SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from --------------- to -------------------
Commission File No. 0-6729
FIRST MONTAUK FINANCIAL CORP
(Exact name of registrant as specified in its charter)
New Jersey 22-1737915
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Parkway 109 Office Center, 328 Newman Springs Rd., Red Bank, NJ 07701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 842-4700
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the Registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
8,527,164 Common Shares, no par value, were outstanding as of November 14,
2002.
Page 1 of 16
FIRST MONTAUK FINANCIAL CORP
FORM 10-Q
SEPTEMBER 30, 2002
INDEX
Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Financial Condition
as of September 30, 2002 and December 31, 2001 ......... 3
Consolidated Statements of Loss for the
Nine Months ended September 30, 2002 and 2001 and
Three Months ended September 30, 2002 and 2001 ........... 4
Consolidated Statements of Cash Flows for
the Nine Months ended September 30, 2002 and 2001 ....... 5
Notes to Consolidated Financial Statements ................ 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ......... 8-11
Item 3. Market Risk ...................................... 11
Item 4. Controls and Procedures .......................... 12
PART II. OTHER INFORMATION:
Item 5. Other Information................................ 13
Item 6. Exhibits and Reports on Form 8-K................. 13
Signatures ............................................... 14
Officers' Certifications .................................15-16
FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
2002 2001
(unaudited)
ASSETS
Cash and cash equivalents $ 223,999 $ 1,779,554
Due from clearing firm 4,649,270 4,146,410
Trading and investment account securities 584,199 1,199,102
Employee and broker receivables 1,335,101 2,105,620
Due from officers 227,083 202,964
Property and equipment - net 1,423,225 1,631,801
Income tax refund receivable - 1,069,442
Deferred income taxes - net 930,000 930,000
Other assets 902,686 1,162,669
-------------- --------------
Total assets $ 10,275,563 $ 14,227,562
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deferred income $ 4,366,511 $ 4,783,333
Securities sold, but not yet purchased, at market 103,349 245,078
Notes payable 95,670 277,376
Commissions payable 2,761,820 3,647,170
Accounts payable 632,273 490,842
Accrued expenses 1,436,585 1,434,885
Capital leases payable 395,319 542,210
Other liabilities 56,479 513,987
-------------- --------------
Total liabilities 9,848,006 11,934,881
-------------- --------------
Temporary equity - stock subject to redemption 6,500 6,500
Commitments and contingencies (See Notes)
Stockholders' equity
Preferred Stock, 4,375,000 shares authorized, $.10 par
value, no shares issued and outstanding
respectively; stated at liquidation value - -
Series A Convertible Preferred Stock, 625,000 shares
authorized, $.10 par value, 331,190 and 331,190 shares
issued and outstanding, respectively; liquidation
preference: $1,655,590 and $1,655,590 33,119 33,119
Common Stock, no par value, 30,000,000 shares
authorized, 8,522,284 and 8,622,284 shares issued,
8,522,284 and 8,622,284 outstanding, respectively 3,409,626 3,434,642
Additional paid-in capital 3,940,544 3,950,542
Accumulated deficit (6,923,893) (5,076,055)
Less: Deferred compensation (38,339) (56,067)
-------------- --------------
Total stockholders' equity 421,057 2,286,181
-------------- --------------
Total liabilities and stockholders' equity $ 10,275,563 $ 14,227,562
============== ==============
See notes to financial statements.
FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
Nine months ended September 30, Three months ended September 30,
2002 2001 2002 2001
(unaudited) (unaudited)
Revenues:
Commissions $ 28,185,933 $ 28,089,695 $ 8,071,624 $ 8,206,662
Principal transactions 5,196,757 5,542,395 1,566,174 1,540,318
Investment banking 110,594 1,385,937 7,574 1,028,428
Interest and other income 2,870,655 2,983,974 1,093,370 905,509
-------------- -------------- ------------- --------------
36,363,939 38,002,001 10,738,742 11,680,917
-------------- -------------- ------------- --------------
Expenses:
Commissions, employee compensation and benefits 29,963,056 31,648,673 8,606,612 10,087,382
Clearing and floor brokerage 2,010,368 2,434,950 643,283 730,638
Communications and occupancy 2,340,744 2,343,288 786,546 887,274
Legal matters and related costs 755,973 1,654,501 116,032 877,558
Other operating expenses 2,985,406 3,778,643 1,063,728 920,665
Interest 81,712 118,664 27,067 43,755
-------------- -------------- ------------- --------------
38,137,259 41,978,719 11,243,268 13,547,272
-------------- -------------- ------------- --------------
Loss before income taxes (income tax benefit) (1,773,320) (3,976,718) (504,526) (1,866,355)
Income taxes (income tax benefit) - (499,682) - 208,108
-------------- -------------- ------------- --------------
Net loss $ (1,773,320) $ (3,477,036) $ (504,526) $ (2,074,463)
============== ============== ============= ==============
Net loss applicable to common stockholders $ (1,847,838) $ (3,550,181) $ (529,365) $ (2,099,303)
============== ============== ============= ==============
Per share of Common Stock:
Basic and diluted $ (0.22) $ (0.41) $ (0.06) $ (0.24)
============== ============== ============= ==============
Number of common shares used in
basic and diluted loss per share 8,560,946 8,731,099 8,525,284 8,714,904
============== ============== ============= ==============
See notes to financial statements.
FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30,
2002 2001
(unaudited) (unaudited)
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net loss $ (1,773,320) $ (3,477,036)
-------------- --------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 380,457 436,302
Amortization 11,580 148,635
Reserves and allowances - 200,000
Increase (decrease) in cash attributable to
changes in assets and liabilities
Due from clearing firm (502,860) (2,131,138)
Trading and investment account securities 614,903 2,877,589
Due from officers (24,119) (24,855)
Employee and broker receivables 770,519 (439,682)
Deferred income taxes - (510,888)
Other assets 259,983 (742,143)
Income tax refund receivable 1,069,442 -
Deferred income (416,822) (300,000)
Securities sold but not yet purchased (141,729) (71,559)
Commissions payable 1,700 1,199,683
Accounts payable 141,433 467,385
Accrued expenses (98,300) 43,069
Income taxes payable - (868,675)
Other liabilities (457,508) (359,454)
-------------- --------------
Total adjustments 821,629 (75,731)
-------------- --------------
Net cash used in operating activities (951,691) (3,552,767)
-------------- --------------
Cash flows from investing activities:
Collection of notes receivable - 18,000
Collection of Global leases receivable 153,641
Additions to property and equipment (171,881) (300,432)
-------------- --------------
Net cash used in investing activities (171,881) (128,791)
-------------- --------------
Cash flows from financing activities:
Payment of notes payable (185,558) (245,625)
Payments of capital lease (146,891) (188,153)
Proceeds from capital lease financing - 606,195
Payment toward purchase of treasury stock (25,016) (143,564)
Payments of preferred stock dividends (74,518) (48,305)
-------------- --------------
Net cash used in financing activities (431,983) (19,452)
-------------- --------------
Net decrease in cash and cash equivalents (1,555,555) (3,701,010)
Cash and cash equivalents at beginning of period 1,779,554 3,701,010
-------------- --------------
Cash and cash equivalents at end of period 223,999 -
============== ==============
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 69,712 $ 118,664
============== ==============
Income taxes $ (1,113,646) $ 894,331
============== ==============
Noncash financing activity:
Property and equipment financed under capital leases $ - $ 662,290
============== ==============
See notes to financial statements.
FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
NOTE 1 - MANAGEMENT REPRESENTATION
The accompanying financial statements are unaudited for the interim
periods, but include all adjustments (consisting only of normal recurring
accruals) which management considers necessary for the fair presentation of
results at September 30, 2002 and 2001. The preparation of financial statements
in conformity with GAAP requires the Company to make estimates and assumptions
that affect the reported amounts of revenues and expenses during the reporting
periods. Actual results could vary from these estimates. These financial
statements should be read in conjunction with the Company's Annual Report at,
and for the year ended December 31, 2001, as filed with the Securities and
Exchange Commission on Form 10-K.
The results reflected for the nine-month and three-month periods ended
September 30, 2002, are not necessarily indicative of the results for the entire
fiscal year to end on December 31, 2002.
The Company has reclassified an insurance reimbursement reported in the
Statements of Loss for the nine-months and three-months ended September 30, 2001
from Interest and Other Income to Legal Matters and Related Costs in order to
conform to the presentation for the year ended December 31, 2001. There was no
impact on the net loss for either period.
NOTE 2 - EARNINGS PER SHARE
Basic and diluted EPS are computed by dividing net loss applicable to
common stockholders by the weighted-average number of common shares outstanding
for the period.
NOTE 3 - LEASE
In January 2002, the Company's broker-dealer subsidiary, First Montauk
Securities Corp. ("FMSC"), entered into a sublease for a new branch office in
New York City. Base rent is $17,700 per month through January 2004, increasing
to $18,800 through September 2006. FMSC will also be responsible for certain
operating expense and real estate tax escalations.
NOTE 4 - LEGAL MATTERS
FMSC is a respondent in two NASD arbitrations seeking rescissionary damages
of approximately $9.5 million in one case, and unspecified damages in another.
Both claims also seek statutory interest and punitive damages. Claimants in
these cases have asserted substantially similar claims relating to alleged
violations of various provisions of federal and state securities laws. FMSC
believes that there are meritorious defenses in each case, and that actual
damages, if any, will be substantially below the alleged amounts.
FMSC is also a respondent in several arbitration claims arising from
customer purchases of certain high yield corporate bonds which declined in
market value and subsequently defaulted. The claims allege, among other charges,
unsuitable recommendations and/or improper use of margin. The claimants seek
aggregate compensatory damages in excess of $13,000,000 plus punitive damages
and costs of approximately $9,000,000. FMSC believes that there are meritorious
defenses in each case, and that actual damages, if any, will be substantially
below the alleged amounts.
FMSC is also a respondent or co-respondent in various other legal
proceedings which are incidental to its securities business. FMSC is contesting
these claims and believes that there are meritorious defenses in each case.
After considering all relevant facts, management believes that significant
adverse judgments against FMSC from pending arbitration claims could have a
material impact on the Company's financial condition, results of operations, and
cash flows in any particular quarterly or annual period, or in the aggregate. As
of June 30, 2002, the Company has established a $1,151,000 reserve for
litigation costs that are probable and can be reasonably estimated. The reserve
is included in accrued expenses. Management cannot give assurance that this
reserve will be adequate to absorb actual costs that are subsequently incurred.
In July 2002, the Company received $230,000 from the settlement of
litigation with a former software vendor. The settlement was recorded in Other
Income during the current quarter.
NOTE 5 - INCOME TAXES
The Company did not incur any income tax liabilities during the nine-month
periods ended September 30, 2002 and 2001 due to operating losses. During 2001,
management recognized deferred tax benefits relating to the Company's financing
agreement with its clearing firm as well as expected refund claims from net
operating loss carrybacks. The Company received tax refunds of approximately
$1.1 million during the second and third quarters of 2002.
As of September 30, 2002, the Company has increased its tax valuation
allowance to offset the deferred tax benefits of net operating losses and other
temporary differences arising during the current fiscal year because management
is uncertain as to their ultimate realization.
NOTE 6 - EMPLOYMENT AGREEMENTS
In August 2002, the Company entered into new three-year employment
agreements with its President and Executive Vice-President. The contracts each
provide for base salaries of $256,518 for the first year of the agreement,
increasing at the rate of 10% per year. Each officer will also be entitled to
receive a portion of a bonus pool consisting of 10% of net pre-tax profits, as
defined, such bonus provision to become effective upon the Company attaining a
minimum net pre-tax profit level of $500,000. The agreements also provide
customary fringe benefits and severance benefits, which include a cash payment
equal to three times the amount of the five-year average of the officer's gross
income in the event of termination or significant change in management duties
after a change in Company management, as defined.
NOTE 7 - NEW ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS No. 4, 44
and 64, Amendment of SFAS Statement No. 13, and Technical Corrections." This
statement rescinds the following statement of SFAS 4, "Reporting Gains and
Losses from Extinguishment of Debt," and its amendment SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking Fund Requirements," as well as,
SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers." The statement
also amends SFAS No. 13, "Accounting for Leases", by eliminating an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale leaseback transactions. SFAS No. 145 is
effective for fiscal years beginning after May 15, 2002. The Company does not
expect the adoption of SFAS 145 to have a material impact on its financial
statements.
