FIRST MONTAUK FINANCIAL CORP.
PARKWAY 109 OFFICE CENTER
328 NEWMAN SPRINGS ROAD, RED BANK, NEW JERSEY 07701
PROXY STATEMENT
Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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First Montauk Financial Corp.
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(Name of the Corporation as Specified in Charter)
William J. Kurinsky, Secretary
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FIRST MONTAUK FINANCIAL CORP.
PARKWAY 109 OFFICE CENTER
328 NEWMAN SPRINGS ROAD, RED BANK, NEW JERSEY 07701
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on June 21, 2002
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To the Shareholders of
FIRST MONTAUK FINANCIAL CORP.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of FIRST
MONTAUK FINANCIAL CORP. (the "Company") will be held at the principal executive
offices of the Company, located at Parkway 109 Office Center, 328 Newman Springs
Road, Red Bank, New Jersey 07701 on Friday, June 21, 2002 at 10:00 a.m., New
Jersey time, for the following purposes:
1. To elect two Class I Directors to the Company's Board of Directors to
hold office for a period of three years or until their successors are
duly elected and qualified;
2. To consider and act upon a proposal to adopt the Company's 2002
Incentive Stock Option Plan;
3. To consider and act upon a proposal to adopt the Company's 2002
Non-Executive Director Stock Option Plan; and
4. To transact such other business as may properly be brought before the
meeting or any adjournment thereof.
The close of business on May 17, 2002 has been fixed as the record date for
the determination of shareholders entitled to notice of, and to vote at, the
Annual Meeting and any adjournment thereof.
You are cordially invited to attend the Annual Meeting. Whether or not you
plan to attend, please complete, date and sign the accompanying proxy and return
it promptly in the enclosed envelope to assure that your shares are represented
at the Annual Meeting. If you do attend, you may revoke any prior proxy and vote
your shares in person if you wish to do so. Any prior proxy will automatically
be revoked if you execute the accompanying proxy or if you notify the Secretary
of the Company, in writing, prior to the Annual Meeting of Shareholders.
By Order of the Board of Directors
WILLIAM J. KURINSKY, Secretary
Dated: May 20, 2002
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE
IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF
MAILED IN THE UNITED STATES.
FIRST MONTAUK FINANCIAL CORP.
PARKWAY 109 OFFICE CENTER
328 NEWMAN SPRINGS ROAD, RED BANK, NEW JERSEY 07701
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PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 21, 2002
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This Proxy Statement and the accompanying form of proxy have been mailed on
or about May 20, 2002 to the holders of the Company's Common Stock of record on
May 17, 2002 (the "Record Date") of FIRST MONTAUK FINANCIAL CORP., a New Jersey
corporation (the "Company") in connection with the solicitation of proxies by
the Board of Directors of the Company for use at the Annual Meeting of
Shareholders to be held on June 21, 2002 and at any adjournment thereof.
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
Shares of the Company's Common Stock represented by an effective proxy in
the accompanying form will, unless contrary instructions are specified in the
proxy, be voted as follows:
1. FOR the election of the two persons nominated by the Board of
Directors as Class I Directors;
2. FOR the adoption of the Company's 2002 Incentive Stock Option Plan;
3. FOR the adoption of the Company's 2002 Non-Executive Director Stock
Option Plan; and
4. FOR such other matters as may be properly brought before the meeting
and for which the persons named on the enclosed proxies determine, in
their sole discretion to vote in favor.
Any such proxy may be revoked at any time before it is voted. A shareholder
may revoke his or her proxy by notifying the Secretary of the Company either in
writing prior to the Annual Meeting, in person at the Annual Meeting, by
submitting a proxy bearing a later date or by voting in person at the Annual
Meeting. Directors shall be elected by an affirmative vote of a plurality of the
votes cast at the meeting. A shareholder voting through a proxy who abstains
with respect
to the election of Directors is considered to be present and entitled to vote on
the election of Directors at the meeting, and is in effect a negative vote, but
a shareholder (including a broker) who does not give authority to a proxy to
vote, or withholds authority to vote, on the election of Directors shall not be
considered present and entitled to vote on the election of Directors. The
affirmative vote of a majority of the votes cast at the Annual Meeting is
required to approve Proposal II - Adoption of the 2002 Incentive Stock Option
Plan and Proposal III - Adoption of the 2002 Non-Executive Director Stock Option
Plan. Therefore, abstentions shall be counted as "no" votes and broker non-votes
will not be counted. Broker non-votes and abstentions will be counted towards
the determination of a quorum which, according to the Company's Bylaws, will be
the presence, in person or by proxy, of a majority of the issued and outstanding
shares of Common Stock entitled to vote.
The Company will bear the cost of the solicitation of proxies by the Board
of Directors. The Board of Directors may use the services of its executive
officers and certain directors to solicit proxies from shareholders in person
and by mail, telegram and telephone. Arrangements may also be made with brokers,
fiduciaries, custodians, and nominees to send proxies, proxy statements and
other material to the beneficial owners of the Company's Common Stock held of
record by such persons, and the Company may reimburse them for reasonable
out-of-pocket expenses incurred by them in so doing.
THE ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31,
2001, INCLUDING FINANCIAL STATEMENTS, ACCOMPANIES THIS PROXY STATEMENT.
The principal executive offices of the Company are located at Parkway 109
Office Center, 328 Newman Springs Road, Red Bank, New Jersey 07701; the
Company's telephone number is (732) 842-4700.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected Schneider & Associates,
LLP, Certified Public Accountants, as independent accountants of the Company for
the fiscal year ending December 31, 2002. Shareholders are not being asked to
approve such selection because such approval is not required under the Company's
Bylaws or the Business Corporation Act of the State of New Jersey. The audit
services provided by Schneider & Associates, LLP, consists of examination of
financial statements, services relative to filings with the Securities and
Exchange Commission, and consultation in regard to various accounting matters.
Representatives of Schneider & Associates, LLP, are expected to be present at
the Annual Meeting, will have the opportunity to make a statement if they so
desire, and will be available to respond to appropriate questions.
Audit Fees
The aggregate fees billed by Schneider & Associates for professional
services rendered for the audit of the Company's annual financial statements for
the fiscal year ended December 31,
2
2001, and for the review of the financial statements included in the Company's
Quarterly Reports on Form 10-Q for that fiscal year were $123,000.
Financial Information Systems Design and Implementation Fees
The Company did not incur any fees billed by Schneider & Associates for
professional services rendered for information technology services relating to
financial information systems design and implementation for the fiscal year
ended December 31, 2001.
All Other Fees
Fees billed to us by Schneider & Associates during the fiscal year ended
December 31, 2001 for all other non-audit services rendered, including tax
related services, totaled $46,235. In the course of its meetings, the Audit
Committee has considered whether Schneider & Associates's provision of these
other services is compatible with maintaining Schneider & Associates'
independence.
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VOTING SECURITIES AND SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The securities entitled to vote at the Annual Meeting are the Company's
common stock, no par value per share (the "Common Stock"). The presence, in
person or by proxy, of a majority of shares entitled to vote will constitute a
quorum for the meeting. Each share of Common Stock entitles its holder to one
vote on each matter submitted to shareholders. The close of business on May 17,
2002 has been fixed as the Record Date for the determination of the Common Stock
shareholders entitled to notice of and to vote at the meeting and any
adjournment thereof. As of May 17, 2002, there were 8,625,284 shares of Common
Stock issued and outstanding. Voting of the shares of Common Stock is on a
non-cumulative basis.
The following table sets forth certain information as of May 17, 2002, with
respect to each Director, each nominee for Director, each executive officer, all
Directors and Officers as a group and the persons (including any "group" as that
term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended) known by the Company to be the beneficial owner of more than five (5%)
percent of any class of the Company's voting securities.
Amount and Percentage
of Beneficial Ownership (1)
Directors, Officer -----------------------------
and 5% Shareholders(1) Number of Shares Percent
---------------------- ---------------- -------
Herbert Kurinsky 511,518(2) 5.7%
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701
William J. Kurinsky 1,605,823(3) 17.7%
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701
Robert I. Rabinowitz, Esq. 275,749(4) 3.1%
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701
Ward R. Jones 110,000(5) 1.3%
7 Leda Lane
Guilderland, NY 12084
Norma Doxey 54,900(6) *
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701
David I. Portman 219,800(7) 2.5%
300 Ocean Avenue, Apt. 6A
Long Branch, NJ 07740
4
Barry D. Shapiro 0 *
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701
All Directors and 2,777,790 27.8%
Officers as a group
(6 persons in number)
*Less than 1%
- ---------------------
(1) Unless otherwise indicated below, each director, officer and 5% shareholder
has sole voting and sole investment power with respect to all shares that
he beneficially owns.
(2) Includes vested and presently exercisable options of Mr. Herbert Kurinsky,
to purchase 425,000 shares of Common Stock.
(3) Includes vested and presently exercisable options of Mr. William J.
Kurinsky to purchase 425,000 shares of Common Stock, and 120,000 Class A
Warrants, 120,000 Class B Warrants and 120,000 Class C Warrants.
(4) Includes vested and presently exercisable options of Mr. Robert Rabinowitz
to purchase 228,750 shares of Common Stock; 50,000 of which are owned by
Mr. Rabinowitz's wife. Mr. Rabinowitz's children own 2,000 shares of Common
Stock. Mr. Rabinowitz also owns 5,833 Class A Warrants, 5,833 Class B
Warrants and 5,833 Class C Warrants.
(5) Includes vested and presently exercisable options of Mr. Ward R. Jones to
purchase 100,000 shares of Common Stock.
(6) Includes vested and presently exercisable options of Ms. Norma Doxey to
purchase 30,500 shares of Common Stock and 18,000 non-vested stock options.
(7) Includes vested and presently exercisable options of Mr. David I. Portman
to purchase 100,000 shares of Common Stock. Mr. Portman also owns 16,600
Class A Warrants, 16,600 Class B Warrants and 16,600 Class C Warrants.
NOTE:
All Class A Warrants are exercisable at $3.00 per share for a period of five (5)
years from February 17, 1998.
All Class B Warrants are exercisable at $5.00 per share for a period of five (5)
years from February 17, 1998.
All Class C Warrants are exercisable at $7.00 per share for a period of seven
(7) years from February 17, 1998.
CERTAIN REPORTS
No person who, during the fiscal year ended December 31, 2001, was a
Director, officer or beneficial owner of more than ten percent of the Company's
Common Stock (which is the only class of securities of the Company registered
under Section 12 of the Securities Exchange Act of 1934 (the "Act") (a
"Reporting Person") failed to file on a timely basis, reports required by
Section 16 of the Act during the most recent fiscal year. The foregoing is based
solely upon a review by the Company of Forms 3 and 4 during the most recent
fiscal year as furnished to the Company under Rule 16a-3(d) under the Act, and
Forms 5 and amendments thereto furnished to the Company with respect to its most
recent fiscal year, and any representation received by the Company from any
Reporting Person that no Form 5 is required.
It is expected that the following will be considered at the Annual Meeting
and action taken thereon:
5
I. ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for the classification
of the Board of Directors into three classes of Directors, each class as nearly
equal in number as possible but not less than one Director, each to serve for a
three-year term, staggered by class. The Certificate of Incorporation further
provides that a Director or the entire Board of Directors may be removed only
for cause and only by the affirmative vote of the holders of at least 70% of the
combined voting power of the Company's voting stock, with vacancies on the Board
being filled only by a majority vote of the remaining Directors then in office.
The Board of Directors currently consists of six Directors divided into
three classes (Class I, II and III) consisting of two members each. Until
December 6, 2000 there was a vacancy in Class II resulting from the resignation
of Dr. Ross E. McRonald in November 1994. This vacancy was filled by the
remaining members of the Board on December 6, 2000 with the appointment of Barry
D. Shapiro.
The affirmative vote of a plurality of the outstanding shares of Common
Stock entitled to vote thereon, voting together as a single class at the Annual
Meeting of shareholders is required to elect the Class I Directors. All proxies
received by the Board of Directors will be voted for the election as Class I
Directors of the nominees listed below if no direction to the contrary is given.
In the event that any nominee is unable to serve, the proxy solicited hereby may
be voted, in the discretion of the proxies, for the election of another person
in his stead. The Board of Directors knows of no reason to anticipate that this
will occur. Family relationships exist among the following executive officers
and directors: Mr. Herbert Kurinsky is the uncle of Mr. William J. Kurinsky and
Mr. Robert I. Rabinowitz is the brother-in-law of Mr. William J. Kurinsky.
The terms of the Class I Directors expire at this Annual Meeting. The
present Directors of the Company nominated for reelection to the Company's Board
of Directors as the Class I Directors at the Annual Meeting are Herbert Kurinsky
and William J. Kurinsky.
The following table sets forth certain information as of the date hereof
with respect to the Directors of the Company, including the nominees for
election to the Company's Board of Directors at the Annual Meeting. The Class I
Directors are the Directors nominated for election at the Annual Meeting.
6
POSITION WITH DIRECTOR
COMPANY; PRINCIPAL CONTINUALLY
NAME OCCUPATION AND AGE SINCE TERM EXPIRES
---- ------------------ ----------- ------------
CLASS I - NOMINEES
Herbert Kurinsky Director, President and Chief 1987 Nominee
Executive Officer of the Company
and Registered Options Principal of
First Montauk Securities Corp., 71
William J. Kurinsky Director, Vice President, Chief 1987 Nominee
Operating and Chief Financial Officer
and Secretary of the Company and of
First Montauk Securities Corp. and
Financial and Operations Principal
of First Montauk Securities Corp., 41
CLASS II
Norma L. Doxey Director, Vice-President of Operations
of First Montauk Securities Corp., 62 1988 2004
Barry D. Shapiro Director, 59 2000 2004
CLASS III
Ward R. Jones, Jr. Director, Registered Representative
with First Montauk Securities Corp., 71 1991 2003
David I. Portman Director, President of Triad Property
Management, Inc., 61 1993 2003
HERBERT KURINSKY became a Director and President of the Company on November
16, 1987. Mr. Kurinsky is a co-founder of First Montauk Securities Corp. and has
been its President, one of its Directors and its Registered Options Principal
since September of 1986. From March 1984 to August 1986, Mr. Kurinsky was the
President of Homestead Securities, Inc., a New Jersey broker-dealer. From April
1983 to March 1984, Mr. Kurinsky was a branch office manager for Phillips, Appel
& Waldon, a securities broker-dealer. From February 1982 to March 1983, Mr.
