Exhibit 10.1
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (this "Agreement") is made as of this 7th
day of December, 2007 by and among First Montauk Financial Corp., a New Jersey
corporation (the "Company"), and AEFC FMFK Investment Corp., a Delaware
corporation (the "Purchaser").
Intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
Sale and Purchase of Note; Closing.
Section 1.1 Purchase of the Note. The Company has authorized the issuance of its
10% Convertible Secured Note due December 31, 2008 in the aggregate principal
amount of up to $2,000,000 in the form attached hereto as Exhibit A (the
"Note"). The Note issued hereunder will bear interest on its unpaid principal
amount at a rate of 10% per annum (except for a default rate of interest as
provided in the Note), calculated for the actual number of days the principal is
outstanding based on a 360-day year. The principal of the Note and all accrued
and unpaid interest thereon shall be payable in full on December 31, 2008. The
Note may be converted at any time on or after July 1, 2008, and from time to
time thereafter, at the option of the owner thereof (a "Holder"), into shares
(the "Conversion Shares") of the Company's common stock, no par value per share
(the "Common Stock"), in accordance with the terms thereof. The Note, Conversion
Shares and the Warrants, as defined below, are herein collectively referred to
as the "Securities".
Section 1.2 Pledge Agreement. As collateral for all of the Company's obligations
owing to the Holder under the Note and hereunder, the Company shall pledge all
of its stock in the Subsidiaries (as defined herein) to Holder pursuant to the
Pledge Agreement in the form attached hereto as Exhibit B (the "Pledge
Agreement").
Section 1.3 Warrants. In the event the Company (i) does not draw the full
$2,000,000 principal amount available under the Note, and (ii) the Note has not
been prepaid by July 1, 2008, the Company will issue to the Purchaser a warrant
to purchase four shares of Common Stock, at an exercise price of $0.35 per
share, as adjusted, for each one dollar of principal amount available but not
drawn upon under the Note, which warrant shall be in the form attached hereto as
Exhibit C (the "Contingent Warrant"). The Warrant term shall be from the date of
issuance to December 31, 2008, or December 31, 2012 in the event the Company
defaults in the payment of the Note. In the event the Company elects to prepay
its obligations under the Note, the Company will issue the Purchaser a warrant
to purchase that number of shares of Common Stock as provided for in the Note,
at an exercise price of $0.35 per share, as adjusted, which warrant shall be in
the form attached hereto as Exhibit D (the "Prepayment Warrant").
Section 1.4 Purchase and Sale of Note. Subject to the terms and conditions set
forth herein, upon the execution hereof, the Company agrees to sell, issue and
deliver to the Purchaser the Note and the Purchaser agrees to purchase such Note
for the aggregate purchase price of $1,000,000, subject to further draws by the
Company pursuant to the terms of the Note to increase the aggregate purchase
price up to $2,000,000.
Section 1.5 Closing. Subject to the satisfaction or waiver of the conditions set
forth in this Agreement, the closing of the purchase and sale of the Note (the
"Closing") shall take place at the offices of the Company, at 10:00 a.m. on
December 7, 2007, or at such other place and time and date as the parties hereto
may agree (the date of such closing is the "Closing Date").
ARTICLE II
Conditions to the Purchaser's Obligations at Closing
The obligations of the Purchaser to purchase the Note at Closing, and
to make additional advances pursuant to a Draw Notice (as defined in the Note)
are subject to the fulfillment or written waiver at or before the Closing Date
or any Funding Date (as defined in Note) of each of the conditions set forth in
this Article II.
Section 2.1 Representations and Warranties. The representations and warranties
of the Company contained in Article IV shall be true at and as of the Closing
Date and each Funding Date with the same effect as though they had been made on
and as of such date.
Section 2.2 Performance. The Company shall have performed and complied in all
material respects with all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with at or before
the Closing Date and each Funding Date.
