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1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to ________________
Commission File No. 0-6729
FIRST MONTAUK FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
New Jersey 22-1737915
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
328 Newman Springs Road, Red Bank, NJ 07701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 842-4700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of class)
[Cover Page 1 of 2 Pages]
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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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No ___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year: $35,089,688.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of April 11, 1997 was $18,999,181.
The number of shares of Common Stock outstanding, as of April 11, 1997 was
8,915,179.
DOCUMENTS INCORPORATED BY REFERENCE
Not Applicable
[Cover Page 2 of 2 Pages]
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PART I
Item 1. Business
Introduction
First Montauk Financial Corp. ("FMFC") is a holding company, which, through
its wholly-owned subsidiary, First Montauk Securities Corp. ("FMSC"), is
primarily engaged in the operation of an investment banking and securities
brokerage firm. FMFC also sells insurance products through its subsidiary
Montauk Insurance Services, Inc. ("MISI") and equipment leases through Montauk
Advisors, Inc. ("MAI"). FMSC is a broker-dealer registered with the Securities
and Exchange Commission ("SEC"), a member of the National Association of
Securities Dealers Regulation, Inc. ("NASD"), the Municipal Securities
Rulemaking Board ("MSRB"), and the Securities Investor Protection Corporation
("SIPC"). FMSC's business activities consist primarily of retail sales and
trading of listed and unlisted equity and fixed-income securities; sales of
government, municipal and corporate securities; options; commissions earned from
individual and institutional securities transactions; and market making
activities. FMSC also provides investment banking activities such as private and
public securities offerings. In fiscal 1995, FMSC become a registered advisor
under the Investment Advisors Act of 1940 and began offering investment advisory
services.
FMSC is currently licensed to conduct its broker-dealer business in 49
states and the District of Columbia. FMSC maintains approximately 117 branch
and/or satellite offices, all of which are maintained by affiliates. The Company
has approximately 356 registered representatives and services approximately
25,000 retail customer accounts.
FMSC's primary method of operation is through its affiliate program.
The affiliate program is designed to attract experienced brokers with existing
clientele who desire to operate their own office. It is through this affiliate
program that FMSC has expanded its customer base and retail activities by adding
brokers with established clientele. In order to become an affiliate of FMSC, the
registered representative must enter into an affiliate agreement with FMSC. The
Company believes that one of the primary reasons its affiliate program is
attractive to such individuals is because the affiliate arrangement entitles the
affiliate representative to obtain a significantly higher percentage of the
commissions generated by his sales than a registered representative would
normally receive. Based on the experience of FMSC's management, and information
derived from professional associations, FMSC believes that standard commission
payout rates for registered representatives of retail firms is approximately
40%-50%, whereas affiliates receive commissions of approximately 80%-85% if as
an affiliate representative. The terms of the affiliate agreement provide that
the affiliate establishes his own office and is solely responsible for the
payment of all expenses associated with the operation of the branch office,
including rent, utilities, furniture, equipment, stock quotation machines, and
general office supplies. All securities transactions are cleared through FMSC's
clearing firm on a fully disclosed basis. FMSC receives a percentage (generally
15%-20% after deduction of clearing costs) of the affiliate's commissions with
no operating expenses directly attributable to the maintenance of the specific
affiliate office.
FMSC has also expanded its general securities business by adding registered
representatives to its main corporate office. FMSC is continuously seeking to
establish additional branch offices at sites and locations to be selected, the
timing and location of which will be based upon prevailing business and economic
conditions.
In 1991, MISI was formed for the purpose of offering and selling variable
annuity, variable life as well as traditional life and health insurance
products. Currently, MISI is licensed in the states of Alabama, Alaska, Arizona,
California, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana,
Kentucky, Maine, Maryland, New Jersey, New York, North Carolina, Pennsylvania,
Rhode Island, South Carolina, Virginia, Washington and Wisconsin. MISI derives
revenue from insurance-related products and services from the existing base of
FMSC's Registered Representatives who are insurance licensed. In fiscal year
1996 MISI earned $523,868 in gross commissions from the sale of insurance.
In 1993, the Company formed Montauk Advisors, Inc. ("MAI") as a
wholly-owned subsidiary. MAI engages in the sale of equipment leasing contracts
as agent for various leasing companies. The equipment financed to date includes
copiers, facsimile machines and other business machines. These leases are sold
to various customers from which MAI derives a commission. In fiscal year 1996
MAI earned $373,216 in commissions from the sale of leases.
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FMFC and its subsidiaries (with the exception of MISI) each maintain
their principal executive offices at Parkway 109 Office Center, 328 Newman
Springs Road, Red Bank, New Jersey 07701, telephone (908) 842-4700. MISI
maintains its principal offices at One Mack Centre Drive, Paramus, New Jersey.
In early 1995, FMSC became registered with the Securities and Exchange
Commission as an Investment Advisor under the Investment Advisors Act of 1946
for the purpose of providing investment advisory services and fee-based managed
accounts to clients of FMSC. Currently, FMSC is licensed as an Investment
Advisor in the States of Alaska, Arizona, California, Connecticut, Florida,
Hawaii, Indiana, New Jersey, New York, North Carolina, Pennsylvania, Texas, and
West Virginia. Although to date FMSC has received minimal revenue from its
advisory services, management's goal is to derive revenue by providing
investment advisory services to FMSC's existing client base as well as to
additional clientele seeking fee-based managed accounts.
Description of Business
FMSC is a New Jersey based broker-dealer registered with the Securities
and Exchange Commission, and a member of the National Association of Securities
Dealers, Inc., the Municipal Securities Rule Making Board and the Securities
Investor Protection Corporation. Its business activities include sales and
trading of listed and OTC equity and fixed-income securities; sales of
government, municipal and corporate securities; options; commissions earned from
individual and institutional securities transactions and market making
activities. FMSC is registered to conduct its business in 49 states and the
District of Columbia.
As of March 24, 1997, FMSC operated 117 affiliate branch and satellite
offices in addition to its main office located in Red Bank, New Jersey. There
are approximately 356 registered representatives in these offices, as well as 55
support staff employees in the main office. Affiliate branch and satellite
offices are located in the following 23 states:
STATE AFFILIATE BRANCH/SATELLITE OFFICE
Alaska 1
Arizona 2
California 8
Connecticut 3
Florida 9
Georgia 1
Illinois 2
Indiana 1
Minnesota 1
Mississippi 1
New Hampshire 2
North Carolina 8
New Jersey 21
Nevada 2
New York 24
Ohio 3
Pennsylvania 12
Rhode Island 2
South Carolina 1
Texas 2
Virginia 4
Washington 5
West Virginia 2
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FMSC transacts business in the following areas in:
Equities:
Listed 24%
Over-The-Counter 45%
Municipal, Government 2%
Corporate Bonds 2%
Unit Investment Truss 1%
Mutual Funds 18%
Options 1%
Insurance* 7%
* A portion of the insurance commission is payable to Montau
Insurance Services, Inc. while variable annuity commission is payable
through FMSC.
Approximately 85% of the customers accounts are cash accounts. The
balance of the accounts consists of margin, Individual Retirement Accounts
("IRA") and KEOGH accounts.
Approximately 50% of the over-the-counter equities and 90% of the fixed
income transactions are transacted on a principal basis, with the balance
representing agency transactions.
The following table reflects FMSC's various sources of revenues and the
percentage of total revenues that each source represents for the periods
indicated. Revenues from agency transactions in securities for individual
customers of FMSC are shown as commissions. Revenues from transactions in
securities for individual customers where FMSC acted in a principal capacity are
reflected in principal transactions. Also reflected in principal transactions
are trading profits from market making and other trading activities.
Period
----------------------------
Year Ended December 31, 1996
----------------------------
Amount Percent
------ -------
Commissions:
Equity Securities,
Options and Mutual Funds...... $24,855,796 72.9%
Principal Transactions:
Equity Securities,
Municipal, Government and
Corporate Bonds............... $ 7,660,700 22.4%
Interest and Other Income (1)...... $ 951,283 2.8%
Investment Banking (2)............. $ 634,329 1.9%
Total Revenues .................... $34,102,108 100%
- - --------------------
1. "Other Income" consists primarily of rental income and dividends.
2. Investment banking revenues consists of selling concessions and
other income from syndicate activities and placement agent fees.
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Registered Representative Recruitment and
Registered Representative Affiliate Program
FMSC derives its customer base from its registered representatives'
accounts. FMSC's goal is to recruit well-trained, experienced registered
representatives who require little training and who have proven production
records with an established customer account base.
Since all registered representatives are paid on a commission earned
basis, the costs associated with the hiring of new registered representatives
are limited to general expenses consisting of orientation materials, compliance
manuals and operational information.
Competition among securities brokerages and registered representatives is
keen. Larger, more established securities firms with greater financial resources
possess an advantage in competing with FMSC and attracting representatives,
clients and investment dollars. (See "Business - Competition".)
The Affiliate Program
FMSC's affiliate program is designed to attract professionals in all phases
of the financial services industry to affiliate with FMSC as registered
representatives. Management believes that the affiliate program is attractive to
established brokers because it combines the flexibility of operating an
independent office with the structure and support of an established firm.
Currently FMSC has 117 locations operated by registered representatives
participating in the affiliate program. It is through this affiliate program
that FMSC seeks to continue to expand its customer base and retail activities by
adding brokers with established clientele.
The program's goal is to recruit securities brokers with a sufficient level
of commission brokerage business to enable the individual to independently
support his own office. The program also enables financial professionals such as
insurance agents, real estate brokers, financial planners, tax preparation
experts and accountants who already provide some type of financial or brokerage
services to their clients, to become a registered representative with FMSC. This
is intended to allow the professional to offer securities products and services
to their clients and insurance products through MISI. Affiliates operate in
their own office or location which function as a registered branch office or
satellite location of FMSC. A location is considered a registered branch if it
contains three or more registered individuals, and indicates the location as one
in which securities business is being offered to the public. A registered branch
is designated as either an Office of Supervisory Jurisdiction (OSJ) or non-OSJ
branch office depending on whether the office contains a registered principal
responsible for the supervision of registered representatives at that location.
A satellite location is one in which less than three individuals are conducting
business, does not contain a registered principal, and does not indicate
publicly that it is a location where securities business is being conducted.
Registered representatives within a satellite location are supervised by a
registered principal at an OSJ or FMSC's headquarters.
In each case, the affiliate is solely responsible for the payment of all
expenses associated with the operation of his office location, including rent,
utilities, furniture, equipment, stock quotation machines, supplies etc. Under
the program, the affiliate receives a significantly higher percentage of the
commissions generated by his sales than a registered representative would
normally receive. Based on the experience of FMSC's management, and information
derived from professional associations, FMSC believes that standard commission
payout rates for registered representatives of retail firms is approximately 40%
to 50%, whereas FMSC pays affiliates approximately 80% to 85%. An affiliate
establishes his own office and is solely responsible for the payment of all
expenses associated with the operation of his office, including rent, utilities,
furniture, equipment, stock quotation machines, and general office supplies. All
securities transactions are cleared through FMSC's clearing firm on a
fully-disclosed basis. FMSC receives a flat percentage (generally 15% to 20%
after deduction of clearing costs) of the affiliate's commissions with no
operating expenses directly attributable to the maintenance of the specific
affiliate office. (See "Administration, Operations, Transaction Processing and
Customer Accounts").
For FMSC's percentage of commission obtained, FMSC provides full support
services to each of the affiliates including listed stock and options execution,
over-the-counter stock trading, research, compliance, supervision and related
services. Currently, Schroder, Wertheim & Co., Inc. transacts clearing services
for FMSC, and E.D. & F Man International Securities, Inc. and others provide
execution services.
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Each affiliate is required to obtain and maintain in good standing each
license required by the SEC and NASD to conduct the type of securities business
in which the affiliate will engage and to register in the various states in
which he intends to service customers. If the affiliate wishes to expand his
operation, he controls the hiring and immediate supervision of any additional
registered representatives subject to FMSC's policies and procedures and overall
approval and supervision. If the affiliate office contains three or more
registered representatives, the affiliate must obtain a principal's license to
insure proper supervision. The office will then be designated as an Office of
Supervisory Jurisdiction.
FMSC is ultimately responsible for supervising each and every affiliate and
related registered representative. FMSC can incur substantial liability from
improper actions of any of the affiliate representatives. (See "Legal
Proceedings"). Effective January 1, 1996, the Company implemented a professional
liability errors and omissions insurance program which provides coverage for
actions taken by the Company's registered representatives, employees and other
agents for actions in connection with the purchase and sale of securities and
the administration of individual retirement plans. The program provides coverage
for each incident up to $1,000,000 with an aggregate policy limit of $5,000,000,
with a deductible per incident of $25,000, the first $5,000 of which is the
responsibility of individual representatives. Each registered representative is
assessed a premium which is payable monthly. The policy excludes claims
involving the sale of low-priced or "penny stocks" or partnerships, criminal or
deliberate fraudulent acts, defamation and company sponsored employee benefit
plans, as well as other exclusions.
There are other, larger broker-dealers with greater resources than FMSC,
engaged in similar programs with whom FMSC must compete. These companies, some
national in scope, compete with FMSC to attract registered representatives as
well as clients. Some of these companies are larger, well-known firms with
substantially greater financial and other resources than those of FMSC. (See
"Business-Competition".)
Retail Commission Business
All of FMSC's revenues are currently, and will in the
future, be derived from commissions, concessions, mark-ups and mark-downs
(collectively, "Commissions") from retail (individual) and institutional
customers on brokerage transactions in exchange-listed and over-the-counter
equity and fixed income securities. Commissions are charged to clients for
executing buy and sell orders of securities. When a buy or sell order for a
security in which FMSC makes a market or has inventory, FMSC may act as a
principal and purchase from, or sell to, its customers the desired security on a
disclosed basis at a price set in accordance with applicable securities
regulations.
Investment Banking Activities
The Company's investment banking revenues are principally derived from
participation in public offerings of equity securities and acting as placement
agent in the private placement of securities. For the fiscal year ended December
31, 1996, investment banking activities, including sales concessions, accounted
for approximately 2% of the Company's revenues.
To date, the Company has not derived significant or material revenues
from its investment banking services. Through its relationships with investment
banking clients, the Company intends to expand this business. There can be no
assurance that the Company will be successful in these efforts or that future
efforts will result in significant revenue or increased profit to the Company.
The corporate finance function of the Company seeks to raise capital for
corporations in a variety of businesses. In June, 1994, FMSC completed its first
underwriting of an initial public offering for $5,125,000 of the common stock of
Manhattan Bagel Company, Inc. The Manhattan Bagel offering was the only public
offering to date in which FMSC acted as the managing underwriter. FMSC also
participates in other underwritings of corporate securities as a syndicate or
selling group member. FMSC participated as a syndicate or selling group member
in approximately 78 offerings in fiscal 1996.
Potential underwriting opportunities in which FMSC may act as managing
or co-managing underwriter may be presented by FMSC's officers, directors,
employees and professional advisors. The Company has utilized and will continue
to utilize the services of outside consultants to assist the officers in making
corporate finance decisions.
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Participation as a managing underwriter or in an underwriting syndicate
or a selling group involves both economic and regulatory risks. An underwriter
may incur losses if it is unable to resell the securities it is committed to
purchase, or if it is forced to liquidate its commitment at less than the
purchase price. In addition, under federal securities law, other laws and court
decisions with respect to underwriters' liabilities and limitations on the
indemnification of underwriters by issuers, an underwriter is subject to
substantial potential liability for misstatements or omissions of material facts
in prospectuses and other communications with respect to such offerings. Acting
as a managing underwriter increases these risks. Underwriting commitments
constitute a charge against net capital and FMSC's ability to make underwriting
commitments may be limited by the requirement that it must at all times be in
compliance with the Net Capital Rule. See "Net Capital Requirements".
FMSC also acted as a placement agent in three private placements during
the fiscal year ended December 31, 1996. FMSC is continuously reviewing
potential private offerings for future participation. See "Certain Relationships
and Related Transactions".
Principal Transactions
Market-Making. FMSC acts as both principal and agent in the execution
of its customers' orders in the over-the-counter market. FMSC buys, sells and
maintains an inventory of various securities in order to "make a market" in
those securities. In executing customer orders for over-the-counter securities
in which it does not make a market, the Company charges a commission and acts as
agent between its customers and another firm which is a market-maker. However,
when the buy or sell order is in a security in which FMSC makes a market, the
Company may act as principal and purchase from or sell to its customers plus or
minus a mark-up or mark-down in accordance with applicable regulations.
Trading profits or losses depend upon the skills of the employees
engaged in market-making activities, the capital allocated to positions in
securities and the general trend of prices in the securities markets. Trading as
principal requires the commitment of capital and creates an opportunity for
profits and risk of loss due to market fluctuations. FMSC may take both long and
short positions in those securities in which it makes a market.
Investment Activities
FMSC also seeks to realize investment or trading gains by purchasing,
selling and holding securities for its own account. FMSC is required to commit
the capital necessary for use in its investment activities. The amount of such
capital to be committed at any particular time will vary according to market,
economic and other factors, including the other aspects of the Company's
business. Additionally, in connection with its investment banking activities,
FMSC from time to time receives warrants which entitle it to purchase securities
of the corporate issuers for which FMSC raises capital or provides advisory
services. These warrants, which are placed in FMSC's investment account, vary in
value based upon the market price, if any, of the underlying security and the
terms of the warrant.
Research Services
Securities research is intended to play a significant role in FMSC's
investment banking business as a service to its customers. Research activities
include the review and analysis of general market conditions, industries and
specific companies; the issuance of in-depth written reports on companies, with
recommendations of specific action to buy, sell or hold; the furnishing of
information to retail and institutional customers; and responses to inquiries
from customers and account executives. Research services are directed primarily
at identifying attractive investment opportunities in small, medium and emerging
growth companies, and in special situation investments. FMSC presently conducts
a limited amount of research activities directly through a research analyst
employed by it. These direct research activities principally relate to the
preparation of specialized reports on selected securities for general
distribution to FMSC's retail customers, and/or research assistance to the
Company's retail sales force. The Company also obtains additional research
reports and information from various other sources, including through
subscription from Solomon Brothers, Schroder Wertheim and Deutsche Morgan
Greenfell/C.J. Lawrence.
Investment Advisory Services
During fiscal 1995, FMSC formed a division to provide investment
advisory services for its client and offers professionally managed accounts,
discretion portfolio management services, private client account management, and
limited financial planning services to its clients on a fee basis.
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Many of FMSC's competitors have similar programs in place. Management
believes that the ability to offer these additional services will assist FMSC in
effectively competing for qualified registered representatives who's clients
desire professionally managed accounts.
Competition
FMSC encounters intense competition in all aspects of its business and
competes directly with many other securities firms for clients as well as
registered representatives. A significant number of such competitors offer their
customers a broader range of financial services, have substantially greater
resources and may have greater operating efficiencies. Retail firms such as
Merrill Lynch Pierce Fenner & Smith Incorporated, Smith Barney, Inc. and Paine
Webber Incorporated dominate the industry; however, the Company also competes
with numerous regional and local firms. In addition, a number of firms offer
discount brokerage services to individual retail customers and generally effect
transactions at lower commission rates (as low as 50% of standard commission
rates) on an "execution only" basis without offering other services such as
investment recommendations and research. The further expansion of discount
brokerage firms could adversely affect the Company's retail business. Moreover,
there is substantial commission discounting by full-service broker-dealers
competing for institutional and individual brokerage business. The possible
increase of this discounting could adversely affect the Company.
FMSC also competes for experienced brokers with other firms offering an
independent affiliate program such as Corporate Securities Group, Inc., Robert
Thomas Securities, Inc. and Linsco/Private Ledger Corp.
Other financial institutions, notably commercial banks and savings and
loan associations, offer customers some of the services and products presently
provided by securities firms. In addition, certain large corporations have
entered the securities industry by acquiring securities firms. While it is not
possible to predict the type and extent of competitive services which banks and
other institutions ultimately may offer to customers, FMSC may be adversely
affected to the extent those services are offered on a large scale.
FMSC competes through its advertising and recruiting programs for
registered representatives interested in joining its affiliate program. FMSC is
further developing customized computer programs to better service its affiliates
and to attract new brokers. The system will enable brokers at any office to
instantly access customer accounts, determine cash positions, send and receive
electronic mail, and receive research reports and compliance memoranda through a
computer work station.
Administration, Operations, Transaction
Processing and Customer Accounts
FMSC currently utilizes the services of Schroder Wertheim & Co., Inc.
as its clearing broker (the "Clearing Broker"). FMSC does not hold any funds or
securities of its customers.
The Clearing Broker, on a fee basis, processes all securities
transactions for FMSC's account and the accounts of its customers. Services of
the Clearing Broker include billing and credit control, and receipt, custody and
delivery of securities, for which FMSC pays a portion of the commissions it
receives from customer transactions. By engaging the processing services of a
clearing broker, FMSC is exempt from certain reserve requirements imposed by
Rule 15c3-3 under the Securities Exchange act of 1934 (the "1934 Act"). See "Net
Capital Requirements". The Clearing Broker is neither a partner nor a joint
venturer with FMSC, nor does the Clearing Broker have any direct or indirect
interest in FMSC, financial or otherwise, or any control of FMSC's business,
affairs or internal operations. The Clearing Broker, however, does provide
secured margin loans to FMSC and its customers to finance the purchase of
securities. Under its clearing agreement with the Clearing Broker, FMSC has
agreed to indemnify and hold the Clearing Broker harmless from certain
liabilities or claims.