Kurinsky was a branch office manager for Fittin, Cunningham and Lauzon, a
securities broker-dealer. From November 1977 to February 1982, he was a branch
office manager for Advest
7
Inc., a securities broker-dealer. Mr. Kurinsky received a B.S. degree in
economics from the University of Miami, Florida in 1954.
WILLIAM J. KURINSKY became Vice President, a Director and Financial and
Operations Principal of the Company on November 16, 1987. He is a co-founder of
First Montauk Securities Corp. and has been one of its Vice Presidents, a
Director and its Financial/Operations Principal since September of 1986. Prior
to that date, Mr. Kurinsky was Treasurer, Chief Financial Officer and Vice
President of Operations of Homestead Securities, Inc., a securities
broker-dealer. Mr. Kurinsky received a B.S. from Rutgers University in 1984. He
is the nephew of Herbert Kurinsky.
NORMA L. DOXEY has been a Director of the Company since December 6, 1988.
Ms. Doxey is the Vice President for Operations and a Registered Representative
with First Montauk Securities Corp. since September, 1986. From August through
September, 1986, she was operation's manager and a Registered Representative
with Homestead Securities, Inc. From July 1984 through August 1985 she held the
same position with Marvest Securities.
WARD R. JONES, JR. has been a director of the Company since June, 1991.
From 1955 through 1990, Mr. Jones was employed by Shearson Lehman Brothers as a
registered representative, eventually achieving the position of Vice President.
Mr. Jones is currently a registered representative of First Montauk Securities
Corp., but does not engage in any securities business.
DAVID I. PORTMAN has been a director of the Company since June 15, 1993.
From 1978 to the present, Mr. Portman served as the President of Triad Property
Management, Inc., a private corporation which builds, invests in and manages
real estate properties in the State of New Jersey. Mr. Portman was a Director of
Ultra Med, Inc. from 1986 to 1991, a high tech medical equipment manufacturer.
Mr. Portman also serves as a director and officer of Pacific Health
Laboratories, Inc., positions he has held since August 1995. FMSC underwrote an
initial public offering of the common stock of Pacific Health Laboratories,
Inc., and is currently a market maker in the stock.
BARRY D. SHAPIRO was appointed to the Board of Directors of the Company on
December 6, 2000. From October 2000 to the present, Mr. Shapiro is a shareholder
of the accounting firm, Withum, Smith & Brown in its Red Bank office. Mr.
Shapiro was a partner of Shapiro & Weisman C.P.A., P.A., from 1976 thru 1996
when he became a partner of Rudolf, Cinnamon & Calafato, P.A. until joining
Withum Smith & Brown. Mr. Shapiro was previously employed with the Internal
Revenue Service from 1965 thru 1971, where he was responsible for audit, review
and conference functions. Mr. Shapiro is a member of the New Jersey Society of
Certified Public Accountants, where he currently participates on the IRS Co-Op
and State Tax Committees. Mr. Shapiro is a past Trustee, Treasurer and Vice
President of the NJSCPA. He has been involved and is in many civic and community
activities, as well as charitable organizations, including the Monmouth County
New Jersey Chapter of the American Cancer Society and the Ronald McDonald House
of Long Branch, New Jersey. Mr. Shapiro received a B.S. in accounting from Rider
University in 1965.
8
SIGNIFICANT EMPLOYEES
ROBERT I. RABINOWITZ, 45, has been General Counsel of the Company since
1987. He concurrently served as General Counsel of First Montauk Securities from
1986 to 1998 when a new general counsel was named. Thereafter, he became the
Chief Administrative Officer of FMSC as well as General Securities Principal.
From January 1986 until November 1986, he was as associate attorney for Brodsky,
Greenblatt & Renahan, a private practice law firm in Rockville, Maryland. Mr.
Rabinowitz is an attorney at law licensed to practice in New Jersey, Maryland
and the District of Columbia, and is a member of the Board of Arbitrators for
the National Association of Securities Dealers, Department of Arbitration. Mr.
Rabinowitz's wife is a niece of Mr. Herbert Kurinsky and a sister of Mr. William
Kurinsky.
MARK D. LOWE, 43, has been President of Montauk Insurance Services, Inc.
since October 1998. From 1982 to 1998 Mr. Lowe was a Senior Consultant with
Congilose & Associates, a financial services firm specializing in insurance and
estate planning. Mr. Lowe became a Certified Financial Planner (CFP) in July
1991. Mr. Lowe attended Ocean County College in Toms River, N.J. Mr. Lowe is the
Treasurer of the Estate and Financial Planning Council of Central New Jersey.
BOARD MEETINGS, COMMITTEES AND COMPENSATION OF DIRECTORS
During the fiscal year ended December 31, 2001, three meetings of the Board
of Directors were held. Each Director of the Company was present at all meetings
of the Board of Directors, either in person or by telephone, held during fiscal
2001.
The Board of Directors has established an Audit Committee consisting of
three members, which includes a "public director" as that term is defined in
Schedule E of the NASD By-Laws. The Audit Committee reviews (i) the Company's
audit functions, (ii) the finances, financial condition, and interim financial
statements of the Company, and (iii) the year end financial statements of the
Company. Members of the Audit Committee do not receive additional compensation
for such service. The Audit Committee met on one occasion during fiscal 2001.
The Audit Committee adopted a written charter governing its actions on June
23, 2000. The Charter of the Audit Committee of the Company was attached as
Exhibit 1 to the Company's Proxy Statement dated May 22, 2001. Mr. Jones, Mr.
Shapiro and Mr. Portman are "independent" members of the Company's Audit
Committee, within the definition of that term as provided by Rule 4200(a)(14) of
the listing standards of the National Association of Securities Dealers.
The audit committee hereby states that it:
o has reviewed and discussed the audited financial statements with the
Company's management;
9
o has discussed with the Company's independent auditors the matters
required to be discussed by SAS 61, as may be modified or
supplemented;
o has received the written disclosures and the letter from the
independent accountants required by Independence Standards Board
Standard No. 1, as may be modified or supplemented, and has discussed
with the independent accountants the independent accountant's
independence; and
o has recommended to the Board of Directors of the Company that the
audited financial statements be included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2000 for
filing with the Commission.
The Audit Committee of the Board of Directors of First Montauk Financial
Corp.:
David I. Portman Ward R. Jones, Jr. Barry D. Shapiro
The Company does not have a standing nominating committee of the Board of
Directors.
The Company pays Directors who are not employees of the Company a retainer
of $250 per meeting of the Board of Directors attended and for each meeting of a
committee of the Board of Directors not held in conjunction with a Board of
Directors meeting. Directors who are not employees of the Company are also
eligible to participate in the Director Plan. Directors employed by the Company
are not entitled to any additional compensation as such. The Board of Directors
generally meets on a quarterly basis in addition to such other occasions as the
business of the Company may from time to time require.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
In fiscal 1995, the Company established a compensation committee, composed
of two non-executive directors, for the purpose of negotiating and reviewing all
employment agreements for executive officers of the Company and for
administering the Senior Management Plan and the Incentive Stock Option Plan, as
amended. At present, Ward R. Jones, Jr. and David I. Portman are the members of
the compensation committee. This committee met on one occasion during fiscal
2001.
This report is submitted by the compensation committee of the Board of
Directors of the Company. During the fiscal year ended December 31, 2001, the
compensation committee was responsible for reviewing the Company's stock plans
and reviewing and approving compensation matters concerning the executive
officers and key employees of the Company.
Overview and Philosophy. The Company uses its compensation program to
achieve the following objectives:
10
o To provide compensation that attracts, motivates and retains the
talented, high caliber officers and employees necessary to achieve the
Company's strategic objectives, as determined by the compensation
committee;
o To align the interest of officers with the success of the Company;
o To align the interest of officers with stockholders by including
long-term equity incentives; and
o To increase the long-term profitability of the Company and,
accordingly, increase stockholder value.
Compensation under the executive compensation program is comprised of cash
compensation in the form of base salary, bonus compensation and long-term
incentive awards, generally in the form of options to purchase common stock. In
addition, the compensation program includes various other benefits, including
medical and insurance plans and the employee stock option incentive plans and
company sponsored 401(k) plans, both of which plans are generally available to
all employees of the Company.
The principal factors which the compensation committee considered with
respect to each officer's compensation package for fiscal year ended December,
2001 are summarized below. The compensation committee may, however, in its
discretion, apply different or additional factors in making decisions with
respect to executive compensation in future years.
Base Salary. Compensation levels for each of the Company's officers,
including the Chief Executive Officer, are generally set within the range of
salaries that the compensation committee believes are paid to officers with
comparable qualifications, experience and responsibilities at similar companies.
In setting compensation levels, the compensation committee takes into account
such factors as (i) the Company's past performance and future expectations, (ii)
individual performance and experience and (iii) past salary levels. The
compensation committee does not assign relative weights or ranking to these
factors, but instead makes a determination based upon the consideration of all
of these factors as well as the progress made with respect to the Company's
long-term goals and strategies. Base salary, while reviewed annually, is only
adjusted as deemed necessary by the compensation committee in determining total
compensation for each officer. Additionally, certain executives, including
Herbert Kurinsky, the Chief Executive Officer and William Kurinsky, the Chief
Operating Officer have existing employment agreements with the Company which set
forth certain levels of base salary and bonus compensations. Shareholders are
directed to the discussion of these agreements under the heading "Employment
Agreements" appearing elsewhere in this Proxy Statement.
Equity Incentives. The compensation committee believes that stock
participation aligns officers' interests with those of the stockholders. In
addition, the compensation committee believes that equity ownership by officers
helps to balance the short term focus of annual
11
incentive compensation with a longer term view and may help to retain key
executive officers. Long term incentive compensation, generally granted in the
form of stock options, allows the officers to share in any appreciation in the
value of the Company's common stock.
In making stock option grants, the compensation committee considers general
corporate performance, individual contributions to the Company's financial,
operational and strategic objectives, level of seniority and experience,
existing levels of stock ownership, previous grants of restricted stock or
options, vesting schedules of outstanding restricted stock or options and the
current stock price. With respect to the compensation determination for the
fiscal year ended December 31, 2001, the compensation committee believes that
the current stock ownership positions of the executive officers was sufficient
to achieve the benefits intended by equity ownership. During the fiscal year
ended December 31, 2001, each of the Chief Executive Officer and Chief Operating
Officer were granted options to purchase 200,000 shares of the Company's common
stock Further, during the last fiscal year, Mr. Robert Rabinowitz, the Company's
General Counsel, was granted 43,750 options to purchase the Company's common
stock.
Other Benefits. The Company also has various broad-based employee benefit
plans. Executive officers participate in these plans on the same terms as
eligible, non-executive employees, subject to any legal limits on the amounts
that may be contributed or paid to executive officers under these plans. The
Company offers a 401(k) savings plan, which allows employees to invest in a wide
array of funds on a pre-tax basis, as well as insurance and other benefit plans
for its employees, including executive officers.
Chief Executive Officer and Chief Operating Officer Compensation. During
the last fiscal year, neither the Chief Executive Officer nor the Chief
Operating Officer received any cash bonuses or compensation outside of a $2,000
and $1,000 automobile expense allowance for the Chief Executive Officer and the
Chief Operating Officer, respectively. Each of the Chief Executive Officer and
Chief Operating Officer received a base salary of $233,140 during the fiscal
year ended December 31, 2001. Each officer voluntarily agreed to reduce his base
salary in fiscal 2001 by $23,000 as compared to 2000, rather than accept an
increase of 10%, as provided in each of their employment agreements. The terms
of the subject officers' employment compensation are determined primarily
pursuant to their employment agreements, which were entered into in January
2000. Shareholders are directed to the discussion of these agreements under the
heading "Employment Agreements" appearing elsewhere in this Proxy Statement.
Tax Deductibility of Executive Compensation. Section 162(m) of the Code
limits the tax deduction to the Company to $1 million for compensation paid to
any of the executive officers unless certain requirements are met. The
compensation committee has considered these requirements and the regulations. It
is the compensation committee's present intention that, so long as it is
consistent with its overall compensation objectives, substantially all executive
compensation be deductible for United States federal income tax purposes. The
compensation committee believes that any compensation deductions attributable to
options granted under the
12
employee stock option plan currently qualify for an exception to the
disallowance under Section 162(m). Future option grants to executive officers
under each of the Company's employee stock option plans will be granted by the
compensation committee.
By the Compensation Committee of
the Board of Directors of First Montauk
Financial Corp.
Ward R. Jones, Jr.
David I. Portman
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are no compensation committee interlocks between the members of the
Company's compensation committee and any other entity. None of the members of
the Board's compensation committee are executive officers of the Company. Mr.
Jones is a registered representative of the Company's broker-dealer subsidiary,
First Montauk Securities Corp., but does not engage in any securities business.
VOTE REQUIRED FOR ELECTION OF DIRECTORS
The affirmative vote of the holders of a plurality of the shares of Common
Stock voting at the Annual Meeting is required for the approval of the nominees
for Class I Directors.
THE BOARD OF DIRECTORS DEEMS THE NOMINEES FOR THE CLASS I DIRECTORS TO BE
IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS A VOTE
"FOR" APPROVAL THEREOF.