Section 2.3 Shareholders' Rights Plan. At or prior to the Closing Date, the
Company shall have amended the Company's Shareholders' Rights Plan dated August
8, 2007 (the "Rights Plan"), to provide that the acquisition of any of the
Company's shares by the Purchaser as a result of (i) the exercise of the
conversion of the Note, (ii) the exercise of the Contingent Warrant or the
Prepayment Warrant by the Purchaser or (iii) the purchase of up to 3,300,308
shares of the Company's Common Stock from Eward H. Okun ("Okun"), or his
affiliates, will not constitute an Acquiring Person, as defined in the Rights
Plan.
Section 2.4 Compliance Certificate. The President of the Company shall have
delivered to the Purchaser at Closing and on each Funding Date a certificate
certifying that the conditions specified in Section 2.1, 2.2 and 2.3 have been
fulfilled.
ARTICLE III
Representations, Warranties and Further Agreements of the Purchaser
As a material inducement to the Company to enter into this Agreement
and to consummate the transactions contemplated hereby, Purchaser makes the
following representations and warranties to the Company:
Section 3.1 Restrictive Securities. The Purchaser hereby acknowledges,
understands and agrees that:
(a) the Securities have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), or any state securities laws,
and no Securities may be transferred unless (a) they are subsequently
registered thereunder (including all applicable state securities laws),
(b) an exemption from the registration requirement of the Securities
Act is available or (c) they are sold pursuant to Rule 144 promulgated
under the Securities Act (or a successor rule);
(b) the certificates representing any of the Securities may bear a
restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such Securities):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS. THESE
SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT AND NOT WITH A VIEW TO, OR
IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES AND BLUE SKY LAW.
Section 3.2 Accredited Investor Representations.
(a) The Purchaser understands that no federal or state agency has made any
findings or determination as to the fairness of the offering of the
Note for investment, or any recommendation or endorsement of the
Securities.
(b) The Purchaser understands that there is no established market for any
of the Securities and that there is no guarantee for any such future
market.
(c) The Purchaser is acquiring the Note (and any other Securities resulting
therefrom) for its own account for investment purposes only and not
with a view to the resale or distribution thereof.
(d) The Purchaser is acquiring the Note without having relied upon any
offering literature or prospectus and the Purchaser has such knowledge
and experience in financial, business and tax matters that the
Purchaser is capable of competently evaluating the merits and risks
relating to the Purchaser's investment in the Note and making an
investment decision with respect to the Company.
(e) The Purchaser has fully reviewed and is familiar with all of the
information in the SEC Reports, as defined below, and acknowledges that
the Company has made available at a reasonable time prior to
Purchaser's investment the opportunity to ask questions and receive
answers concerning the terms and conditions of this Agreement and to
obtain any additional information that the Company possesses or can
acquire, without unreasonable effort or expense, that is necessary to
evaluate an investment in the Company.
(f) The Purchaser is aware that there are substantial risks attendant to
the purchase of the Note.
(g) The Purchaser has adequately analyzed the risks of the purchase of the
Note and has determined that the Note is a suitable investment for the
Purchaser and that the Purchaser is able at this time, and in the
foreseeable future, to bear the economic risk of a total loss of its
investment in the Company.
(h) The Purchaser is an "accredited investor" within the meaning of Rule
501 of Regulation D of the Act as presently in effect and is purchasing
the Securities for its own account and not with a view toward public
distribution.
(i) The Purchaser understands that the Note is being offered and sold to it
in reliance upon specific exemptions from the registration requirements
of federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and the Purchaser's compliance with,
the representations, warranties, agreements, acknowledgments and
understandings of the Purchaser set forth herein in order to determine
the availability of such exemptions and the eligibility of the
Purchaser to acquire the Note.
(j) The Purchaser shall use all reasonable efforts to obtain and furnish
the information required to be included in the application (the "FINRA
1017 Application") pursuant to Rule 1017 of the rules and regulations
of the Financial Industry Regulatory Authority ("FINRA").