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As required by the NASD and certain other authorities, FMSC carries a
fidelity bond covering loss or theft of securities, as well as embezzlement and
forgery. The amount of the bond provides total coverage of $500,000 (with a
$10,000 deductible provision per incident). In addition, the accounts of its
customers are protected by the Securities Investor Protection Corporation
("SIPC") for up to $500,000 for each customer, subject to a limitation of
$100,000 for claims for cash balances with an additional $25,000,000 of
protection provided by a private insurance company for the benefit of each
customer. SIPC is funded through assessments on registered broker-dealers. SIPC
assessments were .00065% of net operating revenues (as defined). Effective
January 1, 1996, the Company implemented a professional liability errors and
omissions insurance program which provides coverage for actions taken by the
Company's registered representatives, employees and other agents for actions in
connection with the purchase and sale of securities and the administration of
individual retirement plans. The program provides coverage for each incident up
to $1,000,000 with an aggregate policy limit of $5,000,000, with a deductible
per incident of $25,000, the first $5,000 of which is the responsibility of
individual representatives. Each registered representative is assessed a premium
which is payable monthly. The policy excludes claims involving the sale of
low-priced or "penny stocks" or partnerships, criminal or deliberate fraudulent
acts, defamation and company sponsored employee benefit plans, as well as other
exclusions.
Government Regulation
The securities industry is subject to extensive regulation and
frequently changing under federal and state laws and substantial regulations
under such laws by the SEC and various state agencies and self-regulatory
organizations such as the NASD. The principal purpose of regulation and
discipline of broker-dealers is the protection of customers and the securities
markets rather than protection of creditors and stockholders of broker-dealers.
The SEC is the federal agency charged with administration of the federal
securities laws. Much of the regulation of broker-dealers, however, has been
delegated to self-regulatory organizations, principally the NASD and the
national securities exchanges. These self-regulatory organizations adopt rules
(subject to approval by the SEC) which govern the industry and conduct periodic
examinations of member broker-dealers. Securities firms are also subject to
regulation by state securities commissions in the states in which they are
registered. FMSC is registered with, and subject to, the state securities
commissions in 49 states and the District of Columbia.
The regulations to which broker-dealers are subject cover all aspects
of the securities business, including sales methods, trading practices among
broker-dealers, capital structure of securities firms, record keeping and the
conduct of directors, officers and employees. Additional legislation, changes in
rules promulgated by the SEC and by self-regulatory bodies or changes in the
interpretation or enforcement of existing laws and rules often affect directly
the method of operation and profitability of brokers and dealers. The SEC and
the self-regulatory bodies may conduct administrative proceedings which can
result in censure, fine, suspension or expulsion of a broker-dealer, its
officers, representatives or employees.
Net Capital Requirements
As a registered broker-dealer and member of the NASD, FMSC is subject
to the SEC's Net Capital Rule which is designed to measure the general financial
integrity and liquidity of a broker-dealer.
Net capital is defined as the net worth of a broker or dealer subject
to certain adjustments, and computed by FMSC pursuant to the "aggregate
indebtedness method". Aggregate Indebtedness is deemed to mean the total money
liabilities of a broker or dealer arising in connection with any transaction
whatsoever, and includes, among other things, money borrowed, money payable
against securities loaned and securities "failed to receive," the market value
of securities borrowed to the extent to which no equivalent value is paid or
credited. For broker-dealers using this method, the Net Capital Rule requires
that the ratio of aggregate indebtedness, as defined, to net capital, as
defined, not exceed 15 to 1, and imposes restrictions on operations as described
below. In computing net capital, various adjustments to net worth are made with
a view to excluding assets which are not readily convertible into cash and
making a conservative statement of other assets, such as a firm's position in
securities. Compliance with the Net Capital Rule limits those operations of
securities firms which require the intensive use of their capital, such as
underwriting commitments and principal trading activities, and limits the
ability of securities firms to pay dividends.
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In addition to the above requirements, funds invested as equity capital
may not be withdrawn, nor may any unsecured advances or loans be made to any
stockholder of a registered broker-dealer, if, after giving effect to such
withdrawal, advance or loan and to any other such withdrawal, advance or loan as
well as to any scheduled payments of subordinated debt which are scheduled to
occur within six months, the net capital of the broker-dealer would fail to
equal 120% of the minimum dollar amount of net capital required or the ratio of
aggregate indebtedness to net capital would exceed 10 to 1. Finally, any funds
invested in the form of subordinated debt generally must be invested for a
minimum term of one year and repayment of such debt may be suspended if the
broker-dealer fails to maintain certain minimum net capital levels. For example,
scheduled payments of subordinated debt are suspended in the event that the
ratio of aggregate indebtedness to net capital of the broker-dealer would exceed
12 to 1 or if its net capital would be less than 120% of the minimum dollar
amount of net capital required.
At December 31, 1996, FMSC had net capital of approximately $651,048
which was $401,048 in excess of required net capital, and its ratio of aggregate
indebtedness to net capital was 5.48 to 1.
Failure to maintain the required net capital may subject a firm to
suspension or expulsion by the NASD, the Commission and other regulatory bodies
and ultimately may require its liquidation. The net capital rule also prohibits
payments of dividends, redemption of stock and the prepayment or payment in
respect of principal of subordinated indebtedness if net capital, after giving
effect to the payment, redemption or repayment, would be less than specified
percentage (120%) of the minimum net capital requirement. Compliance with the
net capital rule could limit those operations of the Company's brokerage
subsidiaries that require the intensive use of capital, such as underwriting and
trading activities, and also could restrict the Company's ability to withdraw
capital from its operating subsidiaries, which in turn, could
limit the Company's ability to pay dividends, repay debt and redeem or
purchase shares of its outstanding capital stock.
Employees
The Company currently utilizes approximately 356 registered
representatives of which 301 are associated with affiliate offices. In addition,
the Company employs 55 support employees in the areas of operations, compliance,
accounting, administrative and clerical.
There is an intense competition among securities firms for executives with
extensive sales experience. To a large degree, FMSC's future success will depend
upon its continuing ability to locate, hire and retain highly skilled investment
executives. FMSC considers its relations with its employees to be good.
Item 2. Properties
Offices and Facilities
The Company presently occupies 17,804 square feet at its executive
offices which are located at Parkway 109 Office Center, 328 Newman Springs Road,
Red Bank, New Jersey 07701. Under a lease agreement dated September 7, 1993,
FMSC leased a total of approximately 9,716 square feet for a term of 62 months
ending November 30, 1998. The basic rent is $14,978.83 per month and in addition
to the base rent, the Company pays as additional rent, a proportional share of
any increases in real estate taxes above the amount paid during the 1994
calendar year, insurance premiums relating to the premises, and all utility
charges relating to the use of the premises. In June 1994 the Company leased an
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12
additional 2,077 square feet for an additional monthly rent of $3,202.00 which
lease expires in November 1998. In August 1995, the Company entered into a
sublease agreement with Pilot Laboratories, Inc. to sublet an additional 1,961
square feet of space adjacent to the Company's current offices. The sublease
requires a monthly payment of $2,860.00 and runs through October 31, 1997. In
January 1996, all of the Company's various leases were tied to a master lease to
expire in November 1998.
In April 1996, the Company also leased 1,637 square feet on the first
floor of the same building which houses the corporate headquarters for a monthly
rent of $2,565.00 for a period of two years and five months commencing on April
1, 1996. This space has been subleased to one of the Company's affiliates under
the same terms and conditions as the master lease.
In March 1997, the Company entered into a new seven year lease, commencing
January 1, 1998, to lease a total of 19,372 square feet at the Red Bank
facility. The rent for the premises will be $35,850 per month plus additional
costs for utilities and taxes. This new lease will supersede all of the other
leases of the Red Bank facility. The new lease will expire on December 31, 2004.
The lease also contains an option to renew for an additional six year period
after the conclusion of the initial lease term.
In June 1996, Montauk Insurance Services, the Company's insurance
subsidiary, leased 3,150 square feet in Paramus, New Jersey to house its
administrative offices. The three year lease provides for monthly base rent of
$5,053 for the first year, $5,315 for the second year, and $5,578 for the third
year.
The use of facilities for all branch and/or satellite offices are provided
for by the individual registered representatives at such facility at no cost,
expense or obligation to the Company. Similarly, all furnishings, fixtures,
telephone systems, office equipment and quotation retrieval systems are the
responsibility of the affiliated registered representative at no cost, expense
or obligation to the Company.
Item 3. Legal Proceedings
Many aspects of the Company's business involve substantial risks of
liability. In recent years, there has been an increasing incidence of litigation
and arbitration involving the securities industry, including class actions which
generally seek rescission and substantial damages.
In fiscal 1996, the firm settled two civil lawsuits and one arbitration in
the aggregate amount of $1,706,455. Each of these cases resulted from claims
made by customers of the former Houston branch office registered representatives
in connection with the purchase of certain Mortgage Backed Securities ("MBS").
The Company is a defendant in one remaining civil law suit filed on May 21,
1996 relating to these matters which is currently pending in the United States
District Court for the Northern District of Ohio, Eastern Division, case number
1:96CV 1063, City of Painesville, Ohio v. First Montauk Financial Corp., First
Montauk Securities Corp. et al. The Plaintiff seeks compensatory damages of an
unspecified amount estimated by Plaintiff to be not less than $5,000,000 plus
punitive damages, attorney's fees, interest and cost. The Company is vigorously
defending this case as it believes that it has a meritorious defense to this
action. This belief is derived from, among other things, discussions with the
Company's counsel.
FMSC recently submitted an Offer of Settlement to the Securities and
Exchange Commission resulting from an investigation by the SEC into the sale of
certain derivative securities by the Company's former Houston brokers. The
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13
Settlement Offer requires the Company to pay a civil penalty of $50,000.00 and
to disgorge the sum of $175,458.00, plus interest. The Commission also agreed to
provide for a credit on the disgorgement amount for the settlement of certain
civil litigations related thereto. The Company also agreed to a censure and to
the entry of a Cease and Desist Order. The Settlement Offer also requires FMSC
to engage an independent compliance examiner to audit the firm's compliance
procedures and issue a report and recommendations which the firm has agreed to
implement. Brian M. Cohen, one of FMSC's principals, submitted a separate
Settlement Offer which provides for a two month suspension from association with
any broker/dealer and an eighteen month bar from acting in any supervisory
capacity thereafter. Mr. Cohen also agreed to pay a monetary fine of $5,000.
The Settlement Offers are currently pending before the full Commission and
the Company can make no assurances that the Offer(s) will be accepted as
currently proposed. The Commission may reject or amend the terms of the
Settlement Offers.
In connection with the activities of the former Houston office
representatives, FMSC and the State of Florida Division of Securities and
Investor Protection entered a Stipulation and Consent Agreement in February
1997. The Agreement provides for the payment of a $15,000 fine, the engagement
of an independent compliance examiner, temporary restrictions of the addition of
new branch offices in the State of Florida and restrictions on future sales of
CMO securities in the State of Florida.
In January 1997, the Company and FMSC settled an arbitration proceeding
brought by a customer which resulted from options trading activity in her
brokerage account. The Company paid to the customer $500,000 in cash, and issued
to her and her counsel a total of 150,000 five-year warrants to purchase the
Company's Common Stock for $1.25 per share. Two of the Company's officers have
agreed to guarantee a minimum selling price of $1.917 per share with respect to
the shares underlying the warrants. Any differential between the minimum selling
price of $1.917 per share and the warrant exercise price of $1.25 per share will
be paid to the warrantholders out of a $100,000 escrow account established with
personal funds of the officers to secure the guarantee. The warrantholders will
have 60 days in which to exercise the warrants and sell the shares, commencing
from the date the warrantholders are notified that a registration statement
filed to register the shares has been declared effective by the SEC. The Company
is required to file with the SEC a registration statement to register the
underlying Common Stock for resale no later than June 10, 1997. The officers
will not be obligated to pay the differential with respect to any unexercised
warrants and/or unsold shares at the expiration of the 60 day period unless the
quoted market price for the Company's common stock is below $1.25 for the entire
period. In such an event, the warrantholders will be entitled to tender the
warrants to the Company in exchange for the escrowed funds.
FMSC is also a respondent and/or defendant in certain pending customer law
suits and arbitrations relating to its securities business. These claims are in
various stages of progress and are being contested by FMSC. The ultimate outcome
and/or range of loss, if any, from these matters is not presently determinable.
Item 4. Submission of Matters on a Vote of Security Holders
Not Applicable.
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14
PART II
Item 5. Market of and Dividends on the Company's
Common Equity and Related Stockholder Matters
A. Principal Market
The Company's Common Stock is traded in the over-the-counter market.
Trading in the Company's Common Stock is reported on the NASD Bulletin Board
system and by the National Daily Quotation Service published by the National
Quotation Bureau, Inc. The Company believes that there is an established public
trading market for the Company's Common Stock based on the volume of trading in
the Company's Common Stock and the existence of market makers who regularly
publish quotations for the Company's Common Stock.
B. Market Information
The Company's Common Stock commenced trading in the over-the-counter
market in 1987. On March 24, 1997, the Company's common stock had a high and low
bid price of $2.84375 and $2.781, respectively.
The following is the range of high and low bid prices for such securities
for the periods indicated below:
Common Stock
Fiscal Year 1996 High $ Low $
1st Quarter 1.0625 .84375
2nd Quarter 2.1875 .8125
3rd Quarter 1.53 1.03125
4th Quarter 1.13 .80
Fiscal Year 1995 High $ Low $
1st Quarter .56 .22
2nd Quarter .91 .19
3rd Quarter 1.06 .50
4th Quarter 1.19 .50
<PAGE>
15
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Fiscal 1996 as Compared to Fiscal 1995
Total revenues for 1996 increased to $35,089,688, the best revenue
performance in the Company's history, surpassing 1995's record levels by
$6,747,485, or nearly 24%. The Company benefitted with the rest of the brokerage
industry in 1996 from record gains in the U.S. equity markets. Despite strong
revenue growth, the Company's performance was negatively impacted by costs
totalling $2,731,997 to defend and settle various legal matters during 1996. The
most significant costs arose from the activities of a former affiliate office in
Houston, Texas. These costs essentially negated what would have been record
operating profits for the year.
Commission income from the sale of listed and over-the-counter securities,
mutual funds, leasing, and other agency transactions rose 50% to a record
$25,749,690 (73% of total revenues) as compared to $17,113,296 (60% of total
revenues) in 1995. The Company's commission revenues have steadily increased in
absolute dollars and as a percentage of total revenues due to several factors,
including the addition of leasing and insurance products, the increasing
popularity of mutual fund investment among retail customers, the decline in
principal revenues from the sale of mortgage-backed securities, and the trend
towards executing more over-the-counter equity orders on an agency basis. The
largest revenue increases in 1996 once again came from stock and mutual fund
transactions, as retail investment volume maintained strength throughout the
year. Commissions from the insurance products division, which began operations
in 1995, increased significantly from $121,417 in 1995 to $1,719,102 in 1996. As
the Company's operations shift towards a greater reliance on volume driven
revenues, significant swings in market activity from quarter-to-quarter are
expected to have a more dramatic impact on operating profits.
Revenues from principal transactions decreased by 22% from 1995 levels of
$9,763,940 (34% of total revenues) to $7,660,701 (22% of total revenues).
Revenues from market-making activities in over-the-counter equities and trading
profits reached record levels in the first half of 1996 as the U.S. equity
markets continued to reach record levels. During the third and fourth quarters,
however, net revenues in this category trailed off considerably, due to a
combination of lower transaction' volume, particularly in the seasonally slow
third quarter, and losses sustained in the Company's equity and municipal bond
trading portfolios. In addition, the Company has begun to execute more of its
over-the-counter equity business on an agency basis, whereby the Company earns
commissions for serving as an agent between its customer and another brokerage
firm making a market in the particular security being traded. In so doing, the
Company can reduce its inventory levels, the corresponding amount of capital
required to maintain those levels, and its exposure to losses from fluctuations
in market values. The Company also discontinued trading in mortgage-backed
securities ("MBS") in 1995 and closed the affiliate office conducting MBS
operations. Revenues from MBS transactions totalled $361,158 in 1995.
Investment banking revenues were $634,329 in 1996 as compared to $388,249
in 1995 due to an increase in sales concessions from participation in selling
groups and the completion of a private placement during the current year. The
Company intends to continue exploring various opportunities in the investment
banking area, including securities private placements and underwritings.
Interest income increased by 14% to $839,369 in 1996, due primarily to
higher credit balances in the Company's trading accounts during the year as
inventory levels dropped. The increase was slightly more than offset by declines
in clearing rebates and other fees.
During 1996 the Company paid commissions, employee compensation and
employee benefits of $25,428,184 (72% of total revenues) as compared to
$19,542,578 (69% of total revenues) in 1995. This category includes salaries,
commission expense, and fringe benefits for salaried employees. Commissions paid
to registered representatives for 1996 were $21,932,573 (62% of total revenues)
as compared to $16,539,208 (58% of total revenues) in 1995. The dollar increase
in 1996 resulted primarily from a higher volume of agency transactions, as was
the case in 1995. Commission expense as a percentage of total revenues will
fluctuate in the future depending upon the mix of commission-based business and
trading profits or losses, as well as the relative contribution to revenues from
the Company's in-house brokers and affiliate offices. In-house brokers usually
receive a lower commission payout than independent affiliates, but are not
generally required to pay their own overhead.
<PAGE>
16
For 1996 the Company paid salaries of $2,752,482 for management, operations
and clerical personnel, as compared to $2,196,905 in 1995. This increase was due
in part to growth in 1996 revenues, which required additional trading assistants
and other personnel for transactions processing. The Company also added
employees to its computer, marketing and finance departments in the latter part
of 1995.
Clearing costs increased from $3,112,474 (11% of revenues) in 1995 to
$3,139,142 (9% of revenues) in 1996 due to higher transactions' volume. The
percentage of clearing costs to total revenue will fluctuate depending upon the
combination of agency business and proprietary trading, as well as the average
revenue per transaction in a particular period. The Company also negotiated a
more favorable fee structure with its clearing firm in 1996.
Communications and occupancy costs rose by $402,727 to $1,662,936 in 1996,
an increase of 32% over 1995. The increase is due to higher telephone charges,
market data services, and computer consulting costs associated with the addition
of trading personnel and in-house brokers, and higher market volume. Management
believes that growth in this expense category will slow due to recent
negotiations with a long distance carrier establishing lower rates for telephone
service, as well as to planned reductions in the cost of operating the Company's
wide area network. One partial offsetting factor is expected to be higher
occupancy costs, owing to the further expansion of the Company's headquarters in
January 1998.
Legal matters and related costs include payments to settle customer claims,
professional fees and other defense costs, and provisions for pending
litigation. These costs increased to $2,731,997 in 1996 from $1,542,328 in the
prior year. Costs incurred in 1995 include expense provisions of $204,000
relating to the settlement with plaintiffs in a federal lawsuit, and $900,000 to
settle a lawsuit with Escambia County, Florida stemming from MBS sales by the
former affiliate office. In 1996, the Company became the subject of additional
litigation and regulatory investigations relating to its MBS operations. One of
these cases was settled in January 1997 for $750,000. The Company is also
expected to enter into an Offer of Settlement with the Securities and Exchange
Commission, which will likely result in a $50,000 fine and censure. Another
customer arbitration unrelated to the MBS activities was also settled in January
1997 for $500,000 plus the issuance of common stock purchase warrants. (See Note
11 to the financial statements). Apart from the costs of settling various
matters and providing for future settlements, the Company incurred substantial
fees for legal representation in 1995 and 1996 in connection with the MBS
litigations as well as others. Management is unable to derive a meaningful
estimate of the amount or range of possible loss relating to pending litigation
(including litigation costs) in any particular quarterly or annual period, or in
the aggregate. However, it is possible that the financial condition, results of
operations or cash flows of the Company in particular quarterly or annual
periods could be materially affected by the ultimate outcome of certain pending
litigation. The Company is presently reviewing the extent to which settled and
pending claims may be covered under it insurance policies. In January 1997, the
Company negotiated a $650,000 cash settlement with one of its carriers, and is
continuing discussions with other carriers. There can be no assurance that the
Company will be successful in its efforts to recover additional funds from these
insurers.
Other operating expenses increased from $1,439,926 in 1995 to $2,006,615 in
1996. The increase was due primarily to an increase in business development
costs associated with the Company's affiliate recruitment program, as well as
higher insurance and administrative overhead costs.
While the Company achieved record revenue and profits' growth in the first
half of 1996, operating results continued to be sensitive to general economic
conditions, particularly the interest rate environment, and the outlook of
retail investors on the financial markets. These markets became more uncertain
and volatile in the third and fourth quarters of 1996, and transactions volume
in mutual funds and equity trading, the principal sources of the Company's
commission-based revenues, declined. However, trading losses and legal costs
were the primary causes of the weak operating results in 1996. Accordingly, the
Company is reviewing its trading operations with a view towards improving the
management of its trading risks, and is seeking to resolve pending legal claims
and regulatory problems as expeditiously as possible.
<PAGE>
17
Liquidity and Capital Resources
The Company's cash balances increased by $224,077 during 1996. Operating
activities contributed cash of $1,082,517 in 1996. Inventory positions of
securities held by the Company decreased by $4,985,072 during the year. The cash
provided by this change in securities owned was offset in part by a reduction of
$3,607,489 in the Company's net debit balances with its clearing firm. The
balances in the Company's cash, clearing firm and inventory accounts can
fluctuate significantly from day to day, depending on market conditions, daily
trading activity, and investment opportunities. The Company monitors these
accounts on a daily basis in order to ensure compliance with regulatory capital
requirements and to preserve liquidity. The Company also used cash to pay
approximately $1,019,000 of income taxes during the 1996 period. Accrued
expenses increased by $419,782 during the year due to higher reserves to cover
costs associated with various pending legal matters.