13
PROPOSAL II
ADOPTION OF
2002 INCENTIVE STOCK OPTION PLAN
In September 1992, the Company adopted the 1992 Incentive Stock Option
Plan. The 1992 Incentive Stock Option Plan provided for the grant of options to
purchase up to 2,000,000 shares of the Company's Common Stock and is intended
for employees of the Company and consultants and registered representatives. In
June 1996 the Company's Board of Directors and shareholders approved an
amendment to the 1992 Incentive Stock Option Plan to increase the number of
shares reserved for issuance from 2,000,000 to 3,500,000. In June 1998, the
Company's shareholders approved a further amendment to the 1992 Incentive Stock
Option Plan to increase the number of shares reserved for issuance from
3,500,000 to 6,000,000 and in June 2000, the Company's shareholders approved a
further amendment to increase the number of shares reserved for issuance under
the 1992 Incentive Stock Option Plan from 6,000,000 to 8,000,000 (as amended,
the "Incentive Plan"). As of the Record Date, there were 2,801,998 options
outstanding under the Incentive Plan with exercise prices ranging from $0.44 to
$2.75. Unless sooner terminated, the Incentive Plan will expire in September,
2002.
BACKGROUND OF PROPOSAL
The Board of Directors has unanimously approved the adoption of the 2002
Incentive Stock Option Plan (the "2002 Plan") to provide for the grant of
options to purchase up to 5,000,000 shares of the Company's common stock to
employees, consultants and registered representatives of the Company due to the
impending expiration of the Incentive Plan. As the Incentive Plan will expire in
September, 2002, and the Board, for the reasons discussed in this Proposal, has
determined that it is in the Company's best interests to continue to maintain an
option plan for the benefit of its employees and other eligible participants,
the Company's shareholders are being asked to approve the adoption of the 2002
Plan. If the 2002 Plan is approved by shareholders, no further grants would be
made under the Incentive Plan.
The Board of Directors has recommended the adoption of the 2002 Plan
because it believes that the maintenance of an employee stock option plan is
required in order to continue to attract and retain qualified employees,
consultants and registered representatives to the Company. The Board believes
that the Company competes with numerous other companies for a limited number of
talented persons. As a result, there must be provided a level of incentives to
such persons. It is the Board's opinion that the grant of stock options has
several attractive characteristics, both to the eligible participants and the
Company. First, granting stock options provides incentive to individuals because
they share in the growth of the Company. The Company benefits because these
employees will be more motivated and the Company benefits from motivated
employees. Second, the grant of options preserves the Company's cash resources.
14
ADMINISTRATION OF 2002 PLAN
The 2002 Plan will be administered by the Board of Directors, or in the
alternative, by a committee designated by the Board of Directors (the
"Committee"). Options granted under the terms of the proposed 2002 Plan may be
designated as options which qualify for incentive stock option treatment
("ISOs") under Section 422 of the Internal Revenue Code (the "Code"), or options
which do not so qualify ("Non-ISOs"). The Board, or the Committee has the
discretion, subject to the terms of the 2002 Plan and applicable laws and
regulations, to determine:
o the eligible employees and other persons to whom, and the times and
the price at which, options will be granted;
o whether such options shall be ISOs or Non-ISOs;
o the periods during which each option will be exercisable;
o the number of shares subject to each option;
o the conversion of an ISO into a Non-ISO; and
o any change or modification in the exercise price or term of any
option.
It is intended that awards and grants under the 2002 Plan will be made in a
manner so as to qualify for favorable treatment under Section 16(b)-3 of the
Securities and Exchange Commission's regulations. In order to receive such
treatment, the 2002 Plan must be administered by either the full Board of
Directors or by a committee consisting solely of independent directors.
Generally, the term "independent director" means a person who is not employed as
an employee of the Company or any subsidiary.
The Board or the Committee, as the case may be, may, within the limitations
of the 2002 Plan, among other things, modify, extend or renew outstanding awards
granted under the 2002 Plan, or accept the tender of outstanding awards and
authorize the granting of new awards in substitution therefore. No modification
may unless otherwise allowed under applicable law, without the consent of the
grantee, alter, amend or impair rights or obligations under any award previously
granted nor affect the status of an ISO under the Code.
Without the approval of the Company's shareholders, the Board may not amend
the 2002 Plan to:
o increase the number of shares of common stock that may be the subject
of stock options granted under the 2002 Plan;
o change the class of individuals eligible to receive options under the
Plan;
15
o increase the period during which options may be granted or the
permissible term of options under the 2002 Plan; or
o decrease the minimum exercise price of ISO's.
TERMS AND CONDITIONS OF OPTION GRANTS
Under the 2002 Plan and Internal Revenue Service regulations, the exercise
price of an option designated as an ISO shall not be less than the fair market
value of the common stock on the date the option is granted. However, in the
event an option designated as an ISO is granted to a ten percent (10%)
shareholder (as defined in the 2002 Plan), such exercise price shall be at least
110% of such fair market value. Exercise prices of Non-ISO options may be less
than such fair market value. The aggregate fair market value of shares subject
to options granted to a participant, which are designated as ISOs and which
become first exercisable in any calendar year, shall not exceed $100,000.
The Board or Committee may, in its sole discretion, grant bonuses or
authorize loans to or guarantee loans obtained by an optionee to enable such
optionee to pay the exercise price in connection with the exercise or
cancellation of an option. The Board or Committee can also permit the payment of
the exercise price in the common stock of the Company held by the optionee.
Under current Internal Revenue Service regulations and the Code, shares being
tendered for use in the payment of the exercise price must have been owned for
at least 6 months. In addition, the Company may require the grantee to pay any
taxes which may be due and payable as a result of an option exercise prior to
delivery of the share certificates to the grantee.
The rights of any recipient of an award of options under the 2002 Plan are
not transferable other than by will or the laws of descent and distribution, and
are exercisable during the lifetime of the grantee, only by the grantee (or by a
duly appointed guardian or legal representative).
CERTAIN FEDERAL TAX INFORMATION
The following is a summary of the U.S. federal income tax consequences that
generally will arise with respect to options granted pursuant to the 2002 Plan
and with respect to the shares of Common Stock issuable upon the exercise of the
options. This summary is not intended to be a complete discussion of the federal
income tax implications arising under the 2002 Plan, does not address state or
local taxes and is not intended to be construed as tax advice.
ISOs
In general, an optionee will not recognize regular income upon the grant or
exercise of any ISO. The basis of shares transferred to any optionee pursuant to
the exercise of an ISO is the price paid for such shares (i.e., the exercise
price). Instead, an optionee will recognize taxable
16
income upon the sale of Common Stock issuable upon the exercise of an ISO.
However, the exercise of an ISO may subject the optionee to the alternative
minimum tax.
Generally, the tax consequences of selling Common Stock issuable upon the
exercise of an ISO will vary with the length of time that the optionee holds
such Common Stock prior to such sale. An optionee will recognize long-term
capital gain or loss equal to the difference between the sale price of the
Common Stock and the exercise price if the optionee sells the Common Stock after
having had owned it for the longer of two years from the date the option was
granted (the "Grant Date") or one year from the date the option was exercised
(the "Exercise Date"). However, if the optionee sells the Common Stock issuable
upon the exercise of an ISO prior to having had owned it for at least two years
from the Grant Date and one year from the Exercise Date, he will recognize
ordinary compensation income and capital gain if the sale price is greater than
exercise price or loss if the sale price is less than the exercise price.
Non-ISOs
As in the case of ISOs, an optionee will recognize no income tax upon the
grant of an Non-ISO. Unlike an ISO, however, an optionee exercising an Non-ISO
will recognize ordinary income tax equal to the excess of the fair market value
of the Company's Common Stock on the Exercise Date over the exercise price.
With respect to the Common Stock issuable upon the exercise of an Non-ISO,
an optionee generally will have a tax basis equal to the fair market value of
the stock on the Exercise Date. Upon the subsequent sale of Common Stock
issuable upon the exercise of an Non-ISO, an optionee will recognize a capital
gain or loss, assuming the stock was a capital asset in the optionee's hands,
equal to the difference between the tax basis of the Common Stock and the amount
realized upon disposition; provided, however, that the optionee has owned the
Common Stock for a period of one year.
Tax Consequences to the Company
The grant of ISOs and Non-ISOs under the 2002 Plan will have no tax
consequences to the Company. Furthermore, in the case of ISOs, the Company will
not experience any tax consequences relating to the exercise of ISOs granted
under the 2002 Plan. However, the Company generally will be entitled to a
business-expense deduction with respect to any ordinary compensation income,
including a disqualifying disposition under the Code or a Section 83(b)
Election, upon the exercise of an Non-ISO; provided, however, that such
deduction will be subject to the limitation of Section 162(m) promulgated under
the Code.
The full text of the 2002 Plan is annexed to this Proxy Statement as
Exhibit A.
17
VOTE REQUIRED
The affirmative vote of a majority of the votes cast at the Annual Meeting
is required for the adoption of the 2002 Plan.
THE BOARD OF DIRECTORS DEEMS PROPOSAL II TO BE IN THE BEST INTERESTS OF THE
COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
PROPOSAL II.
PROPOSAL III
ADOPTION OF
2002 NON-EXECUTIVE DIRECTOR STOCK OPTION PLAN
In September, 1992, the Board of Directors adopted the Non-Executive
Director Stock Option Plan (the "1992 Director Plan") which was approved by the
Company's stockholders in June, 1992. The 1992 Director Plan provides for
issuance of a maximum of 1,000,000 shares of Common Stock upon the exercise of
stock options granted under the 1992 Director Plan. In June 1996, the Company's
shareholders approved an amendment to the 1992 Director Plan to provide for the
elimination of non-discretionary stock grants to members of any advisory board
established by the Company. Options may be granted under the 1992 Director Plan
until September, 2002 to non-executive directors, as defined in the 1992
Director Plan. The 1992 Director Plan provides that each non-executive director
will automatically be granted an option to purchase 20,000 shares on each
September 1st, provided such person has served as a director for the 12 months
immediately prior to such September 1st. As of the Record Date, there are
outstanding 200,000 options under the 1992 Director Plan with exercise prices
ranging from $0.55 to $2.59.
The proposed 2002 Non-Executive Director Stock Option Plan (the "2002
Director Plan") is being submitted to the Stockholders for approval at this
Annual Meeting due to the impending expiration of the 1992 Director Plan in
April, 2002.
BACKGROUND OF PROPOSAL
The Board of Directors (the "Board") has unanimously approved the adoption
of the 2002 Director Plan to provide for the grant of options to non-executive
directors of the Company. Under the 2002 Director Plan, each non-executive
director will automatically be granted an option to purchase 20,000 shares on
each September 1st, pro rata, based on the time the director has served in such
capacity during the previous year. The term non-executive director refers to a
director of the Company who is not otherwise a full-time employee of the Company
or any subsidiary.
18
The Board has recommended the adoption of the 2002 Director Plan because it
believes that it is required in order to continue to attract and retain
qualified persons to serve on the Board and that administering option grants to
non-executive directors from an independent plan will be more efficient. The
Board determined that it was important for the Company to provide increased
non-cash compensation to non-employee directors in order to be able to secure
the services of qualified individuals. As discussed below, by providing that
such compensation be in the form of options, the Company's cash resources will
be preserved and the non-employee directors will have the incentive to work for
the Company's growth.
The Board believes that the Company competes with numerous other companies
for a limited number of talented persons willing to join a Board of Directors of
a public company. As a result, there must be provided a level of incentives to
such persons. Since the Company only provides nominal cash compensation to its
non-employee directors, it must grant stock options to attract members. It is
the Board's opinion that the grant of stock options has several attractive
characteristics, both to the non-employee director and the Company. First,
granting stock options provides incentive to individuals because they share in
the growth of the Company. In this manner, non-employee directors have the same
interest as stockholders of the Company. The Company benefits because these
non-employee directors will be more active in the affairs of the Company, and
the Company benefits from an active Board. Second, the grant of options
preserves the Company's cash resources.
ADMINISTRATION OF 2002 DIRECTOR PLAN
The 2002 Director Plan shall be administered by the Board or a committee of
the Board (the "Committee") which shall at all times consist of not less than
two officers of the Company who are not entitled to participate in the 2002
Director Plan, to be appointed by the Board and to serve at the pleasure of the
Board. All questions of interpretation of the 2002 Director Plan or of any
options issued under it shall be determined by the Board or Committee and such
determination shall be final and binding upon all persons having an interest in
the 2002 Director Plan.
Commencing upon the date that the 2002 Director Plan is adopted by the
Company's stockholders, each non-executive director to the Board of Directors
shall be entitled to receive an Option to purchase 20,000 shares of Common Stock
on September 1st of each year, pro rata, based on the time the director has
served in such capacity during the previous year.
The 2002 Director Plan does not contain an aggregate number of shares
issuable thereunder, primarily for administrative purposes. This permits the
Company greater flexibility in expanding the Board of Directors without having
to obtain stockholder approval for additional shares under the 2002 Director
Plan. In addition, with a numerical limitation contained in the 2002 Director
Plan, the Company will inevitably run out of shares under the 2002 Director Plan
and would then be required to obtain stockholder approval with the resultant
cost and expense of preparing a proxy statement, counsel and filing fees and
other
19
related expenses of a stockholders meeting. The Board of Directors believes that
the administration of the 2002 Director Plan will be substantially simpler
without an aggregate limit on the number of option issuable under the 2002
Director Plan.
TERMS AND CONDITIONS OF OPTION GRANTS
The term of each option commences on the date it is granted and unless
terminated sooner as provided in the 2002 Director Plan, expires five years from
the date of grant. The Board or Committee has no discretion to determine which
non-executive director will receive options or the number of shares subject to
the option, the term of the option or the exercisability of the option. In
addition, the Board or Committee will make all determinations of the
interpretation of the 2002 Director Plan. Options granted under the 2002
Director Plan are not qualified for incentive stock option treatment under the
Internal Revenue Code.
The exercise price for options granted under the 2002 Director Plan shall
be 100% of the fair market value of the common stock on the date of grant.
Unless otherwise provided in the Stock Option Plan, the exercise price of
options granted under the 2002 Director Plan must be paid in cash at the time of
exercise. The Board or Committee may, in its sole discretion, authorize loans to
or guarantee loans obtained by an optionee to enable such optionee to pay the
exercise price in connection with the exercise of an option. In addition, the
Board or Committee may require the grantee to pay any taxes which may be due and
payable as a result of an option exercise prior to delivery of the share
certificates to the grantee.