ARTICLE IV
Representations and Warranties of the Company
As a material inducement to Purchaser to enter into this Agreement and
to consummate the transactions contemplated hereby, the Company hereby makes the
following representations and warranties regarding the Company and its
Subsidiaries (as defined herein):
Section 4.1 Organization and Standing of the Company. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the State of New Jersey and has all requisite corporate power and authority for
the ownership and operation of its properties and for the carrying on of its
business as now conducted and as now proposed to be conducted and to execute and
deliver this Agreement and documents related hereto, to issue, sell and deliver
the Note and to issue and deliver the other Securities and to perform its other
obligations pursuant hereto and thereto. The Company is duly licensed or
qualified and in good standing as a foreign corporation authorized to do
business in all jurisdictions wherein the character of the property owned or
leased or the nature of the activities conducted by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not have a Material Adverse Effect on the Company. The term "Material
Adverse Effect" shall mean any change, event, circumstance or effect that is
materially adverse to the business, assets, financial condition or results of
operations of such entity that was not noted as a schedule to this Agreement.
Section 4.2 Corporate Action. This Agreement and the other agreements executed
in connection herewith have been duly authorized, executed and delivered by the
Company and constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms. The
issuance, sale and delivery of the Note and the issuance and delivery of the
warrants, and Conversion Shares upon conversion of the Note or exercise of the
warrants have been duly authorized by all required corporation action; and the
Conversion Shares have, as of the Closing, been duly reserved for issuance upon
conversion of the Note, assuming full funding under the Note, and, when so
issued, will be duly authorized, validly issued, fully paid and nonassessable
with no personal liability attaching to the ownership thereof and will be free
and clear of all liens, charges, restrictions, claims and encumbrances imposed
by or through the Company except as set forth in this Agreement.
Section 4.3 Subsidiaries. Except as set forth on Schedule 4.3, the Company does
not own, directly or indirectly, any outstanding voting securities of or other
interests in, or control, any other corporation, partnership, joint venture or
other business entity. Schedule 4.3 sets forth, with respect to each entity
listed thereon, (i) the number of authorized shares or interests of each class
of its capital stock or equity, (ii) the number of issued and outstanding shares
or interest of each class of capital stock or equity, (iii) the number of shares
or interest of each class of its capital stock or equity which are held in
treasury. (Each entity listed on Schedule 4.3 in which the Company, directly or
indirectly owns fifty percent (50%) or more of the issued and outstanding shares
of capital stock or equity interests is referred to herein individually as a
"Subsidiary" and collectively as the "Subsidiaries" and each entity listed on
Schedule 4.3 in which the Company, directly or indirectly owns less than fifty
percent (50%) all of the issued and outstanding shares of capital stock or
equity interests is referred to herein as a "Partially Owned Subsidiary"). Each
Subsidiary is an entity duly organized, validly existing and in good standing
under the laws of the state of its organization. Each Subsidiary has the
requisite power and authority to own or lease its property and to carry on its
business as now being conducted. Each Subsidiary is legally qualified to
transact business as a foreign entity corporation in all jurisdictions where the
nature of its property and the conduct of its business requires such
qualification (all of which jurisdictions are listed on Schedule 4.1), except
where the failure to be so qualified would not reasonably be expected to have a
Material Adverse Effect. There is no pending or to the knowledge of the Company
threatened proceeding for the dissolution, liquidation, insolvency or
rehabilitation of any Subsidiary. Except as set forth on Schedule 5.3, the
Company does not have any liabilities or obligations, whether accrued, absolute,
contingent or otherwise, arising from its interest in the Partially Owned
Subsidiaries.
Section 4.4 Governmental Approvals. Except for the filing of any notice prior or
subsequent to the Closing Date that may be required under applicable state
and/or Federal securities laws (which, if required, shall be filed on a timely
basis), no authorization, consent, approval, license, exemption of or filing or
registration with any court of governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution and delivery by the Company of this
Agreement, for the offer, issue, sale, execution or delivery of the Note, or for
the performance by the Company of its obligations under this Agreement or the
agreements and instruments contemplated hereby.