Certain legal claims arising in 1996 have been settled by payment of the
Company's common stock. In a number of cases, the Company issued shares to
various claimants, guaranteeing a minimum resale price of $2.00 per share over a
one to two-year period, and agreeing to make up any shortfall in cash if the
claimants are unable to sell the shares for the guaranteed price in the open
market. The Company issued 210,500 shares in this manner during 1996 in order to
settle claims totalling $421,500. The Company also issued a total of 165,000
unregistered shares during the year to settle other claims valued at $178,650.
Investing activities used cash of $1,128,306 in 1996. The Company purchased
approximately $668,000 of fixed assets during the year. The investment consists
primarily of telecommunications equipment and computer systems, and office
furnishings. The Company anticipates an increase in expenditures of
approximately $300,000 for communications hardware and software, and other
equipment during 1997. Amounts advanced to brokers and affiliates increased by
$384,078 in 1996. The increase is attributable to loans to new affiliates,
advances to employees, and amounts receivable from brokers. These receivables
are generally due on demand, except for an $84,000 loan that is due by July 31,
1997, with interest at the rate of 6% per annum.
Financing activities provided cash of $269,866 in 1996. A total of $230,506
was used for the repurchase of 196,802 shares of the Company's Common Stock in
the open market under buy-back plans authorized by the Company's board of
directors. This amount was offset by proceeds from the exercise of stock options
of $68,864 and net proceeds from bank loans of $410,761. The bank loans are
evidenced by three notes bearing interest at the prime rate (8-1/4% at December
31, 1996). The notes are payable in monthly installments of principal and
interest over periods ranging from 36-60 months and are secured by office and
computer equipment owned by the parent corporation.
At December 31, 1996, the Company's broker-dealer subsidiary had net
capital of $651,048, which was $401,048 in excess of the net capital required by
applicable securities regulations, and the ratio of aggregate indebtedness to
net capital was 5.48 to 1.
Management believes the Company's liquidity needs at least through the next
fiscal year will be provided by increasing operating income and margin loans
secured by trading inventories under an arrangement with the Company's clearing
broker. Cash flow will be adversely impacted in the first quarter of 1997 by the
payment of 1996 legal settlements approximating $1.2 million. These cash
outflows will be offset in part by the receipt of proceeds totalling $435,000
from the exercise of common stock options, and an insurance recovery of
$650,000. Discussions with other insurance carriers regarding coverage of
certain settled and pending legal claims are continuing. The extent of
additional coverage is not presently determinable.
Impact of Inflation and Other Factors
Management of the Company believes that the impact of inflation has an
effect upon the amount of capital generally available for investment purposes
and also may affect the attitude or willingness of investors to buy and sell
securities. The nature of the business of the Company's broker-dealer subsidiary
and the securities industry in general is directly affected by national and
international economic and political conditions, broad trends in business and
finance and volatility of interest rates, changes in and uncertainty regarding
tax laws, and substantial fluctuation in the volume and price levels of
securities transactions and the securities markets. To the extent inflation
results in higher interest rates and has other adverse effects on the securities
markets and the value of securities held in inventory, it may adversely affect
the Company's financial position and results of operations.
<PAGE>
18
Factors Affecting "Forward-Looking Statements"
From time to time, the Company may publish "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended, or make oral
statements that constitute forward-looking statements. These forward-looking
statements may relate to such matters as anticipated financial performance,
future revenues or earnings, business prospects, projected ventures, new
products, anticipated market performance, and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company cautions readers that a variety of factors could cause the
Company's actual results to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements. These
risks and uncertainties, many of which are beyond the Company's control,
include, but are not limited to: (i) transaction volume in the securities
markets, (ii) the volatility of the securities markets, (iii) fluctuations in
interest rates, (iv) changes in regulatory requirements which could affect the
cost of doing business, (v) fluctuations in currency rates, (vi) general
economic conditions, both domestic and international, (vii) changes in the rate
of inflation and related impact on securities markets, (viii) competition from
existing financial institutions and other new participants in competition from
existing financial institutions and other new participants in the securities
markets, (ix) legal developments affecting the litigation experience of the
securities industry, and (x) changes in federal and state tax laws which could
affect the popularity of products sold by the Company. The Company does not
undertake any obligation to publicly update or revise any forward-looking
statements.
Item 7. Financial Statements
See Financial Statements attached hereto.
Item 8. Disagreements on Accounting and Financial Disclosure
Not Applicable.
<PAGE>
19
PART III
Item 9. Directors and Executive Officers
The Directors and Executive Officers of the Company and its subsidiaries
are as follows:
Name Age Position
Herbert Kurinsky 66 Director, President and Chief Executive
Officer of FMFC and of FMSC and
Registered Options Principal of FMSC
William J. Kurinsky 37 Director, Vice President, Chief
Operating and Chief Financial Officer
and Secretary of FMFC and of FMSC and
Financial/Operations Principal of FMSC
Brian M. Cohen 39 Vice President and General and
Municipal Securities Principal of FMSC
Edward L. Bayarski 46 President, MISI
Norma Doxey 57 Director
Ward R. Jones, Jr. 66 Director
David I. Portman 56 Director
- - ----------------------
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
director 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. "Cause" is defined as the willful failure of a
director to perform in any substantial respect such Director's duties to the
Corporation (other than any such failure resulting from incapacity due to
physical or mental illness), willful malfeasance by a Director in the
performance of his duties to the Corporation which is materially and
demonstrably injurious to the Corporation, the commission by a Director of an
act of fraud in the performance of his duties, the conviction of a Director for
a felony punishable by confinement for a period in excess of one year, or the
ineligibility of a Director for continuation in office under any applicable
rules, regulations or orders of any federal or state regulatory authority.
All officers serve at the discretion of the Board of Directors. No family
relationship exists between any officer or director except for Mr. Herbert
Kurinsky who is the uncle of Mr. William J. Kurinsky; and Mr. Brian M. Cohen who
is a cousin of both Messrs. Kurinsky.
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 Inc., a securities broker-dealer. Mr. Kurinsky
received a B.S. degree in economics from the University of Miami, Florida in
1954.
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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 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.
Brian M. Cohen is a General Securities and Municipal Securities Principal,
of FMSC from August, 1986, to present. He is the manager of the fixed-income and
government securities department of FMSC. From August, 1984, to August, 1986, he
was a vice president and registered representative with Homestead Securities,
Inc. Mr. Cohen is a cousin to Mr. Herbert Kurinsky and Mr. William Kurinsky.
Edward L. Bayarski is President of Montauk Insurance Services, Inc. from
June, 1995 to the present. From April, 1993 to June, 1995, he was an investment
planner with New England Securities in Fairfield, New Jersey. From October, 1984
to April, 1993 Mr. Bayarski was an insurance specialist with Merrill Lynch in
Paramus, New Jersey. Mr. Bayarski received a B.A. degree in Economics in 1972
from Seton Hall University, Newark, New Jersey and obtained a Chartered Life
Underwriter designation in 1978.
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. on a part-time basis.
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. See "Certain
Relationships and Related Transactions."
Certain Reports
No person who, during the fiscal year ended December 31, 1996, 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 or prior years. 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.
<PAGE>
21
Item 10. 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-B) compensation awarded
to, earned by, paid or accrued by the Company during the years ended December
31, 1996, 1995 and 1994 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(1)
- - -------- ---- ------ ----- ------------ ----------
Herbert Kurinsky 1996 $175,000 $40,000.00 $41,069.74(2) 0
Chairman, Chief 1995 $101,000 90,000.00 $ 8,594.28(2) 200,000
Executive Officer(3)1994 $110,000 - $19,683.80(2) 40,000
William J. Kurinsky 1996 $175,000 0 $ 11,884.27(4) 0
Vice President, 1995 $121,000 $90,000.00 $ 39,409.36(4) 200,000
Chief Operating and 1994 $110,000 - $ 16,771.87(4) 40,000
Financial Officer
and Secretary (5)
Brian M. Cohen 1996 $100,000 0 $17,385.18(6) 0
Vice President and 1995 $87,115.44$15,000.00 $ 6,365.00(6) 5,000
Gen'l Securities 1994 $75,000.02$ 721.16 $23,824.36(6) 20,000
Principal, FMSC
Edward L. Bayarski 1996 $87,307.74$ 7,255.78 $38,061.02 60,000(7)
President, MISI 1995 $33,653.92$ 9,000.00 $ 8,639.08 40,000
- - ----------------
1) In 1994 the Board of Directors authorized a grant to purchase 40,000 shares
of the Company's Common Stock to each of Messrs. Herbert and William J.
Kurinsky, at exercise prices of $.75 and $.82, respectively. These options
have vested and are exercisable until December 19, 1999. In 1995, the Board
of Directors authorized an additional Grant to purchase 200,000 shares of
the Company's Common Stock each to Herbert Kurinsky and William J. Kurinsky
at an exercise price of $.75 and $.8352 respectively. Mr. Cohen was granted
an option to purchase 5,000 shares at $.75. These options have vested and
are exercisable until November 5, 2000 for Messrs. Kurinsky, and until
December 14, 2000 for Mr. Cohen. See "Aggregated Options/Sar Exercises in
Last Fiscal Year and Fy-End Option/Sar Values."
2) Includes: (i) for 1996, an automobile allowance of $7,511.88,
commissions of $10,511.89, dues of $7,440.00 and loan forgiveness of
$15,605.97; (ii) for 1995, an automobile allowance of $8,594.28, (iii) for
1994, commissions of $11,089.52 and an automobile allowance of $8,594.28.
3) Mr. Herbert Kurinsky is the beneficial owner of 21,518 shares of the
Company's Common Stock as of December 31, 1996, which shares had a market
value of approximately $20,657 as of that date, without giving effect to
the diminution in value attributable to the restriction on said shares.
4) Includes: (i) loan forgiveness in the amount of $11,884.27; (ii)
commissions of $39,409.36 and $16,771.87 for the years ended
December 31, 1995 and 1994, respectively. Does not include the value of
an automobile purchased by the Company for the exclusive use by Mr. William
Kurinsky, with an annualized lease value of $5,100 as provided by the IRS.
5) Mr. William Kurinsky is the beneficial owner of 1,073,423 shares of the
Company's Common Stock as of December 31, 1996, which shares had a market
value of approximately $1,030,486 as of that date, without giving effect to
the diminution in value attributable to the restriction on said shares.
6) Includes: (i) commissions of $7,578.18, and automobile allowance of
$4,650.00 and loan forgiveness of $5,157.00 for 1996; (ii) commissions
of $2,045.00 and an automobile allowance of $4,320 for 1995; (iii)
commissions of $19,624.36 and an automobile allowance of $4,200 for 1994.
<PAGE>
22
7) Includes: (i) commissions of $38,061.02 for 1996; (ii) includes
commissions of $8,639.08 for 1995.
Compensation of Directors
The Company pays directors, who are not employees of the Company, a
retainer of $250 per meeting of the Board of Directors attended and for each
meeting of a committee of the Board of Directors not held in conjunction with a
Board of Directors meeting. Directors employed by the Company are not entitled
to any additional compensation as such. During fiscal year 1996, the Board of
Directors met on 3 occasions and acted by written consent on 2 occasions.
Committees of the Board of Directors
The Board of Directors has established an Audit Committee comprised of
William J. Kurinsky, Ward R. Jones, Jr., and David Portman. The Audit Committee
met on 1 occasion during fiscal year 1996. The Audit Committee reviews (i) the
Company's audit functions, (ii) with management, the finances, financial
condition, and interim financial statements of the Company, and (iii) with the
Company's independent auditors, the year end financial statements of the
Company. Members of the Audit Committee do not receive additional compensation
for such service.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table contains information with respect to the named
executive officers concerning options held as of the year ended December 31,
1996.
INDIVIDUAL GRANTS
Number of % of Total
Underlying Granted to Exercise
Options/SARs Employees in or Base
Name Granted(#) Fiscal Year Price ($Sh) Expiration Date
---- ------------ ----------- ----------- ---------------
Edward L. Bayarski 60,000 50% $1.02 10/29/01
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Value of
Shares Number of Unexercised
Acquired Unexercised In-the-money
on Value Options as of Options at
Name Exercise Realized December 31,1996 December 31,1996(1)
---- -------- -------- ---------------- -------------------
Exercisable/Unexer. Exercisable/Unexer.
Herbert Kurinsky - - 440,000/0 $130,400/$0
William J. Kurinsky - - 440,00 /0 $ 98,560/$0
Brian M. Cohen - - 100,000/0 $ 34,000/$0
Edward L. Bayarski - - 28,000/72,000 $ 7,360/$11,040
(1) Based upon the closing bid price of the Company's Common Stock on
December 31, 1996 ($.96 per share), less the exercise price for the
aggregate number of shares subject to the options.
<PAGE>
23
Employment Agreements
In January 1996, 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 $175,000
for the first year of the agreement for each, increasing in each case at the
rate of 10% per year. Each would 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 up to 20% of all underwriters
and/or placement agent warrants or options which are granted to First Montauk
Securities Corp. from FMSC upon the same price, terms and conditions afforded to
FMSC as the underwriter or placement agent. Each is further to be furnished,
during the term of his agreement, with 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 agreement.
Incentive Stock Option Plan
In September 1992, the Company adopted the 1992 Incentive Stock Option
Plan (the "1992 Plan"). The 1992 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
shareholders approved an amendment to the 1992 Plan (the "Amended Plan") to
increase the number of shares reserved for issuance from 2,000,000 to 3,500,000.
Under the terms of the Amended 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 Amended 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 Amended Plan
and to establish and amend rules and regulations relating thereto.
Under the Amended 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 Amended Plan will expire in 2006. To date, options to purchase a
total of 2,331,500 shares of the Company's Common Stock have been issued under
the 1992 Plan and the Amended Plan.
<PAGE>
24
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 (i) non-executive directors as defined and (ii) members of any
advisory board established by the Company who are not full time employees of the
Company or any of its subsidiaries. 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.
In June 1996, the Company's shareholders approved an amendment to the
Non-Executive Director Stock Option Plan to provide for the elimination of
non-discretionary stock grants to members of any advisory board established by
the Company. An eligible member of an advisory board may receive an option to
purchase shares of the Company's Common Stock under the Director Plan as
provided for in the discretion of the Company's Board of Directors.
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 or advisory board member 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. To
date, a total of 220,000 options have been granted to the Company's
Non-Executive members of the Board of Directors, and 2,500 options have been
granted to each of eight members of the Company's Advisory Board. 1996 Senior
Management Incentive Stock Option Plan
Senior Management Plan
In 1996 the Board of Directors and shareholders of the Corporation
adopted an equity-based incentive plan for its senior manager employees, the
1996 Senior Management Incentive Plan (the "1996 Senior Management Plan"). Only
senior managers of the Corporation are eligible to participate in the 1996
Senior Management Plan. The Board of Directors believes that equity-based
incentive compensation plays a critical role in retaining and attracting
motivated senior managers. The 1996 Senior Management Plan provides for the
issuance of up to 2,000,000 shares of the Corporation's Common Stock in
connection with the issuance of stock options and other stock purchase rights to
senior managers rendering services to the Corporation. The Plan provides for
four types of awards: stock options, incentive stock rights, stock appreciation
rights and restricted stock purchase agreements (collectively, the "Awards"),
all as described below.
The 1996 Senior Management Plan is intended to attract and retain key
personnel whose performance is expected to have a positive effect on the
Corporation's profits and growth potential by encouraging and assisting those
persons to acquire equity in the Corporation. Directors who are not otherwise
employed by the Corporation and non-senior manager employees are not eligible
<PAGE>
25
for participation in the 1996 Senior Management Plan. Unless sooner terminated,
the 1996 Senior Management Plan will expire on June 28, 2006 and Awards may be
granted at any time or from time to time through such date.
The 1996 Senior Management Plan is administered by the Compensation
Committee of the Board of Directors (the "1996 Senior Management Plan
Administrator"). The 1996 Senior Management Plan Administrator has the
discretion to determine the eligible senior managers to whom Awards will be
granted; the type and the prices at which Awards will be granted; the periods
during which each Award will be granted; and the number of shares subject to
each Award. The 1996 Senior Management Plan Administrator has full authority to
interpret the plan and to establish and amend rules and regulations relating
thereto.
Except as described below, the 1996 Senior Management Plan
Administrator may from time to time amend the 1996 Senior Management Plan as it
deems proper and in the best interests of the Corporation without further
approval of the shareholders.
The Board of Directors and the 1996 Senior Management Plan
Administrator may not amend certain features of the 1996 Senior Management Plan
without the approval of the Corporation's shareholders to the extent such
approval is required for compliance with Section 422 of the Code with respect to
ISO's, Section 162(m) of the Code with respect to Non-ISO's or Rule 16b-3
promulgated under Section 16 of the Exchange Act with respect to Awards made to
individuals subject to Section 16 of the Exchange Act. Such amendments would
include: (a) increasing the maximum number of shares of Common Stock that may be
issued under the 1996 Senior Management Plan; (b) extending the duration of the
1996 Senior Management Plan; (c) modifying the requirements as to eligibility
for participation in the 1996 Senior Management Plan; or (d) otherwise
increasing the benefits accruing to participants under the 1996 Senior
Management Plan.
Each of the types of Awards that may be granted under the 1996 Senior
Management Plan is discussed below.
Stock Options.
Under the terms of the 1996 Senior 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 1996 Senior 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 Corporation's
Common Stock, the low bid as reported by the National Quotation Bureau, Inc., or
a market make of the Corporation'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 1996 Senior Management Plan for such
periods as determined by the 1996 Senior Management Plan Administrator; provided
however that no option designated as an ISO granted under the 1996 Senior
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
<PAGE>
26
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 1996 Senior 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
Corporation, 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
Corporation. If the services of the senior manager with the Corporation
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.
Stock Appreciation Rights ("SARs").
SARs may be granted to recipients of options under the 1996 Senior
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
Corporation of a consolidation or merger in which the Corporation is not the
surviving corporation, the sale of all or substantially all the assets of the
Corporation, or the liquidation or dissolution of the Corporation; (ii) the
commencement of a tender or exchange offer for the Corporation'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 Corporation or any employee benefit plan sponsored by the
Corporation) of securities of the Corporation representing 25% or more of the
voting power of the Corporation'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.
<PAGE>
27
Restricted Stock Purchase Agreements. Restricted stock purchase
agreements provide for the sale by the Corporation 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 Corporation 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 Corporation. 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.
<PAGE>
28
Item 11. Security Ownership of Certain
Beneficial Owners and Management
--------------------------------
The following table sets forth, as of April 8, 1997, the number and
percentage of outstanding shares of Common Stock beneficially owned by each
person known by the Company to own beneficially more than 5% of the Company's
outstanding shares of Common Stock, by each director of the Company, and by all
directors and officers of the Company as a group.
Directors, Officers Amount and Percentage
and 5% Shareholders (1) of Beneficial Ownership (1)
- - ----------------------- --------------------------
Number of Shares Percent
---------------- -------
Herbert Kurinsky 361,518(2) 3.9%
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701
William J. Kurinsky 1,368,423(3) 14.5%
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701
Brian M. Cohen 76,000(4) *
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701
Edward L. Bayarski 72,000(5) *
One Mack Centre Drive
Paramus, NJ 07652
Ward R. Jones 80,000(6) *
7 Leda Lane
Guilderland, NY 12084
Norma Doxey 35,000(7) *
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701
David I. Portman 100,000(8) 1.1%
19 Pal Drive
Wayside, NJ 07712
All Directors and 2,092,941(2-8) 21.2%
Officers as a group
(7 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 360,000 shares of Common Stock.
<PAGE>
29
(3) Includes vested and presently exercisable options of Mr. William J.
Kurinsky to purchase 515,000 shares of Common Stock.
(4) Includes 75,000 shares of Common Stock reserved for issuance upon the
exercise of vested and presently exercisable stock options.
(5) Includes 72,000 shares of Common Stock reserved for issuance upon the
exercise of 8,000 vested and presently exersiable stock options and 64,000
shares non-vested stock option.
(6) Includes 80,000 shares of Common Stock reserved for issuance upon the
exercise of vested and presently exercisable stock options.
(7) Includes 35,000 shares of Common Stock reserved for issuance upon the
exercise of vested and presently exercisable stock options.
(8) Includes 60,000 shares of Common Stock reserved for issuance upon the
exercise of vested and presently exercisable stock options.
Item 12. 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".
Advances and loans to the Company's three Executive Officers, Herbert
Kurinsky, William J. Kurinsky and Brian M. Cohen and Director Norma Doxey,
totaling $142,519 are unsecured and currently bear interest at the rate of 6%
per annum. These loans are due on demand. An additional loan of $13,005 to Mr.
Cohen is non-interest bearing and payable at the rate of $400 per month plus 10%
of any commissions earned.
The Company served as placement agent in a private placement offering
by Pacific Health Laboratories which commenced in August 1995 and was completed
in April 1996. Pacific Health sold 250,000 shares of 10% Convertible Preferred
Stock in the private placement at $10.00 per share. The Company received
commissions of approximately $250,000 from the private placement offering. Mr.