It is the intent of the Company that the Plan and any award granted
hereunder satisfy and be interpreted in a manner that satisfies the applicable
requirements of Rule 16b-3. This is so that such persons will be entitled to the
benefits of Rule 16b-3 or other exemptive rules under Section 16 of the 1934 Act
and will not be subjected to liability thereunder.
An option shall not be transferable except by will or by the laws of
descent and distribution and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person or by his guardian or
legal representative.
CERTAIN FEDERAL TAX INFORMATION
The following is a summary of the U.S. federal income tax consequences that
generally will arise with respect to options granted pursuant to the 2002
Director Plan and with respect to the shares of Common Stock issuable upon the
exercise of the options. This summary is not intended to be a complete
discussion of the federal income tax implications arising under the 2002
Director Plan, does not address state or local taxes and is not intended to be
construed as tax advice.
20
Tax Consequences to Optionees
Options granted under the 2002 Director Plan are not qualified as incentive
options under the Internal Revenue Code. Accordingly, although an optionee will
recognize no income tax upon the grant of an option under the 2002 Director
Plan, upon exercising such an option, the optionee will recognize ordinary
income tax equal to the excess of the fair market value of the Company's Common
Stock on the exercise date over the exercise price.
With respect to the Common Stock issuable upon the exercise of an option
granted under the 2002 Director Plan, an optionee generally will have a tax
basis equal to the fair market value of the stock on the exercise date. Upon the
subsequent sale of Common Stock issuable upon the exercise of an option, an
optionee will recognize a capital gain or loss, assuming the stock was a capital
asset in the optionee's hands, equal to the difference between the tax basis of
the Common Stock and the amount realized upon disposition; provided, however,
that the optionee has owned the Common Stock for a period of one year.
Tax Consequences to the Company
The grant of an option under the 2002 Director Plan will have no tax
consequences to the Company. However, the Company generally will be entitled to
a business-expense deduction with respect to any ordinary compensation income,
including a disqualifying disposition under the Code or a Section 83(b)
Election; provided, however, that such deduction will be subject to the
limitation of Section 162(m) promulgated under the Code.
The full text of the 2002 Director Plan is annexed to this Proxy Statement
as Exhibit B.
VOTE REQUIRED
The affirmative vote of a majority of the votes cast at the Annual Meeting
is required for the adoption of the 2002 Director Plan.
THE BOARD OF DIRECTORS DEEMS PROPOSAL III TO BE IN THE BEST INTERESTS OF THE
COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
PROPOSAL III.
21
EXECUTIVE COMPENSATION AND RELATED INFORMATION
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following provides certain information concerning all Plan and Non-Plan
(as defined in Item 402 (a)(ii) of Regulation S-K) compensation awarded to,
earned by, paid or accrued by the Company during the years ended December 31,
2001, 2000 and 1999 to each of the named executive officers of the Company.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term
Compensation
------------
Securities
Underlying
Name & Principal Other Annual Options/SARs
Position Year Salary Bonus Compensation Granted
- --------- ---- --------- --------- ------------ ------------
Herbert Kurinsky 2001 $ 233,140 $ 0 $ 2,000(4) 200,000(1)
Chairman, Chief 2000 $ 256,217 $ 29,306 $ 2,000(4) 125,000(1)
Executive Officer (7) 1999 $ 232,925 $ 100,000 $ 925(4) 0(1)
William J. Kurinsky 2001 $ 233,140 $ 0 $ 1,000(5) 200,000(2)
Vice President, 2000 $ 256,217 $ 0 $ 2,000(5) 125,000(2)
Chief Operating and 1999 $ 232,925 $ 100,000 $ 1,925(5) 0(2)
Financial Officer
and Secretary (8)
Robert I. Rabinowitz 2001 $ 146,154 $ 0 $ 2,000(6) 43,750(3)
General Counsel, FMFC, 2000 $ 150,000 $ 24,234 $ 2,000(6) 60,000(3)
Chief Administrative 1999 $ 125,000 $ 25,000 $ 1,200(6) 0(3)
Officer, FMSC (9)
Dave McCoy, 2001 $ 179,436 $ 27,787 $ 0 0
Director of Retail Sales 2000(11) $ 59,231 $ 50,000 $ 14,676 200,000
FMSC (10) 1999 $ N/A $ N/A $ N/A 0
- -------------
1. In 2001 The Compensation Committee of the Board of Directors (the
"Committee) authorized an option grant to Mr. Herbert Kurinsky to purchase
200,000 shares of Common Stock at an exercise price of $.75 per share for 5
years. In 2000, the Committee authorized an option grant to Mr. Herbert
Kurinsky to purchase 125,000 shares of Common Stock at an exercise price of
$2.00 per share. See "Aggregated Options/Sar Exercises in Last Fiscal Year
and Fy-End Option/Sar Values."
2. In 2001 The Compensation Committee of the Board of Directors (the
"Committee) authorized an option grant to Mr. William J. Kurinsky to
purchase 200,000 shares of Common Stock at an exercise price of $.83 per
share for 5 years. In 2000 the Committee authorized an option grant to Mr.
William J. Kurinsky to purchase 125,000
22
shares of Common Stock at an exercise price of $2.00 per share. See
"Aggregated Options/Sar Exercises in Last Fiscal Year and Fy-End Option/Sar
Values."
3. In 2001 The Compensation Committee of the Board of Directors (the
"Committee) authorized an option grant to Mr. Robert Rabinowitz to purchase
43,750 shares of Common Stock at an exercise price of $1.50 per share for 5
years. In 2000 the Committee authorized an option grant to Mr. Robert
Rabinowitz to purchase 60,000 shares of Common Stock at an exercise price
of $2.00 per share. See "Aggregated Options/Sar Exercises in Last Fiscal
Year and Fy-End Option/Sar Values."
4. Includes: (i) for 2001, automobile allowance of $2,000; (ii) for 2000,
automobile allowance of $2,000; (iii) for 1999, auto allowance of $925.
5. Includes: (i) for 2001, automobile allowance of $1,000; (ii) for 2000,
automobile allowance of $2,000; (iii) for 1999, auto allowance of $1,928.
6. Includes (i) for 2001, automobile allowance of $2,000; (ii) for 2000,
automobile allowance of $2,000; (iii) for 1999, automobile allowance of
$1,200.
7. Mr. Herbert Kurinsky is the beneficial owner of 56,518 shares of the
Company's Common Stock as of December 31, 2001, which shares had a market
value of $24,868 as of that date, without giving effect to the diminution
in value attributable to the restriction on said shares.
8. Mr. William Kurinsky is the beneficial owner of 1,110,823 shares of the
Company's Common Stock as of December 31, 2001, which shares had a market
value of $488,762 as of that date, without giving effect to the diminution
in value attributable to the restriction on said shares.
9. Mr. Robert I. Rabinowitz is the beneficial owner of 29,500 shares of the
Company's Common Stock as of December 31, 2001, which shares had a market
value of $12,980 as of that date, without giving effect to the diminution
in value attributable to the restriction on said shares.
10. Mr. Dave McCoy is the beneficial owner of 141,250 shares of the Company's
Common Stock as of December 31, 2001, which shares had a market value of
$62,150 as of that date.
11. Mr. McCoy became employed by the Company in June 2000 as Director of Retail
Sales. The salary, bonus and option grant was provided pursuant to his
compensation package. The commissions paid were earned by Mr. McCoy in his
capacity as a registered representative prior to the commencement of his
salaried position.
23
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table contains information with respect to the named
executive officers concerning options granted during the year ended December 31,
2001.
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES ALTERNATIVE TO
OF STOCK (F) AND (G)
INDIVIDUAL GRANTS PRICE APPRECIATION FOR GRANT DATE VALUE
OPTION
TERM
PERCENT OF
NUMBER OF TOTAL EXERCISE
SECURITIES OPTION/SARS OF
UNDERLYING GRANTED TO BASE
OPTION/SARS (1) EMPLOYEES PRICE EXPIRATION GRANT DATE
NAME GRANTED (#) IN FISCAL YEAR (S/SH) DATE 5% ($) 10% ($) PRESENT VALUE $
---- --------------- -------------- --------- ---------- ------ ------- ---------------
(A) (B) (C) (D) (C) (F) (G) (H)
Herbert Kurinsky 200,000 18.3% $0.66 1/04/06 18,469 62,587
William J. Kurinsky 200,000 18.3% $0.66 1/04/06 2,469 46,587
Robert I. Rabinowitz 43,750 4.0% $0.66 1/04/06 -- --
- -------------------
1. There were no grants of Stock Appreciation Rights to the executive officers
listed above during the fiscal year ended December 31, 2001.
2. Percentages set forth in column (c) includes options granted to
non-employee registered representatives under the 1992 Incentive Stock
Option Plan, as amended.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Value of Unexercised In-the-
Shares Number of Unexercised Options Money Options
Acquired Value as of December 31, 2001 at December 31, 2001(1)
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------- -------- ----------------------------- ----------------------------
Herbert Kurinsky 0 -- 475,000/0 $0/$0
William J. Kurinsky 0 -- 500,000/0 $0/$0
Robert I. Rabinowitz 0 -- 328,750/0 $0/$0
David McCoy 0 -- 369,500/180,500 $0/$0
24
(footnotes from previous page)
- -----------
(1) Based on the closing bid price of the Company's common stock on December
31, 2001 ($.44 per share), less the exercise price for the aggregate number
of shares subject to the options.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about the Company's common stock
that may be issued upon the exercise of options and rights under all of the
Company's existing equity compensation plans as of December 31, 2001, including
the 1992 Incentive Stock Option Plan, as amended, the 1992 Non-Employee Director
Stock Option Plan, as amended and the 1996 Senior Management Stock Option Plan,
as amended. Information concerning each of the aforementioned plans is set forth
below following the caption "Shareholder Approved Option Plans." The table does
not include information about the proposed 2002 Incentive Stock Option Plan and
the proposed 2002 Non-Executive Director Stock Option Plan, neither of which
have been approved by stockholders and under which no grants have been made.
======================================================================================================================
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES FUTURE ISSUANCE UNDER
TO BE ISSUED UPON EQUITY COMPENSATION
EXERCISE OF WEIGHTED AVERAGE PLANS EXCLUDING
OUTSTANDING OPTIONS EXERCISE PRICE OF SECURITIES REFLECTED IN
AND RIGHTS OUTSTANDING OPTIONS COLUMN (A)
--------------------- ------------------- -----------------------
PLAN CATEGORY (A) (B) (C)
- ---------------------------------------------------------------------------------------------------------------------
Equity Compensation 5,243,998(1) $1.73 5,899,802(2)
Plans Approved by
Stockholders
- ---------------------------------------------------------------------------------------------------------------------
Equity Compensation N/A N/A N/A
Plans Not Approved by
Stockholders
- ---------------------------------------------------------------------------------------------------------------------
Total 5,243,998(1) $1.73 5,899,802(2)
======================================================================================================================
- --------------------------
1. Includes 3,011,498 options issued pursuant to the Company's 1992 Incentive
Stock Option Plan, as amended, 200,000 options issued pursuant to the
Company's 1992 Director Stock Option Plan, as amended, and 2,032,500
options issued pursuant to the Company's 1996 Senior Management Stock
Option Plan, as amended.
2. Includes 3,387,302 options available for issuance under the Company's 1992
Incentive Stock Option Plan, as amended, 640,000 options available for
issuance under the Company's 1992 Director Stock Option Plan, as amended,
and an aggregate of 1,872,500 shares reserved for issuance as options,
incentive stock rights or pursuant to restricted stock purchase agreements
under to the Company's 1996 Senior Management Stock Option Plan, as
amended.
25
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth herein is a line graph comparing the total returns (assuming
reinvestment of dividends) of the Company's common stock, the Standard and Poor
Industrial Average, and an industry composite consisting of a group of two peer
issuers selected in good faith by the Company. The Company's common stock is
listed for trading in the over the counter market and is traded under the symbol
"FMFK".
[GRAPHIC OMITTED]
NOTES
(1) Industry composite includes Paulson Capital Corp., Olympic Cascade
Financial Corp. and Kirlin Holding Corp. The industry composite has been
determined in good faith by management to represent entities that compete
with the Company in certain of its significant business segments.
26
EMPLOYMENT AGREEMENTS
In January 2000, the Company entered into new three-year employment
contracts with Herbert Kurinsky, as President and William J. Kurinsky, as
Executive Vice President. The contracts provide for base salaries of $256,218
for the first year of the agreement for each, increasing in each case at the
rate of 10% per year. Each will also be entitled to receive a portion of a bonus
pool consisting of 10% of the pre-tax profits of the Company, to be determined
by the executive management (e.g. Herbert Kurinsky and William J. Kurinsky). The
bonus pool would require a minimum of $500,000 pretax profit per year in order
to become effective.
Each is also entitled to receive commissions at the same rate as paid to
other non-affiliate registered representatives of the Company. They are also
entitled to purchase from FMSC, up to 20% of all underwriters and/or placement
agent warrants or options which are granted to FMSC upon the same price, terms
and conditions afforded to FMSC as the underwriter or placement agent. Each
employee also receives health insurance benefits and life insurance as generally
made available to regular full-time employees of the Company, and reimbursement
for expenses incurred on behalf of the Company and the use of an automobile or
in the alternative an automobile allowance. The contracts also provide for
severance benefits equal to three times the previous year's salary in the event
either of the employees is terminated or their duties significantly changed
after a change in management of the Company as defined in the respective
agreements.