Section 4.5 Compliance with Other Instruments. The Company and each Subsidiary
is in compliance in all respects with the terms and provisions of its charter,
by-laws, and other organizational documents, each as amended and/or restated to
date, and in all respects with the terms and provisions of all mortgages,
indentures, leases, agreements and other instruments by which it is bound or to
which it or any of its properties or assets are subject, except for such
noncompliance which, individually or in the aggregate, would not have a Material
Adverse Effect on the business, financial condition or prospects of the Company
and its Subsidiaries. The Company and each Subsidiary is in compliance in all
material respects with all judgments, decrees, governmental orders, laws,
statutes, rules or regulations by which it is bound or to which it or any of its
properties or assets are subject. Neither the execution, issuance and delivery
of this Agreement, the Note or any other Security, nor the consummation of any
transaction contemplated hereby or thereby, has constituted or resulted in or
will constitute or result in a default or violation of any term or provision of
any of the foregoing documents, instruments, judgments, agreements, decrees,
orders, statutes, rules and regulations.
Section 4.6 Securities Laws. The Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
issuance and sale of the Securities. Neither the Company nor anyone acting on
its behalf has or will sell, offer to sell or solicit offers to buy the Note or
similar securities to, or solicit offers with respect thereto from, or enter
into any preliminary conversations or negotiations relating thereto with, any
Person, so as to bring the issuance and sale of the Note, any other Security,
under the registration provisions of the Securities Act and applicable state
securities laws. As used herein, "Person" shall mean and include an individual,
a partnership, a corporation, a business trust, a joint stock company, a limited
liability company, an unincorporated association or other entity and any
domestic or foreign national, state or local government, any political
subdivision thereof, and any department, agency, authority or bureau of any of
the foregoing.
Section 4.7 SEC Reports; Financial Statements. The Company has filed all reports
required to be filed by it under the Securities Act and the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), including pursuant to Section
13(a) or 15(d) thereof, for the twelve months preceding the date hereof (or such
shorter period as the Company was required by law to file such reports) (the
foregoing materials being collectively referred to herein as the "SEC Reports")
on a timely basis or has timely filed a valid extension of such time of filing
and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations of the Securities and Exchange Commission (the
"SEC") promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the SEC with respect thereto as in effect at the time
of filing. Such financial statements have been prepared in accordance with
generally accepted accounting principles in the United States applied on a
consistent basis during the periods involved ("GAAP"), except as may be
otherwise specified in such financial statements or the notes thereto, and
fairly present in all material respects the consolidated financial position of
the Company and its consolidated Subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments.
Section 4.8 No Material Adverse Change. Since November 14, 2007, (a) there has
been no change in the assets, liabilities or financial condition of the Company
and its Subsidiaries from that reflected in the financial statements included in
the SEC Reports, except for changes in the ordinary course of business which in
the aggregate have not been materially adverse, and (b) there has not been any
events, occurrences or developments that, individually or in the aggregate, has
had or can reasonably be expected to have a Material Adverse Effect.
Section 4.9 Broker-Dealer Registration. First Montauk Securities Corp. ("FMSC")
is registered under the Exchange Act as a broker-dealer with the SEC, is a duly
qualified member in good standing of the FINRA, and is duly qualified or
registered as a broker-dealer in each jurisdiction where the failure to be so
qualified or registered would have a Material Adverse Effect on FMSC or the
Company.
Section 4.10 Employee Licenses. Each of FMSC's officers, directors and employees
hold all required registrations, licenses, permits and approvals of any
governmental and/or regulatory entity that are necessary for FMSC to remain a
member in good standing of the FINRA and to carry out in all material respects
its business as it is presently conducted.
