September 22, 2008
Filed via EDGAR and
Delivered via Facsimile (202) 772-9209
Tom Kluck Stacie Gorman
Branch Chief Securities and Exchange Commission
Securities and Exchange Commission Division of Corporation Finance
Division of Corporation Finance 100 F Street, N.E.
100 F Street, N.E. Washington, D.C. 20549
Washington, D.C. 20549 Mail Stop 4561
Mail Stop 4561
Re: First Montauk Financial Corp.
Preliminary Proxy on Schedule 14A
File No. 001-33656
Filed August 29, 2008
Dear Tom Kluck and Stacie Gorman:
This letter sets forth the response of First Montauk Financial Corp.
("First Montauk" or the "Company") to the Staff's comments as communicated via
correspondence dated September 18, 2008. Please note that in the event you have
any questions regarding this submission, please contact the undersigned, Victor
J. DiGioia, at 212-599-3322.
The Company's responses are as follows:
Comment 1.
We note your response to comment 2 of our letter dated September 9, 2008. Please
disclose the value of the assets to be sold to First Allied, assuming all assets
are sold in the transaction, and the value of those assets to remain with the
company.
Response
As disclosed in the proxy, the purchase price of the assets is dependent
upon the aggregate commission and fee income for the trailing twelve-month
period ended June 30, 2008, which was generated by the former First Montauk
representatives who become associated with First Allied. Based on the Company's
projections, we anticipate the gross proceeds of the sale will be approximately
$4,500,000 to $5,100,000. Approximately twenty-five percent of these proceeds
will be used for incentive payments, based upon certain production criteria, to
registered representatives that become associated with First Allied.
Furthermore, First Montauk is required to repay a $1,000,000 loan from First
Allied at the closing, and $250,000 of the purchase price has been previously
advanced to First Montauk. The balance of the proceeds will be used to pay
existing liabilities and the wind down of the broker-dealer with the remaining
proceeds, if any, used for working capital.
After the sale of the assets, and the termination of First Montauk as a
broker-dealer, the remaining assets will consist of working capital, if any, and
approximately $140,000 of tangible assets comprised of furniture, fixtures and
equipment.
The Q and A will be modified as follows:
Q. What is the sale?
A. In the Sale, FMSC's current group of independent registered representatives
will be given the opportunity to affiliate with Buyer, and Buyer will
acquire the right to service the customer accounts of the registered
representatives. First Montauk will receive the Purchase Price equal to 30%
of the aggregate commission and fee income for the trailing twelve-month
period ended June 30, 2008, which was generated by the Closing Date
Representatives. Based on the Company's projections, we anticipate the
gross proceeds of the sale will be approximately $4,500,000 to $5,100,000.
Approximately twenty-five percent of these proceeds will be used for
incentive payments, based upon certain production criteria, to registered
representatives that become associated with First Allied. Furthermore,
First Montauk is required to repay a $1,000,000 loan from First Allied at
the closing, and $250,000 of the purchase price has been previously
advanced to First Montauk. The balance of the proceeds will be used to pay
existing liabilities and the wind down of the broker-dealer with the
remaining proceeds, if any, used for working capital.
The term "Closing Date Representative" means a registered
representative currently affiliated with FMSC who (i) is accepted by Buyer
to affiliate with Buyer and who becomes licensed with (or otherwise engaged
by) Buyer prior to or upon the closing of the transactions contemplated by
the Asset Purchase Agreement and has not voluntarily resigned or terminated
his, her or its relationship with Buyer prior to the Second Payment Date
(as defined below) of the Purchase Price, or (ii) who becomes licensed and
affiliated with Buyer or any affiliate of Buyer after the date of execution
of the Asset Purchase Agreement and prior to the closing date, and has not
been terminated for cause or voluntarily resigned or terminated his or her
relationship with Buyer prior to the second payment date of the Purchase
Price; provided that Buyer did not take or fail to take any action
(including reducing such Representative's commission payout rate) which
directly caused or resulted in the resignation or termination of the
Closing Date Representative with Buyer.
The Purchase Price will be payable in several parts: (i) within two
business days of execution of the Asset Purchase Agreement, Buyer paid
$250,000 to First Montauk (the "Prepayment Amount"); (ii) on the closing
date, Buyer will pay an amount equal to the outstanding balance, including
principal and interest through the closing date due under a secured
convertible promissory note, dated December 7, 2007 (the "AEFC-IC Note")
made by First Montauk in favor of an affiliate of Buyer, by canceling the
AEFC-IC Note and applying the sums due thereunder towards the Purchase
Price; (iii) on the 30th day following the closing date, Buyer will pay an
amount equal to the lesser of $2,000,000 or the balance of the Purchase
Price; and (iv) on the 90th day (but in no event earlier than January 15,
2009) after the closing date, Buyer will pay the balance of the Purchase
Price, if any. The total value of the transaction is dependent upon the
amount of commissions and fee income to be acquired by Buyer. If the Sale
is completed, substantially all of the assets of FMSC will be sold and
acquired, and FMSC, following the closing, will eventually cease
broker-dealer operations.
Comment 2.
We note your response to comment 3 of our previous letter and we reissue in part
our prior comment. Please provide us with a detailed analysis as to whether the
asset sale is a first step in a going private transaction under Rule 13e-3 of
the Exchange Act. In your response, you state that the company does not intend
to go private and that the primary assets remaining after the sale will be the
public shell and the hope to obtain a merger candidate. Please advise us whether
the company may have less than 300 persons of record after it repurchases its
shares of common stock in the open market.
Response
As indicated during our telephone conference with the staff, the Company
has reconsidered its intentions and, at the present time, does not intend to
repurchase shares in the open market. However, it may use a portion of the net
proceeds from the sale to repurchase large blocks of shares of common stock at
negotiated prices in private transactions to reduce the number of shares
outstanding, provided there are sufficient net proceeds after the Sale for such
purchases. Assuming such purchases are made, the purchases will not cause the
number of record holders to fall below 300.
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The Q and A will be modified as follows:
Q. What will First Montauk's shareholders receive in the Sale?
A. First Montauk's common shareholders will not receive any distributions from
the Sale. However, First Montauk may use a portion of the proceeds from the
Sale to repurchase large blocks of common stock at negotiated prices in
private transactions, provided there are sufficient net proceeds after the
Sale for such purchases.
Comment 3.
Please revise the table to include the disclosure for each class of voting
securities. See Item 403 of Regulation S-K.
Response
The Series A Preferred Stock is non-voting stock, but under the New Jersey
business corporation act, approval of the asset sale is required by a majority
of the holders of the Company's Series A Preferred Stock, voting separately as a
class. No one identified in the table owns any Series A Preferred Stock.
The responses to the two comment letters and the revised proxy will be
filed through EDGAR.
***
We also acknowledge that:
o the Company is responsible for the adequacy and accuracy of the
disclosure in the filings;
o staff comments or changes to disclosure in response to comments in
the filings reviewed by the staff do not foreclose the Commission
from taking any action with respect to the filing; and
o the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
If you should you have any questions, require any further information, or
have further comments, please call the undersigned at 212-599-3322.
Very truly yours,
/s/ Victor J. DiGioia
Victor J. DiGioia
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