SHAREHOLDER-APPROVED OPTION PLANS
Incentive Stock Option Plan
In September 1992, the Company adopted the 1992 Incentive Stock Option
Plan. The 1992 Incentive Stock Option Plan provided for the grant of options to
purchase up to 2,000,000 shares of the Company's Common Stock and is intended
for employees of the Company and consultants. In June 1996 the Company's Board
of Directors and shareholders approved an amendment to the 1992 Incentive Stock
Option Plan to increase the number of shares reserved for issuance from
2,000,000 to 3,500,000. In June 1998, the Company's shareholders approved a
further amendment to the 1992 Incentive Stock Option Plan to increase the number
of shares reserved for issuance from 3,500,000 to 6,000,000 and in June 2000,
the Company's shareholders approved a further amendment to increase the number
of shares reserved for issuance under the 1992 Incentive Stock Option Plan from
6,000,000 to 8,000,000 (as amended, the "Incentive Plan"). Under the terms of
the Incentive Plan, options granted thereunder may be designated as options
which qualify for incentive stock option treatment ("ISOs") under Section 422A
of the Code, or options which do not so qualify ("Non-ISOs"). THE BOARD OF
DIRECTORS HAS PROPOSED TO ADOPT THE 2002 INCENTIVE STOCK OPTION PLAN AND HAS
SUBMITTED A PROPOSAL FOR THEREFORE FOR STOCKHOLDER VOTE AT THE ANNUAL MEETING.
PLEASE REFER TO THE DISCUSSION UNDER THE HEADING "PROPOSAL II ADOPTION OF 2002
INCENTIVE STOCK OPTION PLAN."
27
The Incentive Plan is administered by the Board of Directors or by a Stock
Option Committee designated by the Board of Directors. The Board or the Stock
Option Committee, as the case may be, has the discretion to determine the
eligible employees to whom, and the times and the price at which, options will
be granted; whether such options shall be ISOs or Non-ISOs; the periods during
which each option will be exercisable; and the number of shares subject to each
option. The Board or Committee has full authority to interpret the Incentive
Plan and to establish and amend rules and regulations relating thereto.
Under the Incentive Plan, the exercise price of an option designated as an
ISO shall not be less than the fair market value of the Common Stock on the date
the option is granted. However, in the event an option designated as an ISO is
granted to a ten percent stockholder (as defined in the Amended Plan) such
exercise price shall be at least 110% of such fair market value. Exercise prices
of Non-ISO options may be less than such fair market value. The aggregate fair
market value of shares subject to options granted to a participant which are
designated as ISOs which become exercisable in any calendar year may not exceed
$100,000.
The Board or the Stock Option Committee, as the case may be, may, in its
sole discretion, grant bonuses or authorize loans to or guarantee loans obtained
by an optionee to enable such optionee to pay any taxes that may arise in
connection with the exercise or cancellation of an option. Unless sooner
terminated, the Incentive Plan will expire in 2002.
As of the Record Date, options to purchase a total of 6,474,498 shares of
the Company's Common Stock have been issued under the Incentive Plan and options
to purchase 2,801,998 shares remain issued and outstanding. The balance of the
options granted under the Incentive Plan were either exercised or have expired.
Director Plan
In September 1992, the Company adopted the Non-Executive Director Stock
Option Plan (the "Director Plan"). The Director Plan provides for issuance of a
maximum of 1,000,000 shares of Common Stock upon the exercise of stock options
granted under the Director Plan. Options are granted under the Director Plan
until 2002 to non-executive directors as defined in the Director Plan. The
Director Plan provides that each non-executive director will automatically be
granted an option to purchase 20,000 shares each September 1, provided such
person has served as a director for the 12 months immediately prior to such
September 1st. THE BOARD OF DIRECTORS HAS PROPOSED TO ADOPT THE 2002
NON-EXECUTIVE DIRECTOR STOCK OPTION PLAN AND HAS SUBMITTED A PROPOSAL THEREFORE
FOR STOCKHOLDER VOTE AT THE ANNUAL MEETING. PLEASE REFER TO THE DISCUSSION UNDER
THE HEADING "PROPOSAL III ADOPTION OF 2001 NON-EXECUTIVE DIRECTOR STOCK OPTION
PLAN."
In June 1996, the Company's shareholders approved an amendment to the
Director Plan to provide for the elimination of non-discretionary stock grants
to members of any advisory board established by the Company.
28
The exercise price for options granted under the Director Plan shall be
100% of the fair market value of the Common Stock on the date of grant. Until
otherwise provided in the Stock Option Plan the exercise price of options
granted under the Director Plan must be paid at the time of exercise, either in
cash, by delivery of shares of Common Stock of the Company or by a combination
of each. The term of each option commenced on the date it is granted and unless
terminated sooner as provided in the Director Plan, expires five years from the
date of grant. The Director Plan is administered by a committee of the board of
directors composed of not fewer than three persons who are officers of the
Company (the "Committee"). The Committee has no discretion to determine which
non-executive director will receive options or the number of shares subject to
the option, the term of the option or the exercisability of the option. However,
the Committee will make all determinations of the interpretation of the Director
Plan. Options granted under the Director Plan are not qualified for incentive
stock option treatment.
As of the Record Date, options to purchase a total of 420,000 shares of the
Company's Common Stock have been issued under the Director Plan and options to
purchase 200,000 shares remain issued and outstanding. The balance of the
options granted under the Director Plan were either exercised or have expired.
Senior Management Plan
In 1996, the Company adopted the 1996 Senior Management Incentive Plan (and
as amended, the "Management Plan"). The Management Plan provides for the
issuance of up to 2,000,000 shares of Common Stock either upon issuance of
options issued under the Management Plan or grants of restricted stock or
incentive stock rights. In June 2000, the Company's shareholders approved an
amendment to Management Plan to increase the number of shares reserved for
issuance from 2,000,000 to 4,000,000. Awards may be granted under the Management
Plan to executive management employees by the Board of Directors or a committee
of the board, if one is appointed for this purpose. The Management Plan provides
for four types of awards--stock options, incentive stock rights, stock
appreciation rights, and restricted stock purchase agreements. The stock options
granted under the Management Plan can be either ISOs or non-ISOs similar to the
options granted under the Incentive Stock Option Plan, except that the exercise
price of non-ISOs shall not be less than 85% of the fair market value of the
Common Stock on the date of grant. Incentive stock rights consist of incentive
stock units equivalent to one share of Common Stock in consideration for
services performed for the Company. If services of the holder terminate prior to
the incentive period, the rights become null and void unless termination is
caused by death or disability. Stock appreciation rights allow a grantee to
receive an amount in cash equal to the difference between the fair market value
of the stock and the exercise price, payable in cash or shares of Common Stock.
The Board or committee may grant limited SARs which become exercisable upon a
"change of control" of the Company. A change of control includes the purchase by
any person of 25% or more of the voting power of the Company's outstanding
securities, or a change in the majority of the Board of Directors.
Awards granted under the Management Plan are also entitled to certain
acceleration provisions which cause awards granted under the Management Plan to
immediately vest in the event of a change of control or sale of the Company.
Awards under the Management Plan may be made until 2006.
29
As of the Record Date, options to purchase a total of 2,552,500 shares of
the Company's Common Stock have been issued under the Senior Management Plan and
options to purchase 1,652,500 shares remain issued and outstanding. The balance
of the options granted under the Senior Management Plan were either exercised or
have expired.
Each of the types of Awards that may be granted under the Management Plan
is discussed below.
Stock Options. Under the terms of the Management Plan, options granted
thereunder will be designated as options which qualify for incentive stock
option treatment ("ISO's") under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or options which do not so qualify ("Non-ISO's").
Under the Management Plan, the exercise price of an option designated as an
ISO shall not be less than the fair market value of the Common Stock on the date
the option is granted. However, in the event an option designated as an ISO is
granted to a ten percent Shareholder such exercise price shall be at least 110%
of such fair market value. Exercise prices of Non-ISO options may not be less
than 85% of such fair market value. The aggregate fair market value of shares
subject to an option designated as an ISO for which any participant may be
granted such an option in any calendar year, shall not exceed $100,000 plus any
unused carryovers (as defined in Section 422 of the Code) from a prior year. The
"fair market value" will be the price of the Company's Common Stock, the low bid
as reported by the National Quotation Bureau, Inc., or a market maker of the
Company's Common Stock, or if the Common Stock is not quoted by any of the
above, by the Board of Directors acting in good faith.
Options may be granted under the Management Plan for such periods as
determined by the Management Plan Administrator; provided however that no option
designated as an ISO granted under the Management Plan shall be exercisable over
a period in excess of ten years, or in the case of a ten percent Shareholder,
five years. Options may be exercised in whole at any time or in part from time
to time. Options are not transferable except to the estate of an option holder;
provided, however, in the case of a Non-ISO, and subject to Rule 16b-3
promulgated under Section 16 of the Exchange Act and prevailing interpretations
thereunder by the Staff of the Securities and Exchange Commission, a recipient
of a Non-ISO may, with the consent of the Management Plan Administrator,
designate a named beneficiary of the Non-ISO in the event of the death of such
recipient, or assign such Non-ISO.
Incentive Stock Rights. Incentive stock rights consists of incentive stock
units which give the holder the right to receive, without payment of cash or
property to the Company, shares of Common Stock. Each unit is equivalent to one
share of Common Stock and will be issued in consideration for services performed
for the Company. If the services of the senior manager with the Company
terminate prior to the end of the incentive period relating to the units
awarded, the rights shall thereupon be null and void, except that if termination
is caused by death or permanent disability, the senior manager or his/her heirs,
as the case may be, shall be entitled to receive a pro rata portion of the
shares represented by the units, based upon that portion of the incentive period
which shall have elapsed prior to the death or disability.
30
Stock Appreciation Rights ("SARs"). SARs may be granted to recipients of
options under the Management Plan. SARs may be granted simultaneously with, or
subsequent to, the grant of a related option and may be exercised to the extent
that the related option is exercisable, except that no general SAR (as
hereinafter defined) may be exercised within a period of six months of the date
of grant of such SAR and no SAR granted with respect to an ISO may be exercised
unless the fair market value of the Common Stock on the date of exercise exceeds
the exercise price of the ISO. A holder may be granted general SARs ("general
SARs") or limited SARs ("limited SARs"), or both. General SARs permit the holder
thereof to receive an amount (in cash, shares of Common Stock or a combination
of both) equal to the number of SARs exercised multiplied by the excess of the
fair market value of the Common Stock on the exercise date over the exercise
price of the related option. Limited SARs are similar to general SARs, except
that, unless the Administrator (as defined in the Plan) determines otherwise,
they may be exercised only during a prescribed period following the occurrence
of one or more of the following events: (i) the approval of the shareholders of
the Company of a consolidation or merger in which the Company is not the
surviving corporation, the sale of all or substantially all the assets of the
Company, or the liquidation or dissolution of the Company; (ii) the commencement
of a tender or exchange offer for the Company's Common Stock (or securities
convertible into Common Stock) without the prior consent of the Board; (iii) the
acquisition of beneficial ownership by any person or other entity (other than
the Company or any employee benefit plan sponsored by the Company) of securities
of the Company representing 25% or more of the voting power of the Company's
outstanding securities; or (iv) if during any period of two years or less,
individuals who at the beginning of such period constitute the entire Board
cease to constitute a majority of the Board, unless the election, or the
nomination for election, of each new director is approved by at least a majority
of the directors then still in office.
The exercise of any portion of either the related option or the tandem SARs
will cause a corresponding reduction in the number of shares remaining subject
to the option or the tandem SARs, thus maintaining a balance between outstanding
options and SARs.
Restricted Stock Purchase Agreements. Restricted stock purchase agreements
provide for the sale by the Company of shares of Common Stock at prices to be
determined by the Board, which shares shall be subject to restrictions on
disposition for a stated period during which time the purchase must continue
employment with the Company to retain the shares.
Upon expiration of the applicable restricted period and the satisfaction of
any other applicable conditions, all or part of the restricted shares and any
dividends or other distributions not distributed to the holder (the "retained
distributions") thereon will become vested. Any restricted shares and any
retained distributions thereon which do not so vest will be forfeited to the
Company. If prior to the expiration of the restricted period a holder is
terminated without cause or because of a total disability (in each case as
defined in the Plan), or dies, then, unless otherwise determined by the
Administrator at the time of the grant, the restricted period applicable to each
award of restricted shares will thereupon be deemed to have expired. Unless the
Administrator determines otherwise, if a holder's employment terminates prior to
the expiration of the applicable restricted period for any reason other than as
set forth above, all restricted shares and any retained distributions thereon
will be forfeited.
31
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
For information concerning the terms of the employment agreements entered
into between the Company and Messrs. Herbert Kurinsky and William J. Kurinsky,
see "Executive Compensation".
FINANCIAL INFORMATION
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2001 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL
BE FURNISHED WITHOUT THE ACCOMPANYING EXHIBITS, WHICH EXHIBITS SHALL BE
FURNISHED TO SHAREHOLDERS, IF REQUESTED, UPON PAYMENT TO THE COMPANY OF
REASONABLE EXPENSES INCLUDING PHOTOCOPYING AND MAILING EXPENSES, TO SHAREHOLDERS
WITHOUT CHARGE UPON WRITTEN REQUEST THEREFOR SENT TO WILLIAM J. KURINSKY,
SECRETARY, FIRST MONTAUK FINANCIAL CORP., PARKWAY 109 OFFICE CENTER, 328 NEWMAN
SPRINGS ROAD, RED BANK, NEW JERSEY 07701. Each such request must set forth a
good faith representation that as of May 17, 2002 the person making the request
was the beneficial owner of Common Shares of the Company entitled to vote at the
2002 Annual Meeting of Shareholders.
OTHER BUSINESS
As of the date of this Proxy Statement, the foregoing is the only business
which the Board of Directors intends to present, and is not aware of any other
matters which may come before the meeting. If any other matter or matters are
properly brought before the Annual Meeting, or any adjournments thereof, it is
the intention of the persons named in the accompanying form of proxy to vote the
proxy on such matters in accordance with their judgment. Proposals of
shareholders intended to be presented at the Company's 2003 Annual Meeting of
Shareholders must be received by the Company on or prior to January 22, 2003 to
be eligible for inclusion in the Company's proxy statement and form of proxy to
be used in connection with the 2003 Annual Meeting of Shareholders.
