UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): May 9, 2007
FIRST MONTAUK FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
COMMISSION FILE NUMBER: 0-6729
NEW JERSEY 22-1737915
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701
(Address and zip code of principal executive offices)
(732) 842-4700
(Registrant's telephone number, including area code
CHECK THE APPROPRIATE BOX BELOW IF THE FORM 8-K FILING IS INTENDED TO
SIMULTANEOUSLY SATISFY THE FILING OBLIGATION OF THE REGISTRANT UNDER ANY OF THE
FOLLOWING PROVISIONS:
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into Material Definitive Agreement
On May 8, 2007 (the "Agreement Date"), First Montauk Financial Corp.
(the "Registrant"), Victor Kurylak ("Kurylak"), Ward R. Jones, Jr.,
Barry Shapiro, David I. Portman and Mindy Horowitz ("collectively,
the "Registrant Parties") and Edward H. Okun ("Okun"), Investment
Properties of America, LLC ("IPofA"), IPofA Water View, LLC
("Water View"), FMFG AcquisitionCo, Inc. ("AcquisitionCo"), FMFG
Ownership, Inc. ("Ownership I"), and FMFG Ownership II, Inc.
("Ownership II" and collectively with Okun, IPofA, Water View,
AcquisitionCo, Ownership I, the "Okun Parties") executed a settlement
agreement ("Settlement Agreement") pursuant to which all parties
agreed to settle all disputes among the parties. Except as
specifically provided for therein, the Settlement Agreement does not
constitute a final and binding obligation on the part of any party
unless and until approval is obtained by the federal and state courts
in which the Actions (as defined below) are pending as well as
federal, state and self-regulatory bodies as required. Upon receipt
of all necessary approvals, the Settlement Agreement will become
effective ("Effective Date").
Mr. Kurylak is the President, Chief Executive Officer and director of
the Registrant. Messrs. Jones, Shapiro and Portman are independent
directors of the Registrant and Ms. Horowitz is the Acting Chief
Financial Officer of the Registrant.
Mr. Okun is a private investor and the beneficial owner of 11,117,027
shares of Common Stock of the Registrant representing 52.8% of the
outstanding voting power of the Registrant through two affiliated
companies, Ownership I and Ownership II, according to Amendment No. 4
to Schedule 13D, dated February 23, 2007, filed with the Securities
and Exchange Commission jointly by Mr. Okun, Ownership I and
Ownership II, Inc.
The disputes settled are the court actions (the "Actions") pending in
(i) the Superior Court of the State of New Jersey, Chancery Division,
Monmouth County Docket No. C-07-07 entitled First Montauk Financial
Corp., against Edward H. Okun, et al; (ii) the United States District
Court, District of New Jersey, Civil Action No. 07cv00725, entitled
FMFG Ownership, Inc. against Victor Kurylak, et al; and (iii) the
United States District Court, Southern District of Florida, Case No.
07-20482-Civ, entitled FMFG Ownership, Inc. against Victor Kurylak.
The Settlement Agreement provides as follows:
1. Following the Effective Date, Ownership I will cause to be issued
to the shareholders of the Registrant other than the Okun Parties
(the "Holders"), the right (the "Put"), but not the obligation, to
sell their shares of Registrant's Common Stock to a designated Okun
Party for $1.00 per share in cash (the "Exercise Price") on the
following terms and conditions:
a. The Put shall be exercisable by the Holders during the period
commencing on the 18th month anniversary date of the Effective Date
(the "Commencement Date") and terminating sixty (60) days thereafter
(the "Expiration Date"). Any Put not exercised prior to 5:00 p.m.
(New York time) on the Expiration Date shall be deemed void without
any further force or effect.