Section 4.11 Required Licenses. Neither the Company nor any of its Subsidiaries
other than FMSC is required to be registered or qualified as a broker-dealer
with the SEC or in any jurisdiction where the failure to be so registered or
qualified would have a Material Adverse Effect on the Company or FMSC,
individually or in the aggregate.
Section 4.12 Form B-D. A true, correct and complete copy of the most recent Form
BD filed by FMSC with the SEC is attached hereto as Exhibit 4.12 and is current
as of the date hereof and is accurate in all material respects.
Section 4.13 Investment Advisers Act Compliance. FMSC is registered under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), with the SEC
and is duly qualified or registered as an investment adviser in each
jurisdiction where the failure to be so qualified or registered would have a
Material Adverse Effect.
Section 4.14 No Additional Qualification. Neither the Company nor any of its
Subsidiaries other than FMSC is required to be registered or qualified as an
investment adviser with the SEC or in any jurisdiction where the failure to be
so registered or qualified would have a Material Adverse Effect, individually or
in the aggregate.
Section 4.15 Form ADV. A current true, correct and complete copy of the most
recent Form ADV Part I and Part II of FMSC is attached as Exhibit 4.15, and such
Form ADV is accurate in all material respects.
Section 4.16 Advisors Act Compliance. Except as set forth in an attachment to
this Agreement as Exhibit 4.15, FMSC has delivered or has offered to deliver its
Form ADV Part II to all of its investment advisory clients, as required by the
Advisers Act and the rules and regulations promulgated thereunder and all other
applicable laws.
Section 4.17 Intentionally omitted.
Section 4.18 No Political Contributions. To the knowledge of the Company, none
of the Company, FMSC any of its other Subsidiaries, or any municipal finance
professional associated with the Company, FMSC or any of its other Subsidiaries
has made or may reasonably be deemed to have made any political contributions in
violation of Municipal Securities Rulemaking Board ("MSRB") Rule G-37 or other
rules or regulations applicable to the Company, FMSC or any of its other
Subsidiaries. To the knowledge of the Company, FMSC has made appropriate MSRB
disclosure concerning all other applicable political contributions made by
individuals and entities employed by or associated with FMSC.
Section 4.19 No Reportable Events. Except as set forth on FMSC's form BD, no
FINRA, SEC or MSRB "reportable events" (which constitute such events and
occurrences that, under applicable law and the rules and regulations of FINRA,
the SEC or the MSRB, must be reported or disclosed to FINRA, the SEC or the
MSRB, as applicable, either directly or through the amendment of Form BD, Form
ADV or other required relevant publicly filed documents or disclosures) of a
direct or indirect nature have occurred with regard to FMSC since January 1,
2007.
Section 4.20 Net Capital Compliance. FMSC has always maintained and currently
has the minimum net capital required by all laws promulgated by the SEC, FINRA
and any other self-regulatory organizations applicable to the conduct of FMSC's
business. As of the date of the most recent FOCUS report, its net capital is
$734,107.
Section 4.21 FINRA 1017 Application. The Company shall properly prepare and file
the FINRA 1017 Application within thirty days of the Closing. The Company shall
use all reasonable efforts to obtain and furnish the information required to be
included in the FINRA 1017 Application.
ARTICLE V
Covenants of the Company After Closing
Section 5.1 Reservation of Shares. The Company shall at all times have
authorized and reserved, for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the issuance of Conversion Shares
underlying the then outstanding aggregate principal amount of the Note, and any
warrants issued pursuant thereto.