By Order of the Board of Directors
WILLIAM J. KURINSKY, Secretary
Dated: May 20, 2002
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE AND RETURN YOUR
PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF IT IS MAILED
IN THE UNITED STATES OF AMERICA.
32
EXHIBIT A
FIRST MONTAUK FINANCIAL CORP.
2002 INCENTIVE STOCK OPTION PLAN
1. PURPOSE. The purpose of the 2002 Incentive Stock Option Plan (the
"Plan") is to advance the interests of FIRST MONTAUK FINANCIAL CORP., a New
Jersey corporation (the "Company"), by strengthening the Company's ability to
attract and retain people of training, experience and ability, and to furnish
additional incentives to Employees (as such term is hereinafter defined),
consultants and registered representatives of the Company and its subsidiaries
upon whose judgment, initiative and efforts the successful conduct and
development of its business largely depends, by encouraging them to become
owners of the capital stock of the Company.
Accordingly, the Company may, from time to time, grant to such Employees,
consultants and registered representatives as may be selected in the manner
hereinafter provided, options to purchase the shares of the Company's common
stock, no par value per share (the "Common Stock") upon the terms and conditions
hereinafter established. The options to be granted may, at the discretion of the
Company, be designated to be options which will qualify for incentive stock
option treatment under the Internal Revenue Code of 1986 as amended from time to
time (and the rules and regulations promulgated thereunder) (the "Code")
("ISOs") or options which will not so qualify ("Non-ISOs"). Except as otherwise
indicated, the terms and conditions hereinafter established will apply to ISOs
and Non-ISOs.
2. AMOUNT AND SOURCE OF STOCK. The aggregate number and class of shares
which may be the subject of options granted pursuant to the Plan is 5,000,000
shares of Common Stock, no par value per share, of the Company (the "Shares"),
subject to adjustment as provided in Paragraph 11. Such Shares may be reserved
or made available from the Company's authorized and unissued Shares or from
Shares reacquired and held in the Company's treasury. In the event that any
option granted hereunder shall terminate prior to its exercise in full, for any
reason, then the Shares subject to the option so exercised shall be added to the
Shares otherwise available for issuance pursuant to the exercise of options
under the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Board
of Directors of the Company (the "Board"), or if so designated by resolution of
the Board, by a committee selected by the Board (the "Committee"), and to be
composed of not less than two (2) members to be appointed from time to time by
such Board, and who, at any time they exercise discretion in administering the
Plan and within one year prior thereto, shall have not been eligible for
selection as a person to whom stock could have been allocated or to whom stock
options or stock appreciation rights could have been granted pursuant to the
Plan or any other plan of the Company or any of its affiliates entitling the
participants therein to acquire stock, stock options or stock appreciation
rights of the Company or any of its affiliates.
1
EXHIBIT A
The Board or, if so designated, the Committee, shall have full authority
to:
o interpret and amend the Plan including changes or amendments which may be
required in order to satisfy federal tax and securities laws and
regulations if effect from time to time;
o to establish and amend rules and regulations relating to the Plan;
o to determine the eligibility of persons to whom options may be granted
under the Plan;
o to determine whether each option will be an ISO or Non-ISO;
o to determine the terms and provisions of the respective option agreements
(which need not be identical); and
o to make all other determinations necessary or advisable for the
administration of the Plan.
Notwithstanding the foregoing, any amendment to the Plan that:
o increases the number of Shares that may be the subject of stock options
granted under the Plan;
o expands the class of persons eligible to receive options under the Plan;
o increases the period during which options may be granted or the permissible
term of options under the Plan; or
o decreases the minimum exercise price of ISO options
shall only be adopted by the Board or, if so designated, the Committee, and
shall be valid only upon shareholder approval. No amendment to the Plan, or any
outstanding option, shall, without the consent of the holder of an existing
option, materially and adversely affect his rights under any option.
4. ELIGIBILITY. (a) Employees, consultants and registered representatives
of the Company or subsidiaries of the Company, as determined by the Board or, if
so designated, the Committee, shall be eligible to receive options hereunder;
provided, however, that no option, designated as an ISO, shall be granted
hereunder to any consultant, registered representative or any other person who,
together with his spouse, children and trusts and custodial accounts for their
benefit, immediately at the time of the grant of such option and assuming its
immediate exercise, would beneficially own, within the meaning of the Code,
Shares possessing more than ten percent (10%) of the total combined voting power
of all of the outstanding stock of the Company (a "Ten Percent Shareholder"),
unless such an option granted to the Ten Percent Shareholder satisfies the
additional conditions for options, designated as an ISO, granted to Ten Percent
Shareholders set forth in subparagraphs 5(a) and 6(a). For purposes of the Plan,
an "Employee" shall include officers and full and part time employees of the
Company or any subsidiary of the Company; provided, however, that options which
are designated ISOs shall only be issued to employees eligible to receive such
options under the Code. In addition, Non-ISOs may be granted to officers or
other employees of the Company or its Subsidiaries, and to
2
EXHIBIT A
consultants, registered representatives and other persons who provide services
to the Company or its Subsidiaries, and members of any advisory boards of the
Company or otherwise (regardless of whether they are also employees). For
purposes of the Plan, a "Subsidiary" shall mean any corporation of which the
Company owns or controls, directly or indirectly, fifty percent (50%) or more of
the outstanding shares of capital stock normally entitled to vote for the
election of directors and any partnership of which the Company or a corporate
subsidiary is a general partner. From time to time the Board or, if so
designated, the Committee shall, in its sole discretion, within the applicable
limits of the Plan, select from among the eligible individuals those persons to
whom options shall be granted under the Plan, the number of Shares subject to
each option, whether an option shall be an ISO or a Non-ISO, and the exercise
price, terms and conditions of any options to be granted hereunder. Any person
to whom an option is granted under the Plan may be referred to herein as a
"Grantee" or "Optionee".
(b) Notwithstanding anything to the contrary herein, the Board, or if so
designated, the Committee, shall only grant an option designated as an ISO to
such persons who are eligible to receive an ISO pursuant to Section 422 of the
Code.
5. OPTION PRICE; MAXIMUM GRANT. Options shall be evidenced by stock option
agreements in such form, and not inconsistent with the Plan, as the Board of
Directors shall approve from time to time, which agreements shall contain in
substance the following terms and conditions.
(a) The exercise price for the Shares purchasable under options, designated
as an ISO, granted pursuant to the Plan shall not be less than 100%, or, in the
case of an option designated as an ISO granted to a Ten Percent Shareholder,
110%, of the fair market value per share of the Shares subject to option under
the Plan at the Date of Grant, as determined by the Board or, if so designated,
the Committee, in good faith. The Board, of if so designated, the Committee,
shall consider the closing price of the Common Stock on the date the option is
granted (if listed on a national securities exchange), the representative
closing bid price as reported by NASDAQ or the National Quotation Bureau, Inc.,
or such other reasonable method based on market quotations. The exercise price
for the Shares purchasable under options, designated as Non-ISOs, granted
hereunder shall be determined by the Board, which determination shall be made in
the Board's sole discretion, acting in good faith. The exercise price for
options granted pursuant to the Plan shall be subject to adjustment as provided
in Paragraph 11.
(b) With respect to those options designated as an ISO granted pursuant to
the Plan, the aggregate fair market value, determined as of the Date of Grant,
of the Shares subject to such options which may be granted to an individual and
which are initially exercisable in any one calendar year, under this Plan and
all other stock option plans of the Company and of any parent or subsidiary of
the Company pursuant to which incentive stock options may be granted, shall not
exceed the fair market value of $100,000. The Board, or Committee, may adopt a
vesting schedule as it may determine in connection with any option granted under
the Plan; provided,
3
EXHIBIT A
however, in the event that an option designated an ISO exercisable for the first
time by a Grantee during any calendar year exceeds $l00,000 in any one year,
determined at the time of grant, such options in excess of $100,000 shall be
treated as Non-ISOs.
6. TERM OF OPTIONS. (a) Subject to the provisions of the Plan, the Board,
or if so designated, the Committee, shall have absolute discretion in
determining the period during which, the rate at which, and the terms and
conditions upon which any option granted hereunder may be exercised, and whether
any option exercisable in installments is to be exercisable on a cumulative or
non-cumulative basis; provided, however, that no option granted hereunder shall
be exercisable for a period exceeding ten (10) years or, in the case of an
option granted to a Ten Percent Shareholder, five (5) years from the Date of
Grant (as defined below). The date of which the Board or, if so designated, the
Committee adopts resolutions granting an option to a specified individual shall
constitute the date of grant of such option (the "Date of Grant"); provided,
however, that if the grant of an option is made subject to the occurrence of a
subsequent event (such as, for example, the commencement of employment), the
date on which such subsequent event occurs shall be the Date of Grant. The
adoption of any such resolution by the majority of the members of the Board or,
if so designated, the Committee, shall complete the necessary corporate action
constituting the grant of said option and an offer of Shares for sale to said
individual under the Plan.
(b) The grant of options by the Board or, if so designated, the Committee
shall be effective as of the date on which the Board or, if so designated, the
Committee, shall authorize the option; provided, however, that no option granted
hereunder shall be exercisable unless and until the holder shall have received
an individual option agreement from the Company which shall set forth the terms
and conditions of such option. Each such agreement shall be deemed to have
expressly incorporated by reference the provisions of this Plan and shall state
that in the event of any inconsistency between the provisions hereof and the
provisions of such agreement, the provisions of this Plan shall govern.
7. EXERCISE OF OPTIONS. An option shall be exercised when written notice of
such exercise, signed by the person entitled to exercise the option, has been
delivered or transmitted by registered or certified mail to the Secretary of the
Company at its then principal office. Said notice shall specify the number of
Shares for which the option is being exercised and shall be accompanied by (i)
such documentation, if any, as may be required by the Company as provided in
subparagraph 12(b), and (ii) payment in full of the aggregate option price. Such
payment shall be in the form of (i) cash or a certified check (unless such
certification is waived by the Company) payable to the order of the Company in
the amount of the aggregate option price; (ii) delivery to the Company of such
number of shares of Common Stock of the Company already owned by the optionee
for at least six months prior to the date of exercise (or such other period as
may be required under the Code) that is equal to the aggregate option exercise
price and which Common Stock shall be valued at fair market value (as determined
under Section 5 hereof) on the date of exercise; (iii) recourse notes (subject
to Paragraph 14 herein); or (iv) a combination of
4
EXHIBIT A
these methods of payment. Delivery of said notice shall constitute an
irrevocable election to purchase the Shares specified in said notice, and the
date on which the Company receives the last of said notice, documentation and
the aggregate option exercise price for all of the Shares covered by the notice
shall, subject to the provisions of Paragraph 11 hereof, be the date as of which
the Shares so purchased shall be deemed to have been issued. The person entitled
to exercise the option shall not have the right or status as a holder of the
Shares to which such exercise relates prior to receipt by the Company of the
payment, notice and documentation expressly referred to in this Paragraph 7.
8. STOCK APPRECIATION RIGHTS AND OTHER OPTION PROVISIONS. The form of
option authorized by the Plan may contain such other provisions as the Committee
may, from time to time, determine. Without limiting the foregoing, at the
discretion of the Committee, each option agreement may provide for a stock
appreciation right under which the optionee may elect to have the Company cancel
all or any portion of any option then subject to exercise, in which event the
Company's obligation in respect of such option then subject to exercise, may be
discharged either by (i) payment to the optionee of an amount in cash equal to
the excess, if any, of the fair market value at the time of cancellation of the
shares subject to the option or portion thereof so canceled over the aggregate
purchase price of such shares as set forth in the option agreement, (ii) the
issuance or transfer to the optionee of shares of Common Stock of the Company
with a fair market value at such time equal to any such excess, or (iii) a
combination of cash and shares with a combined value equal to any such excess,
all as determined by the Committee in its discretion. Stock appreciation rights
may, in the discretion of the Committee, also be granted independent of any
grant of options hereunder. In the event of a cancellation of all or a portion
of an option pursuant to this subsection, the number of shares as to which such
option was canceled shall not again become available for use under the Plan.
9. EXERCISE AND CANCELLATION OF OPTIONS UPON TERMINATION OF EMPLOYMENT OR
DEATH. (a) Except as otherwise determined by the Board or the Committee at the
time an option is granted or subsequent thereto, the following provisions shall
govern the effect of an Optionee's termination of employment on the
exercisability of an option. In the event that an option holder ceases to be an
officer, Employee, consultant or registered representative of the Company or any
of its Subsidiaries for any reason other than by reason of permanent disability
(as determined by the Board of Directors or Committee), death or termination for
cause, any option, which was otherwise exercisable on the date of termination,
shall expire, unless exercised, within a period not later than the earlier of:
o three months from the date on which the option holder ceased to be so
employed or
o the expiration of the exercise period.
Notwithstanding the foregoing, the Board of Directors or the Committee may,
in connection with the termination of the employment of an option holder, extend
the date by which the option holder must exercise such option, but in no event
shall such date be later than the
5
EXHIBIT A
expiration of the exercise period, and in order to effect such extension, the
Board of Directors or Committee may cause any to be extended option previously
designated as an ISO to be treated as a Non-ISO under the Code.
In the event that the Board of Directors shall determine that an option
holder shall have been discharged for cause, options granted and not yet
exercised shall terminate immediately and be null and void as of the date of
discharge
For purposes of the Plan, a transfer of an Optionee from the Company to a
subsidiary or vice versa, or from one subsidiary to another, or a leave of
absence duly authorized by the Company shall not be deemed a termination of
employment or a break in the incentive, waiting or exercise period, as the case
may be. In the case of any Employee on an approved leave of absence, the Board
of Directors or Committee may make such provisions with respect to the
continuance of options or other rights previously granted while on leave from
the employ of the Company or a Subsidiary as it may deem equitable.