In June 2002, the FASB issued SFAS 146, "Accounting for Cost Associated
with Exit or Disposal Activities". SFAS 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. This statement
supercedes the guidance provided by Emerging Issues Task Force 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)". SFAS 146 is
required to be adopted for exit or disposal activities initiated after December
31, 2002. The Company does not expect the adoption of SFAS 146 to have a
material impact on its financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Factors Affecting "Forward-Looking Statements"
From time to time, the Company may publish "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended, or make oral
statements that constitute forward-looking statements. These forward-looking
statements may relate to such matters as anticipated financial performance,
future revenues or earnings, business prospects, projected ventures, new
products, anticipated market performance, and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company cautions readers that a variety of factors could cause the
Company's actual results to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements. These
risks and uncertainties, many of which are beyond the Company's control,
include, but are not limited to: (i) transaction volume in the securities
markets, (ii) the volatility of the securities markets, (iii) fluctuations in
interest rates, (iv) changes in regulatory requirements which could affect the
cost of doing business, (v) fluctuations in currency rates, (vi) general
economic conditions, both domestic and international, (vii) changes in the rate
of inflation and related impact on securities markets, (viii) competition from
existing financial institutions and other participants in competition from
existing financial institutions and other participants in the securities
markets, (ix) legal developments affecting the litigation experience of the
securities industry, and (x) changes in federal and state tax laws which could
affect the popularity of products sold by the Company. The Company does not
undertake any obligation to publicly update or revise any forward-looking
statements. The reader is referred to the Company's previous filings on Form
10-Q for the periods ended March 31, 2002 and June 30, 2002 and the Form 10-K
for the year ended December 31, 2001.
Results of Operations
The results of operations for the nine months and three months ended
September 30, 2002 (the "2002 period" and the "2002 quarter," respectively)
showed a decrease in revenues over the same periods in the prior year (the "2001
period" and the "2001 quarter"). The continued lack of investor confidence in
the U.S. equity markets and the gloomy economic forecast have continued to
negatively impact revenues, thus reducing the net cash available to cover fixed
costs and overhead. However, the net loss in the 2002 period was significantly
lower than the net loss in the comparable 2001 period.
For the 2002 period, the Company reported a net loss available to common
stockholders of $1,848,000, or $0.22 per basic and diluted share, as compared to
the net loss available to common stockholders reported in the 2001 period, of
$3,550,000, or $0.41 per basic and diluted share. For 2002 quarter, the Company
reported a net loss applicable to common stockholders of $529,000, or $0.06 per
basic and diluted share, as compared to a net loss applicable to common
stockholders of $2,099,000, or $0.24 per basic and diluted share for the 2001
quarter.
The Company's primary source of revenue is derived from commissions
generated on agency transactions, including the sales of listed and
over-the-counter securities, mutual funds and variable insurance. Overall
revenues from commissions was unchanged from the 2001 period to the 2002 period.
The business mix, however, was substantially different between the two periods,
with increases in agency and mutual fund commissions offsetting a decrease in
the insurance business, as explained below.
Revenues from agency transactions increased $2,101,000, or 13%, from
$15,692,000 in the 2001 period, to $17,793,000 in the 2002 period. As a percent
of total revenues, agency revenues increased from 41% in the 2001 period, to 49%
in the 2002 period.
Revenues from mutual fund commissions also posted significant increases
over 2001. Mutual fund revenues increased $944,000, from $3,619,000 in the 2001
period, to $4,563,000, in the 2002 period an increase of 26%. The increase in
mutual fund commissions is primarily related to an increase in sales of three
products; the 529 College Savings Plan created through new legislation in
October 1999, the principal protection plans, which guarantee a return of
principal if invested for five years, and bond funds which have seen large
increases due to the tenuous state of the equity markets.
Revenues from insurance commissions decreased $3,288,000, from $6,867,000
in the 2001 period, to $3,579,000 in the 2002 period. The 2001 period included
commissions from the sale of certain variable annuities by one of the Company's
brokers. The large commissions generated from the sale of these annuities was a
one-time occurrence which was not repeated during the 2002 period. Insurance
sales have since returned to historic levels.
Revenues from principal transactions decreased $345,000, from $5,542,000 in
the 2001 period, to $5,197,000 in the 2002 period. Principal transaction revenue
includes gains or losses from both equity and fixed income proprietary trading,
riskless principal commissions and unrealized gains or losses on inventory held
in the firm's proprietary accounts. Revenues in the firm's equity proprietary
accounts improved by approximately $224,000 in the 2002 period, as compared to
the 2001 period, as the Company eliminated much of its market-making and trading
activities in order to help reduce the related market exposure and risk inherent
in these activities. The increase in revenues in these accounts was offset by a
reduction in unrealized gains in the 2002 period of $117,000, down from $434,000
in the 2001 period. Overall, revenues from principal transactions in the fixed
income sector were down from 2001 period levels by approximately $252,000.
Revenues from corporate bonds and unit investment trusts were down due to the
reduced confidence in the corporate debt and equity markets. On the other hand,
revenues from municipal and government agency bonds increased as investors
sought more secure, income-producing investments.
Interest and other income decreased $113,000, from $2,984,000 in the 2001
period, to $2,871,000 in the 2002 period. This same revenue source increased
$188,000, from $905,000 in the 2001 quarter, to $1,093,000 in the 2002 quarter.
Other income for the 2002 quarter includes a recovery of $230,000 related to
payments previously made to a vendor for the development of applications
software. This was offset by a decrease in interest income. The general decline
in market value of margined securities held in customer accounts, combined with
the substantial transfer of funds out of the equity markets and into safer
instruments, impacted the amount of margin loan balances carried by customers.
The reduction in margin debit balances adversely affected the amount of interest
income the Company received from its clearing firm.
Commissions, employee compensation and benefits decreased $1,686,000, or
5%, to $29,963,000 in the 2002 period, from $31,649,000 in the 2001 period.
Commission expense, which accounts for the largest dollar amount in this
category, decreased 3%, or $647,000, from $25,201,000 in the 2001 period, to
$24,554,000 in the 2002 period, primarily as a result of lower commission-based
revenues. Employee compensation and benefits expense decreased $1,039,000, or
16%, from $6,448,000 in the 2001 period, to $5,409,000 in the 2002 period. This
decrease was primarily due to staff and salary reductions implemented during the
later part of 2001 and into 2002, and to the 2002 reversal of the discretionary
401(k) company matching accrual made in 2001.
Commissions, employee compensation and benefits decreased $1,480,000, or
15%, to $8,607,000 in the 2002 quarter, down from $10,087,000 in the 2001
quarter. Commission expense decreased 15%, or $1,240,000, from $8,124,000 in the
2001 quarter, to $6,884,000 in the 2002 quarter. Salaries and benefits expense
decreased $240,000, or 12%, from $1,963,000 in the 2001 quarter, to $1,723,000
in the 2002 quarter. The same factors affecting salary and benefits costs for
the 2002 period impacted the 2002 quarter.
Communication and occupancy expenses were essentially unchanged at
$2,341,000 for the 2002 period and $2,343,000 for the 2001 period. Communication
and occupancy expenses decreased $101,000, from $887,000 in the 2001 quarter, to
$786,000 in the 2002 quarter due primarily to rent escalation and common area
maintenance credits. The 2001 quarter included an additional $53,000 expense
related to back rent charges for prior years while the 2002 quarter included a
credit of $32,000 for 2001 rent adjustments.
Legal matters and related costs decreased $898,000, from $1,654,000 in the
2001 period, to $756,000 in the 2002 period, a 54% decrease. The 2002 expense
includes approximately $156,000 of additional reserves for legal settlements,
with the balance related to the cost of counsel fees and other defense costs.
FMSC is a respondent in two NASD arbitrations seeking rescissionary damages
of approximately $9.5 million in one case and unspecified damages in the other.
Both claims also seek statutory interest and punitive damages. Claimants in
these cases have asserted substantially similar claims relating to alleged
violations of various provisions of federal and state securities laws. FMSC
believes that there are meritorious defenses in each case, and that actual
damages, if any, will be substantially below the alleged amounts.
FMSC is also a respondent in several arbitration claims arising from
customer purchases of certain high yield corporate bonds which declined in
market value and subsequently defaulted. The claims allege, among other charges,
unsuitable recommendations and/or improper use of margin. Aggregate damages
sought by the claimants are in excess of $13 million, plus punitive damages and
costs of approximately $9 million. FMSC believes that there are meritorious
defenses in each case, and that actual damages, if any, will be substantially
below the alleged amounts.
After considering all relevant facts, management believes that significant
adverse judgments against FMSC from pending arbitration claims could have a
material impact on the Company's financial condition, results of operations, and
cash flows in any particular quarterly or annual period, or in the aggregate. As
of September 30, 2002, the Company has established a $1,151,000 reserve for
litigation costs that are probable and can be reasonably estimated. The reserve
is included in accrued expenses. Management cannot give assurance that this
reserve will be adequate to absorb actual costs that are subsequently incurred.
Other operating expenses decreased $794,000, from $3,779,000 in the 2001
period, to $2,985,000 in the 2002 period. For the 2002 quarter, expenses
increased $143,000, from $921,000 in the 2001 quarter, to $1,064,000 in the 2002
quarter. Bad debt expense decreased 45%, or $519,000, from $1,160,000 in the
2001 period, to $641,000 in the 2002 period. For the 2002 quarter, bad debt
expense increased 32%, or $68,000, from $212,000 in the 2001 quarter, to
$280,000 in the 2002 quarter. Bad debt expense in the 2001 period included a
write-off of $200,000 related to payments previously made to a vendor for the
development of applications software. In July 2002, the Company settled its
lawsuit against the vendor and received a payment of $230,000, which is
reflected in interest and other income. Costs related to the conversion to
Fiserv as the Company's clearing agent decreased $174,000 in the 2002 period due
to the completion of the conversion in the 2001 period. Consulting costs
increased $183,000, from $298,000 in the 2001 period, to $481,000 in the 2002
period, primarily due to the increased use of consultants and temporary
staffing. Advertising expense increased $57,000, from $38,000 in the 2001
quarter, to $95,000 in the 2002 quarter due to the launching of a print campaign
in trade journals to attract more affiliate registered representatives.
The Company did not incur any income tax liabilities during the nine-month
periods ended September 30, 2002 and 2001 due to operating losses. During 2001,
management recognized deferred tax benefits relating to the Company's financing
agreement with its clearing firm as well as expected refund claims from net
operating loss carrybacks. The Company received tax refunds of approximately
$1.1 million during the second and third quarters of 2002.
As of September 30, 2002, the Company has increased its tax valuation
allowance to offset the deferred tax benefits of net operating losses and other
temporary differences arising during the current fiscal year because management
is uncertain as to their ultimate realization.
Liquidity and Capital Resources
As with most financial firms, the Company maintains a highly liquid balance
sheet with 53% of the Company's assets consisting of cash, securities owned, and
receivables from the Company's clearing firm and other broker-dealers. The
balances in the Company's cash, inventory and clearing firm accounts can and do
fluctuate significantly from day to day, depending on market conditions, daily
trading activity, and investment opportunities. The Company monitors these
accounts on a daily basis in order to ensure compliance with regulatory capital
requirements and to preserve liquidity.
Cash and cash equivalents decreased during the first nine months of 2002 by
$1,556,000, to $224,000. Net cash used in operating activities was $952,000 for
the 2002 period. The primary components of the decrease are the loss of
$1,773,000, offset by income tax refunds of $1,069,000. These refunds are a
one-time source of cash.
Under a financial agreement with its clearing firm, the Company expects to
receive a cash advance of $1,250,000 in November 2002, provided it is in
compliance with the terms of the financial agreement, as defined. For financial
reporting purposes, such advance will be deferred and amortized on a
straight-line basis over the remaining term of the clearing agreement; however,
the advance will be subject to federal and state income taxes in 2002. The
Company previously received advances in 2000 and 2001 totaling $5,250,000 under
the financing agreement.
Additions to capital expenditures accounted for the entire use of cash for
investing activities of $172,000 during the 2002 period. The Company projects
$200,000 in capital expenditures over the next twelve months.
Financing activities used cash of $432,000 in the 2002 period. Payments of
notes payable, capital leases and preferred stock dividends accounted for
$185,000, $147,000 and $75,000, respectively. Share repurchases under a stock
buyback program also used $25,000. During fiscal 2001, the Company entered into
two capital leases under a sale-leaseback financing with a leasing company. The
sale of the fixed assets resulted in a gain of approximately $45,000, which has
been deferred and is being amortized over the related lease terms. The leases,
totaling $662,000, are together payable in 36 monthly installments of $21,000
and an additional 12 installments of $3,900.
