreement") by the Note Obligor in favor of ARB as security for the Note
Obligor's obligations pursuant to a Secured Demand Note dated September 4, 1995
(the "Note") by the Note Obligor in favor of ARB. The Security Agreement and the
Note are summarized in part herein and such summaries are qualified by reference
to the copies of such documents attached hereto as Exhibits 2 and 3. Pursuant to
the Security Agreement, the Pledged Shares are held of record by Bear Stearns as
nominee for ARB and ARB has the right under certain conditions to liquidate the
Pledged Shares.
(b) The Trustee possesses the sole power to vote or direct the vote of
the Proprietary Shares. The Trustee has the sole power to dispose or to direct
the disposition of the Proprietary Shares and the right under certain
circumstances to dispose or to direct the disposition of all of the Pledged
Shares.
(c) Other than the acquisition of the Shares pursuant to the Court
Order as described above, during the past sixty days, neither the Trustee nor
Mr. Giddens, in his individual capacity, has effected any transactions in the
Common Stock.
(d) Except as disclosed in Item 5(a) above, no person is known to have
the right to receive or the power to direct the receipt of dividends from, or
the proceeds from the sale of, any of the Shares.
(e) Not applicable.
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5
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
Except as noted above, the Trustee does not have any contract,
arrangement, understanding or relationship with respect to any securities of the
Issuer.
Item 7. Material To Be Filed as Exhibits
Exhibit Number Title
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1 Order of the United States District Court for the Southern
District of New York, entered on July 11, 1996, appointing
James W. Giddens as trustee for the liquidation of the
business of A.R. Baron & Co., Inc. ("ARB")
2 Secured Demand Note Collateral Agreement
for Equity Capital, dated September 4, 1995, between ARB and
Eric Broadley
3 Secured Demand Note, dated September 4,
1995, between ARB and Eric Broadley
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete, and
correct.
Dated: August 27, 1996
By: /s/ James W. Giddens
-----------------------------------
James W. Giddens, solely as trustee
pursuant to a court order dated
July 11, 1996
Exhibit Number Title Method of Filing Page
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1 Order of the United States Filed herewith 6
District Court for the
Southern District of
New York, entered on
July 11, 1996,
appointing James W. Giddens
as the trustee for the
liquidation of the business
of A.R. Baron & Co., Inc.("ARB")
2 Secured Demand Note Filed herewith 8
Collateral Agreement for
Equity Capital, dated
September 4, 1995,
between ARB and Eric Broadley
3 Secured Demand Note, dated Filed herewith 16
September 4, 1995, between
ARB and Eric Broadley
6
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
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)
SECURITIES INVESTOR PROTECTION )
CORPORATION, ) Civil Action No. 96 CIV 5171 (LAP)
)
Plaintiff-Applicant, )
)
v. )
)
A.R. BARON & CO., INC. )
)
Defendant. )
)
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ORDER
On the Complaint and Application of the SECURITIES INVESTOR PROTECTION
CORPORATION ("SIPC"), it is hereby:
I. ORDERED, ADJUDGED and DECREED, that the customers of A.R. Baron &
Co., Inc. ("Defendant"), are in need of the protection afforded by the
Securities Investor Protection Act ("SIPA").
II. ORDERED that pursuant to section 78eee(b)(3) of SIPA, 15 U.S.C.A.
ss. 78eee(b)(3) (1981), James W. Giddens is hereby appointed trustee for the
liquidation of the business of the Defendant with all the duties and powers of a
trustee as prescribed in SIPA, and the law firm of Hughes Hubbard & Reed is
hereby appointed counsel for said trustee. Said trustee shall file a fidelity
bond satisfactory to the Court in the amount of $100,000.00.