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b. In the event the average closing price of the Registrant's Common
Stock is less than the Exercise Price for the twenty (20) consecutive
trading days ending within five (5) trading days of the Commencement
Date, the Okun Parties shall cause to be deposited with Registrant's
transfer agent (the "Transfer Agent") within forty-five (45) days
from the Commencement Date, such amount of cash as shall be necessary
to pay the aggregate Exercise Price to the Holders. The cash shall be
deposited into an escrow account (the "Escrow Account") and subject
to the terms of an escrow agreement among the Okun Parties, the
Registrant and the Transfer Agent, which shall include provisions
ensuring the availability of the escrowed funds for distribution to
the Holders upon their exercise of the Put. All interest earned on
the funds deposited in the Escrow Account shall be paid to the Okun
Parties upon the fulfillment of all of the Put obligations.
c. In the event the Okun Parties are not required to so deposit the
Exercise Price under the terms of the Settlement Agreement, and the
Holders nevertheless exercise Puts, the Okun Parties shall cause to
be deposited with the Transfer Agent sufficient cash to pay the
Exercise Price for each Put exercised within thirty (30) days of
receipt of notice of such exercise.
d. Within sixty (60) days of receipt of the notice of exercise of a
Put properly verified by the Transfer Agent, and the accompanying
stock certificate of the Holder duly endorsed for transfer to
Ownership I or Ownership II, the Transfer Agent shall pay the
Exercise Price in good funds to the exercising Holder.
e. Other Conditions.
i. The Put shall be redeemable by the Registrant, in its discretion,
in the event of a default by the Okun Parties for $.001 per Put. Such
redemption shall not relieve the Okun Parties of any liability for
the default.
ii. The Put shall be nontransferable and shall attach to the shares
of Common Stock held by the Holders on the record date (the "Record
Date") established for the distribution of the Put. In the event a
Holder publicly sells his shares of Common Stock to which the Put is
attached at any time after the Record Date except upon exercise of
the Put, the Put shall be deemed cancelled with respect to such
shares. Each Holder shall be required to represent upon exercise of
the Put, that the shares delivered upon exercise of the Put have been
continually held by the Holder from the Record Date.
iii. In the event the average closing stock price of Registrant's
Common Stock is at least $1.25 per share with a minimum daily volume
of 75,000 shares for a period of forty-five (45) trading days,
whether or not consecutive in any sixty (60) day trading day period
at any time after the Effective Date but prior to the Commencement
Date, the Put shall be deemed cancelled.
f. Exemption from registration.
i. The parties contemplate that the issuance of the Put will be
exempt from registration pursuant to Section 3(a) (10) of the
Securities Act of 1933, as amended (the "Securities Act") and
applicable state securities laws and regulations. The parties agree
to cooperate in the fulfillment of the conditions to the exemption
including court approval and notice to shareholders.
ii. In the event an exemption under Section 3(a) (10) of the
Securities Act is not available, the parties agree to amend the
Settlement Agreement to allow for Securities Act compliance, subject
to their mutual agreement. The parties further agree that the issuer
of the Put shall not be required to comply with the reporting
obligations of the Exchange Act of 1934, as amended (the "Exchange
Act"), and in the event Exchange Act compliance is required, the
parties agree to deem the issuance of the Put not exempt for the
purposes of the Settlement Agreement.
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g. Security.
i. The Okun Parties shall secure their timely obligation to pay the
Exercise Price with all of the shares of Registrant securities held
by Ownership I and Ownership II on the Agreement Date (the "Okun
Securities"), and the Convertible Debenture or Convertible Preferred
Stock, as defined below (collectively, the "Security"). Registrant
shall have a first priority lien on the Security until the complete
fulfillment of the Put obligations by the Okun Parties.
ii. Ownership I and Ownership II shall be entitled to replace the
Security at any time with cash or, an irrevocable letter of credit
reasonably satisfactory to Registrant's board of directors equal to
$1.00 times the number of Puts outstanding (the "Security Minimum").
Ownership I and Ownership II shall also be entitled to sell the
Security for cash and deposit the cash in escrow as Security;
provided however, in the event the cash plus the market value of the
shares of Common Stock held as Security exceeds the Security Minimum,
Ownership I and Ownership II shall be entitled to withdraw the amount
of cash that exceeds the Security Minimum. In the event Ownership I
and Ownership II withdraws cash from the Security and the value of
the Security falls below the Security Minimum, Ownership I and
Ownership II shall contribute such amount of cash to the Security as
shall cause the value of the Security to equal the Security Minimum
up to the amount of cash withdrawn The value of the Security for the
purposes of determining the right to withdraw cash, or the obligation
to contribute cash, shall be determined monthly. Payments or
withdrawals shall be made within five business days.
iii. In the event the Okun Parties fail to pay the Exercise Price
upon exercise by the Holders as required by the Put, the Okun
Securities (including the Convertible Preferred Stock if issued)
shall be deemed surrendered for cancellation and the Convertible
Debenture shall be deemed fully paid.