(b) In the event of the death of an Optionee during this three month
period, the option shall be exercisable by his or her personal representatives,
heirs or legatees to the same extent that the option holder could have exercised
the option if he or she had not died, for the three months from the date of
death, but in no event after the expiration of the exercise period. In the event
of the permanent disability of an Optionee while an officer, employee,
consultant, registered representative, advisory board member or director of the
Company or of any Subsidiary, any option granted to such person shall be
exercisable for twelve months after the date of permanent disability; but in no
event after the expiration of the exercise period; provided that such option
shall have previously vested (in whole or in part) prior to the date of such
permanent disability and the exercise of such option is in no event made after
the expiration of the option exercise period otherwise provided for. In the
event of the death of an Optionee while an officer, Employee, consultant,
registered representative, advisory board member or director of the Company or
any of its Subsidiaries, or during the twelve month period after the date of
permanent disability of the Optionee, that portion of the option which had
become exercisable on the date of death shall be exercisable by his or her
personal representatives, heirs or legatees at any time prior to the expiration
of one year from the date of the death of the Optionee, but in no event after
the expiration of the exercise period. Except as the Board or Committee shall
provide otherwise, in the event an Optionee ceases to be an officer, Employee,
consultant or registered representative of the Company or of any Subsidiary for
any reason, including death, prior to the lapse of the waiting period, his or
her option shall terminate and be null and void.
10. NON-TRANSFERABILITY OF OPTIONS. No option granted under the Plan shall
be sold, pledged, assigned or transferred in any manner except to the extent
that options may be exercised by an executor or administrator as provided in
Paragraph 9 hereof. An option may be exercised, during the lifetime of the
Grantee, only by such Grantee or his duly appointed guardian or conservator in
the event of his disability.
6
EXHIBIT A
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. (a) If the outstanding
Shares are subdivided, consolidated, increased, decreased, changed into, or
exchanged for a different number or kind of shares or other securities of the
Company through reorganization, merger, recapitalization, reclassification,
capital adjustment or otherwise, or if the Company shall issue additional Shares
as a dividend or pursuant to a stock split, then the number and kind of Shares
available for issuance pursuant to the exercise of options to be granted under
this Plan and all Shares subject to the unexercised portion of any option
theretofore granted and the option price of such options shall be adjusted to
prevent the inequitable enlargement or dilution of any rights hereunder;
provided, however, that any such adjustment in outstanding options under the
Plan shall be made without change in the aggregate exercise price applicable to
the unexercised portion of any such outstanding option. Distributions to the
Company's shareholders consisting of property other than shares of Common Stock
of the Company or its successors and distributions to shareholders of rights to
subscribe for Common Stock shall not result in the adjustment of the Shares
purchasable under outstanding options or the exercise price of outstanding
options. Adjustments under this paragraph shall be made by the Board or, if so
designated, by the Committee, whose determination thereof shall be conclusive
and binding. Any fractional Share resulting from adjustments pursuant to this
paragraph shall be eliminated from any then outstanding option. Nothing
contained herein or in any option agreement shall be construed to affect in any
way the right or power of the Company to make or become a party to any
adjustments, reclassifications, reorganizations or changes in its capital or
business structure or to merge, consolidate, dissolve, liquidate or otherwise
transfer all or any part of its business or assets.
(b) If, in the event of a merger or consolidation, the Company is not the
surviving corporation, and in the event that the agreements governing such
merger or consolidation do not provide for the substitution of new options or
other rights in lieu of the options granted hereunder or for the express
assumption of such outstanding options by the surviving corporation, or in the
event of the dissolution or liquidation of the Company, the holder of any option
theretofore granted under this Plan shall have the right not less than five (5)
days prior to the record date for the determination of shareholders entitled to
participate in such merger, consolidation, dissolution or liquidation, to
exercise his option, in whole or in part, without regard to any installment
provision that may have been made part of the terms and conditions of such
option; provided that any conditions precedent to such exercise set forth in any
option agreement granted under this Plan, other than the passage of time, have
been satisfied. In any such event, the Company will mail or cause to be mailed
to each holder of an option hereunder a notice specifying the date that is to be
fixed as of which all holders of record of the Shares shall be entitled to
exchange their Shares for securities, cash or other property issuable or
deliverable pursuant to such merger, consolidation, dissolution or liquidation.
Such notice shall be mailed at least ten (10) days prior to the date therein
specified. In the event any then outstanding option is not exercised in its
entirety on or prior to the date specified therein, all remaining outstanding
options granted hereunder and any and all rights thereunder shall terminate as
of said date.
7
EXHIBIT A
12. GENERAL SECURITIES LAW REQUIREMENTS. (a) No option granted hereunder
shall be exercisable if the Company shall, at any time and in its sole
discretion, determine that (i) the listing upon any securities exchange,
registration or qualification under any state or federal law of any Shares
otherwise deliverable upon such exercise, or (ii) consent or approval of any
regulatory body or the satisfaction of withholding tax or other withholding
liabilities, is necessary or appropriate in connection with such exercise. In
any of such events, the exercisability of such options shall be suspended and
shall not be effective unless and until the grantee of such option has paid such
withholding tax or listing, registration, qualification or approval shall have
been effected or obtained free of any conditions not acceptable to the Company
in its sole discretion, notwithstanding any termination of any option or any
portion of any option during the period when exercisability has been suspended.
(b) The Board or, if so designated, the Committee, may require, as a
condition to the right to exercise an option, that the Company receive from the
option holder, at the time of any such exercise, representations, warranties and
agreements to the effect that the Shares are being purchased by the holder only
for investment and without any present intention to sell or otherwise distribute
such Shares and that the option holder will not dispose of such Shares in
transactions which, in the opinion of counsel to the Company, would violate the
registration provisions of the Securities Act of 1933, as then amended, and the
rules and regulations thereunder. The certificates issued to evidence such
Shares shall bear appropriate legends summarizing such restrictions on the
disposition thereof.
13. EXCHANGE OF OPTIONS. The Board, or if so designated, the Committee,
shall have the right to grant options hereunder that are granted subject to the
condition that the grantee shall agree with the Company to terminate all or a
portion of another option or options previously granted under the Plan to the
grantee. The Shares that had been issuable pursuant to the exercise of the
Option terminated in the exchange of options shall, upon such termination, again
become available for issuance pursuant to the exercise of options under the
Plan.
14. LOANS TO GRANTEE. The Board or Committee, acting on behalf of the
Company, shall have the authority and may, in its sole discretion, lend money
to, or guaranty any obligation of, a Grantee for the purpose of enabling such
Grantee to exercise an option granted hereunder; the amount of such loan or
obligation, however, shall be limited to an amount equal to fifty percent of the
exercise price of such option. Any loan made hereunder shall bear interest at
the rate of ten percent per annum; may be unsecured or secured in such manner as
the Board or Committee shall determine, including, without limitation, a pledge
of the subject shares; and shall be subject to such other terms and conditions
as the Board or Committee may determine.
15. COMPLIANCE WITH SEC REGULATION SECTION 16(B). In the case of Optionees
who are or may be subject to Section 16 of the Securities and Exchange Act of
1934, as amended (and the rules and regulations promulgated thereunder) (the
"1934 Act"), it is the intent of the Company that the Plan and any award granted
hereunder satisfy and be interpreted in a manner
8
EXHIBIT A
that satisfies the applicable requirements of Rule 16b-3. This is so that such
persons will be entitled to the benefits of Rule 16b-3 or other exemptive rules
under Section 16 of the 1934 Act and will not be subjected to liability
thereunder. If any provision of the Plan or any award would otherwise conflict
with the intent expressed herein, that provision, to the extent possible, shall
be interpreted and deemed amended so as to avoid such conflict. To the extent of
any remaining irreconcilable conflict with such intent, such provision shall be
deemed void as applicable to Optionees who are or may be subject to Section 16
of the 1934 Act.
16. MODIFICATION OF OUTSTANDING OPTIONS. The Board, or if so designated the
Committee, may authorize the amendment of any outstanding option with the
consent of the Optionee when and subject to such conditions as are deemed to be
in the best interests of the Company and in accordance with the purposes of this
Plan.
17. TERMINATION. (a) Unless the Plan shall theretofore have been terminated
as hereinafter provided, the Plan shall terminate on a date which is ten (10)
years from the date of the original adoption hereof by the Board, and no options
under the Plan shall thereafter be granted, provided, however, the Board at any
time may, in its sole discretion, terminate the Plan prior to the foregoing
date. No termination of the Plan shall, without the consent of the holder of an
existing option, materially and adversely affect his rights under such option.
(b) The Plan shall be submitted to the shareholders of the Company for
approval in accordance with the applicable provisions of the New Jersey Business
Corporation Act as promptly as practicable and in any event within one year
after the date of the original adoption hereof by the Board. Any options granted
hereunder prior to such shareholder approval shall not be exercisable unless and
until such approval is obtained. If such approval is not obtained on or before
one (1) year from the date of the original adoption hereof by the Board, the
Plan and any options granted hereunder shall be terminated.
18. COMPLIANCE WITH INTERNAL REVENUE CODE; TAX WITHHOLDING. (a) It is
intended that this Plan qualify as, and be treated as, a qualified incentive
stock option plan under the Code. Notwithstanding anything to the contrary
contained in this Plan, no term of the Plan relating to ISOs shall be
interpreted, nor shall any discretion or authority of the Board of Directors or
the Committee, if any, be exercised, so as to disqualify the Plan under Code
Section 422. In addition, notwithstanding anything to the contrary set forth in
any option award, each and every option award shall be subject to the Code and
be governed by the terms thereof.
(b) The Company shall have the right to deduct from any cash payment made
under the Plan any federal, state or local income or other taxes required by law
to be withheld with respect to such payment. Additionally, it shall be a
condition to the obligation of the Company to deliver shares or securities of
the Company upon exercise of an option, that the Grantee of such option pay to
the Company such amount as may be requested by the Company for the purpose of
satisfying any liability for such withholding taxes, if any. The Committee
9
EXHIBIT A
may, in its sole discretion, permit the Grantee of an option, in accordance with
any applicable regulations of the authority issuing such regulations, to pay a
portion or all of the amount of such minimum required or additional permitted
withholding taxes in shares. At the Committee's sole discretion, the Grantee
shall be permitted to authorize the Company to withhold, or shall agree to
surrender back to the Company, on or about the date such withholding tax
liability is determinable, shares previously owned by such Grantee or a portion
of the shares that were or otherwise would be distributed to such Grantee
pursuant to such option having a fair market value equal (as determined under
Section 5 hereof) to the amount of such required or permitted withholding taxes
to be paid in shares.
19. NO OBLIGATION TO EXERCISE OPTION. The granting of an option shall
impose no obligation upon the Grantee (or upon a transferee of a Grantee) to
exercise such option.
20. NO LIMITATION ON RIGHTS OF THE COMPANY. The grant of any option shall
not in any way affect the right or power of the Company to make adjustments,
reclassification, or changes in its capital or business structure to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
21. PLAN NOT A CONTRACT OF EMPLOYMENT. The Plan is not a contract of
employment, and the terms of employment of any recipient of any award hereunder
shall not be affected in any way by the Plan or related instruments except a
specifically provided therein. The establishment of the Plan shall not be
construed as conferring any legal rights upon any recipient of any option
hereunder for a continuation of employment, nor shall it interfere with the
right of the Company or any subsidiary to discharge any recipient of any award
hereunder and to treat him or her without regard to the effect which such
treatment might have upon him or her as the recipient of any option hereunder.
22. EXPENSES OF THE PLAN. All of the expenses of the Plan shall be paid by
the Company.
23. GRANTEE TO HAVE NO RIGHTS AS A STOCKHOLDER. No Grantee of any option
shall have any rights as a stockholder with respect to any shares subject to his
or her option prior to the date on which he or she is recorded as the holder of
such shares on the records of the Company. No Grantee of any option shall have
the rights of a stockholder until he or she has paid in full the option price.
24. GOVERNING LAW. The Plan shall be governed by, and construed in
accordance with, the laws of the State of New Jersey.
10
EXHIBIT B
NON-EXECUTIVE DIRECTOR
STOCK OPTION PLAN OF
FIRST MONTAUK FINANCIAL CORP.
1. PURPOSE
The purpose of the Non-Executive Director Stock Option Plan is to provide a
means by which each Director of First Montauk Financial Corp. (the "Company")
who is not otherwise a full- time employee of the Company or any subsidiary of
the Company (each such person being hereafter referred to as a "Non-Executive
Director") will be given an opportunity to purchase Common Stock, $.001 par
value per share, of the Company ("Common Stock"). The Company, by means of the
Director Plan, seeks to attract and retain the services of qualified independent
persons to serve as Non-Executive Directors of the Company and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
2. ADMINISTRATION
(a) The Director Plan shall be administered by the Board of Directors of the
Company (the "Board") or a committee of the Board (the "Committee") which
shall at all times consist of not less than two (2) officers of the Company
who are not entitled to participate in the Director Plan, to be appointed
by the Board of Directors and to serve at the pleasure of the Board of
Directors.
(b) Grant of options under the Director Plan and the amount and nature of the
awards to be granted shall be automatic as described in Section 5 hereof.
However, all questions of interpretation of the Director Plan or of any
options issued under it shall be determined by the Board or Committee and
such determination shall be final and binding upon all persons having an
interest in the Director Plan. A majority of the Board's or Committee's
members shall constitute a quorum, and all determinations shall be made by
a majority of such quorum. Any determination reduced to writing and signed
by all of the members of the Board or Committee shall be fully effective as
if it had been made by a majority vote at a meeting duly called and held.
3. SHARES SUBJECT TO THE PLAN
There shall be no aggregate limitation on the number of shares of Common
Stock that may be acquired pursuant to options granted under the Director Plan.
The Common Stock subject to the Director Plan may be in whole or in part
authorized and unissued shares of Common Stock or issued shares of Common Stock
which shall have been reacquired by the Company. If any Option shall expire or
terminate for any reason without having been exercised in full, the unissued
shares subject thereto shall again be available for purposes of the Director
Plan.
1
EXHIBIT B
4. ELIGIBILITY
Options shall be granted only to Non-Executive Directors serving on the
Board of Directors of the Company.