III. ORDERED that creditors and all other persons or entities are
hereby notified that, subject to the other provisions of section 362 of the
Bankruptcy Code, 11 U.S.C.A. ss. 362, the automatic stay provisions of section
362(a) of the Bankruptcy Code, 11 U.S.C.A. ss. 362(a) (Supp. 1996), operate as a
stay of:
(i) the commencement or continuation, including the issuance or
employment of process, of a judicial, administrative, or other proceeding
against the Defendant that was or could have been commenced before the
commencement of this proceeding, or to recover a claim against the
Defendant that arose before the commencement of this proceeding;
(ii) the enforcement, against the Defendant or against property
of the estate, of a judgment obtained before the commencement of this
proceeding;
(iii) any act to obtain possession of property of the estate or
of property from the estate;
(iv) any act to create, perfect, or enforce any lien against
property of the estate;
(v) any act to create, perfect, or enforce against property of
the Defendant any lien to the extent that such lien secures a claim that
arose before the commencement of this proceeding;
(vi) any act to collect, assess, or recover a claim against the
Defendant that arose before the commencement of this proceeding;
(vii) the setoff of any debt owing to the Defendant that arose
before the commencement of this proceeding against any claim against the
Defendant; and
(viii) the commencement or continuation of a proceeding before
the United States Tax Court concerning the Defendant.
IV. ORDERED that pursuant to section 78eee(b)(2)(B)(i) of SIPA, 15
U.S.C.A. ss. 78eee(b)(2)(B)(i) (1981), any pending bankruptcy, mortgage
foreclosure, equity receivership, or other proceeding to reorganize, conserve,
or liquidate the debtor or its property and any other suit against any receiver,
conservator, or trustee of the debtor or its property, is hereby stayed.
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7
V. ORDERED that pursuant to sections 5(b)(2)(B)(ii) and (iii) of SIPA,
15 U.S.C.A. ss.ss. 78eee(b)(2)(B)(ii) and (iii) (1981), and notwithstanding the
provisions of sections 555 and 559 of the Bankruptcy Code, 11 U.S.C.A. ss.ss.
555 and 559 (Supp. 1996), all creditors of Defendant and all other persons be,
and they hereby are, stayed, enjoined, and restrained for a period of twenty-one
(21) days or such other time as may subsequently be ordered by this Court or any
other court having competent jurisdiction of this proceeding, from enforcing
liens or pledges against the property of the Defendant, from exercising any
right of setoff; and from causing the liquidation of a repurchase agreement
whether or not it meets the definition set forth in section 101(47) of the
Bankruptcy Code, 11 U.S.C.A. ss. 101(47) (Supp. 1996), without first receiving
the written consent of SIPC and the trustee.
VI. ORDERED that Defendant, its officers, directors, shareholders,
employees and any other person or persons are hereby stayed, enjoined and
restrained from directly or indirectly removing, transferring, setting-off,
receiving, retaining, changing, selling, pledging, assigning, or otherwise
disposing of, withdrawing or interfering with any assets or property owned,
controlled or in the possession of Defendant, including but not limited to
customers' securities and credit balances, except for the purpose of effecting
possession and control of said property by the trustee.
VII. ORDERED that pursuant to sections 5(b)(2)(B)(ii) and (iii) of
SIPA, 15 U.S.C.A. ss. 78eee(b)(2)(B)(ii) and (iii) (1981), and notwithstanding
the provisions of section 555 of the Bankruptcy Code, 11 U.S.C.A. ss. 555 (Supp.
1996), all stockbrokers, financial institutions, and securities clearing
agencies as defined in section 101 of the Bankruptcy Code, 11 U.S.C.A. ss. 101
(Supp. 1996), be, and they hereby are, stayed, enjoined, and restrained for a
period of twenty-one (21) days or such other time as may subsequently be ordered
by this Court or any other court having competent jurisdiction of this
proceeding, from exercising a contractual right to cause the liquidation of a
contract for the loan of a security within the meaning of section 741(7) of the
Bankruptcy Code, l1 U.S.C.A. ss. 741(7) (Supp. 1996), without first receiving
the written consent of SIPC and the trustee.