Section 5.2 Financial Statements. The Company and its Subsidiaries shall
maintain a system of accounts in accordance with GAAP, keep full and complete
financial records, and furnish upon request to Purchaser the following reports:
(a) within 90 days after the end of each fiscal year, an audited
consolidated balance sheet of the Company and its Subsidiaries as at
the end of such year, together with an audited income statement and
other related audited statements of operations and cash flows of the
Company and its Subsidiaries for such year, examined and reported upon
by an independent accounting firm, prepared in accordance with GAAP
consistently applied; and
(b) within 45 days after the end of each fiscal quarter, unaudited
consolidated balance sheets and statements of operations and cash flows
of the Company and its Subsidiaries, such balance sheets to be as of
the end of such quarter and such statements of operations and cash
flows to be both for the year-to-date period as of the end of such
quarter and for the quarter, certified by the Chief Executive Officer
and Chief Financial Officer of the Company.
Section 5.3 Further Covenants of the Company. The Company covenants and agrees
that, so long as the Note remains outstanding and unpaid, in whole or in part:
(a) The Company will not, and will not permit any of its Subsidiaries to,
sell, transfer or in any other manner alienate or dispose of all or
substantially all of its assets; provided, however, that the Company or
any of its Subsidiaries may effect such a transaction if the payment of
the Note is duly provided for from such sale proceeds;
(b) The Company will not, and will not permit any of its Subsidiaries to,
mortgage, pledge, grant or permit to exist a security interest in, or
other lien claim or encumbrance (a "Lien") upon, all or any portion of
the Company's or any Subsidiary's assets now owned or hereafter
acquired, except (a) Liens in favor of the Purchaser, (b) any Liens on
any property or asset of the Company or any Subsidiary existing on the
Closing Date as set forth on Schedule 5.3, and (c) Liens created in
favor of lenders providing purchase money financing for such assets;
(c) The Company will, and will cause each of its Subsidiaries to,
promptly pay and discharge all lawful taxes, assessments and
governmental charges or levies imposed upon it, its income and
profits, or any of its property, before the same shall become in
default, as well as all lawful claims for labor, materials
and supplies which, if unpaid, might become a lien or charge upon
such properties or any part thereof. However, the Company or such
Subsidiary shall not be required to pay and discharge any such
tax, assessment, charge, levy or claim so long as the validity
thereof shall be contested in good faith by appropriate proceedings
and the Company or such Subsidiary, as the case may be, shall set
aside on its books adequate reserves with respect to any such tax,
assessment, charge, levy or claim so contested;
(d) The Company will, and will cause each of its Subsidiaries to, do or
cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence, rights and franchises and
comply with all laws applicable to the Company and such Subsidiary as
its counsel may advise;
(e) The Company will, and will cause each of its Subsidiaries to, at all
times maintain, preserve, protect and keep its property used or useful
in the conduct of its business in good repair, working order and
condition and will, from time to time, make all necessary and proper
repairs, renewals, replacements, betterments and improvements thereto;
(f) The Company will, and will cause each of its Subsidiaries to, keep
adequately insured, by financially sound reputable insurers, all
property of a character usually insured by similar corporations and
carry such other insurance as is usually carried by similar
corporations;
(g) The Company will, promptly following the occurrence of an Event of
Default or of any condition or event which, with the giving of notice
or the lapse of time or both, would constitute an Event of Default,
furnish a statement of the Company's President or Chief Financial
Officer to Purchaser setting forth the details of such Event of Default
or condition or event and the action which the Company intends to take
with respect thereto;
(h) The Company will, and will cause each of its Subsidiaries to, at all
times maintain books of account in which all of its financial
transactions are duly recorded in conformance with generally accepted
accounting principles;
(i) The Company covenants and agrees that it will at all times reserve and
keep available out of its authorized capital stock such number of
shares of Common Stock of the Company as may be required for issuance
upon conversion of the Note and any warrant issued pursuant thereto;
and
(j) The Company will not, and will not permit any of its Subsidiaries to,
make any loan to any executive officer or any person who is or becomes
a holder of 5% of the capital stock of the Company, other than for
reasonable advances for expenses in the ordinary course of business.