5. GRANTS OF OPTIONS
(a) Non-discretionary Grants to Outside Directors
(i) Commencing upon the date that this Director Plan is adopted by the
Company's stockholders, each Non-Employee Director to the Board of
Directors shall be granted an Option to purchase 20,000 shares of Common
Stock on September 1st of each year, on the terms and conditions set forth
herein; provided that any Non-Executive Director, who has not served as a
director for an entire year prior to September 1st of each year shall
receive a pro rata number of options determined as follows:
Date of Membership Options Granted
September 1 through November 30 20,000
December 1 through February 28 15,000
March 1 through May 30 10,000
June 1 through August 31 5,000
Notwithstanding the foregoing, in the event a Non-Executive Director
initially joins the Board of Directors on or after June 1, such Non-Executive
Director shall not be eligible to be granted Options on September 1 of the year
in which he or she first joined the Board of Directors.
6. OPTION PROVISIONS
Each Option shall be evidenced by a written agreement ("Stock Option
Agreement") and shall contain the following terms and conditions:
(a) The term of each Option commences on the date it is granted and, unless
sooner terminated as set forth herein, expires on the date ("Expiration
Date") five years from the date of grant. The term of each Option may
terminate sooner than such Expiration Date if the optionee's service as a
Non-Executive Director of the Company terminates for any reason or for no
reason. In the event of such termination of service the Option shall
terminate on the date of termination of service as a director. If
termination of service is due to optionee's death, the option shall
terminate on the earlier of the Expiration Date or twelve (12) months
following the date of the optionee's death. In any and all circumstances,
an option may be exercised following termination
2
EXHIBIT B
of the optionee's service only as to that number of shares as to which it
was exercisable on the date of termination of such services.
(b) The exercise price of each option shall be one hundred percent (100%) of
the Fair Market Value of the shares subject to such option on the date such
option is granted. "Fair Market Value" of a share of Common Stock shall
mean (i) if the Common Stock is traded on a national securities exchange or
on the Nasdaq National Market System ("NMS"), the per share closing price
of the Common Stock on the principal securities exchange on which they are
listed or on NMS, as the case may be, on the date of grant (or if there is
no closing price for such date of grant, then the last preceding business
day on which there was a closing price); or (ii) if the Common Stock is
traded in the over-the-counter market and listed on the small cap market of
the Nasdaq Stock Market ("Nasdaq"), the per share closing bid price of the
Common Stock on the date of grant as reported by Nasdaq (or if there is no
closing bid price for such date of grant, then the last preceding business
day on which there was a closing bid price); or (iii) if the Common Stock
is traded in the over-the- counter market but bid quotations are not
published on Nasdaq quotation system, the closing bid price per share for
the Common Stock as furnished by a broker-dealer which regularly furnishes
price quotations for the Common Stock.
(c) The optionee may elect to make payment of the exercise price under one of
the following alternatives:
(i) Payment of the exercise price per share in cash at the time of
exercise; or
(ii) Recourse notes (subject to Paragraph 16 herein) or
(iii) Payment by a combination of the methods of payment specified in
Subsections 7(c)(i) and 7(c)(ii) above.
(d) An option shall not be transferable except by will or by the laws of
descent and distribution and shall be exercisable during the lifetime of
the person to whom the option is granted only by such person or by his
guardian or legal representative.
(e) All options granted under the Director Plan shall be non-qualified stock
options, and do not qualify as incentive stock options within the meaning
of Section 422, or any successor section, of the Internal Revenue Code of
1986, as amended.
7. ACCELERATION OF OPTIONS
Notwithstanding any contrary installment period with respect to any option
and unless the Board or Committee determines otherwise, each outstanding option
granted under the Director Plan shall become exercisable in full for the
aggregate number of shares covered thereby in the event: (i) the Board (or, if
approval of the stockholders is required as a matter of law, the
3
EXHIBIT B
stockholders of the Company) shall approve (a) any consolidation or merger of
the Company in which the Company is not the continuing or surviving corporation
or pursuant to which shares of shares of Common Stock would be converted into
cash, securities or other property, other than a merger of the Company in which
the holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, or (b) any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company, or (c) the adoption of any plan or Proposal for
the liquidation or dissolution of the Company; or (ii) any person (as such term
is defined in Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), corporation or other entity (other than
the Company or any employee benefit plan sponsored by the Company or any
Subsidiary) (a) shall purchase any Common Stock (or securities convertible into
the Company's Common Stock) for cash, securities or any other consideration
pursuant to a tender offer or exchange offer, without the prior consent of the
Board of Directors, or (b) shall become the "beneficial owner" (as such term is
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing twenty-five percent (25%) or more of the
combined voting power of the then outstanding securities of the Company
ordinarily (and apart from rights accruing under special circumstances) having
the right to vote in the election of Directors (calculated as provided in
paragraph (d) of such Rule 13(d)(3) in the case of rights to acquire the
Company's Securities); or (iii) during any period of two consecutive years or
less, individuals who at the beginning of such period constitute the entire
Board of Directors shall cease for any reason to constitute a majority thereof
unless the election, or the nomination for election by the Company's
stockholders, of each new director was approved by a vote of at least a majority
of the directors then still in office. The Stock Option Agreement evidencing
options granted under the Director Plan may contain such provisions limiting the
acceleration of the exercise of Options as provided in this Section 7 as the
Board or Committee deems appropriate to ensure that the penalty provisions of
Section 4999 of the Code, or any successor thereto in effect at the time of such
acceleration, will not apply to any stock received by a Non-Executive Director
from the Company.
8. RIGHT OF COMPANY TO TERMINATE SERVICES AS A NON-EXECUTIVE DIRECTOR
Nothing contained in the Director Plan or in any instrument executed
pursuant hereto shall confer upon any Non-Executive Director any right to
continue in the service of the Company or any of its subsidiaries or interfere
in any way with the right of the Company or a subsidiary to terminate the
service of any Non-Executive Director at any time, with or without cause.
9. NONALIENATION OF BENEFITS
No right or benefit under the Director Plan shall be subject to alienation,
sale, assignment,
4
EXHIBIT B
hypothecation, pledge, exchange, transfer, encumbrance or charge, and any
attempt to alienate, sell, assign, hypothecate, pledge, exchange, transfer,
encumber or charge the same shall be void. No right or benefit hereunder shall
in any manner be liable for or subject to the debts, contracts, liabilities or
torts of the person entitled to such benefit.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
All options granted under the Plan shall be deemed automatically adjusted
(both in the number of shares and exercise price), as appropriate, for any
corporate action adopted by the Board of Directors and/or shareholders which
action results in changes in the outstanding Common Stock of the Company by
reason of any stock dividend, distribution, split-up, recapitalization,
combination or exchange of shares, merger, consolidation or liquidation and the
like, and, in the event of any such change in the outstanding Common Stock, the
aggregate number and class of shares available under the Director Plan and the
number of shares subject to nondiscretionary grants pursuant to Section 5 hereof
shall be appropriately adjusted.
11. TERMINATION AND AMENDMENT
Unless the Director Plan shall theretofore have been terminated as
hereinafter provided, no grant of Options may be made under the Director Plan
after a date which is ten years from the date of adoption of the Director Plan
by the Board of Directors. The Board or Committee may at any time amend, alter,
suspend or terminate the Director plan; provided, however, that the Board or
Committee may not, without the requisite vote of the stockholders of the Company
approving such action (i) materially increase (except as provided in Section 10
hereof) the maximum number of shares which may be issued under the Director
Plan; (ii) extend the term of the Director Plan; (iii) materially increase the
requirements as to eligibility for participation in the Director Plan; or (iv)
materially increase the benefits accruing to participants under the Director
Plan. No termination, modification or amendment of the Director Plan or any
outstanding Stock Option Agreement may, without the consent of the Non-Executive
Director to whom any option shall theretofore have been granted, adversely
affect the rights of such Director with respect to such option.
12. EFFECTIVENESS OF THE PLAN
The Director Plan shall become effective upon the requisite vote of the
stockholders of the Company approving such action, and upon the approvals, if
required, of any other public authorities. Any grant of options under the
Director Plan prior to such approval shall be expressly subject to the condition
that the Director Plan shall have been so approved. Unless the Director Plan
shall be so approved, the Director Plan and all options theretofore made
thereunder shall be and become null and void.
5
EXHIBIT B
13. GOVERNMENT AND OTHER REGULATIONS
The obligation of the Company with respect to options shall be subject to
(i) all applicable laws, rules and regulations and such approvals by any
governmental agencies as may be required, including, without limitation, the
effectiveness of a registration statement under the Securities Act of 1933, and
(ii) the rules and regulations of any securities exchange on which the Common
Stock may be listed.
14. COMPLIANCE WITH SEC REGULATION SECTION 16(B)
In the case of optionees who are or may be subject to Section 16 of the
Securities and Exchange Act of 1934, as amended (and the rules and regulations
promulgated thereunder) (the "1934 Act"), it is the intent of the Company that
the Plan and any award granted hereunder satisfy and be interpreted in a manner
that satisfies the applicable requirements of Rule 16b-3. This is so that such
persons will be entitled to the benefits of Rule 16b-3 or other exemptive rules
under Section 16 of the 1934 Act and will not be subjected to liability
thereunder. If any provision of the Plan or any award would otherwise conflict
with the intent expressed herein, that provision, to the extent possible, shall
be interpreted and deemed amended so as to avoid such conflict. To the extent of
any remaining irreconcilable conflict with such intent, such provision shall be
deemed void as applicable to optionees who are or may be subject to Section 16
of the 1934 Act.
15. TAX WITHHOLDING.
It shall be a condition to the obligation of the Company to deliver shares
or securities of the Company upon exercise of an award, that the grantee of such
award pay to the Company such amount as may be requested by the Company for the
purpose of satisfying any liability for any federal, state or local income or
other taxes required by law to be withheld. The Board or Committee may, in its
sole discretion, permit the grantee of an award, in accordance with any
applicable regulations of the authority issuing such regulations, to pay a
portion or all of the amount of such minimum required or additional permitted
withholding taxes in shares. At the Board's or Committee's sole discretion, the
grantee shall be permitted to authorize the Company to withhold, or shall agree
to surrender back to the Company, on or about the date such withholding tax
liability is determinable, shares previously owned by such grantee or a portion
of the shares that were or otherwise would be distributed to such grantee
pursuant to such award having a fair market value equal (as determined under
Section 6 hereof) to the amount of such required or permitted withholding taxes
to be paid in shares.
16. LOANS TO GRANTEES.
The Board or Committee, acting on behalf of the Company, shall have the
authority and may, in its sole discretion, lend money to, or guaranty any
obligation of, a grantee for the purpose of enabling such grantee to exercise an
option granted hereunder; the amount of such loan or obligation, however, shall
be limited to an amount equal to fifty (50%) percent of the exercise price of
such option. Any loan made hereunder shall bear interest at the rate of ten
(10%) percent
6
EXHIBIT B
per annum; may be unsecured or secured in such manner as the Board or Committee
shall determine, including, without limitation, a pledge of the subject shares;
and shall be subject to such other terms and conditions as the Board or
Committee may determine.
17. NO OBLIGATION TO EXERCISE OPTION.
The granting of an award shall impose no obligation upon the grantee (or
upon a transferee of a grantee) to exercise such award.
18. NO LIMITATION ON RIGHTS OF THE COMPANY.
The grant of any award shall not in any way affect the right or power of
the Company to make adjustments, reclassification, or changes in its capital or
business structure to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
19. EXPENSES OF THE PLAN.
All of the expenses of the Plan shall be paid by the Company.
20. GRANTEE TO HAVE NO RIGHTS AS A STOCKHOLDER.
No grantee of any option shall have any rights as a stockholder with
respect to any shares subject to his or her option prior to the date on which he
or she is recorded as the holder of such shares on the records of the Company.
No grantee of any option shall have the rights of a stockholder until he or she
has paid in full the option price.
21. GOVERNING LAW
The Director Plan shall be governed by, and construed in accordance with,
the laws of the State of New Jersey.
7
FIRST MONTAUK FINANCIAL CORP.
ANNUAL MEETING OF SHAREHOLDERS - JUNE 21, 2002
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Herbert Kurinsky and William J. Kurinsky,
and each of them, proxies, with full power of substitution to each, to vote all
common shares of FIRST MONTAUK FINANCIAL CORP., owned by the undersigned at the
Annual Meeting of Shareholders of FIRST MONTAUK FINANCIAL CORP. to be held on
Friday, June 21, 2002 and at any adjournments thereof, hereby revoking any proxy
heretofore given. The undersigned instructs such proxies to vote:
I. Election of Class I Directors:
FOR all nominees listed WITHHOLD AUTHORITY
below (except as marked to vote for the nominee
to the contrary below) |_| listed below |_|
(INSTRUCTION: TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE
THROUGH THE NOMINEE'S NAME IN THE LIST BELOW)
Nominees for Class I Directors to Serve until the 2005 Annual Meeting:
Herbert Kurinsky
William J. Kurinsky
II. Adoption of 2002 Incentive Stock Option Plan
|_| For |_| Against |_| Abstain
III. Adoption of 2002 Non-Executive Director Stock Option Plan
|_| For |_| Against |_| Abstain
and to vote upon any other business as may properly come before the meeting or
any adjournment thereof, all as described in the Proxy Statement dated May 20,
2002, receipt of which is hereby acknowledged.
(continued and to be signed on the reverse side)
(continued from other side)
Either of the proxies or their respective substitutes, who shall be present
and acting shall have and may exercise all the powers hereby granted.
The shares represented by this proxy will be voted FOR the election of both
of the nominees for Class I Directors, FOR the adoption of the 2002 Incentive
Stock Option Plan and FOR the adoption of the 2002 Non-Executive Director Stock
Option Plan. Said proxies will use their discretion with respect to any other
matters which properly come before the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. PLEASE SIGN
AND RETURN THE PROXY IN THE ENCLOSED ENVELOPE.
Dated:___________________, 2002
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(Please date and sign exactly as
name appears at left. For joint
accounts, each joint owner
should sign. Executors,
administrators, trustees, etc.,
should also so indicate when
signing.)