David Portman, a director of the Company, also serves as an officer and director
of Pacific Health, and is a significant stockholder of Pacific Health.
Additionally, in June 1996 the Company conducted a second private
placement on behalf of Pacific Health and received commissions and expenses of
approximately $116,000. The second offering consisted of the sale of 287,750
shares of Common Stock of Pacific Health.
In July 1995, the Company commenced a private placement on behalf of
Environmental Coupon Marketing, Inc. ("ECM") a closely-held marketer of
recycling programs to retailers featuring store coupons and cash incentives to
consumers. In anticipation of the offering, in August 1995, the Company loaned a
total of $282,000 to ECM. The first loan, in the amount of $100,000, bears
interest at the rate of 6% per annum and was scheduled to mature on the earlier
of a proposed private placement of ECM securities, or August 5, 1996. In August
1996, the Company extended repayment of the loan to July 15, 1997. The second
loan, in the original amount of $182,000, is non-interest bearing and may be
converted into up to 350,000 shares of ECM common stock at the rate of $.52 per
share. The Company sold $52,000 of principal amount of this loan to four
unaffiliated investors for face value in 1996. This loan was scheduled to mature
on October 5, 1996, at which time the Company extended it for one year to
October 5, 1997. Both loans are partially secured by certain equipment owned by
ECM.
<PAGE>
30
The Company also purchased 150,000 shares of ECM common stock for $.40 per
share, or $60,000 in 1995, and an additional 150,000 shares for $60,000 in 1996.
Subsequent to the 1996 purchase, the Company sold 37,500 and 52,500 shares,
respectively, to an officer of the Company and a consultant, for cost, or
$36,000. The Company believes that the selling price represented a fair value
for the shares.
<PAGE>
31
PART IV
Item 13. Exhibits, Financial Statements
and Reports on Form 8-K
------------------------------
(A) 1. Financial Statements
--------------------
See Financial Statements Attached Hereto.
2. Exhibits
--------
Incorporated by reference to the Exhibit Index at the end of this
report.
(B) Reports on Form 8-K
-------------------
During the last quarter of the period covered by this Report, there
were no reports filed on Form 8-K.
<PAGE>
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST MONTAUK FINANCIAL CORP.
By /s/ Herbert Kurinsky
--------------------
Herbert Kurinsky, President
Dated: April 14, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
- - ------------------------- April 14, 1997
Herbert Kurinsky
President, Chief Executive
Officer and Director
- - ------------------------- April 14, 1997
William J. Kurinsky
Vice-President, Chief Operating
and Chief Financial Officer, and
Principal Accounting Officer,
Secretary and Director
- - ------------------------- April 14, 1997
Norma Doxey, Director
- - ------------------------- April 14, 1997
Ward R. Jones, Jr., Director
- - ------------------------- April 14, 1997
David I. Portman, Director
<PAGE>
33
EXHIBITS INDEX
The exhibits designated with an asterisk (*) have previously been filed
with the Commission in connection with the Company's Registration Statement on
Form S-l, File No. 33-24696, those designated (**) have been filed with the
Company's Form 10-KSB for the fiscal year ended December 31, 1993, those
designated (***) have been previously filed with the Company's Registration
Statement on Form S-3, File No. 33-65770, and pursuant to 17 C.F.R. Sections
201.24 and 240.12b-32, are incorporated by reference to the document referenced
in brackets following the description of such exhibits. Those designated (****)
denotes exhibits which have been filed with the Company's Form 10-KSB for the
fiscal year ended December 31, 1994, and (*****) denotes exhibits filed
herewith. Those designated (******) denotes exhibits which have been filed with
the Company's Proxy Statement dated May 30, 1996.
Exhibit No. Description
3.1* Amended and Restated Certificate of Incorporation adopted at 1989
Special Meeting in lieu of Annual Meeting of Shareholders.
3.2* Amended and Restated By-Laws.
4.1* Form of Common Stock Certificate.
4.4* Form of Underwriter's Warrant.
10.7* Sublease between Prime Asset Management Corp. and the Registrant
dated December 6, 1989.
10.8* Clearing Agreement between the Registrant and Wertheim Schroder &
Co., Incorporated dated January 21, 1991.
10.10* Lease Agreement between the Registrant and Hovchild dated
May 25, 1990.
10.11*** Employment Agreement between First Montauk Financial Corp.
and Herbert Kurinsky dated January 1, 1993.
10.12*** Employment Agreement between First Montauk Financial Corp.
and William Kurinsky dated January 1, 1993.
10.13*** Lease Agreement between First Montauk Securities Corp.
and River Office Equities dated September 7, 1993.
10.14**** Lease Addendum Agreement between First Montauk Securities
Corp. and River Office Equities dated June 21, 1994.
10.15***** Sublease Agreement between First Montauk Securities Corp. and
Pilot Laboratories, Inc. dated September 19, 1995, and
Master Lease Agreement between River Office Equities
and Pilot Laboratories, Inc. dated August 31, 1987.
10.16***** Office Lease Agreement between First Montauk Securities
Corp. and River Office Equities dated January 31, 1996.
10.17 Office Lease Agreement between First Montauk Securities Corp.
and River Office Equities dated March 5, 1997.
11 Computation of Income Per Share
27 Financial Data Schedule
<PAGE>
34
28.1* 1992 Incentive Stock Option Plan.
28.2* 1992 Non-Executive Director Stock Option Plan.
28.3****** Amended and Restated 1992 Incentive Stock Option Plan.
28.4****** Non-Executive Director Stock Option Plan- Amended and Restated
June 28, 1996
28.5****** 1996 Senior Management Incentive Stock Option Plan.
28.6 Employment Agreement between First Montauk Financial Corp.
and Herbert Kurinsky dated January 1, 1996.
28.7 Employment Agreement between First Montauk Financial Corp.
and William Kurinsky dated January 1, 1996.
<PAGE>
35
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
First Montauk Financial Corp.
Red Bank, New Jersey
We have audited the accompanying consolidated statements of financial
condition of First Montauk Financial Corp. and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the years in the two-year
period ended December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Montauk Financial Corp. and subsidiaries as of December 31, 1996 and 1995, and
the results of its operations and its cash flows for each of the years in the
two-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
Schneider Ehrlich & Wengrover LLP
(successor to Schneider Ehrlich Sosinsky
Rodis & Wengrover LLP)
Woodbury, New York
March 10, 1997
<PAGE>
36
FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
1996 1995
---- ----
ASSETS
<S> <C> <C>
Cash ................................... $ 1,069,548 $ 845,471
Securities owned, at market ............ 2,129,435 7,114,507
Due from clearing firm ................. 1,301,457 --
Commissions receivable ................. 720,381 383,868
Employee and broker receivables ........ 741,603 357,525
Furniture, equipment and leasehold
improvements - net .................... 1,200,933 804,668
Notes receivable - ECM ................. 230,000 282,000
Due from officers ...................... 171,978 155,524
Other assets ........................... 624,536 174,231
Deferred tax asset ..................... 552,168 369,173
--------- ---------
Total assets ...................... $ 8,742,039 $10,486,967
--------- ----------
--------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Due to clearing firm ................... $ -- $ 2,306,032
Securities sold, but not yet
purchased, at market .................. 127,627 166,382
Notes payable - bank ................... 458,305 47,544
Commissions payable .................... 1,552,218 1,467,190
Accounts payable ....................... 494,697 389,312
Accrued expenses ....................... 1,811,897 1,392,115
Income taxes payable ................... -- 621,690
Other liabilities ...................... 180,516 495,756
--------- ---------
Total liabilities ................. 4,625,260 6,886,021
--------- ---------
Common stock issued with guaranteed selling price no par value, 210,500 shares
issued
and outstanding ....................... 421,500 --
--------- --------
Commitments and contingent liabilities
(See Notes)
STOCKHOLDERS' EQUITY
Preferred Stock, 5,000,000 shares
authorized, $.10 par value, no shares
issued and outstanding ................ -- --
Common Stock, no par value, 15,000,000
shares authorized, 8,222,481 and
7,920,106 shares issued and
outstanding, respectively ............. 3,588,273 3,320,012
Additional paid-in capital ............. 243,961 220,172
Retained earnings ...................... 93,551 60,762
--------- ---------
3,925,785 3,600,946
Less: 196,802 common shares in treasury,
at cost ............................... (230,506) --
--------- ---------
Total stockholders' equity ............ 3,695,279 3,600,946
--------- ---------
Total liabilities and stockholders'
equity ............................... $ 8,742,039 $10,486,967
--------- ----------
--------- ----------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
37
FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995
---- ----
Revenues:
<S> <C> <C>
Principal transactions $ 7,660,700 $ 9,763,940
Commissions 25,749,690 17,113,296
Investment banking 634,329 388,249
Interest and other income 1,044,969 1,076,718
--------- ---------
Total revenues 35,089,688 28,342,203
---------- ----------
---------- ----------
Expenses:
Commissions, employee compensation
and benefits 25,428,184 19,542,578
Clearing and floor brokerage 3,139,142 3,112,474
Communications and occupancy 1,662,936 1,260,209
Legal matters and related costs 2,731,997 1,542,328
Other operating expenses 2,006,615 1,439,926
Interest 105,772 192,752
---------- ----------
35,074,646 27,090,267
---------- ----------
Income before income taxes 15,042 1,251,936
Provision (benefit) for income taxes (17,747) 483,848
--------- ----------
Net income $ 32,789 $ 768,088
--------- ----------
--------- ----------
Per share of Common Stock:
Primary:
Net income $ .01 $ .09
--------- ----------
--------- ----------
Number of shares 8,623,538 8,422,365
--------- ----------
--------- ----------
Fully diluted:
Net income $ .09
----------
----------
Number of shares 8,901,331
----------
----------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
38
FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995
---- ----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
<S> <C> <C>
Net income $ 32,789 $ 768,088
Adjustments to reconcile net income --------- ----------
to net cash
provided by operating activities:
Shares issued to settle legal
claims 178,650 --
Common stock issued with
guaranteed selling price 421,500 --
Tax benefit related to exercise
of stock options 23,789 --
Depreciation and amortization 272,050 184,818
Commissions receivable (336,513) (250,901)
Securities owned - at market 4,985,072 (2,197,289)
Other assets (338,846) (34,863)
Due from/to clearing firm (3,607,489) 26,781
Securities sold but not yet
purchased (38,755) (288,600)
Commissions payable 85,028 714,994
Accounts payable 105,385 63,363
Accrued expenses 419,782 1,372,891
Income taxes payable (621,690) 615,636
Other liabilities (315,240) 334,345
Deferred income taxes (182,995) (309,778)
--------- ---------
Total adjustments 1,049,728 231,397
--------- ---------
Net cash provided by operating activities 1,082,517 999,485
--------- ---------
Cash flows from investing activities:
Due from officers (16,454) (4,370)
Employee and broker receivables (384,078) 156,742
Capital expenditures (668,314) (435,539)
Proceeds from the sale of notes
receivable - ECM 52,000 (276,000)
Purchase of stock in ECM (60,000) --
Sale of stock in ECM 36,000 --
Other assets (87,460) (60,000)
--------- ---------
Net cash used in investing activities (1,128,306) (619,167)
--------- ---------
Cash flows from financing activities:
Proceeds from notes payable
- bank 479,625 --
Payment of notes payable - bank (68,864) (25,934)
Stock registration costs -- (2,814)
Proceeds from exercise of
stock options 89,611 13,985
Repurchase of common stock (230,506) (194,035)
Net cash provided by (used in) financing --------- ---------
activities 269,866 (208,798)
--------- ---------
Net increase in cash and cash equivalents 224,077 171,520
Cash at beginning of year 845,471 673,951
--------- ---------
Cash at end of year $ 1,069,548 $ 845,471
--------- --------
--------- --------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
39
FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 105,772 $ 192,752
Income taxes $1,019,242 $ 149,722
Supplemental schedule of non-cash financing activities:
Shares issued to settle legal claims $ 178,650 Common stock issued with
guaranteed
selling price $ 421,500
Tax benefit related to exercise of
stock options $ 23,789
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST MONTAUK FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1995 TO DECEMBER 31, 1996
Additional
Common Stock Paid-in Retained Treasury Stock Stockholders'
Shares Amount Capital Earnings Shares Amount Equity
<S> <C> <C> <C> <C>
Balances at January 1, 1995 8,112,406 $3,306,027 $ 417,021 $(707,326) -- -- $3,015,722
Exercise of stock options 23,500 13,985 -- -- -- -- 13,985
Stock registration costs -- -- (2,814) -- -- -- (2,814)
Repurchase of common stock (215,800) -- (194,035) -- -- -- (194,035)
Net income for the year -- -- -- 768,088 -- -- 768,088
------- ------ --------- ------- ----- -------- ---------
Balances at December 31,
1995 7,920,106 3,320,012 220,172 60,762 -- -- 3,600,946
Exercise of stock options 137,375 89,611 -- -- -- -- 89,611
Tax benefit related to
exercise of stock options -- -- 23,789 -- -- -- 23,789
Repurchase of common stock -- -- -- -- (196,802) $(230,506) (230,506)
Shares issued to settle legal
claims 165,000 178,650 -- -- -- -- 178,650
Net income for the year -- -- -- 32,789 -- -- 32,789
------- ------- --------- ------ --------- ---------- --------
Balances at December 31,
1996 8,222,481 $3,588,273 $243,961 $ 93,551 (196,802) $(230,506) $3,695,279
--------- --------- ------- ------- ------- -------- ---------
--------- --------- ------- ------- ------- -------- ---------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
40
NOTE 1 - NATURE OF BUSINESS
First Montauk Financial Corp. and subsidiaries (the "Company") are
primarily engaged in securities brokerage, investment banking and trading. The
Company's principal subsidiary, First Montauk Securities Corp. ("FMSC"), is a
broker-dealer registered with the Securities and Exchange Commission. Through
FMSC, the Company executes principal and agency transactions, makes markets in
over-the-counter securities, and performs underwriting and investment banking
services. Customers are located throughout the United States.
The Company clears all customer transactions on a fully disclosed basis
through an independent clearing firm. Accordingly, the Company does not carry
securities accounts for customers nor does it perform custodial functions
related to those securities.
The Company also sells insurance products and investments in equipment
leases, respectively, through two other subsidiaries, Montauk Insurance
Services, Inc. and Montauk Advisors, Inc.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All intercompany accounts and transactions are eliminated
in consolidation.
Certain reclassifications have been made to prior year financial statements
to conform to the 1996 presentation.
Revenue Recognition
Securities transactions, investment banking revenues, and commission income
and related expenses are recorded on a trade date basis. Securities owned and
securities sold but not yet repurchased are stated at quoted market values with
unrealized gains and losses reflected in the Statement of Operations.
Commissions earned from the sale of insurance products are recognized upon
approval of the customer application by the insurance carrier.
Depreciation and Amortization
Furniture and equipment and leasehold improvements are stated at cost.
Depreciation is computed generally on a straight-line basis over the estimated
useful lives of the assets, ranging from three to seven years. Leasehold
improvements are amortized over the shorter of either the asset's useful life or
the related lease term. Depreciation is computed on the modified accelerated
cost recovery system (MACRS) for income tax purposes.
Income Taxes
The Company uses the liability method to determine its income tax expense
as required under the Statement of Financial Accounting Standards No. 109 (SFAS
109). Under SFAS 109, deferred tax assets and liabilities are computed based on
differences between financial reporting and tax basis of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance if, based on the
weight of the available evidence, it is more likely than not that all or some
portion of the deferred tax assets will not be realized. The ultimate
realization of the deferred tax asset depends on the Company's ability to
generate sufficient taxable income in the future.
The Company and its subsidiaries file a consolidated federal income tax
return and separate state returns.
Statement of Cash Flows
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
<PAGE>
41
Earnings per Share
The computations of earnings per share were computed using the weighted
average number of shares outstanding, adjusted for the incremental shares
attributable to outstanding options to purchase common stock, as determined
under the treasury stock method. The difference between primary and fully
diluted earnings per share in 1996 is not material.
Use of Estimates
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 year.
Actual results could differ from those estimates.
Long-lived assets
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", the Company
records impairment losses on long-lived assets used in operations, when events
and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts of those assets.
Recent Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-based Compensation". SFAS No. 123 is effective for
fiscal years beginning after December 15, 1995, and requires that the Company
either recognize in its financial statements costs related to its employee
stock-based compensation plans, such as stock option and stock purchase plans,
or make pro forma disclosures of such costs in a footnote to the financial
statements. The Company has elected to continue to use the intrinsic value-based
method of APB Opinion no. 25, as allowed under SFAS 123, to account for all of
its employee stock-based compensation plans. The adoption of SFAS No. 123 did
not have a material effect on the Company's financial position or results of
operations.
NOTE 3 - SECURITIES OWNED and SECURITIES SOLD, BUT NOT YET PURCHASED
Marketable securities owned and sold but not yet purchased consist of
trading securities stated at quoted market values, as indicated below:
December 31,
1996 1995
---- ----
Sold but Sold but
not yet not yet
Owned Purchased Owned Purchased
----- --------- ----- ---------
Obligations of U. S.
government and its
agencies $ 29,647 $ -- $ 163,444 $ 18,467
State and municipal
obligations 203,428 20,735 3,574,616 44,854
Corporate stocks and
bonds 1,896,360 105,736 3,242,516 103,061
Options and warrants -- 1,156 133,931 --
--------- ------- --------- -------
$2,129,435 $127,627 $7,114,507 $166,382
--------- ------- --------- -------
--------- ------- --------- -------
<PAGE>
42
EMPLOYEE AND BROKER RECEIVABLES
This account consists of the following:
December 31,
1996 1995
---- ----
Commission advances $ 99,172 $ 74,388
Loans to brokers and
non-executive employees 642,431 283,137
------- -------
$741,603 $357,525
------- -------
------- -------
Receivables are generally non-interest bearing and due on demand, except
for an $84,000 loan which is due by July 31, 1997 with interest at the rate of
6% per annum. Loans totalling approximately $65,000 at December 31, 1996 are
secured by collateral; the balance is unsecured.
NOTE 5 - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consist of the following:
December 31,
1996 1995
---- ----
Furniture and fixtures $ 615,683 $ 365,864
Computer and office equipment 1,030,521 646,033
Leasehold improvements 163,368 129,360
--------- ---------
1,809,572 1,141,257
Less: Accumulated depreciation
and amortization (608,639) (336,589)
--------- ---------
$1,200,933 $ 804,668
--------- ---------
--------- ---------
Depreciation expense was $272,050 and $184,818 in 1996 and 1995,
respectively.
NOTE 6 - NOTES RECEIVABLE - ECM
In 1995, the Company loaned a total of $282,000 to Environmental Coupon
Marketing, Inc. ("ECM"), a closely-held marketer of recycling programs to
retailers featuring store coupons and cash incentives to consumers. The first
loan, in the amount of $100,000, bears interest at the rate of 6% per annum and
was scheduled to mature on the earlier of a proposed private placement of ECM
securities, or August 5, 1996. In August 1996, the Company extended repayment of
the loan to July 15, 1997. The second loan, in the original amount of $182,000,
is non-interest bearing and may be converted into up to 350,000 shares of ECM
common stock at the rate of $.52 per share. The Company sold $52,000 of
principal amount of this loan to four unaffiliated investors for face value in
1996. This loan was scheduled to mature on October 5, 1996, at which time the
Company extended it for one year to October 5, 1997. Both loans are partially
secured by certain equipment owned by ECM.
The Company also purchased 150,000 shares of ECM common stock for $.40 per
share, or $60,000 in 1995, and an additional 150,000 shares for $60,000 in 1996.
Subsequent to the 1996 purchase, the Company sold 37,500 and 52,500 shares,
respectively, to an officer of the Company and a consultant, for cost, or
$36,000. The Company believes that the selling price represented a fair value
for the shares. The net investment in ECM stock of $84,000 and $60,000 in 1996
and 1995, respectively, is included in Other Assets in the accompanying
Consolidated Statement of Financial Condition.
NOTE 7 - DUE FROM OFFICERS
Advances to officers are unsecured and currently bear interest at the rate
of 6% per annum. These loans are due on demand. Interest on these loans totalled
$9,428 and $6,127 in 1996 and 1995, respectively.
NOTE 8 - NOTES PAYABLE - BANK
This account represents borrowings due under secured bank loan agreements.
The financings are evidenced by three term loans: the first loan, obtained in
1994 in the original amount of $77,800, is payable in 36 monthly principal
installments of $2,161 plus interest at the prime rate (8-1/4% at December 31,
1996). The other two loans, obtained in 1996 in the original amounts of $179,625
and $300,000, are each payable in 60 monthly principal installments of $2,994
and $5,000, respectively, plus interest at the prime rate. The loans are
collateralized by equipment with a book value at December 31, 1996 of
approximately $460,000. Principal maturities are scheduled as follows: 1997 -
$117,536, 1998 - $95,925, 1999 - $95,925, 2000 - $95,925, and 2001 - $52,994.