New Accounting Pronouncements
In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS No. 4, 44
and 64, Amendment of SFAS Statement No. 13, and Technical Corrections." This
statement rescinds the following statement of SFAS 4, "Reporting Gains and
Losses from Extinguishment of Debt," and its amendment SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking Fund Requirements" as well as
SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers." The statement
also amends SFAS No. 13, "Accounting for Leases", by eliminating an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS No. 145 is
effective for fiscal years beginning after May 15, 2002. The Company does not
expect the adoption of SFAS No. 145 to have a material impact on its financial
statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Cost Associated
with Exit or Disposal Activities". SFAS No. 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. This statement
supercedes the guidance provided by Emerging Issues Task Force 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)". SFAS No. 146 is
required to be adopted for exit or disposal activities initiated after December
31, 2002. The Company does not expect the adoption of SFAS No. 146 to have a
material impact on its financial statements.
Item 3. Market Risk.
Certain of the Company's business activities expose it to market risk. This
market risk represents the potential for loss that may result from a change in
value of a financial instrument as a result of fluctuations in interest rates,
equity prices or changes in credit rating of issuers of debt securities. This
risk relates to financial instruments held by the company as investment and for
trading purposes.
The Company's securities inventories are exposed to risk of loss in the
event of unfavorable price movements. The Company's securities inventories are
marked to market on a daily basis. The Company's market-making activities are
client-driven, with the objective of meeting clients' needs while earning a
positive spread. The Company has significantly curtailed its market-making
activities during the current fiscal year. At September 30, 2002 and December
31, 2001, the balances of the Company's securities positions owned and sold but
not yet purchased were approximately $584,000 and $96,000 and $1,199,000 and
$245,000, respectively. In the opinion of management, the potential exposure to
market risk, trading volatility and the liquidity of securities held in the
firm's inventory accounts could potentially have a material effect on the
Company's financial position.
The Company's activities involve the execution of various financial
transactions on behalf of its clients. Client activities are transacted on
either a cash or margin basis. The Company's client activities may expose it to
off-balance sheet credit risk. The Company may have to purchase or sell
financial instruments at the prevailing market price in the event of the failure
of a client to settle a trade on its original terms, or in the event that cash
and securities in the client margin accounts are not sufficient to fully cover
the client losses. The Company seeks to control the risks associated with client
activities by requiring clients to maintain collateral in compliance with
various regulations and Company policies.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our
chief executive officer and chief financial officer, conducted an evaluation of
our "disclosure controls and procedures" (as defined in Securities Exchange Act
of 1934 (the "Exchange Act") Rules 13a-14(c)) within 90 days of the filing date
of this Quarterly Report on Form 10-Q (the "Evaluation Date"). Based on their
evaluation, our chief executive officer and chief financial officer have
concluded that as of the Evaluation Date, our disclosure controls and procedures
are effective to ensure that all material information required to be filed in
this Quarterly Report on Form 10-Q has been made known to them in a timely
fashion.
Changes in Internal Controls
There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the Evaluation Date set forth above.
PART II
OTHER INFORMATION
Item 5. Other Information.
New Employment Agreements
In August 2002, the Company entered into new three-year employment
agreements with its President and Executive Vice-President. The contracts each
provide for base salaries of $256,518 for the first year of the agreement,
increasing at the rate of 10% per year. Each officer will also be entitled to
receive a portion of a bonus pool consisting of 10% of net pre-tax profits, as
defined, such bonus provision to become effective upon the Company attaining a
minimum net pre-tax profit level of $500,000. The agreements also provide
customary fringe benefits and severance benefits, which include a cash payment
equal to three times the amount of the five-year average of the officer's gross
income in the event of termination or significant change in management duties
after a change in Company management, as defined.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Employment Agreement of Herbert Kurinsky.
Employment Agreement of William J. Kurinsky.
Certifications pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST MONTAUK FINANCIAL CORP.
(Registrant)
Dated: November 14, 2002 /s/ William J. Kurinsky
----------------------------------
William J. Kurinsky
Secretary/Treasurer
Chief Financial Officer and
Principal Accounting Officer
/s/ Herbert Kurinsky
----------------------------------
Herbert Kurinsky
President
CERTIFICATIONS
I, Herbert Kurinsky, Chief Executive Officer of First Montauk Financial
Corp. certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Montauk
Financial Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d- 14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Herbert Kurinsky
- -------------------------------------------
Herbert Kurinsky, Chief Executive Officer
First Montauk Financial Corp.
CERTIFICATIONS
I, William J. Kurinsky, Chief Financial Officer of First Montauk Financial
Corp. certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Montauk
Financial Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d- 14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ William J. Kurinsky
- ---------------------------------------------
William J. Kurinsky, Chief Financial Officer
First Montauk Financial Corp.
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 21st day of August, 2002, by and between Herbert
Kurinsky, residing at 13 Waterview, Unit 13, Long Branch, New Jersey 07740
(hereinafter referred to as the "Employee") and First Montauk Financial Corp., a
New Jersey corporation with principal offices Parkway 109, Red Bank, New Jersey
07701 (hereinafter referred to as the "Company").
W I T N E S S E T H :
WHEREAS, the Company, through its wholly owned subsidiary First Montauk
Securities Corp, is engaged in the investment banking and general securities
business as a registered broker-dealer; and
WHEREAS, the Company desires to employ and secure for the Company, the
experience, ability and services of Employee; and
WHEREAS, the Employee desires to continue his present employment with the
Company, pursuant to the terms and conditions herein set forth, superseding all
prior agreements between the Company, its subsidiaries and/or predecessors and
Employee;
NOW, THEREFORE, it is mutually agreed by and between the parties hereto as
follows:
ARTICLE I
EMPLOYMENT
1.1 Subject to and upon the terms and conditions of this Agreement, the
Company hereby employs and agrees to continue the employment of the Employee,
and the Employee hereby accepts such continued employment in his capacity as
Chairman of the Board and President. In this capacity, Employee will report to
the Board of Directors.
ARTICLE II
DUTIES
2.1 The Employee shall, during the term of his employment with the Company,
perform such services and duties of an executive nature in connection with the
business, affairs and operations of the Company, and its subsidiaries, as may be
reasonably and in good faith assigned or delegated to him from time to time by
or under the authority of the Board of Directors of the Company and consistent
with the position of President.
2.2 The Employee agrees to use his best efforts in the promotion and
advancement of the Company and its welfare and business. Employee agrees to
devote his primary professional time to the business of the Company as Employee
deems reasonably necessary; provided, however, that the Company acknowledges
that Employee shall be entitled to pursue unrelated personal business ventures
that do not materially conflict with the performance of Employee's duties to the
Company.
2.3 Employee shall be based in the Red Bank New Jersey area, and shall
undertake such occasional travel, within or without the United States as is or
may be reasonably necessary in the interests of the Company.
ARTICLE III
COMPENSATION
3.1 Commencing with the commencement date hereof, the Company shall pay to
Employee a salary at the rate of $256,218 per annum and increasing 10% per annum
on the 1st day of each January during the period this Agreement shall be in
effect (payable in equal weekly installments or pursuant to such regular pay
periods adopted by the Company) (the "Base Salary").
3.2 Employee shall be entitled to receive a bonus (the "Bonus") during each
year of this Agreement, determined as follows: The amount to be paid as a Bonus
shall be determined as of each June 30 based upon the prior fiscal year end and
shall consist of a portion of a bonus pool which shall be equal to ten (10%)
percent of the net pre-tax profit of the Company as determined by the Company's
independent auditors, no later than 90 days following the end of the Company's
fiscal year, without giving effect to loss carryforwards or non-cash items, and
giving effect to and including revenues received by the Company during the
fiscal year and which revenues may have otherwise been excluded in computing net
pre-tax profit by reason of any revenue recognition rules otherwise utilized in
the application of generally accepted accounting principles, and excluding any
expense deduction attributed to such Bonus paid to William J. Kurinsky (the "Net
Pre-Tax Profit"); provided that, in the event the Net Pre-Tax Profit of the
Company for any fiscal year is less than $500,000, no bonus shall be paid by the
Company to the Employee pursuant to this subparagraph 3.2. Such determination,
for Bonus purposes only, shall be made in accordance with generally accepted
accounting principles, as modified by these resolutions.
3.3 Employee may receive such other additional compensation as may be
determined from time to time by the Board of Directors. Nothing herein shall be
deemed or construed to require the Board to award any bonus or additional
compensation.
3.4 Employee shall be eligible to purchase from the Company, at Employees
sole discretion, a portion of a bonus pool which shall consist of up to 20% of
all underwriters and/or placement agent warrants and/or options granted to First
Montauk Securities Corp., upon the same price, terms and conditions afforded to
First Montauk Securities Corp. in connection with its service as an underwriter
and/or placement agent for any and all public or private offerings of securities
on behalf of issuers.
3.5 The Company shall deduct from Employee's compensation all federal,
state and local taxes which it may now or may hereafter be required to deduct.
3.6 Employee shall also be entitled to receive brokerage commissions on in
accordance with the commission schedule in effect for other non-affiliate
brokers employed by the Company.
ARTICLE IV
BENEFITS
4.1 During the term hereof, (i) the Company shall provide Employee with
health insurance benefits and major medical insurance; (ii) Employee shall be
reimbursed by the Company upon presentation of appropriate vouchers for all
business expenses incurred by the Employee on behalf of the Company; (iii) the
Company shall provide the Employee with an automobile suitable for his position,
equipped with a mobile telephone, or at Employee's option, an appropriate
automobile allowance, and reimburse reasonable automobile expenses including
repairs, maintenance, gasoline charges, mobile phone, etc. via receipted expense
reports.
4.2 In the event the Company wishes to obtain Key Man life insurance on the
life of Employee, Employee agrees to cooperate with the Company in completing
any applications necessary to obtain such insurance and promptly submit to such
physical examinations and furnish such information as any proposed insurance
carrier may request.
4.3 For each year of the term hereof, Employee shall be entitled to four
weeks paid vacation.
ARTICLE V
NON-DISCLOSURE
5.1 The Employee shall not, at any time during or after the termination of
his employment hereunder except when acting on behalf of and with the
authorization of the Company, make use of or disclose to any person,
corporation, or other entity, for any purpose whatsoever, any trade secret or
other confidential information concerning the Company's business, finances,
research, services or products, and information relating to any client or
account of the Company (collectively referred to as the "Proprietary
Information"). For the purposes of this Agreement, trade secrets and
confidential information shall mean information disclosed to the Employee or
known by his as a consequence of his employment by the Company, whether or not
pursuant to this Agreement, and not generally known in the industry, concerning
the business, finances, methods, operations, clients, accounts, service or
product information of the Company. The Employee acknowledges that trade secrets
and other items of confidential information, as they may exist from time to
time, are valuable and unique assets of the Company, and that disclosure of any
such information would cause substantial injury to the Company. The foregoing is
intended to be confirmatory of the common law of the state of New Jersey
relating to trade secrets and confidential information.
ARTICLE VI
RESTRICTIVE COVENANT
6.1 In the event of the voluntary termination of employment with the
Company, except for Good Reason as defined in Section 19.10, or Employee's
discharge for Cause, as defined in Section 9.4 hereof, Employee agrees that he
will not (i) for a period of one (1) year from the date of termination, directly
or indirectly solicit brokers or employees of the Company, or any sister or
subsidiary of the Company for employment with any other entity, or (ii) during
the term and for a period of one (1) year from the date of termination or
discharge, solicit or accept any corporate finance client relating to a
transaction involving a public offering, private placement, or merger and
acquisition advisory services, or research project which was already pending and
in existence at the time of Employee's termination or discharge, or which was
being negotiated at the time of Employee's termination or discharge.
6.2 If any court shall hold that the duration of non-competition or any
other restriction contained in this paragraph is unenforceable, it is our
intention that same shall not thereby be terminated but shall be deemed amended
to delete therefrom such provision or portion adjudicated to be invalid or
unenforceable or in the alternative such judicially substituted term may be
substituted therefor.
ARTICLE VII
TERM
7.1 This Agreement shall be for a term commencing on the date first set
forth above and terminating December 31, 2005 unless sooner terminated pursuant
to the terms hereof, and renewable as provided for herein, for one additional
period of one year. The Company agrees to notify Employee in writing of its
intent to negotiate an extension of this Agreement six months prior to the
expiration of the original term hereof. If the Company fails to so notify
Employee, or after having timely notified Employee of its intention to extend,
fails to reach agreement with Employee on the terms of such extension, this
agreement shall be renewable, at the option of the Employee, for an additional
period of one year from the expiration of the original term, except that the
Employee's base salary shall be increased 10% above the prior year, and Employee
shall be entitled to stock options equivalent to one-third of the options
granted during the initial term of this agreement on comparable terms and
conditions. If the Company elects not to seek to negotiate an extension and has
so timely notified Employee, then the Company shall pay Employee, upon the
expiration of the original term of this Agreement, a severance benefit equal to
the aggregate amount of Employee's then prevailing annual Base Salary and Bonus
payable in 12 equal monthly installments commencing on the original expiration
date of this Agreement.