Section 5.4 Purchaser Representative. The Purchaser shall have the right to
designate a representative, of the Purchaser to attend all Board Meetings of the
Board of Directors of the Company, as an observer only and to receive all
information and Board packages and documents that Board Members receive. The
Purchaser has the right to appoint a substitute to attend any such meetings at
any time and from time to time. The representative must be reasonably acceptable
to the Company and shall execute a confidentiality agreement prior to the
receipt of any information or the attendance at any meeting. The Company
acknowledges that the Chief Executive Officer and Chief Operating Officer of
Purchaser are acceptable to the Company, who, as of the Closing Date, are
Messrs. Dwight Badger and Joel Marks respectively.
Section 5.5 Amendment of Certificate of Incorporation and By-Laws. As long as
the Note remains outstanding, the consent of the Purchaser shall be required for
amending or repealing any provision of the Company's or any Subsidiaries'
charter, bylaws or other organizational documents, that adversely affects the
Note, or Purchaser's interests with respect to the other Securities.
Section 5.6 Audit. The Company shall permit the independent auditors of the
Purchaser to perform an audit of the Company's financial statements in the event
such is required by the Purchaser's investment bankers.
Section 5.7 Okun Meeting. The Company shall assist the Purchaser in arranging a
meeting with Okun on or before January 31, 2008.
ARTICLE VI
Events of Default; Remedies and Special Payment
Section 6.1 Events of Default. It shall be an "Event of Default" if:
(a) default shall be made in the payment of any installment of interest on
the Note when and as the same shall become due and payable, and such
default shall have continued for a period of 10 days thereafter;
(b) default shall be made in the payment of any principal of the Note or
any part thereof when and as the same shall become due and payable,
either at maturity or at a date fixed for payment or prepayment or by
an Acceleration (as defined below) or otherwise;
(c) default in any material respect shall be made in the due performance or
observance of any other covenant, agreement or provision set forth
herein, including, without limitation, or in the Note, and such default
or breach shall have continued for a period of 15 days after receipt by
the Company of written notice thereof from any Holder;
(d) a material breach shall exist in any representation or warranty
contained herein or therein when made;
(e) the Company shall (i) apply for or consent to the appointment of a
receiver, trustee or liquidator for it or any of its property,
(ii) admit in writing its inability to pay its debts as they mature,
(iii) make a general assignment for the benefit of creditors, (iv)
be adjudicated a bankrupt or insolvent or (v) file a voluntary
petition in bankruptcy, a petition or answer seeking
reorganization or an arrangement with creditors to take advantage of
any bankruptcy, reorganization, insolvency, readjustment
of debt, dissolution or liquidation law or statute, or an answer
admitting the material allegations of a petition filed against it in
any proceeding under any such law or (vi) take corporate action
for the purpose of effecting any of the foregoing; or
(f) an involuntary petition in bankruptcy shall be filed against the
Company or similar involuntary proceedings shall be commenced against
it under any law relating to bankruptcy, reorganization, insolvency,
readjustment of debt or liquidation, or a receiver, trustee, or
liquidator shall be appointed without its consent for it or any of its
property, and, in any such case, (i) an order for relief or similar
order is entered, or (ii) such a proceeding shall not have been
dismissed within 90 days after its commencement or (iii) the receiver,
trustee, or liquidator shall not have been discharged within 90 days
after his appointment.
Section 6.2 Remedies. If an Event of Default shall occur and be continuing, the
Holder of the Note may declare the unpaid principal of the Note, with accrued
and unpaid interest thereon, to be forthwith due and payable (an
"Acceleration"), whereupon such principal and interest shall be due and payable
without presentation, protest or further demand or notice of any kind, all of
which are hereby expressly waived, if such Event of Default shall not have been
fully cured prior thereto. The obligation, if any, of Purchaser to extend any
further credit under the Note shall immediately cease and terminate and Holder
shall have all rights, powers and remedies available under each the Note, the
Pledge Agreement, and this Agreement, or accorded by law, including without
limitation the right to resort to any or all security for any credit subject
hereto and to exercise any or all of the rights of a beneficiary or secured
party pursuant to applicable law. All rights, powers and remedies of Purchaser
may be exercised at any time by Purchaser and from time to time after the
occurrence of an Event of Default, are cumulative and not exclusive, and shall
be in addition to any other rights, powers or remedies provided by law or
equity. Notwithstanding any other provision of this Agreement, the Note, the
Pledge Agreement or any other document contemplated hereby to the contrary,
while any Event of Default exists, any amounts received on account of the
obligations under the Note shall be applied by Purchaser in such order as it
elects in its sole discretion.