NOTE 9 - ACCRUED EXPENSES
<TABLE>
<CAPTION>
Accrued expenses consist of the following:
<S> <C> <C>
December 31,
1996 1995
---- ----
Reserves for legal matters $1,573,000 $1,223,225
Other 238,897 168,890
--------- ---------
$1,811,897 $1,392,115
--------- ---------
--------- ---------
</TABLE>
<PAGE>
43
NOTE 10 - INCOME TAXES
<TABLE>
<CAPTION>
The provision (benefit) for income taxes consists of the
following:
<S> <C> <C>
December 31,
1996 1995
---- ----
Currently payable:
Federal $132,069 $620,196
State 31,750 181,315
------- -------
163,819 801,511
------- -------
------- -------
Deferred:
Federal (198,875) (213,867)
State (6,480) (75,147)
Tax expense resulting from
allocation directly to
permanent capital of tax
benefit from exercise of
stock option 23,789 --
Tax benefit of net operating loss
carry forward -- (28,649)
------- -------
(181,566) (317,663)
------- -------
$ (17,747) $ 483,848
------- -------
------- -------
Following is a reconciliation of the income tax provision
(benefit) with income taxes based on federal statutory rates:
December 31,
1996 1995
---- ----
<S> <C> <C>
Expected statutory federal
income tax rate $ 2,256 $425,658
Non-taxable income (5,457) --
Non-deductible expenses 4,576 10,200
State taxes, net of federal tax
benefit 21,489 76,639
Tax benefit of deferred tax
assets (40,611) --
Tax benefit of net operating
loss carryforward -- (28,649)
------- -------
$(17,747) $483,848
------- -------
------- -------
The tax effects of the temporary differences that give rise to
significant portions of the deferred tax assets and liabilities
as of December 31, 1996 and 1995 are:
December 31,
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Accrued reserves $576,705 $342,881
Net operating loss 34,511 71,987
Other 19,529 17,200
------- -------
630,745 432,068
------- -------
Deferred tax liabilities:
Depreciation 56,563 36,652
Other 22,014 26,243
------- -------
78,577 62,895
------- -------
Net deferred tax asset $552,168 $369,173
------- -------
</TABLE>
<PAGE>
44
Management has determined that the Company will be able to realize the tax
benefits of the net deferred asset based on the expected future reversal of the
taxable temporary differences.
NOTE 11 - COMMITMENTS AND CONTINGENT LIABILITIES
Leases
The Company leases office facilities and equipment under operating leases
expiring at various dates through 2005. Following is a schedule of future
minimum payments due under non-cancelable leases with terms in excess of one
year:
<TABLE>
<S> <C>
1997 $ 330,759
1998 432,970
1999 434,222
2000 433,844
2001 433,844
Thereafter 1,735,376
---------
$3,801,015
---------
---------
</TABLE>
Rent expense for the years ended December 31, 1996 and 1995 totalled
$245,208 and $225,683, respectively.
Employment agreements
Effective January 1, 1996, FMFC approved new employment contracts for two
of its officers who are also officers of the Company. The contracts will run for
three years, and provide for annual salaries of $175,000 for the first year,
with a provision for a 10% annual increase in the second and third years. The
agreement also provides for a bonus pool of up to 10% of the consolidated
pre-tax profits of FMFC. The bonus pool becomes effective each year only upon
the achievement of pre-tax profits exceeding $500,000.
Legal matters
In 1995, FMSC was named as a defendant in a civil suit brought by Escambia
County, Florida ("Escambia") for alleged losses sustained on certain securities
purchased from a former affiliate office of the Company. In March 1996, without
admitting liability or wrongdoing, FMSC reached an agreement with Escambia to
settle the Escambia claims for $900,000 in cash. The settlement was paid in
1996.
FMSC has been the subject of other legal actions relating to the sale of
securities by the former affiliate office. In January 1997, the Company entered
into an agreement to settle a customer lawsuit for a total of $750,000. A
payment of $500,000 was made upon settlement; FMSC is expected to issue a
five-year note for the $250,000 balance, payable in installments of $50,000 per
year plus interest at the rate of 8% per annum. FMSC is also expected to enter
into an Offer of Settlement with the Securities and Exchange Commission over the
activities of the affiliate office. The settlement will likely involve the
payment of a $50,000 fine, the disgorgement of profits amounting to $175,000
plus interest, and the censure and suspension of one of the Company's
principals. The SEC has informally agreed to credit the disgorgement against
<PAGE>
45
amounts already due in settlement of related civil litigation. The Offer also
requires FMSC to engage an independent compliance examiner to audit the firm's
compliance procedures. FMSC has agreed to implement recommendations contained in
the examiner's report. The Company has been cooperating with ongoing
investigations of the registered representatives of the affiliate office by the
SEC and other regulatory authorities.
In January 1997, the Company and FMSC settled a pending customer
arbitration for $500,000 in cash. The Company further agreed to issue to the
customer and her counsel a total of 150,000 five-year warrants to purchase the
Company's Common Stock for $1.25 per share. Two of the Company's officers have
agreed to guarantee a minimum selling price of $1.917 per share with respect to
the shares underlying the warrants. Any differential between the minimum selling
price of $1.917 per share and the warrant exercise price of $1.25 per share will
be paid to the warrantholders out of a $100,000 escrow account established with
personal funds of the officers to secure the guarantee. The warrantholders will
have 60 days in which to exercise the warrants and sell the shares, commencing
from the date the warrantholders are notified that a registration statement
filed to register the shares has been declared effective by the SEC. The Company
is required to file the registration statement no later than June 10, 1997. The
officers will not be obligated to pay the differential with respect to any
unexercised warrants and/or unsold shares at the expiration of the 60 day period
unless the quoted market price for the Company's common stock is below $1.25 for
the entire period. In such an event, the warrantholders will be entitled to
tender the warrants to the Company in exchange for the escrowed funds.
The Company is also a respondent in certain pending customer arbitrations
and other matters relating to its securities business. These claims are in
various stages of progress and are being vigorously contested by the Company.
Management is unable to derive a meaningful estimate of the amount or range of
possible loss relating to pending litigation (including litigation costs) in any
particular quarterly or annual period or in the aggregate. However, it is
possible that the financial condition, results of operations or cash flows of
the Company in particular quarterly or annual periods could be materially
affected by the ultimate outcome of certain pending litigation.
The Company is presently reviewing the extent to which settled and pending
claims may be covered under its insurance policies. In January 1997, the Company
negotiated a $650,000 settlement with one of its insurance carriers in
consideration of a general release from coverage on various matters. Discussions
with other carriers are continuing. There can be no assurance that the Company
will be successful in its efforts to recover additional funds from its insurers
on claims filed to date.
NOTE 12 - CONCENTRATION OF CREDIT RISK and OFF-BALANCE SHEET RISK
The Company executes securities transactions on behalf of its customers. If
either the customer or a counter-party fail to perform, the Company by agreement
with its clearing broker may be required to discharge the obligations of the
non-performing party. In such circumstances, the Company may sustain a loss if
the market value of the security is different from the contract value of the
transaction. As part of its normal brokerage activities, FMSC also assumes short
positions in its inventory. The establishment of short positions exposes FMSC to
off-balance-sheet risk in the event prices increase, as FMSC may be obligated to
acquire the securities at prevailing market prices.
FMSC seeks to control off-balance-sheet risk by monitoring the market value
of securities held or given as collateral in compliance with regulatory and
internal guidelines. Pursuant to such guidelines, FMSC's clearing firm requires
additional collateral or reduction of positions, when necessary. FMSC also
completes credit evaluations where there is thought to be credit risk.
<PAGE>
46
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and securities
inventories. The Company places its cash primarily in commercial checking
accounts. Balances may from time to time exceed federally insured limits. Cash
and inventory balances maintained at FMSC's clearing firm are uninsured.
NOTE 13 - DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution pension plan [401(k)] covering
all participating employees. The Company may elect to contribute up to 100% of
each participant's annual contribution to the plan. Employer contributions for
the years ended December 31, 1996 and 1995 amounted to $44,400 and $36,122,
respectively.
NOTE 14 - COMMON STOCK ISSUED WITH GUARANTEED SELLING PRICE
During fiscal 1996, the Company issued 421,500 restricted shares of its
Common Stock in settlement of various customer claims and invoices for legal
services. With respect to these shares, the Company has provided a guarantee to
pay to the selling stockholder the difference between $2.00 per share and the
selling price of the shares upon expiration of the statutory holding period. The
stockholders may elect to retain the shares once the holding period lapses. Such
an election will release the Company from any further obligation.
The Company has established a temporary equity account to record its
maximum liability with respect to the shares ($421,500). Payment of any
shortfall will be charged to this account. Any balance remaining at the end of
the respective holding periods will be credited to permanent capital. The
Company has placed a total of $70,000 into escrow accounts to secure some of the
guarantees.
NOTE 15 - STOCK OPTION PLANS
The Company currently has three option plans in place: The 1992 Incentive
Stock Option Plan (the "1992 Plan"), the 1992 Non-Executive Director Stock
Option Plan (the "Director Plan"), and the 1996 Senior Management Incentive Plan
(the "1996 Plan").
In June 1996, the Company's stockholders approved an amendment to the 1992
Plan to increase the number of shares reserved for issuance from 2,000,000 to
3,500,000 shares. Under the 1992 Plan, options may be granted to employees,
consultants and registered representatives of the Company, but only options
issued to employees will qualify for incentive stock option treatment (ISOs).
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 of grant. However, ISOs
granted to a ten percent stockholder shall have an exercise price of at least
110% of such fair market value. At the time an option is granted, the Board of
Directors shall fix the period within which it may be exercised. Such exercise
period shall not be less than one year nor more than ten years from the date of
grant. The 1992 plan will expire in May 2002.
The Company has reserved 1,000,000 shares of its Common Stock for issuance
under the Director Plan. Options to purchase 20,000 shares of Common Stock are
granted to each Non-Executive Director on August 1 of each year, provided such
individual has continually served as a Non-Executive Director for the
twelve-month period immediately preceding the date of grant. The options will
expire in five years from the date of grant. The exercise price of such options
<PAGE>
47
shall be equal to the fair market value of the Company's Common Stock on the
date of grant. The Director Plan will terminate in May 2002. In June 1996 the
Company's stockholders approved an amendment to the Director Plan to eliminate
non-discretionary grants to members of advisory boards established by the board
of directors.
In 1996, the Company's stockholders also ratified the 1996 Plan. The
Company has reserved 2,000,000 shares for issuance to key management employees.
Awards can be granted through the issuance of incentive stock rights, stock
options, stock appreciation rights, limited stock appreciation rights, and
shares of restricted Common Stock. The exercise price of an option designated as
an ISO shall in no event be less than 100% of the then fair market price of the
stock (110% with respect to ten percent stockholders), and not less than 85% of
the fair market price in the case of other options. No awards have been issued
under this plan as of December 31, 1996. The 1996 Plan will terminate in June
2006.
A summary of the status of the Company's two stock option plans as of
December 31, 1996 and 1995 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1992 Incentive Stock 1992 Non-Executive
Option Plan Director Plan
----------- -------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Options outstanding,
January 1, 1995 1,191,500 $0.72 140,000 $0.94
Granted 823,500 0.82 40,000 0.88
Canceled (54,000) 2.49 --
Exercised (23,500) 0.60 --
--------- -------
Options outstanding,
December 31, 1995 1,937,500 0.72 180,000 0.92
Granted 239,000 0.88 40,000 1.33
Canceled (123,000) 0.87 --
Exercised (117,375) 0.68 (20,000) 0.50
--------- -------
Options outstanding,
December 31, 1996 1,936,125 0.73 200,000 1.05
--------- ---- ------- ----
--------- ---- ------- ----
<PAGE>
48
Additional information for 1996 with respect to options under the 1992 Plan
and the Director Plan is as follows:
1992 Director
Plan Plan
---- ----
Option price range at end of year $.56-1.69 $.50-1.75
Options exercisable at end of year 1,280,625 112,000
Shares of common stock available
for future grant 1,623,000 780,000
Weighted-average grant date fair value
of options granted during year under
the Black-Scholes option pricing model
1995 $.52 $.58
1996 $.55 $.84
Weighted-average exercise price of
options exercisable at end of year $.68 $1.03
Weighted-average remaining
contractual life of outstanding
options at end of year 2.7 years 3.2 years
</TABLE>
On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation". The statement encourages but does not require
companies to use the fair value-based method of accounting for stock-based
employee compensation plans. Under this method, compensation expense is measured
as of the date the awards are granted based on the estimated fair value of the
awards, and the expense generally recognized over the vesting period. If a
company elects to continue using the intrinsic value-based method under APB
Opinion No. 25, pro forma disclosures of net income and earnings per share are
required as if the fair value-based method had been applied. Under the intrinsic
method, compensation expense is the excess, if any, of the market price as of
the grant date over the exercise price of the option. Under the Company's
current compensation plans, there is no such excess on the date of grant and
therefore, no compensation expense is recorded.
The Company has elected to continue to apply APB Opinion No. 25 and related
interpretations in accounting for its stock option plans. Accordingly, no
compensation expense has been recognized in the Consolidated Statements of
Operations related to the stock option plans. Had compensation expense been
determined based on the estimated fair value of the awards at grant dates, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
Net income (loss)
1996 1995
---- ----
<S> <C> <C>
As reported $ 32,789 $768,088
Proforma $(26,597) $677,124
Primary earnings (loss) per share
As reported $ .01 $.09
Proforma $(.01) $.08
Fully diluted earnings (loss) per share
As reported $ .01 $.09
Proforma $(.01) $.08
</TABLE>
<PAGE>
49
In computing pro forma net income, only options granted in 1996 and 1995
are considered. Additionally, the full impact of calculating compensation
expense for stock options under SFAS No. 123 is not reflected in pro forma net
income, since such expense is apportioned over the vesting period of those
options as they vest.
For options granted, fair value was determined using the Black-Scholes
option pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Expected volatility 76.5% 70.4%
Risk-free interest rate 6.05% 5.73%
Expected option lives 5 years 5 years
Dividend yield 0% 0%
</TABLE>
NOTE 16 - STOCKHOLDERS' EQUITY
Preferred Stock
The Company is presently authorized to issue 5,000,000 shares of Preferred
Stock, none of which have been issued at December 31, 1996. The preference, if
any, to be given to preferred shares is determinable at the time of issuance.
Stock Repurchases
In May 1995, the Company's Board of Directors authorized the repurchase of
up to $100,000 of the Company's Common Stock. The Board authorized a second
buy-back plan in September 1995 for the repurchase of up to 500,000 additional
shares. During the buy-back periods, the Company purchased a total of 215,800
shares for a total cost of $194,035. Both plans expired in 1995, at which time
the repurchased shares were cancelled by the Company.
During fiscal 1996, the Company's board approved the repurchase of up to an
additional 500,000 shares. As of December 31, 1996, when the program expired,
the Company had repurchased a total of 196,802 shares for a total cost of
$230,506.
Issuance of Common Stock
During fiscal 1996, the Company issued a total of 165,000 shares of its
Common Stock to settle various customer claims. The Company recorded a charge to
earnings of $178,650 in connection with the issuance of the shares.
NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 107, Disclosures About Fair Value of Financial
Instruments, which requires that all entities disclose the fair value of
financial instruments, as defined, for both assets and liabilities recognized
and not recognized in the statement of financial condition. Substantially all of
the Company's financial instruments, consisting primarily of marketable debt and
equity securities, amounts due from clearing firm and notes payable - bank, are
carried at, or approximate, fair value because of their short-term nature or
because they carry market rates of interest.
NOTE 18 - NET CAPITAL REQUIREMENTS
FMSC is subject to the Securities and Exchange Commission Uniform Net
Capital Rule (Rule 15c3-1), which requires FMSC to maintain minimum net capital,
as defined. At December 31, 1996, FMSC had net capital and minimum net capital
requirements of $651,048 and $250,000, respectively. FMSC's ratio of aggregate
indebtedness to net capital was 5.48 to 1.
NOTE 19 - RELATED PARTY TRANSACTION
During 1996, FMSC served as placement agent in two private placement
offerings by Pacific Health Laboratories ("PHL"). One of the directors of the
Company is also a director, officer and major stockholder of PHL. FMSC earned
commissions of approximately $366,000 on the private placements. Management
believes these fees represent arms-length compensation for the services rendered
to PHL.
<PAGE>
50
O F F I C E L E A S E A G R E E M E N T
BY AND BETWEEN:
RIVER OFFICE EQUITIES,
a New Jersey Partnership,
as "Landlord"
- and -
FIRST MONTAUK SECURITIES CORP.,
a New York corporation,
as "Tenant"
PREMISES: Parkway 109 Office Center
Newman Springs Road
Borough of Middletown
Monmouth County, New Jersey
DATED: March 5, 1997
PREPARED BY: H. HARDING BROWN, ESQ.
(NN\DUBROW\MONTAUK.210)
(LEASE.AGR)
(File No. 11684-210)
(2-4-97)(HHB:nn)
(2-25-97)(HHB:af)
(2-26-97)(HHB:nn)
<PAGE>
51
TABLE OF CONTENTS
1. LEASED PREMISES............................................ 2
2. TERM OF LEASE.............................................. 3
3. RENT....................................................... 3
4. ADDITIONAL RENT............................................ 4
5. USE........................................................ 12
6. REPAIRS AND MAINTENANCE.................................... 13
7. LANDLORD'S SERVICES........................................ 14
8. INABILITY TO PERFORM....................................... 15
9. INSURANCE.................................................. 16
10. LANDLORD'S ACCESS FOR FUTURE CONSTRUCTION................. 17
11. FIXTURES.................................................. 17
12. CHANGES IN OR ABOUT PREMISES.............................. 18
13. ASSIGNMENT AND SUBLETTING................................. 18
14. FIRE...................................................... 19
15. COMPLIANCE WITH LOCAL RULES AND REGULATIONS............... 21
16. TERMINATION............................................... 22
17. INSPECTION BY LANDLORD.................................... 24
18. NOTICES................................................... 25
19. NON-WAIVER................................................ 25
20. ALTERATIONS OR IMPROVEMENTS BY TENANT..................... 25
21. NON-LIABILITY OF LANDLORD................................. 26
22. CONDEMNATION.............................................. 27
23. INCREASE OF INSURANCE RATES............................... 27
24. TENANT'S FIRE INSURANCE................................... 28
25. INDEMNITY................................................. 28
26. FORCE MAJEURE............................................. 29
27. MORTGAGE PRIORITY......................................... 29
28. SURRENDER OF PREMISES..................................... 30
29. SIGNS..................................................... 31
30. ESTOPPEL CERTIFICATE...................................... 31
31. TRANSFER BY LANDLORD...................................... 32
32. LIMIT OF LANDLORD'S LIABILITY............................. 32
33. LANDLORD'S RIGHT OF ENTRY AND ALTERATIONS................. 33
34. LANDLORD'S REMEDIES AND EXPENSES.......................... 33
<PAGE>
52
TABLE OF CONTENTS (Cont'd)
35. LANDLORD'S RESERVED RIGHTS................................ 33
36. RULES AND REGULATIONS..................................... 34
37. WAIVERS................................................... 35
38. WAIVER OF TRIAL BY JURY................................... 35
39. SEVERABILITY.............................................. 35
40. QUIET ENJOYMENT........................................... 35
41. LEASE CONSTRUCTION........................................ 36
42. BINDING EFFECT............................................ 36
43. DEFINITIONS............................................... 36
44. PARAGRAPH HEADING......................................... 36
45. AMENDMENT AND MODIFICATIONS............................... 36
46. EXECUTION AND DELIVERY.................................... 36
47. SCHEDULES................................................. 37
48. BROKERAGE................................................. 37
49. SECURITY.................................................. 37
50. PRIOR LEASE SUPERSEDED.................................... 38
51. OPTION TO RENEW........................................... 38
52. COMMENCEMENT DATE DELAY................................... 39
<PAGE>
53
REFERENCE DATA
Any reference in this Lease to the following subjects shall incorporate
therein the data stated for the subjects in this Reference Data:
LANDLORD: RIVER OFFICE EQUITIES
a New Jersey Partnership
LANDLORD'S ADDRESS: Parkway 109 Office Center
328 Newman Springs Road
Red Bank, New Jersey 07701
TENANT: FIRST MONTAUK SECURITIES CORP.
a New York Corporation
TENANT'S ADDRESS Parkway 109 Office Center
328 Newman Springs Road
Red Bank, New Jersey
(upon commencement)
LEASED PREMISES: Entire 3rd floor
GROSS RENTABLE AREA
OF LEASED PREMISES: 22,762 square feet
NET RENTABLE AREA
OF LEASED PREMISES: 19,372 square feet
LEASE TERM: 7 years
SCHEDULED COMMENCEMENT DATE: 1/1/98
ANNUAL BASIC RENT: See Article 3 - Rent
TENANT'S PERCENTAGE: Thirty-seven (37%) percent
PERMITTED USE: General offices
OPTION TO RENEW: See Article 51
RIVER OFFICE EQUITIES,
a New Jersey Partnership
Landlord
By:_______________________________
MARK DUBROW, General Partner
FIRST MONTAUK SECURITIES CORP.,
a New York Corporation
Tenant
By:________________________________
<PAGE>
54
THIS LEASE AGREEMENT, made this day of February, 1997, between RIVER OFFICE
EQUITIES, a New Jersey Partnership, having an address at Parkway 109 Office
Center, 328 Newman Springs Road, Red Bank, New Jersey 07701, hereinafter called
the "Landlord"; and FIRST MONTAUK SECURITIES CORP., a New York Corporation,
having an office at Parkway 109 Office Center, 328 Newman Springs Road, Red
Bank, New Jersey 07701, hereinafter called the "Tenant".
STATEMENT OF FACTS
1. The Landlord is the owner of certain lands and premises located on
Newman Springs Road, in the Township of Middletown, County of Monmouth and State
of New Jersey, which said lands and premises are more particularly described by
metes and bounds on Schedule "A" annexed hereto and made a part hereof,
(hereinafter referred to as the "Property") upon which the Landlord has erected
on the Property an office building containing approximately 61,288 square feet
(hereinafter called the "Building").