VIII. ORDERED that the stays set forth above shall not apply to (a) any
suit, action or proceeding brought or to be brought by the Securities and
Exchange Commission or any self-regulatory organization of which Defendant is
now a member or was a member within the past six months; or (b) the exercise of
a contractual right of any securities clearing agency to cause the liquidation
of a securities contract as defined in section 741(7) of the Bankruptcy Code, 11
U.S.C. 741(7) (Supp. 1996); or (c) the exercise of a contractual right of any
stockbroker or financial institution, as defined in section 101 of the
Bankruptcy Code, 11 U.S.C. ss. 101 (Supp. 1996), to use cash or letters of
credit held by it as collateral, to cause the liquidation of its contract for
the loan of a security to the Defendant or for the pre-release of American
Depository Receipts or the securities underlying such receipts; or (d) any
setoff or liquidating transaction undertaken pursuant to the rules or bylaws of
any securities clearing agency registered under section 17(a) of the Securities
Exchange Act of 1934 or by any person acting under instructions from and on
behalf of such a securities clearing agency; or (e) any settlement transaction
undertaken by such securities clearing agency using securities either (i) in its
custody or control, or (ii) in the custody or control of another securities
agency with which it has an SEC approved interface procedure for securities
transactions settlements, provided that the entire proceeds thereof, without
benefit of any offset, are promptly turned over to the receiver, or a subsequent
trustee, appointed herein.
IX. ORDERED that pursuant to section 78eee(b)(4) of SIPA, 15 U.S.C.A.
ss. 78eee(b)(4) (1981), this liquidation proceeding (not including any action
brought herein by the Securities and Exchange Commission) is removed to the
United States Bankruptcy Court for this District.
X. ORDERED that the trustee is authorized to open accounts and obtain a
safe deposit box at a bank or banks to be chosen by the trustee, and the trustee
may designate such of his representatives who shall be authorized to have access
thereto.
DATED: July 11, 1996
ISSUED AT: 10:30 a.m.
/s/ Loretta A. Preska
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UNITED STATES DISTRICT JUDGE
8
NASD
SECURED DEMAND NOTE
COLLATERAL AGREEMENT
FOR EQUITY CAPITAL
SL-6
AGREEMENT BETWEEN:
Lender Eric Broadley
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(Name)
Giebe Road St. Peters Mill
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(Street Address)
Huntington Cambridgeshire PE 18705 England
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(City) (State) (Zip)
AND
Broker-Dealer A.R. Baron & Co. Inc.
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(Name)
153 E. 53rd Street
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(Street Address)
New York NY 10022
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(City) (State) (Zip)
NASD ID NO:
----------------------------------------------------------------
Date Filed:
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<PAGE>
9
NASD
SECURED DEMAND NOTE COLLATERAL
AGREEMENT FOR EQUITY CAPITAL
AGREEMENT dated September 4, 1995 to be effective September 4, 1995
between Eric Broadley (the "Lender") and A.R. Baron & Co. Inc. (the
"Broker-Dealer").
Subject to the terms and conditions hereinafter set forth, the
Broker-Dealer promises to return to the Lender or assigns, on September 4, 1998
(the "Scheduled Maturity Date")(the last day of a month at least three years
from the date hereof) at the principal office of the Broker- Dealer the Note and
Collateral as defined herein, and interest payable Quarterly at the rate of 10%
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 subordination agreement
pursuant to the provisions of 17 CFR 240.15c31d unless and until the NASD has
found the Agreement acceptable and such Agreement has become effective in the
form found acceptable.
The Lender has executed in favor of you A.R. Baron & Co. Inc. (the
Broker-Dealer), a Secured Demand Note of even date in the form of Addendum I
hereto. References herein to the "Note" shall be deemed to refer to such Secured
Demand Note and to any Note substituted therefor in accordance with the terms
hereof. The unpaid principal amount of the Note is hereinafter referred to as
the "Indebtedness".
As security for the payment of the principal evidenced by the Note, the
Lender hereby pledges to the Broker-Dealer the securities and cash, if any,
described in Schedule A, attached to the Note, as the same may from time to time
be amended in accordance with the terms hereof (the securities from time to time
listed in said Schedule are herein referred to as the "Securities" and any
securities, cash or other property at any time pledged hereunder are herein
referred to as the "Collateral" and shall be subject to the risks of the
business). All Securities shall be fully paid for and in bearer form or
registered in the name of the Broker-Dealer or its nominee or custodian.
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 subordination agreements which rank on the same
priority as or are junior to the claim of the Lender under such subordination
agreements.