2. On the Effective Date, the parties shall direct the escrow agent,
Signature Bank New York, to pay to Ownership I all of the funds on
deposit by the Okun Parties under the Escrow Agreement executed and
delivered pursuant to the May 5, 2006 Merger Agreement by and among
Registrant, Ownership I and AcquisitionCo. Within ninety (90) days of
the Effective Date, the Okun Parties shall invest $2.0 million in the
Registrant to be used to fund the Registrant's broker-dealer
operations in such manner as determined by the Registrant's board of
directors. Registrant shall issue to the Okun Parties, at their sole
option, either a convertible debenture (the "Convertible Debenture")
in such principal amount or a new series of convertible preferred
stock (the "Convertible Preferred Stock") with an aggregate par value
equal to $2.0 million.
a. The Convertible Debenture or Convertible Preferred Stock shall be
convertible into shares of Common Stock at a conversion price equal
to $.75 per share, commencing on the fulfillment, or cancellation, of
all Put obligations by the Okun Parties, according to the terms of
the Put.
b. The Convertible Debenture or Convertible Preferred Stock shall
accrue interest or cumulative dividends, as the case may be,
commencing on the date of issuance at a rate equal to 12% per annum,
payable, at the option of the Company, in cash or shares of the
Company's Common Stock evaluated at the closing price of the Common
Stock on the last trading day immediately preceding the date of
payment.
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c. In the event the Okun Parties fail to purchase the Convertible
Debenture or Convertible Preferred Stock, the Okun Securities shall
be deemed surrendered for cancellation and the Convertible Debenture
shall be deemed fully paid.
3. Upon the Agreement Date, Louis J. Rogers ("Rogers") shall be
appointed Chief Executive Officer and a director of the Registrant.
Mr. Rogers shall enter into an employment agreement on mutually
agreeable terms to serve as Chief Executive Officer of the
Registrant, which agreement shall include negative and restrictive
covenants for the period commencing on the date of employment and
terminating one year after termination of employment for any reason.
See Item 5.02(c) below. Mr. Rogers shall report to the board of
directors of the Registrant.
4. Upon the Agreement Date, Mr. Kurylak shall enter into a
modification of his existing employment agreement expiring
December 31, 2007 with the Registrant. Such employment agreement
shall be on the same terms and conditions of Mr. Kurylak's existing
employment agreement except Mr. Kurylak's title and position shall be
President of the Registrant and President and Chief Executive Officer
of First Montauk Securities Corp., the Registrant's principal
subsidiary, reporting jointly to Mr. Rogers and the board of
directors of Registrant. The agreement shall include a one year
severance provision for termination of Mr. Kurylak's employment,
before or after the expiration of the term of his employment
agreement for any reason, under which Mr. Kurylak shall receive base
compensation and benefits for one year after the termination of
employment. The Okun Parties agree to nominate Mr. Kurylak and vote
the Okun Securities for Mr. Kurylak's election to the board of
directors during the term of his employment.
5. Upon the purchase of the Convertible Debenture or Convertible
Preferred Stock, the Okun Parties shall designate three additional
nominees to Registrant's board of directors, who shall thereupon be
appointed to the board.
6. Subsequent to the purchase of the Convertible Debenture or
Convertible Preferred Stock by the Okun Parties, all of the
independent members of Registrant's board of directors shall either
resign from the board or agree not to stand for reelection at
Registrant's next annual meeting of shareholders.
7. Upon the Effective Date, the lease between Water View and
Registrant shall be deemed void.
8. Registrant shall agree to conduct a shareholders' meeting for the
election of Registrant's Class II and Class III directors in a timely
manner after the purchase of the Convertible Debenture or Convertible
Preferred Stock contemplated under the Settlement Agreement. The
nominees for directors shall include Mr. Okun's nominees and such
other nominees as determined by the board on or after the Effective
Date.