2. The Leased Premises shall consist of the entire third floor of the
Building, consisting of: (a) 9,716 gross Rentable Area now occupied by Tenant
under Lease Agreement dated September 7, 1993; (b) the space now occupied by
Smith Barney & Company; and (c) the space subleased from Pilot Labs, which
entire third floor space contains 22,762 square feet of Gross Rentable Area.
3. The Commencement Date of this Lease, as scheduled, is the earlier of:
(a) sixty (60) days after Smith Barney & Company vacates the Leased Premises, or
(b) the date of issuance of the Certificate of Occupancy for the third floor
premises upon completion of Tenant's Work, as hereinafter defined, but in no
event later than January 1, 1998. Upon establishing the Commencement Date,
Landlord and Tenant shall enter into a Lease Memorandum, in recordable form,
establishing the agreed Commencement Date.
NOW, THEREFORE, in consideration of the covenants and conditions
hereinafter set forth and for other good and valuable consideration, the
Landlord does demise, lease and let unto the Tenant, and the Tenant does rent
and take from the Landlord the Leased Premises, and the Landlord and Tenant
mutually covenant and agree as follows:
1. LEASED PREMISES
1.1 The Leased Premises shall consist of the entire third (3rd) floor of
the Building containing 19,372 square feet of net rentable area (hereinafter
called "Net Rentable Area"), together with Common Area Spaces attributable to
all tenants of the Building which shall comprise 22,762 square feet of Gross
Rentable Area. There shall be attributed to core and common area space 17.5% of
the Gross Rentable Area.
1.2 The use of the Leased Premises includes the right, in common with other
tenants of the Building, to use the common entranceways, foyers, lavatories,
stairways, elevators, plaza areas and parking areas.
1.3 The Landlord covenants and agrees with Tenant that it will provide
seventy-eight (78) parking places for Tenant's use for vehicles to be used by
Tenant's employees, agents, servants or invitees.
1.4 The Leased Premises shall be accepted by Tenant in an "as is"
condition, except that Tenant shall undertake, at Tenant's sole cost and
expense, certain leasehold improvements and modifications to the Leased Premises
(hereinafter called "Tenant's Work") in accordance with plans and specifications
(hereinafter called the "Plans") to be approved by Landlord and Tenant, in
<PAGE>
55
writing, and which are incorporated by reference herein as Schedule "B". Tenant
acknowledges that Landlord has given to Tenant an allowance of ONE HUNDRED FIFTY
THOUSAND AND 00/100) ($150,000.00) DOLLARS toward the cost of Tenant's Work
(hereinafter called "Tenant's Allowance"), which Tenant's Allowance has been
reflected in the Annual Rent established under the Lease as agreed to between
Landlord and Tenant. Upon approval of the Plans, Landlord shall undertake to
cause Tenant's Work to be completed in accordance with the Plans. Tenant agrees
that it will pay to the Landlord, based on monthly invoices, that portion of the
cost of Tenant's Work completed as of the date of submission of said invoices,
and Tenant shall pay such invoices to Landlord within fifteen (15) days after
receipt. In the event the cost of Tenant's Work shall exceed $150,000.00,
Landlord and Tenant shall agree on such excess cost to be paid by Tenant for
Tenant's Work.
2. TERM OF LEASE
2.1 The Landlord leases unto the Tenant, and the Tenant hires the Leased
Premises for the term of seven (7) years to commence on the Commencement Date,
as established, pursuant to Paragraph 3 of the Statement of Facts hereinabove,
and shall terminate seven (7) years thereafter (the "Termination Date").
2.2 As required by Paragraph 3 of the Statement of Facts, Landlord and
Tenant shall enter into a Lease Memorandum establishing the Commencement Date
and the Termination Date, it being understood and agreed that: (a) the
Commencement Date shall be established as the first day of the month following
that event which establishes the Commencement Date as provided in Paragraph 3 of
the Statement of Facts; and (b) any required rent to be paid pursuant to Article
3 hereof shall be adjusted for any partial month of occupancy prior to the
establishment of the Commencement Date as hereinabove provided.
3. RENT
3.1 Except as hereinafter set forth in Article 3.2, Tenant shall pay: (a)
Monthly Basic Rent of THIRTY-FIVE THOUSAND EIGHT HUNDRED FIFTY AND 55/100
($35,850.55) DOLLARS per month, for the period commencing on the Commencement
Date to November 30, 1998; and (b) Annual Basic Rent in the amount of FOUR
HUNDRED THIRTY-THREE THOUSAND EIGHT HUNDRED FORTY-THREE AND 72/100 ($433,843.72)
DOLLARS, payable monthly in the amount of THIRTY-SIX THOUSAND ONE HUNDRED
FIFTY-THREE AND 64/100 ($36,153.64) DOLLARS per month from December 1, 1998, to
the Termination Date. All Basic Rent due hereunder shall be paid promptly on the
first day of each and every month during the Term of this Lease, without demand
and without offset or deduction, together with such additional rent or charges
(the "Additional Rent") required to be paid by the Tenant as hereinafter
provided in Articles 4 and 7.
3.2 Any installment of Basic Rent, Additional Rent and any other sum or
charge accruing hereunder, payable by Tenant to Landlord which is not paid prior
to the tenth (10th) day of any Lease month, shall bear interest at the per annum
rate of five (5%) percent over the prime rate charged by The Chase Manhattan
Bank, N.A., to its most favored borrowers (hereinafter in this Lease referred to
as the "Premium Rate"), computed from the time when the same shall respectively
become due and payable until the same shall be paid, which shall reflect daily
rate changes as applicable.
4. ADDITIONAL RENT
Additional Rent shall be paid by the Tenant in accordance with the
provisions of this Article 4.
<PAGE>
56
4.1 Additional rent, taxes.
(a) In the event that the amount of real estate taxes, assessments, sewer
rents, rates and charges, state and local taxes, transit taxes or any other
governmental charge, general, special, ordinary or extraordinary, hereinafter
collectively called "Taxes" (but not including income or franchise taxes or any
other taxes imposed upon, or measured by, the Landlord's income or profits,
except if in substitution for real estate taxes as hereinafter provided) which
may now or hereafter be levied or assessed against the lands upon which the
Building stands and upon the Building (hereinafter collectively called the "Real
Property") attributable to any tax year shall be greater than the amount of
taxes on the Real Property attributable to the Base Year, as hereinafter
defined, then the Tenant shall pay to the Landlord, as Additional Rent, Tenant's
Percentage thereof. "Base Year" for purposes of this Article 4.1 shall mean the
tax rate in effect as of 1998. The Landlord shall take the benefit of the
provisions of any statute or ordinance permitting any assessment to be paid in
installments over a period of time, and Tenant shall be obliged to pay only
Tenant's Percentage of the installments of any such assessment payable during
the Term of this Lease or any renewal hereof. Tenant's Percentage of required
payment of Taxes as herein provided shall be included as part of Operating
Expenses as hereinafter provided in Article 4.2, and Tenant shall pay said
obligation as applicable in the manner and in accordance with the terms and
conditions provided in Article 4.2. The amount of Taxes for the Base Year,
against which Tenant's liability for Additional Rent in subsequent years is
determined, shall be the amount thereof finally determined to be legally payable
by legal proceedings or otherwise. In the event the amount of Taxes for the Base
Year has not been finally determined by legal proceedings or otherwise at the
time of payment of Taxes for any subsequent year, the actual amount of Taxes
paid by Landlord for the Base Year shall be used in the statement provided by
Landlord as basis for Tenant's liability hereunder with respect to such
subsequent year. Landlord agrees to furnish to Tenant, together with the
statement hereinabove referred to, a copy of the final and preliminary tax bill
during each year of the Lease Term. Upon final determination of the amount of
Taxes for the Base Year, by legal proceedings or otherwise, Landlord shall
deliver to Tenant a statement setting forth the amount of Taxes for the Base
Year as finally determined and showing in reasonable detail the computation of
any adjustment due to Landlord by reason thereof. Any payment due to Landlord by
reason of such adjustment shall be paid as hereinbefore provided.
(b) If Landlord shall receive any tax refund or rebate in respect of any
tax year following the Base Year, Landlord may deduct from such tax refund any
reasonable expenses incurred in obtaining such tax refund, and out of the
remaining balance of such tax refund, Landlord shall pay to Tenant Tenant's
Percentage of the Taxes being refunded.
(c) If the tax year for real estate taxes shall be changed, then an
appropriate adjustment shall be made in the computation of the additional tax
due to Landlord or any amount due to Tenant. The computation shall be made in
accordance with generally accepted accounting principles applied on a consistent
basis.
d) If the last year of the Term of this Lease ends on any day other than
the last day of a tax year, any payment due to Landlord or to Tenant by reason
of any increase or decrease in Taxes shall be pro-rated and Landlord and Tenant
shall make any required adjustment within thirty (30) days after the final Taxes
have been established for the operational year. This covenant shall survive the
expiration or termination of this Lease.
<PAGE>
57
(e) If at any time during the Term of this Lease the method or scope of
taxation prevailing at the commencement of the Lease Term shall be altered,
modified or enlarged so as to cause the method of taxation to be changed, in
whole or in part, so that in substitution for the real estate taxes now assessed
there may be, in whole or in part, a capital levy or other imposition based on
the value of the Premises, or the rents received therefrom, or some other form
of assessment based in whole or in part on some other valuation of the
Landlord's Real Property comprising the demised Premises, as if such Real
Property were the only property owned by the Landlord, then and in such event,
such substituted tax or imposition shall be payable and discharged pro rata, as
applicable, in accordance with the obligations set forth in this Article 4,
computed on the basis of such law promulgated which shall authorize such change
in the scope of taxation, and as required by the terms and conditions of the
within Lease.
4.2 Additional rent expense.
(a) In the event that the amount of Operating Expenses (as hereinafter
defined) for the Base Year (for the purposes of this Article 4.2 herein defined
to be the calendar year 1998) shall be less than the amount of Operating
Expenses for any succeeding calendar year, then Tenant shall pay to Landlord
Tenant's Percentage of the increase in Operating Expenses for said succeeding
calendar year, such cost to be projected and interpolated as if the Building
were 95% rented during the Base Year hereinabove defined.
(b) For the purposes of this Article 4.2, "Operating Expenses" shall mean
the following expenses paid or incurred by Landlord in connection with the
Building and the Property:
(A) Wages, salaries, fees and other compensation and payments and payroll
taxes and contributions to any social security, unemployment insurance, welfare,
pension or similar fund and payments for other fringe benefits required by law
or by union agreement (or, if the employees or any of them are non-union, then
payments for benefits comparable to those generally required by union agreement
in first-class office buildings in the Monmouth County area, which are
unionized) made to or on behalf of all employees of Landlord performing services
rendered in connection with the operation and maintenance of the Building and
the Property, including, without limitation, elevator operators, elevator
starters, window cleaners, porters, janitors, maids, miscellaneous handymen,
watchmen, persons engaged in patrolling and protecting the Building and the
Property, carpenters, engineers, firemen, mechanics, electricians, plumbers,
persons engaged in the operation and maintenance of the Building and Property,
Building superintendent and assistants, Building manager, and clerical and
administrative personnel.
(B) The uniforms of all employees, and the cleaning, pressing and repair
thereof.
(C) Cleaning costs for the Building and the Property, including the windows
and sidewalks, all snow and rubbish removal (including separate contracts
therefor) and the costs of all labor, supplies, equipment and materials
incidental thereto.
(D) Premiums and other charges incurred by Landlord with respect to all
insurance relating to the Building and the Property and the operation and
maintenance thereof, including, without limitation: fire and extended coverage
insurance, including windstorm, flood, hail, explosion, riot, rioting attending
a strike, civil commotion, aircraft, vehicle and smoke insurance; public
liability; elevator; workmen's compensation; boiler and machinery; rent; use and
occupancy; health, accident and group life insurance of all employees; and
casualty rent insurance.
(E) The cost of electricity, heat, water and sewer and any and all other
utility services used in connection with the operation and maintenance of the
Building and the Property (excluding electricity and other utility services, if
any, which are paid directly by tenants or which should be charged to such other
tenants). For the purpose of this Article 4.2(E), "cost of electricity" shall
<PAGE>
58
include the cost of electricity for common areas attributable to Building
operation [i.e. mechanical equipment operation, common area electricity usage,
exterior lighting and, in general, all other electric utility usage mutually
enjoyed by all tenants (based upon the electricity rate to be adjusted for
summer and winter as applicable, and inclusive of demand charge, energy charge
and energy adjustment charge in effect as of the Commencement Date) reduced by
amounts due from tenants for special electrical usage in conjunction with
elapsed time recorded usage for overtime operation of the Building mechanical
systems actually paid to Landlord pursuant to Article 7 hereunder, as said
paragraph pertains to electrical usage only.
(F) Costs incurred for operation, service, maintenance, inspection, repair
and alteration of the Building, the Property, and the heating, air-conditioning,
ventilating, plumbing, electrical and elevator systems of the Building
(including any separate contract therefor) and the costs of labor, materials,
supplies and equipment used in connection with all of the aforesaid items.
(G) Sales and excise taxes and the like upon any of the expenses enumerated
herein.
(H) Management fees of the managing agent for the Building, if any. If
there shall be no managing agent, or if the managing agent shall be a company
affiliated with Landlord, the management fees that would customarily be charged
for the management of the Building by an independent, first-class agent in the
Monmouth County area, not to exceed five (5%) per cent of the aggregate gross
rent collected.
(I) The cost of replacements for tools and equipment used in the operation
and maintenance of the Building and the Property.
(J) The cost of repainting or otherwise redecorating any part of the
Building other than premises demised to tenants in the Building.
(K) Decorations for the lobby and other public portions of the Building
below the second floor.
(L) The cost of telephone service, postage, office supplies, maintenance
and repair of office equipment and similar costs related to operation of the
Building superintendent's office.
(M) The cost of licenses, permits and similar fees and charges related to
operation, repair and maintenance of the Building.
(N) Auditing fees necessarily incurred in connection with the maintenance
and operation of the Building, and accounting fees incurred in connection with
the preparation and certification of a real estate tax escalation and the
Operating Expenses escalation statements pursuant to this Article 4.
(O) All costs incurred by Landlord to retrofit any portion or all of the
Building to comply with a change in existing legislation, whether Federal, State
or Municipal; repairs, replacements and improvements which are appropriate for
the continued operation of the Building as a first-class building.
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(P) All expenses associated with the installation of any energy or cost
saving devices, which costs shall be included as part of Operating Expenses only
if such installation results in actual cost saving. Such costs shall be
amortized over a ten- (10) year period and the annualized portion thereof shall
be included as part of Operating Expenses for the unexpired portion of the Lease
Term.
(Q) The pro rata share of all costs and expenses relating to the Common
Area of the Property and its maintenance, operation and repair of any common
facilities including, but not limited to, snow removal, landscaping and similar
services.
(R) Any and all other expenditures of Landlord in connection with the
operation, repair or maintenance of the Property or the Building which are
properly expensed in accordance with generally accepted accounting principles
consistently applied with respect to the operation, repair and maintenance of
first-class office buildings in the Monmouth County area.
(S) Taxes in excess of Base Year Taxes paid in accordance with the terms
and conditions of Article 4.1 hereinbefore provided.
(c) If Landlord shall purchase any item of capital equipment or make any
capital expenditure as described in subsections (b)(0) and (b)(P) above, then
the costs for the same shall be included in Operating Expenses in the year of
installation and in subsequent years amortized on a straight-line basis, over an
appropriate period, but not more than ten (10) years, with an interest factor
equal to the prime interest rate charged by The Chase Manhattan Bank, N.A., to
its most favored borrowers. If Landlord shall lease such item of capital
equipment, then the rentals or other operating costs paid pursuant to such
leasing shall be included in Operating Expenses for each year in which they are
incurred. Notwithstanding the foregoing, "Operating Expenses" shall not include
expenditures for any of the following:
(A) The cost of any capital addition made to the Building (other than that
specified as part of Operating Expenses as provided above), including the cost
to prepare space for occupancy by a new tenant.
(B) Repairs or other work occasioned by fire, windstorm or other insured
casualty or hazard, to the extent that Landlord shall receive proceeds of such
insurance.
(C) Leasing commissions, advertising expenses and other costs incurred in
leasing or procuring new tenants.
(D) Repairs or rebuilding necessitated by condemnation.
(E) Depreciation and amortization of the Building, other than:
(i) capital expenditures which under generally applied real estate practice
are expensed or regarded as deferred expenses;
(ii) capital expenditures appropriate to a first-class office building or
required by law as described in subsection (0) above; and
(iii) capital expenditures designed to result in savings or reductions in
Operating Expenses as described in subsection (b)(P) above.
(F) The salaries and benefits of executive officers of Landlord, if any.
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(d) Operating Expenses shall be "net" and, for that purpose, shall be
reduced by the amounts of any reimbursement or credit received or receivable by
Landlord with respect to an item of cost that is included in Operating Expenses
(other than reimbursements to Landlord by tenants of the Building pursuant to
Operating Expenses escalation provisions). If Landlord shall eliminate the
payment of any wages or other labor costs or otherwise reduce Operating Expenses
as a result of the installation of new devices or equipment, or by any other
means, then, in computing the Operating Expenses, the corresponding items shall
be deducted from the Operating Expenses allowance for the operating year.
(e) As soon as reasonably feasible after the expiration of the first
twelve- (12) month Lease year (Base Year), Landlord will furnish to Tenant a
statement by an officer of Landlord showing in reasonable detail the Operating
Expenses for the Base Year. As soon as reasonably feasible after the expiration
of each twelve- (12) month Lease year after the Base Year, Landlord will furnish
to Tenant a statement by an officer of the Landlord showing in reasonable detail
the Operating Expenses for said twelve- (12) month Lease year, as compared to
the statement of the Operating Expenses for the preceding year. Landlord will,
at the request of Tenant, furnish such invoices and other documentation as
Tenant may reasonably require with respect to the statements to be furnished by
Landlord to Tenant as hereinabove provided. At the time of rendering such
statement, any adjustment due to Landlord or to Tenant under the provisions of
Article 4.2, shall be paid or credited as applicable as hereinafter provided as
follows:
(A) For the first twelve- (12) month Lease year (Base Year), and upon
issuance of the Base Year statement showing the electricity for common area and
fuel costs for the entire Building computed based upon the applicable rates,
including demand charge, energy charge and energy adjustment charges in effect
at the Commencement Date, any amount due to Landlord because of rate increases
which occur during the Base Year, and as shown on such statement of expenses,
shall be paid by Tenant within thirty (30) days after Landlord shall have
submitted the statement.
(B) Commencing with the second year of the Lease Term, Tenant agrees to
pay, in addition to the Annual Basic Rent, a sum equal to two (2%) percent of
such Annual Basic Rent in twelve (12) equal monthly installments to be paid
together with the monthly payments of Annual Basic Rent required hereunder. At
the end of the second Lease year, Landlord and Tenant shall adjust such
additional payment in the manner hereinafter set forth in subsection (e)(C).
(C) Commencing with the third year of the Lease Term, in the event the
Tenant shall be required to pay Additional Rent for Operating Expenses as in
this Article 4.2 required, the Tenant agrees, in addition to the Base Rent to be
paid pursuant to Article 3, that it will pay, monthly, 1/12th of the sum
required to be paid as Additional Rent attributable to Tenant's Percentage of
Operating Expenses for the prior Lease year. Such monthly payment shall be made
together with Tenant's regular monthly Base Rent payment. At the end of each
Lease year, there shall be an adjustment between the Landlord and Tenant with
respect to the aggregate of the monthly Additional Rent paid for Operating
Expenses so as to either require payment by Tenant to Landlord of any amount
required in excess of the twelve (12) monthly payments, based on the prior
year's Operating Expenses as hereinabove provided, or, if applicable, the Tenant
shall be credited with any overpayment made in excess of required Operating
Expenses for that calendar year. Landlord shall furnish Tenant, in any event,
with the computation of detailed Operating Expenses to the applicable Lease year
in the manner hereinabove provided, and any required payment to Landlord or
credit to Tenant, as applicable, shall be paid or made within thirty (30) days
after Landlord's demand and furnishing to Tenant the required computation and
statement of Tenant's Percentage of Operating Expenses as above provided.
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(d) Tenant or its representatives shall have the right to request to
examine Landlord's books and records with respect to the items in the foregoing
statement of Operating Expenses during normal business hours at any time within
ninety (90) days following the delivery by Landlord to Tenant of such statement.
Tenant shall have an additional sixty (60) days to file any written exception to
any item of expense; however, nothing herein shall be deemed to afford Tenant
any right to withhold any payment due from Tenant to Landlord, and, in the event
of any such withholding of payment of Annual Basic Rent, Tenant shall pay the
Premium Rate, computed daily from the date of default to the date of payment.
Each expense for which Landlord shall bill Tenant as set forth hereinabove shall
be necessary and reasonable for the operation of the Building and Property and
shall be delineated by Landlord in detail to Tenant.
(e) If the last year of the Term of this Lease ends on any day other than
the last day of a calendar year, any payment due to Landlord or to Tenant by
reason of any increase or decrease in Operating Expenses shall be prorated, and
Tenant shall pay any amount due to Landlord within thirty (30) days after being
billed therefor. This covenant shall survive the expiration or termination of
this Lease.
4.3 For the purpose of this Lease, Tenant's Percentage shall be 37%.
Tenant's Percentage shall be revised as may be required if the Building is
increased or decreased in size.