ARTICLE VIII
TERMINATION
8.1 The Company may terminate this Agreement:
(A) Upon the death of Employee during the term hereof, except that the
Employee's legal representatives, successors, assigns and heirs shall have those
rights and interests as otherwise provided in this Agreement, including the
right to receive accrued but unpaid bonus compensation, if any.
(B) Upon written notice from the Company to the Employee, if Employee
becomes totally Disabled and as a result of such total disability, has been
prevented from and unable to perform all of his duties hereunder for a
consecutive period of one hundred eighty (180) consecutive days.
(C) Upon written notice from the Company to the Employee, for Cause.
8.2 Any termination of Employee's employment and this Employment Agreement
by the Company for the reasons set forth in Section 8.1, above, or by the
Employee, shall be made by service of a Notice of Termination in accordance with
Article XIV and Section 19.12. No such purported termination shall be effective
without service of a Notice of Termination.
ARTICLE IX
SEVERANCE COMPENSATION
The Company's Board of Directors has determined that it is appropriate to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including the Employee, to their assigned duties without
distraction in potentially disturbing circumstances arising from the possibility
of a change in control of the Company.
This Article IX sets forth the severance compensation which the Company
agrees it will pay to the Employee if the Employee's employment with the Company
terminates under one of the circumstances described herein. This Article IX
shall survive any termination of the this Employment Agreement for a period one
year; provided, however, that commencing on the one year anniversary of any
termination of this Employment Agreement, and each anniversary date thereafter,
the term of this Article IX shall automatically be extended for one (1) year,
unless either the Company or the Employee shall have given written notice to the
other, at least one hundred eighty (180) days prior thereto, that the term of
this Article IX shall not be so extended; and provided, further, that
notwithstanding any such notice by the Company not to extend, the term of this
Agreement shall not expire prior to the expiration of twenty-four (24) months
after the occurrence of a Change in Control which occurs during the term of this
Agreement.
9.1 Compensation upon Termination
(a) If the Employee's employment with the Company shall be terminated, in
lieu of any further compensation for periods subsequent to the Termination Date,
the Company shall pay and/or provide to the Employee, the following compensation
and benefits:
(i) if the Employee was terminated by the Company for Cause, the Accrued
Compensation; or
(ii) if the Employee was terminated by the Company for Disability, the
Accrued Compensation, a Pro Rata Bonus, the Severance Payment and the
Continuation Benefits, less all disability insurance payments which Employee may
receive from insurance policies provided by the Company; or
(iii) if termination was due to the Employee's death, the Accrued
Compensation and a Pro Rata Bonus; or
(iv) if termination was by the Employee other than for Good Reason, the
Company shall pay to the Employee the Accrued Compensation.
(b) If the Employee 's employment with the Company shall be terminated for
any reason other than as specified in Section 9.1(a), in lieu of any further
compensation for periods subsequent to the Termination Date, the Company shall
pay/and or provide to the Employee each and all of the following compensation
and benefits:
(i) all Accrued Compensation;
(ii) a Pro-Rata Bonus;
(iii) the Employee 's Base Amount, in accordance with the regular payroll
schedule of the Employee, commencing on the first regular payroll payment date
after the Termination Date and thereafter until the expiration of the term of
this Employment Agreement, including any renewal period which is automatic on
the Termination Date;
(iv) a bonus payment equal to one-twelfth (1/12) of the Bonus Amount
payable monthly commencing on the one month anniversary of the Termination Date,
and monthly thereafter until the expiration of the term of this Employment
Agreement, including any renewal period which is automatic on the Termination
Date;
(v) the Severance Payment;
(vi) the Continuation Benefits;
(vii) Any Gross Up Payments to which the Employee would have been entitled
from the Termination Date to the expiration of the term of this Employment
Agreement, including any renewal period which is automatic on the Termination
Date; and
(viii) the Outplacement Services.
(c) In the event the Employee's employment is terminated for any reason
other than as specified in Sections 9.1(a) and 9.1(b), the conditions to the
vesting of any outstanding incentive awards (including restricted stock, stock
options and granted performance shares or units) granted to the Employee under
any of the Company's plans, or under any other incentive plan or arrangement,
shall be deemed void and all such incentive awards shall be immediately and
fully vested and exercisable.
(d) The amounts payable under Sections 9.1(a) and 9.1(b), shall be paid as
follows:
(i) Accrued Compensation shall be paid within five (5) business days after
the Employee's Termination Date (or earlier, if required by applicable law).
(ii) The Pro-Rata Bonus shall be paid within thirty (30) days after the
Employee's Termination Date (or earlier, if required by applicable law).
(iii) If the Continuation Benefits are paid in cash, the payments shall be
made monthly during the period the Continuation Benefits are provided as
follows:
(A) the initial payment shall be paid within five (5) business days after
the Employee's Termination Date (or earlier, if required by applicable law); and
(B) each remaining payment shall be paid on the twentieth (20) day of the
month preceding the month for which the Continuation Benefits are being
provided.
(iii) The Severance Payment shall be payable on the first day of each of
the first twelve months following the Termination Date, and shall commence on
the first day of the month following the Termination Date.
(iv) The amounts provided for in Sections 9.1(b)(iii) and (iv) shall be
payable as set forth in those Sections.
(e) The Employee shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise
and no such payment shall be offset or reduced by the amount of any compensation
or benefits provided to the Employee in any subsequent employment except as
limited by the Continuation Benefits.
9.2 Change of Control
(a) If, during the term of this Agreement, there occurs a Change of Control
and Employee's employment is subsequently terminated other than for Cause, death
or Disability or if Employee terminates his employment for Good Reason, in
addition to the benefits provided elsewhere in this Agreement, including in this
Article IX, the Company shall pay and/or provide to the Employee, the following
compensation and benefits:
(i) The Company shall pay the Employee as additional severance, in a single
payment, an amount in cash equal to three times the amount of the five year
average of the gross income of the Employee, as reported by the Company for
federal income tax purposes or, at the option of the Employee, credit such
amount against the exercise price of Employee's employee stock options.
(ii) The conditions to the vesting of any outstanding incentive awards
(including restricted stock, stock options and granted performance shares or
units) granted to the Employee under any of the Company's plans, or under any
other incentive plan or arrangement, shall be deemed void and all such incentive
awards shall be immediately and fully vested and exercisable.
(b) Notwithstanding the provisions of Section 9.1 to the contrary, in the
event the Employee 's employment is terminated for any reason within twenty-four
(24) months of a Change of Control, the amounts provided for in Sections 9.1(a)
9.2(b), including the Continuation Benefits, if the Continuation Benefits are
paid in cash, shall be paid in a single lump sum cash payment within five (5)
business days after the Employee 's Termination Date (or earlier, if required by
applicable law).
(c) In the event of a Change of Control as described in Section 19.5 (c),
the Company shall provide thirty (30) days prior written notice to the Employee
of the anticipated closing date of such Change of Control transaction. If the
Employee provides notice in writing to the Company, at least five (5) days prior
to the closing date specified in the Company's notice, that the Employee intends
to terminate his Employment Agreement for Good Reason effective on the closing
date, there shall be paid to the Employee in a single lump sum, cash payment
simultaneously with the closing of such Change of Control transaction, the
amounts provided for in Sections 9.1(a) and 9.1(b), including the Continuation
Benefits, if the Continuation Benefits are paid in cash. Upon the closing of
such Change of Control Transaction and the payments of the amounts due Employee
under this Agreement, Employee 's employment, and the Employment Agreement shall
be deemed terminated for Good Reason.
9.3 Excise Tax Gross-up Payment
(a) The Company and the Employee acknowledge that the payments and benefits
provided under this Agreement, and benefits provided to, or for the benefit of,
the Employee under other Company plans and agreements (such payments or benefits
are collectively referred to as the "Payments") are subject to the excise tax
(the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code"). In addition to the Payments, the Company shall
pay to the Employee within five (5) business days of Payment subject to the
Excise, a gross up payment (the "Gross Up Payment") equal to the amount which,
after the deduction of any applicable Federal, State and Local income taxes
attributable to the Gross Up Payment, is equal to the Excise Tax including the
Excise Tax attributable to the Gross Up Payment.
(b) The Company shall pay to the applicable government taxing authorities,
as Excise Tax withholding, the amount of the Excise Tax that the Company has
actually withheld from the Payment or Payments.
(c) If it is established pursuant to a determination of a court, or an
Internal Revenue Service (the "IRS") decision, action or proceeding, that there
has been an underpayment of the Excise Tax (an "Underpayment"), the Company
shall to the Employee within thirty (30) days of such determination or
resolution, the amount which, after the deduction of any applicable federal,
state and local income taxes attributable to the Gross Up Payment, is equal to
the Underpayment, plus applicable interest and penalties until the date of
payment.
(d) The Company hereby agrees to indemnify, defend, and hold harmless the
Employee for any and all claims arising from or related to non-payment of Excise
Tax, including the amount of such tax and any and all costs, interest, expenses,
penalties associated with the non-payment of such tax to the fullest extent
permitted by law.
9.4 No Effect on Other Contractual Rights; Non-Exclusivity; Settlement of
Claims.
(a) The provisions of this Article IX, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Employee's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or arrangement.
(b) Nothing in this Agreement shall prevent or limit the Employee's
continuing or future participation in any benefit, bonus, incentive or other
plan or program provided by the Company (except for any severance or termination
policies, plans, programs or practices) and for which the Employee may qualify,
nor shall anything herein limit or reduce such rights as the Employee may have
under any other agreements with the Company (except for any severance or
termination agreement). Amounts which are vested benefits or which the Employee
is otherwise entitled to receive under any plan or program of the Company shall
be payable in accordance with such plan or program, except as explicitly
modified by this Agreement.
(c) The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Employee or others.
9.5 Legal Fees and Expenses. The Company shall pay all reasonable legal
fees and related expenses (including the costs of arbitrators, experts, evidence
and counsel) incurred by, the Executive as they become due as a result of (a)
the Executive's termination of employment (including all such fees and expenses,
if any, incurred in contesting or disputing any such termination of employment)
in violation of this Agreement, (b) the Executive seeking to obtain or enforce
any right or benefit provided by this Agreement.
ARTICLE X
SUCCESSOR TO THE COMPANY
10.1 The provisions of this Agreement shall be binding upon and shall inure
to the benefit of the Company, and its Successors and Assigns, and the Company
shall require any Successors and Assigns to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had
taken place.
10.2 Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by the Employee, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Employee's
personal representative.
10.3 In the event that a division of the Company (or part thereof) is sold,
divested, or otherwise disposed of by the Company subsequent to or in connection
with a Change in Control and the Employee is offered employment by the purchaser
or acquiror thereof, the Company shall require such purchaser or acquiror to
assume, and agree to perform, the Company's obligations under this Agreement, in
the same manner, and to the same extent, that the Company would be required to
perform if no such acquisition or purchase had taken place.
ARTICLE XI
TERMINATION OF PRIOR AGREEMENTS
11.1 This Agreement sets forth the entire agreement between the parties and
supersedes all prior agreements between the parties, whether oral or written,
without prejudice to Employee's right to all accrued compensation prior to the
effective date of this Agreement.
ARTICLE XII
ARBITRATION
12.1 Any dispute arising out of the interpretation, application and/or
performance of this Agreement with the sole exception of any claim, breach or
violation arising under Articles V or VI hereof shall be settled through final
and binding arbitration before a panel arbitrators in accordance with the rules
of the National Association of Securities Dealers (the "NASD"). Any judgment
upon any arbitration award may be entered in any court, federal or state, having
competent jurisdiction of the parties.
ARTICLE XIII
SEVERABILITY
13.1 If any provision of this Agreement shall be held invalid and
unenforceable, the remainder of this Agreement shall remain in full force and
effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall remain in full force and effect in all other
circumstances.
ARTICLE XIV
NOTICE
14.1 All notices required to be given under the terms of this Agreement
shall be in writing and shall be deemed to have been duly given only if
delivered to the addressee in person or mailed by certified mail, return receipt
requested, as follows:
IF TO THE COMPANY:
First Montauk Financial Corp.
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, New Jersey 07701
IF TO THE EMPLOYEE:
Herbert Kurinsky
13 Waterview, Unit 13
Long Branch, New Jersey 07740
or to any such other address as the party to receive the notice shall advise by
due notice given in accordance with this paragraph.
ARTICLE XV
WAIVER
15.1 The waiver by either party of any breach or violation of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of construction and validity.