I. OWNERSHIP AND PROPERTY RIGHTS WITH RESPECT TO COLLATERAL
(a) Subject only to the prior rights of the Broker-Dealer pledgee
hereunder and under the Note, until liquidation in accordance with Paragraph III
hereof the Lender shall have and retain full legal and beneficial ownership of
the Collateral and shall have the benefit of any increases and bear the risk of
any decreases in the value of such Collateral. Prior to such liquidation, the
Lender shall have the sole right to vote or have the sole right to any income
therefrom or distribution thereon by payment of interest or dividends or
otherwise, subject however, to the right of the Broker-Dealer to receive and
hold as pledgee all dividends payable in securities and all partial and complete
liquidating dividends; and shall pay all taxes, assessments or other charges
upon or with respect to such Securities or the income therefrom or distributions
thereon or the gain or loss of value thereof.
(b) The Lender, subject to the prior rights of the Broker-Dealer as
pledgee, shall have the right to direct the sale of any Securities included in
the Collateral, to direct the purchase of securities with any cash included
therein, to withdraw excess Collateral or to substitute cash or other securities
as Collateral, provided that the net proceeds of any sale and the cash so
substituted and the securities so purchased or substituted are held by the
Broker-Dealer, as pledgee, and are included within the Collateral to secure
payment of the Secured Demand Note, and provided further that no such
transactions shall be permitted if, after giving effect thereto, the sum of the
amount of any cash, plus the Collateral Value (as defined herein) of the
<PAGE>
10
- -Securities, then pledged as Collateral to secure the Secured Demand Note would
be less than the unpaid principal amount of the Secured Demand Note.
II. CERTAIN RIGHTS OF THE BROKER-DEALER
The Broker-Dealer, as the holder of the Note and pledgee of the
Collateral, shall have the right to:
(a) Pledge, repledge, hypothecate and re-hypothecate, any or all of the
Securities pledged as Collateral to secure the Secured Demand Note, without
notice, separately or in common with other securities or property for the
purpose of securing any indebtedness of the Broker-Dealer;
(b) Lend to itself or others any or all of the Securities and cash
pledged as Collateral to secure this Secured Demand Note;
(c) Deposit any cash from time to time pledged as Collateral in an
account or accounts in its own name in any bank or trust company, and to hold
the Securities in bearer form, in its own name, or in the name of its nominee or
custodian; and,
(d) Liquidate all or any part of the Securities then pledged as
Collateral and to apply the net proceeds of such liquidation, together with any
cash then included in the Collateral, in payment in whole or in part of the
Payment Obligation, if the Note is not paid upon presentment and demand as
provided for therein.
III. INSUFFICIENT COLLATERAL VALUE
If any cash plus Collateral Value of any Securities pledged as
collateral to secure this Note is at any time less than the Indebtedness, the
Broker-Dealer shall give immediate written notice to the Lender and the NASD, in
which event the Lender may at its option:
(a)(i) Prior to 12 o'clock noon on the business day following the
transmittal of such notice, pledge additional Collateral to bring the Collateral
Value up to an amount not less than the unpaid principal of the Note; and,
(ii) Unless such additional Collateral is so pledged prior to 12
o'clock noon of the business day following the transmittal of such notice, the
Broker-Dealer shall forthwith sell all or any part of the Collateral for the
account of the Lender and apply so much of the proceeds thereof and any cash
then included in the Collateral as may be necessary to reduce or eliminate the
unpaid principal, provided that the unpaid principal need not be reduced below
the sum of any remaining cash plus the Collateral Value of the remaining
Securities. The Broker-Dealer shall not purchase for its own account any
Securities subject to such a sale. (b)(i)(OPTIONAL) With the prior written
consent of the NASD and the Broker-Dealer, reduce the unpaid principal amount of
the Note by not more than 15 percent of its original principal amount, provided
that the Broker-Dealer clearly establishes that its aggregate indebtedness would
not, after giving effect to such a reduction, exceed 1000 percent of its net
capital as those terms are defined in 17 CFR 240.15c3-1, 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, and in the event of such reduction, the right of the Lender to
withdraw Collateral as provided in paragraph I(b) shall be suspended. The NASD
shall not consent to a reduction of the principal amount of this Note, if after
giving effect to such net capital would be less than 120 percent of the minimum
dollar amount required by 17 CFR 240.15c3-3-1 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.