5. USE
5.1 The Tenant covenants and agrees to use and occupy the Leased Premises
for office purposes only, and for no other purpose.
5.2 The Tenant covenants and agrees that it will not use the Leased
Premises for any use which creates an extra hazard of fire or other danger or
casualty, or which will increase the rate which Landlord or other tenants must
pay to secure fire or liability insurance, or which will render the Building or
its improvements uninsurable.
6. REPAIRS AND MAINTENANCE
6.1 During the Term of this Lease, the Landlord, at its expense, shall keep
in good order, safe condition and repair, the structural parts of the Building
and Common Areas of which the Leased Premises are a part, including the walls,
roof, floor, foundation load bearing members, trusses and joists, as well as all
plumbing, utilities and facilities serving the Leased Premises, except for
repairs or maintenance occasioned by the negligence or deliberate act of Tenant,
or its agents, servants, employees and invitees which shall be then repaired at
the cost and expense of the Tenant.
6.2 The Landlord, as part of Operating Expenses, shall take good care of
and maintain and repair: (i) all other portions of the Building, including
Common Areas and all Building systems incorporated therein; (ii) the lawns,
shrubbery, driveway, sidewalks, entranceways, foyers, curbs and parking area on
the Property; and (iii) provide snow removal.
6.3 Tenant agrees to keep the Leased Premises in as good repair as they are
at the beginning of the Term of this Lease, reasonable use and wear thereof and
damage by fire or other casualty not caused by Tenant excepted. Tenant further
agrees not to damage, overload, deface or commit waste of the Premises. Tenant
shall be responsible for all damage of any kind or character to the Leased
Premises, including the windows, floors, walls and ceilings, caused by Tenant or
by anyone using or occupying the Premises by, through or under the Tenant.
Landlord shall repair the same as deemed necessary by Tenant or Landlord,
applying reasonable commercial standards, and Tenant agrees to pay the costs
incurred therefor to Landlord upon demand. Anything hereinabove contained to the
contrary notwithstanding, it is expressly understood and agreed that the Tenant
shall, at its sole cost and expense, be responsible for the repair, maintenance
and replacement of any items installed by Tenant for Tenant's use as leasehold
improvements as part of Tenant's Work. Landlord shall not be liable by reason of
any injury to or interference with Tenant's business arising from the making of
any repairs, alterations, additions or improvements in or to the Leased Premises
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or the Building or to any appurtenances or equipment therein. There shall be no
abatement of rent because of such repairs, alterations, additions or
improvements or because of any delay by Landlord in making the same. Tenant
shall give to Landlord prompt written notice of any accidents to, or defects in,
plumbing, electrical, heating and air-conditioning systems and apparatus located
in the Leased Premises.
7. LANDLORD'S SERVICES
7.1 Landlord shall furnish the services for which the Building is equipped,
to the extent that the existing facilities for such services permit, except that
heat and air-conditioning, as required, shall be furnished only between the
hours of 8:00 A.M. and 6:00 P.M. Monday through Friday, (Saturdays, Sundays and
national holidays excluded). Landlord agrees at Tenant's request, and at a cost
to Tenant to be mutually agreed upon, prior to the Commencement Date of this
Lease and as to be set forth in approved plans and specifications, to install a
by-pass switch for monitoring hours of usage by Tenant solely for
air-conditioning and heating during hours other than as set forth hereinabove,
and it is further agreed that Tenant shall pay to Landlord the cost of said
overtime usage as contemplated herein upon invoice from Landlord to Tenant at
the rate of $40.00 per hour during the first year of the Term hereof and
thereafter, said hourly charge shall be increased annually by the percentage
increase in electric and gas utility rates for the Building operation, if any.
7.2 Landlord shall furnish to Tenant a separate and independent electric
meter to measure Tenant's use of electric energy in the Leased Premises, the
cost of which shall be paid for by Tenant at its sole cost and expense.
Effective as of the Occupancy Date, electric energy for Tenant's requirements
shall be furnished for lighting, electric typewriters, adding machines, copying
machines, and any other similar electricity requirements, as are customarily
used in a general business office, not including high energy computers. Any
requirements for high energy computers shall be only with the express written
consent of Landlord who reserves the right to require Tenant to pay any
additional costs attributable to such high energy use including any additional
requirements for air-conditioning attributable to such use.
7.3 Tenant agrees not to connect any additional electrical equipment of any
type to the Building electric distribution system over and above that equipment
shown on Tenant's Plan without the Landlord's prior written consent, however,
Landlord shall not unreasonably withhold such consent. Landlord shall not be
liable in any way to Tenant for any failure or defect in the supply or character
of electric energy furnished on the Leased Premises by reason of any
requirement, act or omission of the public utility serving the Building with
electricity. Tenant's use of electric energy in the Leased Premises shall not at
any time exceed the capacity of any of the electric conductors and equipment in
or otherwise serving the Leased Premises.
7.4 Janitorial services are as referred to on Schedule "E" annexed hereto
and made a part hereof.
8. INABILITY TO PERFORM
In case Landlord is prevented or delayed in furnishing any service as set
forth herein or otherwise by reason of any cause beyond Landlord's reasonable
control, Landlord shall not be liable to Tenant therefor, nor shall Tenant be
entitled to any abatement or reduction in the Monthly Basic Rent or the Annual
Basic Rent by reason thereof, nor shall the same give rise to a claim in
Tenant's favor that such absence of Building services constitutes actual or
constructive, total or partial eviction or renders the Leased Premises
untenantable. Landlord reserves the right to stop any service or utility system,
when necessary by reason of accident or emergency, or until necessary repairs
have been completed, provided, however, that in each instance of stoppage,
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63
Landlord shall exercise reasonable diligence to eliminate the cause thereof.
Except in case of emergency repairs, Landlord will give Tenant reasonable
advance notice of any contemplated stoppage and will use reasonable efforts to
avoid unnecessary inconvenience to Tenant by reason thereof. Landlord agrees,
however, that it will use all reasonable efforts to obtain restoration of
services based on the then existing circumstances.
9. INSURANCE
Tenant shall keep in force, at its own expense, comprehensive general
liability insurance (including a contractual liability insurance endorsement) in
companies acceptable to Landlord and naming as insured Landlord, owner of the
Property, Landlord's managing agent, if any, and Tenant against claims for
"personal injury", including bodily injury and death, in amounts not less than
THREE MILLION AND 00/100 ($3,000,000.00) DOLLARS, and for property damage in
amounts not less than ONE MILLION AND 00/100 ($1,000,000.00) DOLLARS, and Tenant
will further deposit the policy or policies of such insurance, or certificates
thereof, with Landlord. Said policy or policies of insurance or certificates
thereof shall have attached thereto an endorsement that such policy shall not be
canceled without at least ten (10) days' prior written notice to Landlord and
Landlord's managing agent, if any, and that no act or omission of Tenant shall
invalidate the interest of Landlord under said insurance. Landlord and Tenant
hereby release the other from any and all liability or responsibility to the
other or anyone claiming through or under them by way of subrogation or
otherwise for any loss or damage to person or property covered by any insurance
then in force, even if such loss or damage shall have been caused by the fault
or negligence of the other party, or anyone for whom such party may be
responsible, provided, however, that this release shall be applicable and in
force and effect only to the extent of, and with respect to, any loss or damage
occurring during such time as the policy or policies of insurance covering said
loss shall contain a clause or endorsement to the effect that this type of
release shall not adversely affect or impair said insurance or prejudice the
right of the insured to recover thereunder.
10. LANDLORD'S ACCESS FOR FUTURE CONSTRUCTION
The Landlord reserves the right to enter the Building, Property and Leased
Premises upon reasonable prior notice, except in emergencies, in connection with
the construction and erection of any additions or improvements to the Building
and Property of which the Leased Premises are a part, provided that in the use
of such right the Landlord shall not unreasonably interfere with the use of the
parking areas and driveways or the Tenant's business, or impair Tenant's
visibility to the exterior from existing windows, or impair access to the
Demised Premises.
11. FIXTURES
11.1 The Tenant may install and remove Tenant's property, equipment and
trade fixtures in the Leased Premises during the Term of the Lease. If the
Tenant moves out or is dispossessed, and fails to remove any such property,
equipment and fixtures after the last day for which all Annual Basic Rent is
paid, then the said property, equipment and fixtures shall be deemed at the
option of the Landlord to be abandoned, and Tenant shall reimburse to Landlord
the reasonable cost of removal thereof from the Leased Premises, including any
cost of disposal thereof, subject to Tenant's obligations pursuant to Article 20
as hereinafter provided.
11.2 The Tenant shall repair, at its cost and expense, any damage to the
Leased Premises resulting from the removal of its property, equipment and
fixtures. However, if Tenant fails to do so, it shall be responsible to
reimburse the Landlord for the reasonable cost of compliance with the terms and
conditions of the within covenant.
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11.3 All installation and removal of Tenant's fixtures, property and
equipment shall be done in accordance with all applicable laws and ordinances
and the rules and regulations of all governmental boards and bodies having
jurisdiction.
12. CHANGES IN OR ABOUT PREMISES
This Lease shall not be affected or impaired by any change in any sidewalk,
alleys or streets adjacent to or around the Building, or in parking regulations
of the Township of Middletown or any County or State Agency or Office.
13. ASSIGNMENT AND SUBLETTING
Tenant shall not assign, mortgage or otherwise transfer or encumber this
Lease, nor sublet all or any part of the Leased Premises or permit the same to
be occupied or used by anyone other than Tenant or its employees without
Landlord's prior written consent, which consent shall not be unreasonably
withheld or delayed. It will not be unreasonable for Landlord to withhold its
consent if the reputation, financial responsibility, or business of a proposed
assignee or subtenant is unsatisfactory to Landlord, or if Landlord deems such
business to be inconsistent with that of other tenants in the Building, or if
the intended use by the proposed assignee or subtenant conflicts with any
commitment made by Landlord to any other tenant in the Building, or if the
proposed rental rate is lower than the then current rate at which similar space
in the Building is being offered by Landlord, provided that:
(a) Tenant's request for consent shall be in writing and contain the name,
address, and description of the business of the proposed assignee or subtenant,
its most recent financial statement and other evidence of financial
responsibility, its intended use of the Leased Premises, and the terms and
conditions of the proposed assignment or subletting.
(b) Within twenty (20) days from receipt of such request, Landlord shall
either: (A) grant or refuse consent; or (B) elect to require Tenant (i) to
execute an assignment of lease or sublease of Tenant's interest hereunder to
Landlord or its designee upon the same terms and conditions as are contained
herein, together with an assignment of Tenant's interest as sublessor in any
such proposed sublease, or (ii) if the request is for consent to a proposed
assignment of this Lease, to terminate this Lease and the Term hereof effective
as of the last day of the third month following the month in which the request
was received.
(c) Each assignee hereunder shall assume and be deemed to have assumed this
Lease and shall be and remain liable jointly and severally with Tenant for all
payments and for the due performance of all terms, covenants, conditions and
provisions herein contained on Tenant's part to be observed and performed. No
assignment shall be binding upon Landlord unless the assignee shall deliver to
Landlord an instrument in recordable form containing a covenant of assumption by
the assignee, but the failure or refusal of assignee to execute the same shall
not release assignee from its liability as set forth herein.
(d) If such consent to any subletting or assignment hereunder shall be
given:
(A) such consent to assign this Lease or to sublet shall not release or
discharge Tenant of or from any liability, whether past, present or future,
under this Lease and Tenant shall continue fully liable under this Lease for any
default under or in respect of any of the terms, covenants, conditions,
provisions or agreements of this Lease;
(B) the subtenant or subtenants shall agree to perform faithfully and be
bound by all the terms, covenants, conditions, provisions or agreements of this
Lease to the extent of the space sublet;
(C) an executed copy of each sublease and agreement of assumption of
performance by each of the subtenants (limited to the extent of the space
sublet) shall be delivered to Landlord promptly upon execution;
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(D) (i) the Tenant shall pay to the Landlord monthly, one-half of any
increment in rent received by Tenant per square foot per annum over the Annual
Basic Rent and any Additional Rent then in effect during the year of assignment
or subletting, which payment shall be made monthly, together with the required
monthly payments of Annual Basic Rent to be paid pursuant to Article 3; and (ii)
if Tenant receives any consideration or value for such assignment or subletting
Landlord shall be paid one-half of any such consideration or value within ten
(10) days after receipt of the same by Tenant. As a condition hereunder, Tenant
warrants and represents to Landlord that it will furnish to Landlord a copy of
all pertinent documents with respect to any such assignment or subletting so as
to establish Tenant's obligation to Landlord hereunder.
14. FIRE
14.1 In case of any damage to the Building or the Property by fire or other
casualty occurring during the Term of this Lease or previous thereto, which
renders the Leased Premises wholly untenantable so that the same cannot be
repaired within one hundred twenty (120) days from the happening of such damage,
then the terms hereby created shall, at the option of the Landlord or Tenant,
terminate from the date of such damage, provided Landlord shall advise Tenant,
in writing, within thirty (30) days of such casualty that it cannot repair the
damage within one hundred twenty (120) days. In the event the Landlord elects to
terminate the Lease for any reason which is due to the inability to restore the
Premises within the one hundred twenty- (120) day period, Landlord or Tenant
shall notify the other, in writing, by certified mail, return receipt requested,
of such a fact within forty (40) days of the happening of the fire or casualty,
and in such event the Tenant shall immediately surrender the Leased Premises and
shall pay rent only to the time of such damage and the Landlord may re-enter and
repossess the Premises discharged from this Lease. In the event the Landlord can
restore the Premises within one hundred twenty (120) days, it shall advise the
Tenant of such fact within thirty (30) days in writing, by certified mail,
return receipt requested, and the Lease shall remain in full force and effect
during the period of Landlord's restoration, except that rent shall abate while
the repairs and restorations are being made, but the rent shall recommence
within ten (10) days after restoration of the Premises and delivery of the same
by the Landlord to the Tenant, together with a Certificate of Occupancy as
required by applicable governmental authority having jurisdiction thereof.
Landlord agrees that it will undertake reconstruction and restoration of the
damaged Premises with due diligence and reasonable speed and dispatch. If a
Certificate of Occupancy shall not be required, the Premises shall be deemed
restored when Landlord shall certify to Tenant, in writing, that it has
completed restoration.
14.2 If the Building shall be damaged, but the damage is repairable by
Landlord's estimation within one hundred twenty (120) days, the Landlord agrees
to repair the same with reasonable promptness. In such event, the rent accrued
and accruing shall not abate, except for that portion of the Leased Premises
that has been rendered untenantable, and as to that portion the rent shall abate
based on equitable adjustments as determined by Landlord. The Leased Premises
shall be deemed untenantable to the extent that access to the Premises shall be
denied which shall include unavailability of elevator service, or if Tenant
cannot conduct its business at the Premises in a normal manner as heretofore
conducted prior to the fire or casualty.
14.3 In connection with Landlord's restoration as hereinabove referred to,
in determining what constitutes reasonable promptness consideration shall be
given to delays caused by acts of God, strikes, and other causes of Force
Majeure beyond the Landlord's control.
14.4 The Tenant shall immediately notify the Landlord in case of fire or
other damage to the Premises.
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14.5 Notwithstanding anything contained in 14.1 or 14.2 above, if such
repairs are for any reason not completed within one hundred twenty (120) days,
then the Tenant shall have the right to terminate this Lease, and in such event
of termination Landlord and Tenant shall thereupon be released of liability one
to the other, and the within Lease shall be deemed null and void.
15. COMPLIANCE WITH LOCAL RULES AND REGULATION
15.1 Landlord covenants and agrees with Tenant that upon acceptance and
occupancy of the Leased Premises, the Leased Premises will comply with all
statutes, ordinances, rules, orders, regulations and requirements of the Federal
State and Municipal Government and of any and all their departments and bureaus,
and to the requirements of the Board of Fire Underwriters or their equivalent in
the State of New Jersey, which are applicable to the use and construction of the
same.
15.2 The Tenant covenants and agrees that upon and after acceptance and
occupancy of the Leased Premises, it will promptly execute and comply with all
statutes, ordinances, rules, orders, regulations and requirements of the
Federal, State and Municipal Government and of any and all their departments and
bureaus (provided same are applicable to Tenant's occupancy or use of the
Premises in the conduct of its business) or to the reasonable rules promulgated
by the Landlord in writing for the correction, prevention and abatement of
nuisances, violations or other grievances, in, upon or connected with the
Premises during said Term and arising from the operations of the Tenant therein,
at the Tenant's cost and expense, subject to the right of the Tenant to contest
the decision by any such department or bureau as hereinafter mentioned. In the
event the Tenant contests any such governmental decision, it shall indemnify,
defend and save the Landlord harmless from any fine, penalty, costs and
liability imposed upon the Landlord as a result of Tenant's failure so to
comply. The Tenant covenants and agrees, at its own cost and expense, to comply
with such regulations or requests as may be required by the fire or liability
insurance carriers providing insurance for the Leased Premises, and will further
comply with such other requirements that may be promulgated by the Board of Fire
Underwriters or their equivalent in connection with the use and occupancy of the
Leased Premises by the Tenant in the conduct of its business. Anything
hereinabove to the contrary notwithstanding, it is expressly understood and
agreed that the Tenant shall not be required to make structural changes in the
Building if the same are required by governmental regulation, as the same may be
applicable as a matter of general application to the Leased Premises, provided
that the Tenant shall be required to make structural changes that may be
required by governmental regulation if directly attributable and resulting from
Tenant's occupancy and use of the Building in the conduct of its business.
15.3 If the Tenant shall fail or neglect to comply with the aforesaid
statutes, ordinances, rules, orders, regulations and requirements or any of
them, failure of the Tenant to comply with the requirements of subparagraph 15.1
above shall be deemed an item of default for which the Landlord shall have
recourse by termination of this Lease or exercise of any other rights reserved
to the Landlord hereunder, in accordance with the terms and conditions of this
Lease.
16. TERMINATION
16.1 If there should occur any default on the part of the Tenant in the
performance of any conditions and covenants herein contained after required
notice and expiration of applicable grace periods, or if during the Term hereof
the Leased Premises or any part thereof shall be or become abandoned, deserted,
or vacated, or should the Tenant be evicted by summary proceedings or otherwise,
the Landlord, in addition to any other remedies herein contained or as may be
permitted by law, may, without being liable for damages, re-enter the Premises
and take possession thereof; and, without being obligated to re-let the Premises
as agent for the Tenant or otherwise, the Landlord may, at its option, re-let
the Premises and receive the rents therefor and apply the same, first to the
payment of such expenses, including real estate brokerage, reasonable attorney
fees and costs, as the Landlord may have been put to in re-entering and
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repossessing the Premises and in making such repairs and alterations as may be
necessary; and second to the payment of rents due hereunder. The Tenant shall
remain liable for such rents as may be in arrears and also the rents as may
accrue subsequent to the re-entry by the Landlord, to the extent of the
difference between the rents reserved hereunder and the rents, if any, received
by the Landlord during the remainder of the unexpired Term hereof, after
deducting the aforementioned expenses, fees and costs; the same to be paid as
such deficiencies arise and are ascertained by Landlord. Said deficiencies will
be increased by the Premium Rate retroactive to the date of re-entry by
Landlord. For the purposes of this Lease, Premium Rate shall be the prime rate
then being charged by The Chase Manhattan Bank at its main office in New York
City, New York, plus one (1%) per cent per annum.
16.2 Except for monetary defaults as provided in Article 16.3, if the
Tenant defaults in the performance of any conditions or covenants in this Lease
contained, or should the Tenant be adjudicated a bankrupt, insolvent or placed
in receivership, or should proceedings be instituted by or against the Tenant
for bankruptcy, insolvency, receivership, agreement of composition or assignment
for the benefit of creditors, or if this Lease, or the estate of the Tenant
hereunder shall pass to another by virtue of any court proceedings, writ of
execution, levy, sale or by operation of law, then in either of such events,
unless they shall be cured within thirty (30) days after receipt of written
notice from Landlord or his agent, the Landlord may, at any time thereafter,
terminate this Lease and the Term hereof, upon giving to the Tenant or to any
trustee, receiver, assignee or other person in charge of or acting as custodian
of the assets or property of the Tenant, thirty (30) days' notice in writing, of
such termination. This Lease and the Term hereof shall end on the date fixed in
such notice as if the said date was the date originally fixed in this Lease for
the expiration hereof. Notwithstanding the termination, the Landlord may still
enforce its rights reserved pursuant to subparagraph 16.1.
16.3 Anything in subparagraphs 16.1 and 16.2 above to the contrary
notwithstanding, any default by Tenant in the payment of rent or any other
monetary obligation shall be cause for termination if the same is not paid
promptly as required by the terms and conditions of the Lease. Any other default
in the Lease shall be cause for termination if the same is not cured within
thirty (30) days after written notice given in the same manner as provided in
subparagraph 16.2 above.
16.4 It is expressly understood and agreed that if the Lease is terminated
by the Landlord as permitted hereunder, Landlord agrees that it will use
reasonable efforts to mitigate Tenant's damages. For the purposes of this Lease,
it shall be conclusively presumed that Landlord has used reasonable efforts to
mitigate Tenant's damages if it enters into a written real estate brokerage
agreement with a recognized commercial broker in the Monmouth County area
authorized to rent the Leased Premises under then prevailing economic and rental
conditions.
