<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Form 10-QSB of Kent Financial Services, Inc. for the nine months ended September
30, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000316028
<NAME> KENT FINANCIAL SERVICES, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,055
<SECURITIES> 7,375
<RECEIVABLES> 92
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,522
<PP&E> 1,705
<DEPRECIATION> 518
<TOTAL-ASSETS> 14,115
<CURRENT-LIABILITIES> 1,853
<BONDS> 0
0
0
<COMMON> 190
<OTHER-SE> 11,754
<TOTAL-LIABILITY-AND-EQUITY> 14,115
<SALES> 0
<TOTAL-REVENUES> 3,055
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,073
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 200
<INCOME-PRETAX> (218)
<INCOME-TAX> 0
<INCOME-CONTINUING> (218)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (218)
<EPS-BASIC> (.11)
<EPS-DILUTED> (.11)
</TABLE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1999
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No.: 1-7986
------
Kent Financial Services, Inc.
- ---------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 75-1695953
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
376 Main Street, P.O. Box 74, Bedminster, New Jersey 07921
------------------------------------------------------------------------
(Address of principal executive offices)
(908) 234-0078
-------------------------------------
(Issuer's telephone number)
N/A
----------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No _____
State the number of shares outstanding of each of the issuer's classes of
common stock: As of October 31, 1999, the issuer had 1,904,308 shares of its
common stock, par value $.10 per share, outstanding.
Transitional Small Business Disclosure Format (check one).
Yes _____ No X
<PAGE>
PART I - FINANCIAL INFORMATION
- ------ ---------------------
Item 1. - Financial Statements
- ------ --------------------
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
($000 Omitted)
September 30,
1999
-------------
Assets
- ------
Cash and cash equivalents $ 5,055
Securities owned 7,375
Net receivable from clearing broker 92
Property and equipment:
Land and building 1,440
Office furniture and equipment 265
--------
1,705
Accumulated depreciation ( 518)
--------
Net property and equipment 1,187
--------
Other assets 406
--------
Total assets $ 14,115
========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Accounts payable and accrued expenses $ 1,384
Mortgage payable 469
Accrual for previously discontinued operations 318
--------
Total liabilities 2,171
--------
Stockholders' equity:
Preferred stock without par value, 500,000
shares authorized; none outstanding -
Common stock, $.10 par value, 4,000,000
shares authorized; 1,904,308 outstanding 190
Additional paid-in capital 14,645
Accumulated deficit ( 2,891)
--------
Total stockholders' equity 11,944
--------
Total liabilities and stockholders' equity $ 14,115
========
See accompanying notes to consolidated financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($000 Omitted, except per share data)
Three Months Ended
September 30,
------------------
1999 1998
------ ------
Revenues:
Brokerage commissions and fees $ 350 $ 412
Principal transactions:
Trading 199 87
Investing losses ( 409) ( 393)
Interest, dividends and other 167 250
------ ------
307 356
------ ------
Expenses:
Brokerage 402 339
General, administrative and other 472 600
Interest 67 82
------ ------
941 1,021
------ ------
Earnings (loss) before income taxes ( 634) ( 665)
Provision (benefit) for income taxes ( 18) ( 113)
------ ------
Net earnings (loss) ($ 616) ($ 552)
====== ======
Basic net loss per common share ($ .32) ($ .28)
====== ======
Diluted net loss per common share ($ .32) ($ .28)
====== ======
Weighted average number of common
shares outstanding (in 000's) 1,906 1,992
====== ======
See accompanying notes to consolidated financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($000 Omitted, except per share data)
Nine Months Ended
September 30,
-----------------
1999 1998
------ ------
Revenues:
Brokerage commissions and fees $ 1,299 $ 1,425
Principal transactions:
Trading 695 442
Investing gains 85 1,174
Underwriting and placement fees,
net of related expenses - 135
Interest, dividends and other 976 612
------- -------
3,055 3,788
------- -------
Expenses:
Brokerage 1,386 1,288
General, administrative and other 1,687 2,136
Interest 200 211
------- -------
3,273 3,635
------- -------
Earnings (loss) before income taxes ( 218) 153
Provision(benefit) for income taxes - ( 60)
------- -------
Net earnings (loss) ($ 218) $ 213
======= =======
Basic net earnings (loss) per
common share ($ .11) $ .11
======= =======
Diluted net earnings (loss) per
common share ($ .11) $ .11