ARTICLE XVI
GOVERNING LAW
16.1 This Agreement has been negotiated and executed in the State of New
Jersey, and New Jersey law shall govern its construction and validity. Any
action brought by any party to this Agreement to enforce any decision of an
arbitrator made as contemplated in Section XII above shall be brought and
maintained in a court of competent jurisdiction in the State of New Jersey.
ARTICLE XVII
JURISDICTION
17.1 Any or all actions or proceedings which may be brought by the Company
or Employee under this Agreement shall be brought before an arbitration panel,
or if otherwise permissible under the terms of this agreement, a court, having a
situs within the State of New Jersey, and Employee hereby consents to the
jurisdiction of any tribunal or local, state or federal court located within the
State of New Jersey.
ARTICLE XVIII
ENTIRE AGREEMENT
18.1 This Agreement contains the entire agreement between the parties
hereto. No change, addition or amendment shall be made hereto, except by written
agreement signed by the parties hereto.
ARTICLE XIX
CERTAIN DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
meanings as set forth herein:
19.1 ACCRUED COMPENSATION. "Accrued Compensation" shall mean an amount
which shall include all amounts earned or accrued through the "Termination Date"
(as defined below) but not paid as of the Termination Date, including (i) base
salary, (ii) reimbursement for business expenses incurred by the Executive on
behalf of the Company, pursuant to the Company's expense reimbursement policy in
effect at such time, (iii) car allowance, (iv) discretionary time and vacation
pay, (v) Gross Up Payments, and (vi) bonuses and incentive compensation (other
than the "Pro Rata Bonus" (as defined below)).
19.2 BASE AMOUNT. "Base Amount" shall mean the greater of the Employee's
annual base compensation (a) at the rate in effect on the Termination Date or
(b) at the highest rate in effect at any time during the ninety (90) day period
prior to the Termination Date or a Change in Control, and shall include all
amounts of his base compensation that are reported as income; provided however,
Base Amount shall not include the Bonus Amount or any other payment contingent
on performance.
19.3 BONUS AMOUNT. "Bonus Amount" shall mean the greater of the most recent
annual bonus paid or payable to the Employee, or, if greater, the annual bonus
paid or payable for the full fiscal year ended prior to the fiscal year during
which a Termination Date or a Change in Control occurred.
19.4 CAUSE. "Cause" shall mean if the Employee has been convicted of a
felony or the termination is evidenced by a resolution adopted in good faith by
two-thirds of the Board that the Employee (a) intentionally and continually
failed substantially to perform his reasonably assigned duties with the Company
(other than a failure resulting from the Employee 's incapacity due to physical
or mental illness or from the assignment of duties that would constitute "Good
Reason"), which failure continued for a period of at least thirty (30) days
after a written notice of demand for substantial performance has been delivered
to the Employee, specifying the manner in which the Employee has failed
substantially to perform; (b) intentionally and continually failed substantially
to follow or perform the lawful directives of the Chairman of the Board of
Directors (other than a failure resulting from the Employee's incapacity due to
physical or mental illness or from the establishment of directives that would
constitute "Good Reason"), which failure continued for a period of at least
thirty (30) days after written notice of demand for compliance or substantial
performance has been delivered to the Employee, specifying the manner in which
the Employee has failed substantially to perform or comply; or (c) if the
Employee is convicted of a felony, or the final adjudication by any federal or
state judicial or regulatory authority or any action or proceeding arising out
of the violation of any material securities law, rule or regulation where such
action by proceeding resulted in Employee being a statutorily disqualified
person as that term is defined in Section 3(a)(39) of the Security and Exchange
Act of 1934. No act, nor failure to act, on the Employee's part, shall be
considered "intentional," unless the Employee has acted, or failed to act, with
a lack of good faith or with a lack of reasonable belief that the Employee 's
action or failure to act was in the best interest of the Company.
19.5 CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall mean any of the following events:
(a) (i) An acquisition (other than directly from the Company) of any voting
securities of the Company (the "Voting Securities") by any "Person" (as the term
person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended (the "1934 Act")) immediately after which such Person
has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under
the 1934 Act) of twenty percent (20%) or more of the combined voting power of
the Company's then outstanding Voting Securities; provided, however, that in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a "Non-Control Acquisition" (as defined below) shall not
constitute an acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (1) an employee benefit plan (or a
trust forming a part thereof) maintained by (x) the Company or (y) any
corporation or other Person of which a majority of its voting power or its
equity securities or equity interest is owned directly or indirectly by the
Company (a "Subsidiary"), or (2) the Company or any Subsidiary.
(ii) Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because a Person (the "Subject Person") gained Beneficial
Ownership of more than the permitted amount of the outstanding Voting Securities
as a result of the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person, provided that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and after such
share acquisition by the Company, the Subject Person becomes the Beneficial
Owner of any additional Voting Securities which increases the percentage of the
then outstanding Voting Securities Beneficially Owned by the Subject Person,
then a Change in Control shall occur.
(b) The individuals who, as of the date this Agreement is approved by the
Board, are members of the Board (the "Incumbent Board"), cease for any reason to
constitute at least two-thirds of the Board; provided, however, that if the
election, or nomination for election by the Company's stockholders, of any new
director was approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall, for purposes of this Agreement, be considered and
defined as a member of the Incumbent Board; and provided, further, that no
individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
1934 Act) or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board (a "Proxy Contest"), including by
reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(c) Approval by stockholders of the Company of:
(1) A merger, consolidation or reorganization involving the Company, unless
(i) the stockholders of the Company, immediately before such merger,
consolidation or reorganization, own, directly or indirectly immediately
following such merger, consolidation or reorganization, at least eighty-five
percent (85%) of the combined voting power of the outstanding voting securities
of the corporation resulting from such merger or consolidation or reorganization
(the "Surviving Corporation") in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger, consolidation
or reorganization,
(ii) the individuals who were members of the Incumbent Board immediately
prior to the execution of the agreement providing for such merger, consolidation
or reorganization constitute at least two-thirds of the members of the board of
directors of the Surviving Corporation, and
(iii) no Person (other than the Company, any Subsidiary, any employee
benefit plan (or any trust forming a part thereof) maintained by the Company,
the Surviving Corporation or any Subsidiary) has Beneficial Ownership of twenty
percent (20%) or more of the combined voting power of the Surviving
Corporation's then outstanding voting securities,
a transaction described in clauses (i) through (iii) shall herein be
referred to as a "Non-Control Transaction"; or
(2) An agreement for the sale or other disposition of all or substantially
all of the assets of the Company to any Person, other than a transfer to a
Subsidiary, in one transaction or a series of related transactions.
(3) The stockholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company.
(d) Notwithstanding anything contained in this Agreement to the contrary,
if the Employee 's employment is terminated prior to a Change in Control and the
Employee reasonably demonstrates that such termination (i) was at the request of
a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control (a "Third Party") or (ii) otherwise
occurred in connection with, or in anticipation of, a Change in Control, then
for all purposes of this Agreement, the date of a Change in Control with respect
to the Employee shall mean the date immediately prior to the date of such
termination of the Employee 's employment.
19.6 COMPANY. For purposes of this Agreement, "Company" shall mean First
Montauk Financial Corp. and shall include its "Successors and Assigns" (as
defined below).
19.7 CONTINUATION BENEFITS. "Continuation Benefits" shall be the
continuation for a period of twenty-four (24) months from the Termination Date
(the "Continuation Period") at the Company's expense on behalf of the Employee
and his dependents and beneficiaries, of the life insurance, disability,
medical, dental and hospitalization benefits provided (x) to the Employee at any
time during the ninety (90) day period prior to the Change in Control or at any
time thereafter or (y) to other similarly situated executives who continue in
the employ of the Company during the Continuation Period. The coverage and
benefits (including deductibles and costs) provided during the Continuation
Period shall be no less favorable to the Employee, and his dependents and
beneficiaries, than the most favorable of such coverages and benefits during any
of the periods referred to in clauses (x) and (y) above. The Company's
obligation hereunder with respect to the foregoing benefits shall be limited to
the extent that if the Employee obtains any such benefits pursuant to a
subsequent employer's benefit plans, the Company may reduce the coverage of any
benefits it is required to provide the Employee hereunder as long as the
aggregate coverages and benefits of the combined benefit plans is no less
favorable to the Employee than the coverages and benefits required to be
provided hereunder. In the event any amounts attributable to these Continuation
Benefits are includible in the gross income of the Employee for federal income
tax purposes, the Company shall, in addition to the benefits set forth above,
pay the Employee a Gross Up Payment on the amount so includible in Employee's
gross income. Notwithstanding the foregoing, in lieu of providing the foregoing
benefits, the Company may pay the Employee an amount equal to the cost to the
Employee of obtaining comparable Continuation Benefits plus a Gross Up Payment
with respect to such amount. This definition of Continuation Benefits shall not
be interpreted so as to limit any benefits to which the Employee, his dependents
or beneficiaries may be entitled under any of the Company's employee benefit
plans, programs or practices following the Employee 's termination of
employment, including, without limitation, retiree medical and life insurance
benefits.
19.8 DISABILITY. A physical or mental infirmity which impairs the
Employee's ability to substantially perform his duties with the Company for a
period of one hundred eighty (180) consecutive days, and the Employee has not
returned to his full time employment prior to the Termination Date as stated in
the "Notice of Termination" (as defined below).
19.9 EMPLOYMENT AGREEMENT. This Employment Agreement dated August 21, 2002,
between the Company and the Employee, as same shall be modified, amended,
supplemented, renewed or replaced.
19.10 GOOD REASON. (a) "Good Reason" shall mean:
(i) the occurrence of a Change in Control;
(ii) a change in the Employee 's status, title, position or
responsibilities (including reporting responsibilities) which, in the Employee
's reasonable judgment, represents an adverse change from his status, title,
position or responsibilities; the assignment to the Employee of any duties or
responsibilities which, in the Employee's reasonable judgment, are inconsistent
with his status, title, position or responsibilities; or any removal of the
Employee from or failure to reappoint or reelect him to any of such offices or
positions, except in connection with the termination of his employment for
Disability, Cause, as a result of his death or by the Employee other than for
Good Reason;
(iii) a reduction in the Employee's base salary or any failure to pay the
Employee any compensation or benefits to which he or she is entitled within five
(5) days of the date due;
(iv) the Company's requiring the Employee to be based at any place outside
a 30-mile radius from Red Bank, New Jersey, except for reasonably required
travel on the Company's business which is not materially greater than such
travel generally required for such Employee;
(v) the failure by the Company to continue in effect (without reduction in
benefit level, and/or reward opportunities) any material compensation or
employee benefit plan in which the Employee was participating, unless such plan
is replaced with a plan that provides at least substantially equivalent
compensation or benefits to the Employee;
(vi) the insolvency or the filing (by any party, including the Company) of
a petition for bankruptcy of the Company, which petition is not dismissed within
sixty (60) days;
(vii) any material breach by the Company of any provision of this Agreement
which is not cured within thirty (30) days after notice to the Company by the
Employee specifying the breach;
(viii) any purported termination of the Employee's employment for Cause by
the Company which is inconsistent with the terms of Section 19.4; or
(ix) the failure of the Company to obtain an agreement, satisfactory to the
Employee, from any Successors and Assigns to assume and agree to perform this
Agreement, as contemplated in Section 10.3 hereof; or
(b) The Employee's right to terminate his employment for Good Reason shall
not be affected by his incapacity due to physical or mental illness.
19.11 GROSS UP PAYMENT. With respect to any amount includible in the
Employee's gross income for federal income tax purposes (the "Taxable Benefit"),
an amount in cash equal to (i) the product of the Highest Marginal Income Tax
Rate and the Taxable Benefit, (ii) divided by one minus the Highest Marginal
Income Tax Rate. The Highest Marginal Income Tax Rate shall mean the sum of the
highest marginal combined local, state and federal personal income tax rates
(including tax rates associated with any state unemployment compensation tax,
any tax imposed under the Federal Insurance Contributions Act, any excise tax or
surtax, and any other tax on income based on the Company's employment of the
Employee), as in effect for the calendar year in which the Taxable Benefit is
includible in the gross income of the Employee for federal income tax purposes,
provided that in determining such tax rate, the highest marginal state and local
income tax rates shall be reduced by such number of percentage points as will
reflect the tax benefit obtained by the Employee in connection with his
deduction of state and local income taxes for federal income tax purposes
attributable to the Gross Up Payment. The Gross Up Payment shall be paid within
ten (10) days of the payment or realization for federal income tax purposes of
the Taxable Benefit.
19.12 NOTICE OF TERMINATION. "Notice of Termination" shall mean a written
notice from the Company of termination of the Employee 's employment which
indicates the specific termination provision in this Agreement relied upon, if
any, and which sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Employee 's employment under
the provision so indicated.