ARTICLE VII
Miscellaneous
Section 7.1 Survival of Representations, Warranties and Agreements. All
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the execution and delivery of this Agreement and
the issuance and sale of the Note hereunder for a period of one year; provided,
however, representations and warranties made herein or therein shall only be
deemed to have been made as of the date hereof or thereof.
Section 7.2 Definition of Terms. All pronouns and any variations thereof used
herein shall be deemed to refer to the masculine, feminine, neuter, singular or
plural as the identity of the person or persons may require.
Section 7.3 Governing Law. This Agreement shall be governed by the laws of the
State of Illinois applicable to contracts made and wholly performed in that
jurisdiction.
Section 7.4 Certain Notices. Each notice delivered to all holders of Common
Stock shall simultaneously be delivered to each Holder of record.
Section 7.5 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 5:00 p.m. (New York City time) on a trading
day, (b) the next trading day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a trading day or later than 5:00 p.m. (New
York City time) on any trading day, (c) the trading day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The address for such notices and communications shall be as follows:
If to the Company: FIRST MONTAUK FINANCIAL CORP.
328 Newman Springs Road
Red bank, New Jersey 07701
Facsimile No.: (732) 842-9047
Attn: Chief Financial Officer
With a copy to: Becker & Poliakoff, LLP
45 Broadway, 11th Floor
New York, NY 10006
Facsimile No.: (212) 557-0295
Attn: Victor DiGioia, Esq.
If to the Purchaser: AEFC FMFK Investment Corp.
311 S. Wacker Drive
Suite 6100
Chicago, IL 60601
Attn: Erhard Chorle
With a copy to: Shefsky & Froelich Ltd.
111 E. Wacker Drive, Suite 2800
Chicago, Illinois 60601
Attn: James R. Asmussen
PH: (312) 836-4116
FAX: (312) 275-7550
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
Section 7.6 Expenses. The parties shall be responsible for the payment of all of
their own expenses incurred in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the Note to be
executed and delivered in connection herewith.
Section 7.7 Counterparts. This Agreement may be executed in counterparts
and by facsimile.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
First Montauk Financial Corp.
By: /s/ Victor K. Kurylak
----------------------------------------
Name: Victor K. Kurylak
Title: President and
Chief Executive Officer
[SIGNATURES CONTINUED ON NEXT PAGE]
Signature Page to Note Purchase Agreement (1 of 2)
PURCHASER:
Principal Amount of Note $2,000,000
Name of Purchaser: AEFC FMFK Investment Corp.
Address:
AEFC FMFK Investment Corp.
311 S. Wacker Drive
Suite 6100
Chicago, IL 60601
Attn: Erhard Chorle
Signature By: /s/ Joel E. Marks
-----------------------------
Name: Joel E. Marks
Title: Secretary
Signature Page to Note Purchase Agreement (2 of 2)
Schedule 4.1
The company is qualified to do business in all fifty states.
Schedule 4.3
First Montauk Securities Corp, a New York corporation
Montauk Insurance Services, Inc., a New Jersey corporation
Schedule 5.3
None.
EXHIBIT A
Note
EXHIBIT B
Pledge Agreement
EXHIBIT C
Contingent Warrant
EXHIBIT D
Prepayment Warrant
EXHIBIT 4.12
Form B-D
EXHIBIT 4.15
Form ADV