IV. PAYMENT BY LENDER
Upon payment by the Lender, as distinguished from a reduction by the
Lender which is provided in paragraph IIIb(i), or reduction by the Broker-
Dealer as provided for in paragraph V, of all or any part of the unpaid
principal amount of this Note, the Broker-Dealer shall issue to the Lender a
subordinated loan agreement, preferred or common stock of the Broker-Dealer, or
<PAGE>
11
if a partnership, shall credit a capital account of the Lender in the amount of
such payment, or in any combination of the foregoing, as specified below:
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V. 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 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 giving effect thereto (and to
all payments of Payment Obligations under any other subordination agreements
then outstanding, the maturity of which is 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 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, 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.
VI. 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, 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.
VII. 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 the giving
of such notice. However, the right of the Lender to receive payment, together
with accrued interest or compensation, shall remain subordinate as required by
the provisions of 17 CFR 240.15c3-1 and 240.15c3-1d.
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12
VIII. ACCELERATED MATURITY OF THE SUBORDINATION 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 VI 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 warranty
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
same 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 agreement; or (iii) is a significant change
in the senior management or in the general business conducted by the
Broker-Dealer from 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 paragraphs (a) through (d)
with respect to this agreement are enumerated below:
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IX. 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;
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13
(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 240.15c3-1, 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, 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 marshaling of the assets and liabilities of the Broker-Dealer.
X. 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, either 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.
XI. WARRANTIES OF THE LENDER
The Lender hereby warrants that he has duly executed the Note; that he
has duly delivered the Note to the Broker-Dealer and upon such delivery the
Broker-Dealer acquired good title thereto; that the Note is his valid and
binding obligation enforceable by the Broker-Dealer in accordance with its
terms; that he has duly and validly pledged with the Broker-Dealer the
Securities described in Schedule A attached to the Note; and, that the
Broker-Dealer as pledge of the Securities has the rights with respect thereto
which are conferred upon it by this Agreement. Each such representation and
warranty shall survive the execution and delivery of the Note and the pledge of
the Securities.
The Lender represents that the Securities may be publicly offered and
sold without registration under the Securities Act of 1933 as amended and that
the sale and transfer of the Securities is not restricted by the Act nor is it
restricted by any other law, agreement or in any other manner.
XII. 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.
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14
XIII. 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 Section 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.
XIV. SUBORDINATION OF 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 eligble monthly amounts will be
$_________________.
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(Borrower's Initials) (Date) (Lender's Initials) (Date)
XV. GENERAL
Neither the Lender, his heirs, executors, administrators, or assigns
shall be personally liable on such Note, and in the event of default, the
Broker-Dealer shall look for payment of such Note solely to the Collateral
pledged herein.
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
240.15c3-ld.
This 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 or permitted to 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-Dealers, 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
<PAGE>
15
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 return of the Secured
Demand Note contributed to the Broker-Dealer or the reduction of the unpaid
principal amount thereof, and the return of cash or securities pledged as
Collateral to secure this Secured Demand Note.
The term "Collateral Value" of any securities pledged to secure this
Secured Demand Note shall mean the market value of such Securities after g
effect to the haircut deductions specified in subparagraph (c)(2)(vi) of 1 ~
240.15c3-1.
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 of 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 4th
day of September 1995.
A.R. Baron & Co. Inc.
-------------------------------------------------
(Name of Broker-Dealer)
By /s/ Andrew Bressman L.S.
-----------------------------------------
(Authorized Person)
/s/ Eric Broadley Eric Broadley L.S
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(Lender)
FOR NASD USE ONLY
ACCEPTED BY: /s/ John J. La Fond
-------------------------------
(Name)
Assistant Director
-------------------------------
(Title)
EFFECTIVE DATE: September 7, 1995 9:30 a.m.