======= =======
Weighted average number of common
shares outstanding (in 000's) 1,940 2,006
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($000 Omitted)
Nine Months Ended
September 30,
-----------------
1999 1998
------ ------
Cash flows from operating activities:
Net earnings (loss) ($ 218) $ 213
Adjustments:
Depreciation and amortization 47 38
Change in unrealized gains on
securities owned ( 237) ( 495)
Change in securities owned ( 3,502) 2,535
Change in receivable from
clearing broker 1,147 ( 283)
Change in accounts payable and
accrued expenses 195 372
Other, net ( 150) ( 72)
------- ------
Net cash provided by (used in)
operating activities ( 2,718) 2,308
------- ------
Cash flows from investing activities:
Purchase of equipment ( 18) ( 11)
Net noncash assets of a previously
consolidated subsidiary 27 -
Net cash related to a previously
consolidated subsidiary ( 85) -
------- ------
Net cash used in investing
activities ( 76) ( 11)
------- ------
Cash flows from financing activities:
Purchase of common stock ( 359) ( 124)
Payments on debt ( 9) ( 23)
------- ------
Net cash used in financing
activities ( 368) ( 147)
------- ------
Net (decrease) increase in cash
and cash equivalents ( 3,162) 2,150
Cash and cash equivalents at
beginning of period 8,217 6,768
------- ------
Cash and cash equivalents at end of
period $ 5,055 $8,918
======= ======
Consolidated Statements of Cash Flows
is Continued on Page 6
See accompanying notes to consolidated financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED FROM PAGE 5
(UNAUDITED)
($000 Omitted)
Nine Months Ended
September 30,
-----------------
1999 1998
------ ------
Supplemental disclosure of cash flow
information:
Cash paid for:
Interest $ 200 $ 211
====== ======
Taxes $ 28 $ 29
====== ======
Supplemental disclosure of non-cash
transaction:
During the quarter ended June 30, 1999, the previously consolidated
subsidiary, T.R. Winston Capital, Inc., ("Wincap") issued stock to an unrelated
third party, resulting in a change of control. Net assets of Wincap consisted of
$168,000, including $141,000 of cash at December 31, 1998. Subsequent to the
stock issuance, the Company withdrew $56,000 from Wincap.
See accompanying notes to consolidated financial statements.
<PAGE>
KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements of Kent
Financial Services, Inc. and subsidiaries (the "Company") as of September 30,
1999 and for the three and nine month periods ended September 30, 1999 and 1998
reflect all material adjustments consisting of only normal recurring adjustments
which, in the opinion of management, are necessary for a fair presentation of
results for the interim periods. Certain information and footnote disclosures
required under generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1998 as filed with the Securities and
Exchange Commission.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
On May 7, 1999, T.R. Winston Capital, Inc. ("Wincap") a previously
consolidated subsidiary of the Company, issued stock to an unrelated third
party, resulting in a change of control. The financial statements presented
prior to that date include the accounts of Wincap which was consolidated into
the Company. Subsequently, the Company accounts for its residual investment in
Wincap using the equity method to reflect its minority ownership interest.
Certain reclassifications have been made to the prior years' financial
statements to conform to the current years' presentation.
The results of operations for the three and nine month periods ended
September 30, 1999 and 1998 are not necessarily indicative of the results to be
expected for the entire year or for any other period.
<PAGE>
2. Business
--------
The Company's business is comprised principally of the operation of T. R.
Winston & Company, Inc. ("Winston"), a wholly-owned subsidiary, and the
management of Asset Value Fund Limited Partnership ("AVF"), an investment
partnership whose primary purpose is to make large investments in a limited
number of portfolio companies whose securities are considered undervalued by the
partnership's management. Winston is a licensed securities broker-dealer and is
a member of the National Association of Securities Dealers, Inc. and the
Securities Investor Protection Corporation. All safekeeping, cashiering, and
customer account maintenance activities are provided by an unrelated
broker-dealer under a clearing agreement.
Pursuant to the net capital provisions of Rule 15c3-1 of the Securities
Exchange Act of 1934, Winston is required to maintain minimum net capital. At
September 30, 1999, Winston had net capital, as defined, of approximately
$444,000, which was $344,000 in excess of the required minimum.