19.13 OUTPLACEMENT SERVICES. "Outplacement Services" shall mean all
reasonable costs and expenses associated with the engagement of an executive
outplacement firm to assist the Employee in securing new employment.
19.14 PRO RATA BONUS. "Pro Rata Bonus" shall mean an amount equal to the
greater of (i) the Bonus Amount or (ii) an amount equal to the bonus objective
or target established by the Board for the Employee for the fiscal year in which
the termination occurs multiplied by a fraction the numerator of which is the
number of days in the fiscal year through the Termination Date and the
denominator of which is 365.
19.15 RESTRICTIVE COVENANT. "Restrictive Covenant" shall mean a reasonable
restriction, not to exceed three years in duration, on the Employee to engage in
conduct competitive with a business, subsidiary or division of the Company.
19.16 SEVERANCE PAYMENT. "Severance Payment" shall mean a lump sum cash
payment equal to twelve (12) months Base Amount.
19.17 SUCCESSORS AND ASSIGNS. "Successors and Assigns" shall mean a
corporation or other entity acquiring all or substantially all the assets and
business of the Company (including this Agreement) whether by operation of law
or otherwise.
19.18 TERMINATION DATE. "Termination Date" shall mean in the case of the
Employee 's death, his date of death, in the case of Good Reason, the last day
of his employment, and in all other cases, the date specified in the Notice of
Termination; provided, however, that if the Employee 's employment is terminated
by the Company for Cause or due to Disability, the date specified in the Notice
of Termination shall be at least 30 days from the date the Notice of Termination
is given to the Employee, and provided further that in the case of Disability,
the Employee shall not have returned to the full-time performance of his duties
during such period of at least 30 days.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
affixed their hands and seals the day and year first above written.
(Corporate Seal) FIRST MONTAUK FINANCIAL CORP.
/s/ William Kurinsky
By:---------------------------------
William Kurinsky
/s/ Herbert Kurinsky
- -------------------------------
Herbert Kurinsky (Employee)
22
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 21st day of August, 2002, by and between William
J. Kurinsky, residing at 4 Cotswold Circle, Ocean, New Jersey 07712 (hereinafter
referred to as the "Employee") and First Montauk Financial Corp., a New Jersey
corporation with principal offices Parkway 109, Red Bank, New Jersey 07701
(hereinafter referred to as the "Company").
W I T N E S S E T H :
WHEREAS, the Company, through its wholly owned subsidiary First Montauk
Securities Corp, is engaged in the investment banking and general securities
business as a registered broker-dealer; and
WHEREAS, the Company desires to employ and secure for the Company, the
experience, ability and services of Employee; and
WHEREAS, the Employee desires to continue his present employment with the
Company, pursuant to the terms and conditions herein set forth, superseding all
prior agreements between the Company, its subsidiaries and/or predecessors and
Employee;
NOW, THEREFORE, it is mutually agreed by and between the parties hereto as
follows:
ARTICLE I
EMPLOYMENT
1.1 Subject to and upon the terms and conditions of this Agreement, the
Company hereby employs and agrees to continue the employment of the Employee,
and the Employee hereby accepts such continued employment in his capacity as
member of the Board of Directors, Vice-President, Secretary and Treasurer. In
this capacity, Employee will report to the Board of Directors.
ARTICLE II
DUTIES
2.1 The Employee shall, during the term of his employment with the Company,
perform such services and duties of an executive nature in connection with the
business, affairs and operations of the Company, and its subsidiaries, as may be
reasonably and in good faith assigned or delegated to him from time to time by
or under the authority of the Board of Directors and the President of the
Company and consistent with the position of Vice-President.
2.2 The Employee agrees to use his best efforts in the promotion and
advancement of the Company and its welfare and business. Employee agrees to
devote his primary professional time to the business of the Company as Employee
deems reasonably necessary; provided, however, that the Company acknowledges
that Employee shall be entitled to pursue unrelated personal business ventures
that do not materially conflict with the performance of Employee's duties to the
Company.
2.3 Employee shall be based in the Red Bank New Jersey area, and shall
undertake such occasional travel, within or without the United States as is or
may be reasonably necessary in the interests of the Company.
ARTICLE III
COMPENSATION
3.1 Commencing with the commencement date hereof, the Company shall pay to
Employee a salary at the rate of $256,218 per annum and increasing 10% per annum
on the 1st day of each January during the period this Agreement shall be in
effect (payable in equal weekly installments or pursuant to such regular pay
periods adopted by the Company) (the "Base Salary").
3.2 Employee shall be entitled to receive a bonus (the "Bonus") during each
year of this Agreement, determined as follows: The amount to be paid as a Bonus
shall be determined as of each June 30 based upon the prior fiscal year end and
shall consist of a portion of a bonus pool which shall be equal to ten (10%)
percent of the net pre-tax profit of the Company as determined by the Company's
independent auditors, no later than 90 days following the end of the Company's
fiscal year without giving effect to loss carryforwards or non-cash items and
giving effect to and including revenues received by the Company during the
fiscal year and which revenues may have otherwise been excluded in computing net
pre-tax profit by reason of any revenue recognition rules otherwise utilized in
the application of generally accepted accounting principles, and excluding any
expense deduction attributed to such Bonus paid to Herbert Kurinsky (the "Net
Pre-Tax Profit"); provided that, in the event the Net Pre-Tax Profit of the
Company for any fiscal year is less than $500,000, no bonus shall be paid by the
Company to the Employee pursuant to this subparagraph 3.2. Such determination,
for Bonus purposes only, shall be made in accordance with generally accepted
accounting principles, as modified by these resolutions.
3.3 Employee may receive such other additional compensation as may be
determined from time to time by the Board of Directors. Nothing herein shall be
deemed or construed to require the Board to award any bonus or additional
compensation.
3.4 Employee shall be eligible to purchase from the Company, at Employees
sole discretion, a portion of a bonus pool which shall consist of up to 20% of
all underwriters and/or placement agent warrants and/or options granted to First
Montauk Securities Corp., upon the same price, terms and conditions afforded to
First Montauk Securities Corp. in connection with its service as an underwriter
and/or placement agent for any and all public or private offerings of securities
on behalf of issuers.
3.5 The Company shall deduct from Employee's compensation all federal,
state and local taxes which it may now or may hereafter be required to deduct.
3.6 Employee shall also be entitled to receive brokerage commissions on in
accordance with the commission schedule in effect for other non-affiliate
brokers employed by the Company.
ARTICLE IV
BENEFITS
4.1 During the term hereof, (i) the Company shall provide Employee with
health insurance benefits and major medical insurance; (ii) Employee shall be
reimbursed by the Company upon presentation of appropriate vouchers for all
business expenses incurred by the Employee on behalf of the Company; (iii) the
Company shall provide the Employee with an automobile suitable for his position,
equipped with a mobile telephone, or at Employee's option, an appropriate
automobile allowance, and reimburse reasonable automobile expenses including
repairs, maintenance, gasoline charges, mobile phone, etc. via receipted expense
reports.
4.2 In the event the Company wishes to obtain Key Man life insurance on the
life of Employee, Employee agrees to cooperate with the Company in completing
any applications necessary to obtain such insurance and promptly submit to such
physical examinations and furnish such information as any proposed insurance
carrier may request.
4.3 For each year of the term hereof, Employee shall be entitled to four
weeks paid vacation.
ARTICLE V
NON-DISCLOSURE
5.1 The Employee shall not, at any time during or after the termination of
his employment hereunder except when acting on behalf of and with the
authorization of the Company, make use of or disclose to any person,
corporation, or other entity, for any purpose whatsoever, any trade secret or
other confidential information concerning the Company's business, finances,
research, services or products, and information relating to any client or
account of the Company (collectively referred to as the "Proprietary
Information"). For the purposes of this Agreement, trade secrets and
confidential information shall mean information disclosed to the Employee or
known by him as a consequence of his employment by the Company, whether or not
pursuant to this Agreement, and not generally known in the industry, concerning
the business, finances, methods, operations, clients, accounts, service or
product information of the Company. The Employee acknowledges that trade secrets
and other items of confidential information, as they may exist from time to
time, are valuable and unique assets of the Company, and that disclosure of any
such information would cause substantial injury to the Company. The foregoing is
intended to be confirmatory of the common law of the state of New Jersey
relating to trade secrets and confidential information.
ARTICLE VI
RESTRICTIVE COVENANT
6.1 In the event of the voluntary termination of employment with the
Company, except for Good Reason as defined in Section 19.10, or Employee's
discharge for Cause, as defined in Section 19.4 hereof, Employee agrees that he
will not (i) for a period of one (1) year from the date of termination, directly
or indirectly solicit brokers or employees of the Company, or any sister or
subsidiary of the Company for employment with any other entity, or (ii) during
the term and for a period of one (1) year from the date of termination or
discharge, solicit or accept any corporate finance client relating to a
transaction involving a public offering, private placement, or merger and
acquisition advisory services, or research project which was already pending and
in existence at the time of Employee's termination or discharge, or which was
being negotiated at the time of Employee's termination or discharge.
6.2 If any court shall hold that the duration of non-competition or any
other restriction contained in this paragraph is unenforceable, it is our
intention that same shall not thereby be terminated but shall be deemed amended
to delete therefrom such provision or portion adjudicated to be invalid or
unenforceable or in the alternative such judicially substituted term may be
substituted therefor.
ARTICLE VII
TERM
7.1 This Agreement shall be for a term commencing on the date first set
forth above and terminating December 31, 2005, unless sooner terminated pursuant
to the terms hereof, and renewable as provided for herein, for one additional
period of one year. The Company agrees to notify Employee in writing of its
intent to negotiate an extension of this Agreement six months prior to the
expiration of the original term hereof. If the Company fails to so notify
Employee, or after having timely notified Employee of its intention to extend,
fails to reach agreement with Employee on the terms of such extension, this
agreement shall be renewable, at the option of the Employee, for an additional
period of one year from the expiration of the original term, except that the
Employee's base salary shall be increased 10% above the prior year, and Employee
shall be entitled to stock options equivalent to one-third of the options
granted during the initial term of this agreement on comparable terms and
conditions. If the Company elects not to seek to negotiate an extension and has
so timely notified Employee, then the Company shall pay Employee, upon the
expiration of the original term of this Agreement, a severance benefit equal to
the aggregate amount of Employee's then prevailing annual Base Salary and Bonus
payable in 12 equal monthly installments commencing on the original expiration
date of this Agreement.
ARTICLE VIII
TERMINATION
8.1 The Company may terminate this Agreement:
(A) Upon the death of Employee during the term hereof, except that the
Employee's legal representatives, successors, assigns and heirs shall have those
rights and interests as otherwise provided in this Agreement, including the
right to receive accrued but unpaid bonus compensation, if any.
(B) Upon written notice from the Company to the Employee, if Employee
becomes totally Disabled and as a result of such total disability, has been
prevented from and unable to perform all of his duties hereunder for a
consecutive period of one hundred eighty (180) consecutive days.
(C) Upon written notice from the Company to the Employee, for Cause.
8.2 Any termination of Employee's employment and this Employment Agreement
by the Company for the reasons set forth in Section 8.1, above, or by the
Employee, shall be made by service of a Notice of Termination in accordance with
Article XIV and Section 19.12. No such purported termination shall be effective
without service of a Notice of Termination
ARTICLE IX
SEVERANCE COMPENSATION
The Company's Board of Directors has determined that it is appropriate to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including the Employee, to their assigned duties without
distraction in potentially disturbing circumstances arising from the possibility
of a change in control of the Company.
This Article IX sets forth the severance compensation which the Company
agrees it will pay to the Employee if the Employee's employment with the Company
terminates under one of the circumstances described herein. This Article IX
shall survive any termination of the this Employment Agreement for a period one
year; provided, however, that commencing on the one year anniversary of any
termination of this Employment Agreement, and each anniversary date thereafter,
the term of this Article IX shall automatically be extended for one (1) year,
unless either the Company or the Employee shall have given written notice to the
other, at least one hundred eighty (180) days prior thereto, that the term of
this Article IX shall not be so extended; and provided, further, that
notwithstanding any such notice by the Company not to extend, the term of this
Agreement shall not expire prior to the expiration of twenty-four (24) months
after the occurrence of a Change in Control which occurs during the term of this
Agreement.
9.1 Compensation upon Termination.
(a) If the Employee's employment with the Company shall be terminated, in
lieu of any further compensation for periods subsequent to the Termination Date,
the Company shall pay and/or provide to the Employee, the following compensation
and benefits:
(i) if the Employee was terminated by the Company for Cause, the Accrued
Compensation; or
(ii) if the Employee was terminated by the Company for Disability, the
Accrued Compensation, a Pro Rata Bonus, the Severance Payment and the
Continuation Benefits, less all disability insurance payments which Employee may
receive from insurance policies provided by the Company; or
(iii) if termination was due to the Employee's death, the Accrued
Compensation and a Pro Rata Bonus; or
(iv) if termination was by the Employee other than for Good Reason, the
Company shall pay to the Employee the Accrued Compensation.