---------------------------
LOAN NUMBER: 10-D-SDN-10017
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16
ADDENDUM I
SECURED DEMAND NOTE
September 4, 1995
FOR VALUE RECEIVED, I promise to pay to A.R. Baron & Co. Inc. (the
Broker-Dealer) at its principal office at 153 E. 53rd Street, New York, NY
(where presentment and demand for payment shall be made), without interest, the
sum of Seven Hundred Thousand Dollars ($700,000 ), on demand.
This Note is secured at its date by the pledge of the securities and
cash, if any, described in Schedule A attached hereto. I agree that whenever the
value of the securities and cash securing this Note, as determined in accordance
with the capital requirements of 17 CFR 240.15c3-1 or the rules-and regulations
of the National Association of Securities Dealers, Inc. ("NASD") or those of a
governmental agency or self-regulatory body having appropriate authority which
are applicable to the Broker-Dealer at the time of such valuation, is less than
the unpaid balance of this Note, the Broker-Dealer shall exercise the rights set
forth in paragraph III(a)(ii) of the Secured Demand Note Collateral Agreement
(the Agreement) of even date between me and the Broker-Dealer without first
making a demand for payment hereof.
The Broker-Dealer, by acceptance hereof, agrees, for itself, its
representatives, successors and assigns (1) that neither I, my heirs, executors,
administrators or assigns shall be personally liable on this Note, it being
intended that my obligation to pay the principal amount of this Note is included
for the sole purpose of establishing the existence of the indebtedness
represented hereby and (2) that in the event of default, the Broker-Dealer and
any such successor or assign shall look for payment solely to the Collateral, as
defined herein, then pledged to secure this Note, and will not make claims or
institute any action or proceeding against me, my heirs, executors,
administrators or assigns for the payment of this Note (or for any deficiency
remaining after application of the Collateral pledged to secure this Note, or
otherwise); provided, however, that nothing herein contained shall be construed
to release or impair the indebtedness evidenced by this Note, or of the lien
upon the Collateral pledged to secure it, or preclude the application of said
pledged Collateral to the payment hereof in accordance with the provisions of
the Agreement.
The Broker-Dealer agrees that upon payment by me of all or any portion
of this Note, as distinguished from a reduction by me as provided in paragraph
III(b)(i) of the Agreement or reduction by the Broker-Dealer as provided in
paragraph V of the Agreement, the Broker-Dealer shall issue to me A Subordinated
Loan Agreement in the amount of such payment, as provided pursuant to paragraph
IV of the Agreement.
The Broker-Dealer further agrees that it will make a demand for payment
hereof only after it determines in good faith that it is in or approaching
financial difficulty, provided, however, that no failure to make such a
determination in good faith shall affect the effectiveness of a demand, or give
rise to any claim which is superior to my claim under the Agreement for the
withdrawal, return or reduction of this Note.
The term "in or approaching financial difficulty" shall mean for the
purpose hereof any of the specified and clearly measurable events enumerated
below:
Failure to meet net capital requirements for a period of seven days.
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This Note and the securities and cash from time to time pledged to
secure it are subject in all respects to the provisions of the Agreement, a copy
of which may be examined at the principal office of the Broker-Dealer.
<PAGE>
17
The term "Collateral" shall mean, as defined in subparagraph (b)(6) of
Appendix D of SEC Rule l5c3-1, "only cash and securities which are fully paid
for and which may be publicly offered or sold without registration under the
Securities Act of 1933, and the offer, sale and transfer of which are not
otherwise restricted".
/s/ Eric Broadley Eric Broadley L.S
---------------------------------------------
Lender
/s/ A. R. Baron & Co. Inc.
---------------------------------------------
Broker-Dealer
By /s/ Andrew Bressman L.S.
---------------------------------------------
Authorized Person
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) No
.
5. Lender's business relationship to the broker-dealer is: Customer
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 December
1994.
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") Demise of Clearing Frim (Adler Coleman
Clearing Corp.)
c. Balance sheet and statement of ownership equity dated July
31, 1995
d. Most recent computation of net capital and aggregate
indebtedness or aggregate debit items dated 8/31/95 ,
reflecting a net capital of
e. Debt/equity ratio as of 8/31/95 of 9/4/95 .
Dated: 9/4/95 /s/ Eric Broadley L.S.
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(Lender)