3. Securities Owned
----------------
Securities owned consist of the following ($000's omitted):
Marketable, at Marketable, at
Market Value Fair Value Total
-------------- -------------- -----
Equity securities $ 6,824 $ 500 $ 7,324
Mutual funds 51 - 51
------- ----- -------
Total $ 6,875 $ 500 $ 7,375
======= ===== =======
The estimated fair value of securities owned has been determined in good
faith under consistently applied principles by the management of the Company,
using available market information and other valuation considerations.
Considerable judgement is required to develop the estimates of fair value, thus,
the estimates provided herein are not necessarily indicative of the amounts that
could be realized in a current market exchange.
4. Sale of Subsidiary
------------------
In July 1998, Winston, its then wholly-owned subsidiary T. R. Winston
Capital, Inc. ("Wincap"), and an unrelated third party ("Third Party"), entered
into a stock purchase agreement ("Agreement"). The Agreement provides among
other things, for the Third Party to contribute to the capital of Wincap
$800,000 in return for an 80% ownership interest and an officer of Wincap and
Winston to receive a 10% ownership interest. The closing of the Agreement and
the resultant change in control were effected during May 1999 subsequent to
receiving NASD approval. No gain or loss was recorded on the transaction.
<PAGE>
Winston has agreed to provide management services to Wincap. These services
will consist of all services necessary for the operation of Wincap's securities
business. Winston will receive as compensation for the services, 60% of Wincap's
gross commissions as defined in the Agreement. Wincap is currently in the
process of amending its Membership Agreement with the NASD in order to enable it
to conduct its planned securities business. Approval of this amendment is
pending.
5. Segment Reporting
-----------------
The Company has evaluated the requirements of Statement of Financial
Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS No. 131") and has determined that it does not have
reportable operating segments as defined. The Company conducts stock brokerage
and investment banking activities through its wholly-owned subsidiaries Winston
and AVF, as described in Note 2 of Notes to Consolidated Financial Statements.
These wholly-owned subsidiaries do not have individual segment managers or
discrete financial data used to allocate resources as defined by SFAS No. 131.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
- ------
Condition and Results of Operations
-------------------------------------------------
Liquidity and Capital Resources
- -------------------------------
Kent Financial Services, Inc. (the "Company") had cash and cash equivalents
(U.S. Treasury bills with an original maturity of ninety days or less) of $5.1
million and securities owned of $7.4 million at September 30, 1999.
Substantially all securities are owned by AVF. For additional information on the
valuation of securities owned see Note 3 of Notes to Consolidated Financial
Statements.
Net cash (used in) provided by operations was approximately ($2.7) million
and $2.3 million in the nine month periods ended September 30, 1999 and 1998,
respectively. Cash flows from operations for the nine months ended September 30,
1999 decreased from the comparable period in 1998 principally from the change in
securities owned, partially offset by the change in receivable from the clearing
broker.
Net cash used in investing activities increased during 1999 due to the sale
of Winston's subsidiary as discussed in Note 4 of Notes to Consolidated
Financial Statements.
Net cash used in financing activities of $368,000 and $147,000 for the nine
month periods ended September 30, 1999 and 1998, respectively, resulted
principally from the Company's purchase and retirement of its common stock and
the continued payments on the mortgage loan collateralized by the Company's
headquarters facility. The loan matures in December 1999. The Company intends to
refinance the loan before the maturity date. The Company believes that its
liquidity is sufficient for future operations.
Material Changes in Results of Operations
- -----------------------------------------
The Company had a net loss of $616,000, or $.32 basic and diluted loss per
share, for the three months ended September 30, 1999 compared to a net loss of
$552,000 or $.28 basic and diluted loss per share, for the comparable quarter in
1998. For the nine months ended September 30, 1999, the net loss was $218,000 or
$.11 basic and diluted loss per share, compared to net income of $213,000 or
$.11 basic and diluted earnings per share, for the comparable period in 1998.