(b) If the Employee 's employment with the Company shall be terminated for
any reason other than as specified in Section 9.1(a), in lieu of any further
compensation for periods subsequent to the Termination Date, the Company shall
pay/and or provide to the Employee each and all of the following compensation
and benefits:
(i) all Accrued Compensation;
(ii) a Pro-Rata Bonus;
(iii) the Employee 's Base Amount, in accordance with the regular payroll
schedule of the Employee, commencing on the first regular payroll payment date
after the Termination Date and thereafter until the expiration of the term of
this Employment Agreement, including any renewal period which is automatic on
the Termination Date;
(iv) a bonus payment equal to one-twelfth (1/12) of the Bonus Amount
payable monthly commencing on the one month anniversary of the Termination Date,
and monthly thereafter until the expiration of the term of this Employment
Agreement, including any renewal period which is automatic on the Termination
Date;
(v) the Severance Payment;
(vi) the Continuation Benefits;
(vii) Any Gross Up Payments to which the Employee would have been entitled
from the Termination Date to the expiration of the term of this Employment
Agreement, including any renewal period which is automatic on the Termination
Date; and
(viii) the Outplacement Services.
(c) In the event the Employee's employment is terminated for any reason
other than as specified in Sections 9.1(a) and 9.1(b), the conditions to the
vesting of any outstanding incentive awards (including restricted stock, stock
options and granted performance shares or units) granted to the Employee under
any of the Company's plans, or under any other incentive plan or arrangement,
shall be deemed void and all such incentive awards shall be immediately and
fully vested and exercisable.
(d) The amounts payable under Sections 9.1(a) and 9.1(b), shall be paid as
follows:
(i) Accrued Compensation shall be paid within five (5) business days after
the Employee's Termination Date (or earlier, if required by applicable law).
(ii) The Pro-Rata Bonus shall be paid within thirty (30) days after the
Employee's Termination Date (or earlier, if required by applicable law).
(iii) If the Continuation Benefits are paid in cash, the payments shall be
made monthly during the period the Continuation Benefits are provided as
follows:
(A) the initial payment shall be paid within five (5) business days after
the Employee's Termination Date (or earlier, if required by applicable law); and
(B) each remaining payment shall be paid on the twentieth (20) day of the
month preceding the month for which the Continuation Benefits are being
provided.
(iv) The Severance Payment shall be payable on the first day of each of the
first twelve months following the Termination Date, and shall commence on the
first day of the month following the Termination Date.
(v) The amounts provided for in Sections 9.1(b)(iii) and (iv) shall be
payable as set forth in those Sections.
(e) The Employee shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise
and no such payment shall be offset or reduced by the amount of any compensation
or benefits provided to the Employee in any subsequent employment except as
limited by the Continuation Benefits.
9.2 Change of Control
(a) If, during the term of this Agreement, there occurs a Change of Control
and Employee's employment is subsequently terminated other than for Cause, death
or Disability or if Employee terminates his employment for Good Reason, in
addition to the benefits provided elsewhere in this Agreement, including in this
Article IX, the Company shall pay and/or provide to the Employee, the following
compensation and benefits:
(i) The Company shall pay the Employee as additional severance, in a single
payment, an amount in cash equal to three times the amount of the five year
average of the gross income of the Employee, as reported by the Company for
federal income tax purposes or, at the option of the Employee, credit such
amount against the exercise price of Employee's employee stock options.
(ii) The conditions to the vesting of any outstanding incentive awards
(including restricted stock, stock options and granted performance shares or
units) granted to the Employee under any of the Company's plans, or under any
other incentive plan or arrangement, shall be deemed void and all such incentive
awards shall be immediately and fully vested and exercisable.
(b) Notwithstanding the provisions of Section 9.1 to the contrary, in the
event the Employee 's employment is terminated for any reason within twenty-four
(24) months of a Change of Control, the amounts provided for in Sections 9.1(a)
and 9.2(b), including the Continuation Benefits, if the Continuation Benefits
are paid in cash, shall be paid in a single lump sum cash payment within five
(5) business days after the Employee 's Termination Date (or earlier, if
required by applicable law).
(c) In the event of a Change of Control as described in Section 19.5 (c),
the Company shall provide thirty (30) days prior written notice to the Employee
of the anticipated closing date of such Change of Control transaction. If the
Employee provides notice in writing to the Company, at least five (5) days prior
to the closing date specified in the Company's notice, that the Employee intends
to terminate his Employment Agreement for Good Reason effective on the closing
date, there shall be paid to the Employee in a single lump sum, cash payment
simultaneously with the closing of such Change of Control transaction, the
amounts provided for in Sections 9.1(a) and 9.1(b), including the Continuation
Benefits, if the Continuation Benefits are paid in cash. Upon the closing of
such Change of Control Transaction and the payments of the amounts due Employee
under this Agreement, Employee 's employment, and the Employment Agreement shall
be deemed terminated for Good Reason.
9.3 Excise Tax Gross-up Payment
(a) The Company and the Employee acknowledge that the payments and benefits
provided under this Agreement, and benefits provided to, or for the benefit of,
the Employee under other Company plans and agreements (such payments or benefits
are collectively referred to as the "Payments") are subject to the excise tax
(the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code"). In addition to the Payments, the Company shall
pay to the Employee within five (5) business days of Payment subject to the
Excise, a gross up payment (the "Gross Up Payment") equal to the amount which,
after the deduction of any applicable Federal, State and Local income taxes
attributable to the Gross Up Payment, is equal to the Excise Tax including the
Excise Tax attributable to the Gross Up Payment.
(b) The Company shall pay to the applicable government taxing authorities,
as Excise Tax withholding, the amount of the Excise Tax that the Company has
actually withheld from the Payment or Payments.
(c) If it is established pursuant to a determination of a court, or an
Internal Revenue Service (the "IRS") decision, action or proceeding, that there
has been an underpayment of the Excise Tax (an "Underpayment"), the Company
shall to the Employee within thirty (30) days of such determination or
resolution, the amount which, after the deduction of any applicable federal,
state and local income taxes attributable to the Gross Up Payment, is equal to
the Underpayment, plus applicable interest and penalties until the date of
payment.
(d) The Company hereby agrees to indemnify, defend, and hold harmless the
Employee for any and all claims arising from or related to non-payment of Excise
Tax, including the amount of such tax and any and all costs, interest, expenses,
penalties associated with the non-payment of such tax to the fullest extent
permitted by law.
9.4 No Effect on Other Contractual Rights; Non-Exclusivity; Settlement of
Claims.
(a) The provisions of this Article IX, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Employee's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or arrangement.
(b) Nothing in this Agreement shall prevent or limit the Employee's
continuing or future participation in any benefit, bonus, incentive or other
plan or program provided by the Company (except for any severance or termination
policies, plans, programs or practices) and for which the Employee may qualify,
nor shall anything herein limit or reduce such rights as the Employee may have
under any other agreements with the Company (except for any severance or
termination agreement). Amounts which are vested benefits or which the Employee
is otherwise entitled to receive under any plan or program of the Company shall
be payable in accordance with such plan or program, except as explicitly
modified by this Agreement.
(c) The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Employee or others.
9.5 Legal Fees and Expenses. The Company shall pay all reasonable legal
fees and related expenses (including the costs of arbitrators, experts, evidence
and counsel) incurred by, the Executive as they become due as a result of (a)
the Executive's termination of employment (including all such fees and expenses,
if any, incurred in contesting or disputing any such termination of employment)
in violation of this Agreement, (b) the Executive seeking to obtain or enforce
any right or benefit provided by this Agreement.
ARTICLE X
SUCCESSOR TO THE COMPANY
10.1 The provisions of this Agreement shall be binding upon and shall inure
to the benefit of the Company, and its Successors and Assigns, and the Company
shall require any Successors and Assigns to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had
taken place.
10.2 Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by the Employee, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Employee's
personal representative.
10.3 In the event that a division of the Company (or part thereof) is sold,
divested, or otherwise disposed of by the Company subsequent to or in connection
with a Change in Control and the Employee is offered employment by the purchaser
or acquiror thereof, the Company shall require such purchaser or acquiror to
assume, and agree to perform, the Company's obligations under this Agreement, in
the same manner, and to the same extent, that the Company would be required to
perform if no such acquisition or purchase had taken place.
ARTICLE XI
TERMINATION OF PRIOR AGREEMENTS
11.1 This Agreement sets forth the entire agreement between the parties and
supersedes all prior agreements between the parties, whether oral or written,
without prejudice to Employee's right to all accrued compensation prior to the
effective date of this Agreement.
ARTICLE XII
ARBITRATION
12.1 Any dispute arising out of the interpretation, application and/or
performance of this Agreement with the sole exception of any claim, breach or
violation arising under Articles V or VI hereof shall be settled through final
and binding arbitration before a panel arbitrators in accordance with the rules
of the National Association of Securities Dealers (the "NASD"). Any judgment
upon any arbitration award may be entered in any court, federal or state, having
competent jurisdiction of the parties.
ARTICLE XIII
SEVERABILITY
13.1 If any provision of this Agreement shall be held invalid and
unenforceable, the remainder of this Agreement shall remain in full force and
effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall remain in full force and effect in all other
circumstances.
ARTICLE XIV
NOTICE
14.1 All notices required to be given under the terms of this Agreement
shall be in writing and shall be deemed to have been duly given only if
delivered to the addressee in person or mailed by certified mail, return receipt
requested, as follows:
IF TO THE COMPANY:
First Montauk Financial Corp.
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, New Jersey 07701
IF TO THE EMPLOYEE:
William J. Kurinsky
4 Cotswold Circle
Ocean, New Jersey 07712
or to any such other address as the party to receive the notice shall advise by
due notice given in accordance with this paragraph.
ARTICLE XV
WAIVER
15.1 The waiver by either party of any breach or violation of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of construction and validity.
ARTICLE XVI
GOVERNING LAW
16.1 This Agreement has been negotiated and executed in the State of New
Jersey, and New Jersey law shall govern its construction and validity. Any
action brought by any party to this Agreement to enforce any decision of an
arbitrator made as contemplated in Section XII above shall be brought and
maintained in a court of competent jurisdiction in the State of New Jersey.
ARTICLE XVII
JURISDICTION
17.1 Any or all actions or proceedings which may be brought by the Company
or Employee under this Agreement shall be brought before an arbitration panel,
or if otherwise permissible under the terms of this agreement, a court, having a
situs within the State of New Jersey, and Employee hereby consents to the
jurisdiction of any tribunal or local, state or federal court located within the
State of New Jersey.
ARTICLE XVIII
ENTIRE AGREEMENT
18.1 This Agreement contains the entire agreement between the parties
hereto. No change, addition or amendment shall be made hereto, except by written
agreement signed by the parties hereto.
ARTICLE XIX
CERTAIN DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
meanings as set forth herein:
19.1 ACCRUED COMPENSATION. "Accrued Compensation" shall mean an amount
which shall include all amounts earned or accrued through the "Termination Date"
(as defined below) but not paid as of the Termination Date, including (i) base
salary, (ii) reimbursement for business expenses incurred by the Executive on
behalf of the Company, pursuant to the Company's expense reimbursement policy in
effect at such time, (iii) car allowance, (iv) discretionary time and vacation
pay, (v) Gross Up Payments, and (vi) bonuses and incentive compensation (other
than the "Pro Rata Bonus" (as defined below)).
19.2 BASE AMOUNT. "Base Amount" shall mean the greater of the Employee's
annual base compensation (a) at the rate in effect on the Termination Date or
(b) at the highest rate in effect at any time during the ninety (90) day period
prior to the Termination Date or a Change in Control, and shall include all
amounts of his base compensation that are reported as income; provided however,
Base Amount shall not include the Bonus Amount or any other payment contingent
on performance.
19.3 BONUS AMOUNT. "Bonus Amount" shall mean the greater of the most recent
annual bonus paid or payable to the Employee, or, if greater, the annual bonus
paid or payable for the full fiscal year ended prior to the fiscal year during
which a Termination Date or a Change in Control occurred.