9. For a period of five (5) years after the Effective Date,
Registrant shall agree to indemnify and hold harmless any and all
former officers and directors of Registrant against any claims or
liabilities arising out of their positions with Registrant, the
execution of the Settlement Agreement or any other related matters
arising during their affiliation with Registrant, to the extent they
would otherwise be entitled to indemnification under Registrant's
Certificate of Incorporation and By-Laws, as amended to date.
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10. Upon the Effective Date, the Actions shall be dismissed with
prejudice and the parties shall exchange general releases.
11. The Settlement Agreement and the general releases shall be
subject to approval of the federal and state courts in which the
Actions are pending, as well as federal, state and self regulatory
bodies as required; and negotiation, execution and delivery of all
documents necessary to effectuate the transaction. The parties agree
to proceed in good faith to take all such actions as are required to
receive necessary court approvals and negotiate, execute and deliver
the required documentation. If one or more of the courts in which the
Actions are pending, do not approve the Settlement Agreement or fail
to rule thereon prior to August 31, 2007, the Settlement Agreement
shall terminate ab initio.
Until the purchase of the Convertible Debenture or Convertible
Preferred Stock, neither the Okun Parties nor Registrant shall
purchase or sell, or agree directly or indirectly to purchase or
sell, any securities of Registrant.
The Okun Parties and Registrant shall bear their own costs and
expenses (including expenses of Representatives) incurred in
connection with this transaction. Registrant's expenses shall include
the costs of indemnification of officers and directors. The Okun
Parties shall not request legal fees in the derivative action pending
in the United States District Court, District of New Jersey, Civil
Action No. 07cv00725.
The Settlement Agreement has been approved by the New Jersey
Superior Court.
This foregoing summary of the Settlement Agreement is qualified in
its entirety by reference to full text of The Settlement Agreement,
which is filed as Exhibit 10.1 to this Current Report on Form 8-K.
Item 5.02 Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers
(b) As of May 9, 2007, Mr. Kurylak and Registrant executed an Amended and
Restated Employment Agreement ("Amended Employment Agreement"). The Amended
Employment Agreement was executed in connection with the execution of the
Settlement Agreement. Pursuant to the Amended Employment Agreement, Mr.
Kurylak will continue his employment by Registrant as President of
Registrant and also President and Chief Executive Officer of First Montauk
Securities Corp., the Registrant's broker-dealer subsidiary. Mr. Kurylak
will resign, however, from the position of Chief Executive Officer of
Registrant. In this modified capacity, Mr. Kurylak will report to the Chief
Executive Officer of Registrant and Registrant's board of directors. In
addition, Mr. Kurylak will continue to serve as a member of the board of
directors of Registrant during the term of his employment.
The Amended Employment Agreement will expire on December 31, 2007
("Term"), subject to renewal for one additional period of one year unless
Registrant provides written notice of its intention not to renew the
Amended Employment Agreement at least 120 days prior to December 31, 2007.
During the term of the Amended Employment Agreement, Mr. Kurylak will be
compensated at the rate of $300,000 on an annualized basis. He is eligible
for customary fringe benefits and to participate in Registrant's executive
bonus pool.
In the event of the termination of Mr. Kurylak's employment by Registrant
without "cause" or by Mr. Kurylak for "good reason" as these terms are defined
in the Amended Employment Agreement, he would be entitled to: (a) all
compensation accrued but not paid as of the termination date; (b) base salary
for the remainder of the Term; (c) a severance payment equal to $300,000 payable
in a lump sum payment; (d) continued participation in Registrant's benefit plans
(or comparable plans); and (e) any applicable bonus. If Mr. Kurylak's employment
is terminated by Registrant for "cause" or by him without "good reason", he will
be entitled only to accrued compensation. If termination of the Amended
Employment Agreement occurs as a result of the expiration of such agreement
without renewal by Registrant at the end of the Term, Mr. Kurylak will be
entitled to the accrued compensation, any applicable bonus and the severance
payment.
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In the event Mr. Kurylak is a member of the board of directors of Registrant on
the termination date, the payment of any and all compensation due under the
Amended Employment Agreement, except the accrued compensation, is expressly
conditioned on Mr. Kurylak's resignation from the board of directors of
registrant within five (5) business of the termination date.