<PAGE>
Total brokerage income (consisting of brokerage commissions, fees and
trading gains) for the three months ended September 30, 1999 was $549,000, an
increase of $50,000, or 10%, from $499,000 in the comparable 1998 period. Total
brokerage income was $1,994,000 for the nine months ended September 30, 1999, a
decrease of $8,000 or less than one percent from $2,002,000 for the nine month
period ended September 30, 1998. Included in brokerage income for the nine
months ended September 30, 1998 was net underwriting fees of $135,000 that were
earned from a private placement of debt for a publically-traded company in the
first quarter of 1998. Brokerage expenses (including all fixed and variable
expenses) increased by $63,000, or 19%, from $339,000 in the quarter ended
September 30, 1998, to $402,000 for the quarter ended September 30, 1999. For
the nine months ended September 30, 1999, brokerage expenses were $1,386,000
compared to $1,288,000 for the comparable period in the prior year, an increase
of $98,000 or 8%. Net brokerage income of $147,000 for the three months ended
September 30, 1999 decreased from $160,000 from the same period in 1998, a
decrease of $13,000 or 8%. For the nine month period ended September 30, 1999,
net brokerage income was $608,000, compared to $714,000 for the nine months
ended September 30, 1998, a decrease of $106,000 or 15%.
Net investing gains (losses) were ($409,000) and $85,000 for the three and
nine months ended September 30, 1999, respectively, compared to net investing
gains (losses) of ($393,000) and $1,174,000 for the comparable periods in 1998.
The decrease in net investing gains from the nine month period ended September
30, 1998 to the comparable period in 1999 reflected the gain on sale in 1998 of
a significant amount of securities owned.
Interest, dividends and other income was $167,000 and $976,000 for the
three and nine months ended September 30, 1999, respectively, compared to
$250,000 and $612,000 for the three and nine months ended September 30, 1998,
respectively. The increase for the nine months ended September 30, 1999 was a
result of an extraordinary dividend received by AVF from one of its portfolio
investments offset by a decrease in interest earned due to lower invested
balances and lower available rates.
General and administrative expenses were $472,000 and $600,000 for the
quarters ended September 30, 1999 and 1998, respectively, a decrease of $128,000
or 21%. The decrease in general and administrative expense for the quarter ended
September 30, 1999 versus the quarter ended September 30, 1998 was due
principally to a decrease in compensation and various other administrative
expenses.
For the nine month periods ended September 30, 1999 and 1998, general and
administrative expenses were $1,687,000 and $2,136,000 respectively, a decrease
of $449,000 or 21%. This decrease for the nine months ended September 30, 1999
compared to the same period in 1998 is principally due to the following items:
(i) $200,000 provision for start up costs of a subsidiary that will provide
<PAGE>
telephone services in the New England region during the 1998 period; (ii)
$70,000 decrease in employee bonus accruals; (iii) $40,000 decrease in legal
expenses; (iv) $60,000 decrease in business development expenses and (v) $50,000
in expenses incurred in connection with a proxy solicitation in one of the
securities owned by the Company in 1998.
Year 2000 Matters
- -----------------
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in similar
normal business activities.
Management has determined that the Year 2000 Issue will not pose
significant operational problems for its internal computer systems. Management's
Year 2000 Plan addresses aspects of: Assessment, Staffing and Contingency
Planning which were completed during 1998; Implementation which was completed
during the third quarter of 1999; and Testing, which is an ongoing process
largely dependent upon the Company's clearing broker. The Company's critical
systems were remediated during May 1999 and management believes that all systems
are Year 2000 ready. The Company has either converted or replaced certain
systems that were not Year 2000 compliant to properly recognize the Year 2000.
The Company used external resources to reprogram or replace, and test the
software for Year 2000 modifications.
Since the clearing broker's compliance is critical to the Company's systems
and continuing operations, the Company has been monitoring its Year 2000
progress. The Company's clearing broker has performed testing on all of the
systems that either interact with or are used via the internet by the Company
with no Year 2000 issues found. However, there can be no guarantee that the
systems of the clearing broker and other companies on which the Company's
systems rely will not have an adverse effect on the Company's systems. The total
cost of the Year 2000 Plan to date has not been material and will continue to be
funded through opearating cash flows and will be expensed as incurred.
The estimated costs to complete the project are based on management's best
estimates, which are derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modifications plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated.
<PAGE>
PART II - OTHER INFORMATION
- ------- -----------------
Item 4. - Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
The Company held its Annual Meeting of Stockholders on November 1, 1999.