19.4 CAUSE. "Cause" shall mean if the Employee has been convicted of a
felony or the termination is evidenced by a resolution adopted in good faith by
two-thirds of the Board that the Employee (a) intentionally and continually
failed substantially to perform his reasonably assigned duties with the Company
(other than a failure resulting from the Employee 's incapacity due to physical
or mental illness or from the assignment of duties that would constitute "Good
Reason"), which failure continued for a period of at least thirty (30) days
after a written notice of demand for substantial performance has been delivered
to the Employee, specifying the manner in which the Employee has failed
substantially to perform; (b) intentionally and continually failed substantially
to follow or perform the lawful directives of the Chairman of the Board of
Directors (other than a failure resulting from the Employee's incapacity due to
physical or mental illness or from the establishment of directives that would
constitute "Good Reason"), which failure continued for a period of at least
thirty (30) days after written notice of demand for compliance or substantial
performance has been delivered to the Employee, specifying the manner in which
the Employee has failed substantially to perform or comply; or (c) if the
Employee is convicted of a felony, or the final adjudication by any federal or
state judicial or regulatory authority or any action or proceeding arising out
of the violation of any material securities law, rule or regulation where such
action by proceeding resulted in Employee being a statutorily disqualified
person as that term is defined in Section 3(a)(39) of the Security and Exchange
Act of 1934. No act, nor failure to act, on the Employee's part, shall be
considered "intentional," unless the Employee has acted, or failed to act, with
a lack of good faith or with a lack of reasonable belief that the Employee 's
action or failure to act was in the best interest of the Company.
19.5 CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall mean any of the following events:
(a) (i) An acquisition (other than directly from the Company) of any voting
securities of the Company (the "Voting Securities") by any "Person" (as the term
person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended (the "1934 Act")) immediately after which such Person
has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under
the 1934 Act) of twenty percent (20%) or more of the combined voting power of
the Company's then outstanding Voting Securities; provided, however, that in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a "Non-Control Acquisition" (as defined below) shall not
constitute an acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (1) an employee benefit plan (or a
trust forming a part thereof) maintained by (x) the Company or (y) any
corporation or other Person of which a majority of its voting power or its
equity securities or equity interest is owned directly or indirectly by the
Company (a "Subsidiary"), or (2) the Company or any Subsidiary.
(ii) Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because a Person (the "Subject Person") gained Beneficial
Ownership of more than the permitted amount of the outstanding Voting Securities
as a result of the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person, provided that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and after such
share acquisition by the Company, the Subject Person becomes the Beneficial
Owner of any additional Voting Securities which increases the percentage of the
then outstanding Voting Securities Beneficially Owned by the Subject Person,
then a Change in Control shall occur.
(b) The individuals who, as of the date this Agreement is approved by the
Board, are members of the Board (the "Incumbent Board"), cease for any reason to
constitute at least two-thirds of the Board; provided, however, that if the
election, or nomination for election by the Company's stockholders, of any new
director was approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall, for purposes of this Agreement, be considered and
defined as a member of the Incumbent Board; and provided, further, that no
individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
1934 Act) or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board (a "Proxy Contest"), including by
reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(c) Approval by stockholders of the Company of:
(1) A merger, consolidation or reorganization involving the Company, unless
(i) the stockholders of the Company, immediately before such merger,
consolidation or reorganization, own, directly or indirectly immediately
following such merger, consolidation or reorganization, at least eighty-five
percent (85%) of the combined voting power of the outstanding voting securities
of the corporation resulting from such merger or consolidation or reorganization
(the "Surviving Corporation") in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger, consolidation
or reorganization,
(ii) the individuals who were members of the Incumbent Board immediately
prior to the execution of the agreement providing for such merger, consolidation
or reorganization constitute at least two-thirds of the members of the board of
directors of the Surviving Corporation, and
(iii) no Person (other than the Company, any Subsidiary, any employee
benefit plan (or any trust forming a part thereof) maintained by the Company,
the Surviving Corporation or any Subsidiary) has Beneficial Ownership of twenty
percent (20%) or more of the combined voting power of the Surviving
Corporation's then outstanding voting securities,
a transaction described in clauses (i) through (iii) shall herein be
referred to as a "Non-Control Transaction"; or
(2) An agreement for the sale or other disposition of all or substantially
all of the assets of the Company to any Person, other than a transfer to a
Subsidiary, in one transaction or a series of related transactions.
(3) The stockholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company.
(d) Notwithstanding anything contained in this Agreement to the contrary,
if the Employee 's employment is terminated prior to a Change in Control and the
Employee reasonably demonstrates that such termination (i) was at the request of
a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control (a "Third Party") or (ii) otherwise
occurred in connection with, or in anticipation of, a Change in Control, then
for all purposes of this Agreement, the date of a Change in Control with respect
to the Employee shall mean the date immediately prior to the date of such
termination of the Employee 's employment.
19.6 COMPANY. For purposes of this Agreement, "Company" shall mean First
Montauk Financial Corp. and shall include its "Successors and Assigns" (as
defined below).
19.7 CONTINUATION BENEFITS. "Continuation Benefits" shall be the
continuation for a period of twenty-four (24) months from the Termination Date
(the "Continuation Period") at the Company's expense on behalf of the Employee
and his dependents and beneficiaries, of the life insurance, disability,
medical, dental and hospitalization benefits provided (x) to the Employee at any
time during the ninety (90) day period prior to the Change in Control or at any
time thereafter or (y) to other similarly situated executives who continue in
the employ of the Company during the Continuation Period. The coverage and
benefits (including deductibles and costs) provided during the Continuation
Period shall be no less favorable to the Employee, and his dependents and
beneficiaries, than the most favorable of such coverages and benefits during any
of the periods referred to in clauses (x) and (y) above. The Company's
obligation hereunder with respect to the foregoing benefits shall be limited to
the extent that if the Employee obtains any such benefits pursuant to a
subsequent employer's benefit plans, the Company may reduce the coverage of any
benefits it is required to provide the Employee hereunder as long as the
aggregate coverages and benefits of the combined benefit plans is no less
favorable to the Employee than the coverages and benefits required to be
provided hereunder. In the event any amounts attributable to these Continuation
Benefits are includible in the gross income of the Employee for federal income
tax purposes, the Company shall, in addition to the benefits set forth above,
pay the Employee a Gross Up Payment on the amount so includible in Employee's
gross income. Notwithstanding the foregoing, in lieu of providing the foregoing
benefits, the Company may pay the Employee an amount equal to the cost to the
Employee of obtaining comparable Continuation Benefits plus a Gross Up Payment
with respect to such amount. This definition of Continuation Benefits shall not
be interpreted so as to limit any benefits to which the Employee, his dependents
or beneficiaries may be entitled under any of the Company's employee benefit
plans, programs or practices following the Employee 's termination of
employment, including, without limitation, retiree medical and life insurance
benefits.
19.8 DISABILITY. A physical or mental infirmity which impairs the
Employee's ability to substantially perform his duties with the Company for a
period of one hundred eighty (180) consecutive days, and the Employee has not
returned to his full time employment prior to the Termination Date as stated in
the "Notice of Termination" (as defined below).
19.9 EMPLOYMENT AGREEMENT. This Employment Agreement dated August 21, 2002,
between the Company and the Employee, as same shall be modified, amended,
supplemented, renewed or replaced.
19.10 GOOD REASON. (a) "Good Reason" shall mean:
(i) the occurrence of a Change in Control;
(ii) a change in the Employee 's status, title, position or
responsibilities (including reporting responsibilities) which, in the Employee
's reasonable judgment, represents an adverse change from his status, title,
position or responsibilities; the assignment to the Employee of any duties or
responsibilities which, in the Employee's reasonable judgment, are inconsistent
with his status, title, position or responsibilities; or any removal of the
Employee from or failure to reappoint or reelect him to any of such offices or
positions, except in connection with the termination of his employment for
Disability, Cause, as a result of his death or by the Employee other than for
Good Reason;
(iii) a reduction in the Employee's base salary or any failure to pay the
Employee any compensation or benefits to which he or she is entitled within five
(5) days of the date due;
(iv) the Company's requiring the Employee to be based at any place outside
a 30-mile radius from Red Bank, New Jersey, except for reasonably required
travel on the Company's business which is not materially greater than such
travel generally required for such Employee;
(v) the failure by the Company to continue in effect (without reduction in
benefit level, and/or reward opportunities) any material compensation or
employee benefit plan in which the Employee was participating, unless such plan
is replaced with a plan that provides at least substantially equivalent
compensation or benefits to the Employee;
(vi) the insolvency or the filing (by any party, including the Company) of
a petition for bankruptcy of the Company, which petition is not dismissed within
sixty (60) days;
(vii) any material breach by the Company of any provision of this Agreement
which is not cured within thirty (30) days after notice to the Company by the
Employee specifying the breach;
(viii) any purported termination of the Employee's employment for Cause by
the Company which is inconsistent with the terms of Section 19.4; or
(ix) the failure of the Company to obtain an agreement, satisfactory to the
Employee, from any Successors and Assigns to assume and agree to perform this
Agreement, as contemplated in Section 10.3 hereof; or
(b) The Employee's right to terminate his employment for Good Reason shall
not be affected by his incapacity due to physical or mental illness.
19.11 GROSS UP PAYMENT. With respect to any amount includible in the
Employee's gross income for federal income tax purposes (the "Taxable Benefit"),
an amount in cash equal to (i) the product of the Highest Marginal Income Tax
Rate and the Taxable Benefit, (ii) divided by one minus the Highest Marginal
Income Tax Rate. The Highest Marginal Income Tax Rate shall mean the sum of the
highest marginal combined local, state and federal personal income tax rates
(including tax rates associated with any state unemployment compensation tax,
any tax imposed under the Federal Insurance Contributions Act, any excise tax or
surtax, and any other tax on income based on the Company's employment of the
Employee), as in effect for the calendar year in which the Taxable Benefit is
includible in the gross income of the Employee for federal income tax purposes,
provided that in determining such tax rate, the highest marginal state and local
income tax rates shall be reduced by such number of percentage points as will
reflect the tax benefit obtained by the Employee in connection with his
deduction of state and local income taxes for federal income tax purposes
attributable to the Gross Up Payment. The Gross Up Payment shall be paid within
ten (10) days of the payment or realization for federal income tax purposes of
the Taxable Benefit.
19.12 NOTICE OF TERMINATION. "Notice of Termination" shall mean a written
notice from the Company of termination of the Employee 's employment which
indicates the specific termination provision in this Agreement relied upon, if
any, and which sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Employee 's employment under
the provision so indicated.
19.13 OUTPLACEMENT SERVICES. "Outplacement Services" shall mean all
reasonable costs and expenses associated with the engagement of an executive
outplacement firm to assist the Employee in securing new employment.
19.14 PRO RATA BONUS. "Pro Rata Bonus" shall mean an amount equal to the
greater of (i) the Bonus Amount or (ii) an amount equal to the bonus objective
or target established by the Board for the Employee for the fiscal year in which
the termination occurs multiplied by a fraction the numerator of which is the
number of days in the fiscal year through the Termination Date and the
denominator of which is 365.
19.15 RESTRICTIVE COVENANT. "Restrictive Covenant" shall mean a reasonable
restriction, not to exceed three years in duration, on the Employee to engage in
conduct competitive with a business, subsidiary or division of the Company.
19.16 SEVERANCE PAYMENT. "Severance Payment" shall mean a lump sum cash
payment equal to twelve (12) months Base Amount.
19.17 SUCCESSORS AND ASSIGNS. "Successors and Assigns" shall mean a
corporation or other entity acquiring all or substantially all the assets and
business of the Company (including this Agreement) whether by operation of law
or otherwise.
19.18 TERMINATION DATE. "Termination Date" shall mean in the case of the
Employee 's death, his date of death, in the case of Good Reason, the last day
of his employment, and in all other cases, the date specified in the Notice of
Termination; provided, however, that if the Employee 's employment is terminated
by the Company for Cause or due to Disability, the date specified in the Notice
of Termination shall be at least 30 days from the date the Notice of Termination
is given to the Employee, and provided further that in the case of Disability,
the Employee shall not have returned to the full-time performance of his duties
during such period of at least 30 days.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
affixed their hands and seals the day and year first above written.
(Corporate Seal) FIRST MONTAUK FINANCIAL CORP.
By: /s/ Herbert Kurinsky
-------------------------------
Herbert Kurinsky
/s/ William J. Kurinsky
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William J. Kurinsky (Employee)
Exhibit 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of FIRST MONTAUK FINANCIAL CORP.
(the "Company") on Form 10-Q for the period ending September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Herbert Kurinsky, Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Herbert Kurinsky
- -----------------------------------
Herbert Kurinsky
Chief Executive Officer
November 14, 2002
Exhibit 99.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of FIRST MONTAUK FINANCIAL CORP.
(the "Company") on Form 10-Q for the period ending September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, William J. Kurinsky, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ William J. Kurinsky
- -----------------------------------
William J. Kurinsky
Chief Financial Officer
November 14, 2002