The Amended Employment Agreement contains confidentiality obligations that
survive indefinitely and non-solicitation and non-competition obligations that
end on the first anniversary of the date of cessation of Mr. Kurylak's
employment.
The foregoing description of Mr. Kurylak's Amended Employment Agreement is
qualified in its entirety by reference to the full text of the Amended
Employment Agreement, which is filed as Exhibit 10.2 to this Current Report on
Form 8-K
(c) On May 8, 2007, Registrant entered into the Settlement Agreement pursuant
to which Mr. Rogers is being appointed Chief Executive Officer and a
director of Registrant. Registrant and Mr. Rogers shall enter into an
employment agreement on mutually agreeable terms.
Biographical Information:
Mr. Rogers, age 50, is the former President, director and founding
member of Triple Net Properties, LLC, a wholly-owned subsidiary of
NNN Realty Advisors, Inc., a nationwide real estate asset firm.
Triple Net offers a full range of commercial real estate investments,
including tenant-in-common (TIC) programs for investors structuring
tax-deferred (like-kind) exchanges under Section 1031 of the Internal
Revenue Code, real estate investment trusts (REITs), funds, and
institutional investments. As a partner with the Hirschler Fleischer
law firm in Richmond, Virginia (1987-2004), Mr. Rogers structured
real estate transactions as head of the firm's Real Estate Securities
Practice Group. Mr. Rogers is experienced in REITs, Section 1031/TIC
programs, funds and other alternative investment programs. He earned
a J.D. from the University of Virginia (1984), a B.A. (with Honors)
and M.A. in Jurisprudence from Wadham College, Oxford University
(1981, 1985), and a B.A. in Political Science from Northeastern
University (1979). Mr. Rogers is active in many real estate
securities trade groups, having served as Chair of the Investment
Program Association (direct placement trade association) Section 1031
Exchange Committee, founding and current Director and former Chair of
the Legislative and Regulatory Committee of TICA (the TIC trade
association), former member of the Board of Governors of the Real
Property Section of the Virginia State Bar and former member of the
Real Estate Committee of the American Bar Association's Tax Section.
Mr. Rogers is a NASD - registered principal holding Series 7, 22, 24
and 63 licenses.
Item 8.01 Other Events
On May 9, 2007, the Registrant issued a press release announcing
the Settlement Agreement with the Okun Parties. A copy of this
press release is attached as Exhibit 99.1 to this Current Report.
Exhibit 99.1 is being "furnished" and shall not be deemed "filed"
for purposes of Section 18 of the Securities Exchange Act of 1934,
nor shall it be deemed incorporated by reference in any filing
under the Securities Act of 1933 or the Securities Exchange Act of
1934, except as shall be expressly set forth by specific reference
in such filing.
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Item 9.01 Financial Statements and Exhibits
(c) Exhibits
The following exhibits are filed or furnished herewith:
10.1 Settlement Agreement, dated as of May 8, 2007, among the
Registrant, Edward H. Okun, Investment Properties of
America, LLC, IPofA Water View, LLC, FMFG Acquisition
Co., FMFG Ownership I, FMFG Ownership II, Victor Kurylak,
Ward R. Jones, Jr., Barry Shapiro, David Portman and Mindy
Horowitz
10.2 Amended and Restated Employment Agreement dated as of
May 9, 2007 between Victor Kurylak and the Registrant
99.1 Press Release dated May 9, 2007
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report on Form 8-K to be signed on its
behalf by the undersigned hereunto duly authorized.
FIRST MONTAUK FINANCIAL CORP.
By: /s/ Victor K. Kurylak
--------------------------------
Name: Victor K. Kurylak
Title: President
Date: May 11, 2007
EXHIBIT INDEX
Exhibit Description
Number
10.1 Settlement Agreement, dated as of May 8, 2007, among the
Registrant, Edward H. Okun, Investment Properties of America,
LLC, IPofA Water View, LLC, FMFG AcquisitionCo., FMFG
Ownership I, FMFG Ownership II, Victor Kurylak, Ward R.
Jones, Jr., Barry Shapiro, David Portman and Mindy Horowitz
10.2 Amended and Restated Employment Agreement dated as of
May 9, 2007 between Victor Kurylak and the Registrant
99.1 Press Release dated May 9, 2007
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