Management's nominees, Messrs. Paul O. Koether, Mathew E. Hoffman, Casey K.
Tjang, and M. Michael Witte were elected to the Board of Directors.
The following is a tabulation for all nominees:
For Withheld
------- --------
Paul O. Koether 964,454 -
Mathew E. Hoffman 964,454 -
Casey K. Tjang 964,454 -
M. Michael Witte 964,454 -
Item 6. - Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits
--------
(10) Employment Agreement with John W. Galuchie, Jr.
dated September 1, 1999.
(27) Financial Data Schedule for the nine months ended
September 30, 1999.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter for which
this report is being filed.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
KENT FINANCIAL SERVICES, INC.
Dated: November 12, 1999 By: /s/ Mark Koscinski
------------------------------
Mark Koscinski
Vice President
<PAGE>
This is an EMPLOYMENT AGREEMENT (the "Agreement"), dated as of September 1,
1999, by and between KENT FINANCIAL SERVICES, INC., a Delaware corporation (the
"Corporation"), and John W. Galuchie, Jr. (the "Executive").
Recitals
--------
The Executive currently serves as Executive Vice President of the Company.
The Company desires the Executive to continue to serve as the Company's
Executive Vice President, and the Executive desires to continue to serve the
Company as its Executive Vice President, on the terms and conditions set forth
in this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Employment. The Company hereby employs the Executive as Executive Vice
----------
President of the Company, and the Executive hereby accepts such employment, upon
the terms and conditions set forth herein.
2. Duties and Powers.
-----------------
2.1 Duties. The Executive shall serve as Executive Vice President of
------
the Company and perform the duties of Executive Vice President as defined in
the Bylaws of the Company in effect on the date of this Agreement. The
Executive Vice President shall receive the compensation provided herein
notwithstanding any future amendment to the Bylaws of the Company which
diminishes or alters the duties of the Executive Vice President of the Company.
The Executive shall not be required to devote his entire working time to the
business of the Company, and may devote time to other business interests,
including directorships of other companies public and private.
<PAGE>
2.2 Service as Director. If elected, the Executive shall serve
---------------------
as a director of the Company without additional compensation, and shall
have the right at any time to serve as a director of any subsidiary of the
Company.
3. Term of Agreement. The initial term of employment under this Agreement
-----------------
shall be three years commencing effective as of September 1, 1999 (the
"Effective Date") and shall extend until August 31, 2002 unless sooner
terminated pursuant to Section 6 below. The term of the Executive's employment
under this Agreement shall be automatically extended one day for each day
elapsed after the Effective Date. Employment of the Executive by the Company
prior to the Effective Date shall, subject to the terms and conditions of the
benefit plans and arrangements referred to in Section 5.1 below, be counted in
determining the Executive's continuous service with the Company for purposes of
any benefit computation.
4. Compensation. For all services rendered by the Executive under this
------------
Agreement, the Company shall pay the Executive an annual salary of $180,000 (the
"Base Salary"), payable in equal monthly installments. The Board of Directors of
the Company shall from time to time review the compensation to be paid to the
Executive under this Agreement and shall increase (but not decrease) the
compensation in such amounts, if any, as the Board of Directors determines.
<PAGE>
5. Benefits, Expenses, Reimbursement; etc.
--------------------------------------
5.1 Benefit Plans. The Company shall provide the Executive with
--------------
such medical and disability insurance, hospital insurance and group life
insurance and other benefits made available to executive level employees of
the Company, subject to the terms and conditions of such benefit plans and
arrangements.
5.2 Expenses. The Company shall pay all expenses incurred by the
--------
Executive in furtherance of or in connection with the business of the
Company and its subsidiaries and affiliates including, without limitation,
all (i) travel and living expenses while away from home on business or at the
request and in the service of the Company or its subsidiary or affiliate, and
(ii) entertainment expenses, upon submission of appropriate receipts or
vouchers and in accordance with the standard expense reimbursement policies
of the Company as in effect from time to time. If any such expenses are paid by
the Executive, the Company shall reimburse him promptly for those expenses.
The Executive shall also be entitled to reimbursement for the annual fee(s)
of any credit cards the Executive acquires for use in charging expenditures
incurred in the performance of his duties under this Agreement.
<PAGE>
5.3 Vacations. The Executive shall be entitled each year to a vacation
---------
of four weeks (twenty working days), during which time his compensation shall
be paid in full and such holidays and other non-working days as are consistent
with the policies of the Company for executives generally. All vacations
shall be scheduled so as to cause minimal interference with the operations
of the Company. If the Executive's employment under this Agreement is
terminated pursuant to Section 6, the Executive shall be entitled to
payment for all untaken vacation days.
5.4 Death Benefits. Subject to the provisions of Section 5.5(B) of
---------------
this Agreement, in the event of the Executive's death during the term of
this Agreement, the Company shall pay to such beneficiaries as the Executive
shall designate in writing prior to the Executive's death, or if he fails to
designate a beneficiary, to the Executive's spouse or, if none, to the
Executive's estate, an annual benefit equal to $180,000 (the "Death Benefit")
The Death Benefit shall be payable in equal monthly installments for a
period of 3 years, commencing on the first day of the next month following
the month in which the Executive's death occurs. Payments made pursuant to
this Section 5.4 shall be made in lieu of any and all payments provided
for in Section 4 of this Agreement.
5.5 Disability.
----------
A. The Executive shall be paid such benefits to which he is entitled
under the terms of such long-term disability insurance as the Company has
provided under Section 5.1 of this Agreement. If at any time during the
term of this Agreement (i) the Company is not providing the Executive
with long-term disability insurance coverage, or (ii) the amount of coverage
provided pays benefits less than an annual benefit to age 70 of 80% or more of
the Executive's Base Salary plus cash bonuses which the Executive is being
paid prior to the commencement of disability benefits, then the Executive shall
be paid the amount specified in Section 5.5(B) of this Agreement.
<PAGE>
B. Subject to the provisions of Section 5.5(A) of this Agreement, if
during the term of this Agreement (i) the Executive suffers any illness,
disability or incapacity which renders him unable to perform his duties
hereunder and such illness, disability or incapacity is deemed by a duly
licensed physician (who may be the Executive's personal physician) to be
permanent, or (ii) the Executive is unable to render services to the Company
of the nature required by this Agreement because of illness, disability or
incapacity for a period of 90 days, whether or not such days are consecutive,
during any year of the term hereof, then the Executive shall continue to
render advisory and consulting services as he is able and as may be reasonably
requested by the Company. The Company shall pay to the Executive an annual
disability payment (the "Disability Payment") equal to 80% of the Executive's
base compensation of $180,000 or such base compensation in effect at the time
the event or condition described in Section 5.5(B) (i) or (ii) (the
"Condition") above occurs. The Disability Payment shall be paid to the
Executive in equal monthly installments under the Executive attains age 70.
Disability Payments shall commence on the first day of the month following the
month in which the Condition occurs and shall be made even if the Executive is
unable to render any services to the Company.
C. In the event of the Executive's death during the period in
which Disability Payments are to be paid, the Company shall pay any
remaining Disability Payments due pursuant to Section 5.5(B) to such
beneficiaries as the Executive designates in writing before his death, or
upon his failure to designate a beneficiary, to his surviving spouse or,
if none, then to the Executive's estate. Such payments shall be paid in lieu
of any and all payments provided for in Section 4 and 5.4 of this Agreement.
<PAGE>
6. Termination. The Executive's employment hereunder may be terminated only
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under the following circumstances:
6.1 Cause. The Company may terminate the Executive's employment
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hereunder for "cause" upon not less than five days' prior written notice
of such termination. For purposes of this Agreement, the Company shall have
"cause" to terminate the Executive's employment hereunder upon (A) the continued
failure by the Executive to substantially perform his duties hereunder (other
than any such failure resulting from the executive's incapacity due to
physical or mental illness or the removal of Executive's office to a location
more than 5 miles from its current location), which failure has not been
cured (i) within three days after a written demand for substantial performance
is delivered to the Executive by the Company that specifically identifies
the manner in which the Company believes the Executive has not substantially
performed his duties (the "Three Day Period"), or (ii) in the event such
failure cannot be reasonably cured within the Three Day Period, within 20 days
thereafter, provided that the Executive promptly commences and thereafter
diligently prosecutes the cure thereof, or (B) the Executive's conviction
of any criminal act or fraud with respect to the Company. Notwithstanding
the foregoing, the Executive's employment may not be terminated for cause
unless and until the Company has delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than 80 percent
of the entire Board of Directors at a meeting of the Board (of which the
Executive was given at least 20 days prior written notice and an opportunity,
together with his counsel, to be heard before the Board), finding that in the
good faith opinion of the Board, the Executive has not substantially performed
his duties (which failure shall be described in detail) and such failure has not
been cured within the period described in (ii) above. In addition, the
Company shall not have cause to terminate the Executive's employment
hereunder as a result of any event occurring prior to the date hereof and
previously disclosed to the Company. The burden of establishing cause shall be
upon the Company.
6.2 Termination by the Executive. The Executive may terminate
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this employment hereunder for "good reason" upon not less than five days'
prior written notice to the Company. For purposes of this Agreement,
"good reason" shall mean the continued failure by the Company to perform its
obligations under this Agreement (including any material change by the
Company in the duties, responsibilities and powers of the Executive as set
forth herein or the removal of the Executive's office to a location more
than 5 miles from its current location) which failure has not been cured(i)
within three days after a written demand for performance is delivered
to the Company by the Executive that specifically identifies the manner in
which the Executive believes the Company has not performed its obligation (the
"Three Day Period"), or (ii) in the event such a failure cannot be reasonably
cured within the Three Day Period, within twenty (20) days thereafter
provided that the Company promptly commences and thereafter diligently
prosecutes the cure thereof.
<PAGE>
6.3 Change in Control.
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A. The Executive may terminate his employment under this Agreement at
any time for "good reason" (as defined below) within 36 months after the date
of a Change in Control (as defined below) of the Company.
B. A "Change in Control" of the Company shall be deemed to have
occurred if:
(1) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934 (the "Exchange Act") as in effect on the
date hereof), other than individuals beneficially owning, directly or
indirectly, common stock of the Company representing 30% or more of the
Company's issued and outstanding common stock as of the Effective Date, is or
becomes the beneficial owners, directly or indirectly, of common stock of the
Company representing 30% or more of the Company's then issued and outstanding
common stock; or
(2) individuals who constitute the Company's Board of Directors on the
date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a Director
subsequent to the date hereof whose election, or nomination for election
by the Company's stockholders, was approved by a vote of at least a majority
of the Directors comprising the Incumbent Board (either by a specific vote or
by approval of the proxy statement of the Company in which such person is
named as a nominee for Director, without objection to such nomination) shall
be, for purposes of this clause, considered as though such person were a member
of the Incumbent Board. For purposes of this Section 6.3(A), "good reason"
shall mean a determination solely by the Employee, in good faith, that as a
result of the change of control of the Company he may be adversely affected
(i) in carrying out his duties and powers in the fashion he previously enjoyed
or (ii) in his future prospects with the Company.
C. If the Executive terminates his employment after a Change of
Control of the Company, he shall notify the Company in writing of the effective
date of the termination (the "Termination Date") and he shall be paid (i) the
Base Salary payable to the Executive under this Agreement through the
Termination Date, or (ii) an amount equal to the product of (a) the average
annual Base Salary paid to the Executive during the five years preceding
the Termination Date, multiplied by (b) three, whichever of (i) or (ii) is more.
The amount payable under this Section 6.3(C) shall be paid in a lump sum on or
before the fifth day following the Termination Date.
<PAGE>
7. Interest and Counsel Fees.
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7.1 Interest. All amounts payable to the Executive under this
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Agreement shall be due and payable at the time specified herein and any
payment which is not made within five days of the date of written demand
shall be made with interest on the amount due from the due date until paid
in full at an annual rate equal to 2% over the prime or base rate of interest
generally offered or charged by Citibank, N.A. to its commercial customers for
short-term unsecured loans, as in effect from time to time during the period
from such due date until the date such payment is made.
7.2 Counsel Fees. The Company hereby irrevocably authorizes the
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Executive from time to time to retain counsel of his choice at the expense of
the Company to represent the Executive in connection with the Executive's
initiation or defense of any litigation, arbitration or other legal action
relating to this Agreement or any provision hereof (whether such action is
by or against the Company or any director, officer, stockholder or other
person affiliated with the Company, or in any jurisdiction). Notwithstanding
any existing or prior attorney-client relationship between the Company and
such counsel, the Company irrevocably consents to the Executive entering
into an attorney-client relationship with such counsel, and in that connection
the Company and the Executive agree that a confidential relationship shall
exist between the Executive and such counsel. The reasonable fees and expenses
of counsel selected by the Executive shall be paid or reimbursed to the
Executive by the Company on a regular, periodic basis upon presentation by the
Executive of a statement or statements prepared by such counsel in accordance
with its customary practices, up to a maximum aggregate amount of $250,000.
Notwithstanding the preceding, if it should be finally determined by judgment
or order of a court of competent jurisdiction (the time for the appeal of
which judgment or order shall have expired), that the Executive has not
prevailed in any such litigation, arbitration or other legal action, the
Executive shall promptly return to the Company, upon its demand, any amounts
so advanced in connection with such action together with interest thereon at the
rate provided in Section 7.1 above.
<PAGE>
8. No Conflicting Commitments.
--------------------------
8.1 Representation and Warranty. The Executive represents and warrants
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that he has no commitments or obligations of any kind whatsoever inconsistent
with this Agreement and is under no disability of any kind whatsoever which
would impair, infringe upon or limit Executive's ability to enter this Agreement
or to perform the services required hereunder.
8.2 Indemnification. The Executive agrees to indemnify and hold the
---------------
Company harmless against any claim or other actions asserted against the
Company based upon circumstances in which it is alleged that the Executive
has breached the warranty set forth in Section 8.1.
9. Governing Law. This Agreement has been executed and delivered in
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the State of New Jersey, and shall in all respects be interpreted, construed,
and governed by and in accordance with the law of the State of New Jersey.
Except as otherwise herein provided, all actions or proceedings arising
directly, indirectly or otherwise in connection with, out of, related to, or
from this Agreement shall be litigated exclusively and only in courts having
situs within the State of New Jersey, and the parties hereby consent and
submit to the jurisdiction of any state or federal court located in the State
of New Jersey. Notwithstanding the preceding, the Executive, at his sole and
exclusive option, exercisable by written notice given to the Company at any
time, may elect to submit any dispute arising under this Agreement to
resolution by arbitration held in Somerset County, New Jersey in accordance with
the rules of the American Arbitration Association.
10. Notices. All notices hereunder shall be in writing and
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personally delivered or mailed by registered or certified mail, return receipt
requested, to the following address:
If to the Company:
376 Main Street
Bedminster, New Jersey 07921
If to the Executive:
John W. Galuchie, Jr.
376 Main Street
Bedminster, New Jersey 07921
<PAGE>
The Company or the Executive may hereafter designate another address to the
other in writing for purposes of notices under this Agreement.
11. Waivers. Any waiver by any party of any violation of, breach of
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or default under any provision of this Agreement by the other party shall not
be construed as, or constitute, a continuing waiver of such provision, or waiver
of any other violation of, breach of or default under any other provision of
this Agreement.
12. Assignability. This Agreement shall not be assignable by the
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Company without the written consent of Executive, except that if the Company
shall merge or consolidate with or into, or transfer substantially all of its
assets to, another corporation or other form of business organization, this
Agreement shall be binding on the Executive and be for the benefit of and
binding upon the successor of the Company resulting from such merger,
consolidation or transfer without Executive's consent, unless this Agreement
is terminated pursuant to Section 6.3(C). Executive may not assign, pledge,
or encumber any interest in this Agreement or any part thereof without the
express written consent of the Company, this Agreement being personal to
Executive.
13. Severability. Each provision of this Agreement constitutes a
------------
separate and distinct undertaking, covenant and/or provision hereof. In the
event that any provision of this Agreement shall finally be determined to be
unlawful, such provision shall be deemed severed from this Agreement, but every
other provision of this Agreement shall remain in full force and effect, and in
substitution for any such provision held unlawful, there shall be
substituted a provision of similar import reflecting the original intent of
the parties hereto to the extent permissible under law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first set forth above written.
KENT FINANCIAL SERVICES, INC.
By: /s/ Paul O. Koether
----------------------------
Title: President
----------------------------
/s/ John W. Galuchie, Jr.
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John W. Galuchie, Jr.