17. INSPECTION BY LANDLORD
The Tenant agrees that the said Landlord's agents, and other
representatives, shall have the right to enter into and upon the Leased
Premises, or any part thereof, at all reasonable hours, upon reasonable prior
notice, without unduly disturbing the operations of the Tenant for the purpose
of examining the same or for making such repairs or alterations therein as may
be necessary for the safety and preservation thereof.
18. NOTICES
All notices required or permitted to be given to the Landlord shall be
given by certified mail, return receipt requested, addressed to the Landlord at
the address set forth at the head of this Agreement or such other place as the
Landlord shall designate in writing. All notices required or permitted to be
given to the Tenant shall be given by certified mail, return receipt requested,
addressed to the Tenant at the Leased Premises, or such other place as the
Tenant shall designate in writing.
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19. NON-WAIVER
The failure of the Landlord or Tenant to insist upon strict performance of
any of the covenants or conditions of this Lease or to exercise any option
herein conferred in any one or more instances, shall not be construed as a
waiver or relinquishment of any such covenants, conditions or options, but the
same shall be and remain in full force and effect. If the Landlord pursues any
remedy granted by the terms of this Lease or the terms of applicable law, it
shall not be construed as a waiver or relinquishment of any other remedy
afforded thereby.
20. ALTERATIONS OR IMPROVEMENTS BY TENANT
20.1 Tenant shall not do any painting or decorating, or erect any
partitions or make any alterations or improvements in the Premises, or do any
nailing, boring, or screwing into the ceilings, walls, or floors, without the
prior written consent of Landlord which shall not be unreasonably withheld,
provided Tenant shall have furnished to Landlord a plan and/or specifications
with respect to Tenant's proposed work. Unless objected to by Landlord in
writing, such work may be performed by Tenant or under the direction of Tenant,
at its cost. Nothing herein contained shall be construed to permit Tenant at any
time to make any structural modifications to the Leased Premises or any
alterations or modifications to existing Building systems in the Leased
Premises. Tenant hereby agrees that all alterations and improvements made in, to
or on the Premises shall, unless otherwise provided by written agreement, be the
property of Landlord and shall remain upon and be surrendered with the Premises.
At Landlord's request all such alterations and improvements shall be restored to
their original condition at Tenant's expense at the termination of this Lease,
which obligation on the part of Tenant is imposed by Landlord as part of its
consent to any work undertaken by Tenant as permitted hereunder. Nothing
hereinabove contained shall require the Tenant to remove any of the improvements
which shall be installed by Landlord in accordance with Schedule "B".
20.2 Nothing herein contained shall be construed as a consent on the part
of the Landlord to subject the estate of the Landlord to liability under the
Mechanic's Lien Law of the State of New Jersey, it being expressly understood
that the Landlord's estate shall not be subject to such liability.
21. NON-LIABILITY OF LANDLORD
21.1 It is understood and agreed that Landlord, in its capacity as Landlord
and, if applicable, as builder or general contractor of the Building in which
the Leased Premises are located, shall not be liable to Tenant, Tenant's agents,
employees, contractors, invitees or any other occupant of the Leased Premises
for any damage to property or for any inconvenience or annoyance to Tenant or
any other occupant of the Leased Premises or interruption of Tenant's or such
other occupant's business, arising out of or attributable to: (a) the design and
construction of the Leased Premises and the Building of which the Leased
Premises are a part; (b) any maintenance, repairs, replacements, additions,
alterations, substitutions and installations made to the Leased Premises and the
Building of which the Leased Premises are a part; and (c) any cause or happening
whatsoever, except for the gross negligence or willful misconduct of the
Landlord and Landlord's agents, servants and employees with respect to any of
the events or occurrences referred to in subsections (a) and (b) herein, or
otherwise. The foregoing covenant is an express inducement to Landlord to enter
into the within Lease and the Tenant acknowledges that it understands the scope
and consequence of Landlord's exculpation as herein provided.
21.2 Anything hereinabove contained to the contrary notwithstanding, the
Tenant in all events shall assume all risk of damage or loss to its property,
equipment and fixtures occurring in or about the Leased Premises, whatever the
cause of such damage or loss, including Landlord's negligence.
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22. CONDEMNATION
If the whole or part of the Leased Premises shall be acquired by Eminent
Domain for any public or quasi public use or purpose so that the Premises cannot
be used for its intended leased purposes or if access to the parking lot be
denied, or if the parking areas shall be taken by Eminent Domain and the
Landlord shall not substantially replace such parking areas so as to provide the
parking spaces for Tenant required pursuant to Article 1.3, provided in an area
reasonably contiguous to the Building in which the Demised Premises are located,
then and in that event, the Term of this Lease shall cease and terminate from
the date that possession of the Leased Premises is taken by the condemning
authority in the Eminent Domain proceeding, or as the result of the delivery of
a deed in lieu of condemnation. The Tenant shall have no claim against the
Landlord for the value of any unexpired Term of said Lease. No part of any award
made to the Landlord shall belong to the Tenant, nor shall the Tenant make any
claim against the condemning authority for the value of its leasehold. Anything
hereinabove contained to the contrary notwithstanding, it is expressly
understood and agreed that without affecting Landlord's award as hereinabove
referred to, the Tenant may make such independent claim as the law may allow
with respect to Tenant's leasehold improvements, if any, trade fixtures and
equipment, and cost of moving and/or relocation.
23. INCREASE OF INSURANCE RATES
If the rate which the Landlord must pay to secure fire insurance shall be
increased because of any change in occupancy or use of the Premises by the
Tenant, or because of the Tenant's non-compliance with the rules, regulations or
requests of the fire insurance carrier, then such increase shall be paid by the
Tenant to the Landlord as additional rent.
24. TENANT'S FIRE INSURANCE
The Tenant, at its own cost and expense, shall insure its own fixtures,
equipment and contents, it being expressly understood and agreed that the same
is not the responsibility of the Landlord nor shall Landlord be liable therefor.
25. INDEMNITY
Anything in this Lease to the contrary notwithstanding, and without
limiting the Tenant's obligation to provide insurance pursuant to Article 9
hereunder, the Tenant covenants and agrees that it will indemnify, defend and
save harmless the Landlord against and from all liabilities, obligations,
damages, penalties, claims, costs, charges and expenses, including without
limitation reasonable attorneys' fees, which may be imposed upon or incurred by
Landlord by reason of any of the following occurring during the term of this
Lease:
(a) Any matter, cause or thing arising out of the use, occupancy, control
or management of the Leased Premises and any part thereof;
(b) Any negligence on the part of the Tenant or any of its agents,
contractors, servants, employees, licensees or invitees;
(c) Any accident, injury, damage to any person or property occurring in, or
about the Leased Premises;
(d) Any failure on the part of Tenant to perform or comply with any of the
covenants, agreements, terms or conditions contained in this Lease on its part
to be performed or complied with.
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Landlord shall promptly notify Tenant of any such claim asserted against it
and shall promptly send to Tenant copies of all papers or legal process served
upon it in connection with any action or proceeding brought against Landlord by
reason of any such claim. The indemnity provided hereunder, however, shall not
be applicable to any of its efforts or instances in which a waiver of
subrogation of Tenant's liability has been obtained and/or provided as in this
Lease required.
26. FORCE MAJEURE
Except for the obligation of the Tenant to pay rent and other charges as in
this Lease provided, the period of time during which the Landlord or Tenant is
prevented from performing any other act required to be performed under this
Lease by reason of fire, catastrophe, strikes, lockouts, civil commotion, acts
of God or the public enemy, government prohibitions or preemptions, embargoes,
inability to obtain material or labor by reason of governmental regulations or
prohibitions, the act or default of the other party, or other events beyond the
reasonable control of Landlord or Tenant, as the case may be, shall be added to
the time for performance of such act.
27. MORTGAGE PRIORITY
This Lease and the estate, interest and rights hereby created are
subordinate to any mortgage now or hereafter placed upon the Property, the
Building or any estate or interest therein, including, without limitation, any
mortgage on any leasehold estate, and to all renewals, modifications,
consolidations, replacements and extensions of same, as well as any
substitutions therefor. Tenant agrees that in the event any person, firm,
corporation or other entity acquires the right to possession of the Property and
the Building, including any mortgagee or holder of any estate or interest having
priority over this Lease, Tenant shall, if requested by such person, firm,
corporation or other entity, attorn to and become the tenant of such person,
firm, corporation or other entity, upon the same terms and conditions as are set
forth herein for the balance of the Lease term. Notwithstanding the foregoing,
any mortgagee may, at any time, subordinate its mortgage to this Lease, without
Tenant's consent, by notice in writing to Tenant, and thereupon this Lease shall
be deemed prior to such mortgage without regard to their respective dates of
execution and delivery, and in that event, such mortgagee shall have the same
rights with respect to this Lease as though it had been executed prior to the
execution and delivery of the mortgage. Tenant, if requested by Landlord, shall
execute any such instruments in recordable form as may be reasonably required by
Landlord in order to confirm or effect the subordination of this Lease and the
attornment of Tenant to future landlords in accordance with the terms of this
Lease. With respect to the existing mortgage encumbering the Building in which
the Demised Premises are a part, Landlord agrees that it will use its best
efforts to obtain an agreement of non-disturbance from the existing mortgagee in
such form as such mortgagee may reasonably require. Landlord agrees that with
respect to any future mortgages, it will use its best efforts to obtain an
agreement of non-disturbance in the event the existing mortgage is refinanced
from such substitute mortgagee.
28. SURRENDER OF PREMISES
On the last day, or earlier permitted termination of the Lease Term, Tenant
shall quit and surrender the Premises in good and orderly condition and repair
(reasonable wear and tear, and damage by fire or other casualty excepted) and
shall deliver and surrender the Leased Premises to the Landlord peaceably,
together with all alterations, additions and improvements in, to or on the
Premises made by Tenant as permitted under the Lease. The Landlord reserves the
right, however, to require the Tenant at its cost and expense to remove any
alterations or improvements installed by the Tenant and not permitted or
consented to by the Landlord pursuant to the terms and conditions of the Lease,
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which covenant shall survive the surrender and the delivery of the Premises as
provided hereunder. Prior to the expiration of the Lease Term the Tenant shall
remove all of its property, fixtures, equipment and trade fixtures from the
Premises. All property not removed by Tenant shall be deemed abandoned by
Tenant, and Landlord reserves the right to charge the reasonable cost of such
removal to the Tenant, which obligation shall survive the Lease termination and
surrender hereinabove provided. If the Premises are not surrendered at the end
of the Lease Term, Tenant shall indemnify Landlord against loss or liability
resulting from delay by Tenant in surrendering the Premises, including, without
limitation any claims made by any succeeding tenant founded on the delay.
29. SIGNS
Subject to the terms and conditions of Article 1.4, the Tenant shall only
be permitted to install signage at the Leased Premises in accordance with
Building standard, and at such designated locations as Landlord shall direct. In
addition, Tenant shall be listed on the Building directory located in the lobby
of the Building. Landlord agrees that it will, at the sole cost and expense of
the Tenant, replace the Smith Barney & Company sign on the Building with a
"First Montauk" sign, it being understood and agreed that the letters for the
replacement sign shall be the same size, quality, make and location as the
existing Smith Barney & Company sign. In addition, the Landlord agrees that it
will replace the Smith Barney & Company name on the tombstone sign with the name
"First Montauk", all at the cost and expense of the Tenant. It is understood and
agreed that the Tenant's right to have an exterior Building sign and its name on
the tombstone sign is not exclusive, the Landlord reserving the right to permit
other tenants of the Building to have exterior Building signs and additional
tombstone identification under terms and conditions as the Landlord shall elect.
30. ESTOPPEL CERTIFICATE
Tenant agrees, from time to time as may be requested by Landlord, to
execute, acknowledge and deliver to Landlord all or any of the following: an
estoppel letter certifying to such party as Landlord reasonably may designate,
including any mortgagee, that this Lease is in full force and effect and has not
been amended, modified or superseded, that Landlord has satisfactorily completed
all construction work required by this Lease (subject to completion of punchlist
items), that Tenant has accepted the Leased Premises and is now in possession
thereof, that Tenant has no defense offsets or counterclaims hereunder or
otherwise against Landlord with respect to this Lease or the Leased Premises and
Landlord is not in default hereunder (or if any of the foregoing not be the
case, specifying in reasonable detail the extent and nature thereof), that
Tenant has no knowledge of any pledge or assignment of this Lease or rentals
hereunder, that rent is accruing under this Lease but has not been paid more
than one month in advance and the date to which rent has been paid; and any
other instrument as may be reasonably requested to be executed by Tenant by any
mortgagee of the Property or Building or any interest therein, so long as the
rights of Tenant as provided for by this Lease are not materially affected by
any such other instrument. Tenant's estoppel letter shall be in the form as
Landlord or its mortgagee shall hereinafter proscribe.
31. TRANSFER BY LANDLORD
The term "Landlord" as used in this Lease means only the owner, or the
mortgagee in possession, for the time being of the Building or Real Property (or
the owner of a lease of the Building or of the Real Property) so that in the
event of any transfer of title to or lease of said Building or Real Property,
the said Landlord shall be and hereby is entirely freed and relieved of all
covenants and obligations of Landlord hereunder thereafter accruing, and it
shall be deemed and construed as a covenant running with the land without
further agreement between the parties or their successors in interest, or
between the parties and the transferee of title to or lessee of said Building or
Real Property, that the transferee of the lessee has assumed and agreed to carry
out any and all covenants and obligations of Landlord hereunder.
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32. LIMIT OF LANDLORD'S LIABILITY
In case the Landlord shall be a joint venture, partnership, tenancy in
common, association or other form of joint ownership, the individual members or
entities thereof shall have absolutely no personal liability or obligation with
respect to any provision of this Lease, or any obligation or liability arising
therefrom or in connection therewith, which covenant hereinabove referred to,
shall be deemed effective as of the date Landlord completes and delivers the
Leased Premises in accordance with the terms and conditions of the Lease and the
Plans herein provided.
33. LANDLORD'S RIGHT OF ENTRY AND ALTERATIONS
Landlord, or its agents, shall have the right at any time to enter upon the
Leased Premises to examine the same, to clean windows, or to make such repairs,
alterations or improvements as Landlord may deem necessary or proper, and,
during such operations, may close entrances, doors, corridors, elevators and
other facilities, all without any liability to Tenant by reason of interference,
inconvenience or annoyance; provided, however, that if such work should
materially reduce the area rented by Tenant, the rent paid by Tenant shall be
proportionately reduced, and further provided, that such work will be done in
such a manner as to cause the least possible interference, inconvenience and
annoyance to Tenant. However, this Article shall not be deemed as imposing any
duty on Landlord to undertake any of the acts specified therein.
34. LANDLORD'S REMEDIES AND EXPENSES
34.1 All rights and remedies of Landlord herein enumerated shall be
cumulative, and none shall exclude any other right or remedy allowed by law. For
the purposes of any suit brought or based hereon, this Lease shall be construed
to be a divisible contract, to the end that successive actions may be maintained
on this Lease on successive periodic sums which mature hereunder.
Notwithstanding the foregoing, Landlord agrees that all cognizable claims shall
be filed in one action.
34.2 Tenant or Landlord shall pay, upon demand, all of the Tenant's or
Landlord's costs, charges and expenses, including the reasonable fees of
counsel, agents and others retained by Tenant or Landlord, incurred in
successfully enforcing the other's obligation hereunder.
35. LANDLORD'S RESERVED RIGHTS
Landlord reserves the following rights:
(a) To have access for Landlord and other tenants of the building to any
mail chutes located on the Premises according to the rules of the United States
Post Office.
(b) During the last ninety (90) days of the Term of this Lease or any
extension thereof, if during or prior to that time Tenant vacates the Premises,
the Landlord shall have the right to enter the Leased Premises in order to
decorate, remodel, repair, alter or otherwise prepare the Premises for
re-occupancy.
(c) To show the Premises to prospective tenants or brokers during the last
year of the Term of this Lease as extended and to prospective purchasers at all
reasonable times, provided prior notice to Tenant in each case is given and
Tenant's use and occupancy of the Premises shall not be materially
inconvenienced by any such action of Landlord. Landlord may enter upon the
Premises and may exercise any or all of the foregoing rights hereby reserved
without being deemed guilty of an eviction or disturbance of Tenant's use or
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possession and without being liable in any manner to Tenant. Notwithstanding the
foregoing, Landlord agrees that it shall arrange said visitation only by
appointment with Tenant.
36. RULES AND REGULATIONS
Tenant, its employees, agents, servants, licensees and visitors agree to
comply with the rules and regulations with respect to the Premises and Building
(hereinafter called the "Rules") as the same shall be applicable to all tenants
of the Building. The Rules are set forth at the end of this Lease and are
expressly made a part hereof as Schedule "F". Landlord shall have the right to
make reasonable additions and amendments thereto from time to time; and Tenant,
its employees, agents and servants, agree to comply with such additions and
amendments after notice from Landlord. All notices with respect to the Rules
shall be in writing. The Rules shall not deny Tenant access to the Leased
Premises in excess of the regular work week hours defined in Article 7. Tenant
further agrees to furnish to Landlord license and car information as to its
employees who may be using the parking lot as may be required by the Landlord,
and Tenant further agrees to comply with such reasonable Rules or requirements
in connection with the use of the parking facilities as shall be made applicable
to all tenants of the Building.
37. WAIVERS
No delay or forbearance by Landlord in exercising any right or remedy
hereunder or in undertaking or performing any act or matter which is not
expressly required to be undertaken by Landlord shall be construed,
respectively, to be a waiver of Landlord's rights or to represent any agreement
by Landlord to undertake or perform such act or matter thereafter.
38. WAIVER OF TRIAL BY JURY
It is mutually agreed by and between Landlord and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties against the
other on any matter whatsoever arising out of or in any way connected with this
Lease, the relationship of Landlord and Tenant, Tenant's use of or occupancy of
the Leased Premises and/or any claim of injury or damage and any emergency or
any other statutory remedy.
39. SEVERABILITY
Each covenant and agreement in this Lease shall for all purposes be
construed to be a separate and independent covenant or agreement. If any
provision in this Lease or the application thereof shall to any extent be
invalid, illegal or otherwise unenforceable, the remainder of this Lease, and
the application of such provision, other than as invalid, illegal or
unenforceable, shall not be affected thereby; and such provisions in this Lease
shall be valid and enforceable to the fullest extent permitted by law.
40. QUIET ENJOYMENT
The Landlord covenants and represents that the Landlord is the owner of the
Premises herein leased and has the right and authority to enter into, execute
and deliver this Lease, and does further covenant that the Tenant on paying the
rent and performing the conditions and covenants herein contained, shall and may
peaceably and quietly have, hold and enjoy the Leased Premises for the Term
aforementioned.
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41. LEASE CONSTRUCTION
The Lease shall be construed pursuant to the laws of the State of New
Jersey.
42. BINDING EFFECT
The terms, covenants and conditions of the within Lease shall be binding
upon, and inure to the benefit of, each of the parties hereto, and their
respective heirs, successors, executors, administrators and assigns.
43. DEFINITIONS
The neuter gender, when used herein and in the acknowledgment hereafter set
forth, shall include all persons, firms and corporations, and words used in the
singular shall include words in the plural where the text of the instrument so
requires.
44. PARAGRAPH HEADING
The paragraph headings herein are inserted only as a matter of convenience
and for reference, and in no way to define, limit or describe the scope of this
Lease nor the intent of any provision hereof.
45. AMENDMENT AND MODIFICATIONS
This Lease contains the entire agreement between the parties hereto, and
shall not be amended, modified or supplemented unless by agreement in writing
signed by both Landlord and Tenant and the same shall not be valid unless
approved in writing by all mortgagees and holders of any estate or interest in
the Building or the Property by virtue of leases or other instruments expressly
referred to herein or which are then of record.
46. EXECUTION AND DELIVERY
These documents are submitted to the Tenant for consideration purposes and
shall not be binding on Landlord until fully executed in all parts by Landlord
and Tenant and exchanged.
47. SCHEDULES
The following Schedules are referred to in this Lease:
SCHEDULE "A" - Legal Description of Property SCHEDULE "B" - The Plans
SCHEDULE "C" - Intentionally Omitted SCHEDULE "D" - Intentionally
Omitted SCHEDULE "E" - Janitorial Services SCHEDULE "F" - Building
Rules and Regulations
48. BROKERAGE
The parties mutually represent to each other that neither party dealt with
any broker in connection with the within Lease.
49. SECURITY
Upon execution of this Lease, the Tenant shall deposit with the Landlord
the sum of SEVENTY-FIVE THOUSAND EIGHT HUNDRED SEVENTY-THREE AND 33/100
($75,873.33) DOLLARS as security for the full and faithful performance of this
Lease upon the part of the Tenant to be performed, Landlord acknowledging that
it has heretofore received from Tenant as a credit toward such security deposit
the sum of TWENTY-SIX THOUSAND FOUR HUNDRED FORTY-NINE AND 00/100 ($26,449.00)
DOLLARS, which sum was deposited with Landlord under the prior Lease Agreement
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75
dated September 7, 1993, referred to in this Lease Agreement. Upon termination
of this Lease, and providing the Tenant is not in default hereunder and has
performed all of the conditions of this Lease, the Landlord shall return the
total sum of SEVENTY-FIVE THOUSAND EIGHT HUNDRED SEVENTY-THREE AND 33/100
($75,873.33) DOLLARS to the Tenant. Anything herein contained to the contrary
notwithstanding, it is expressly understood and agreed that the said security
deposit shall not bear interest. Tenant covenants and agrees that it will not
assign, pledge, hypothecate, mortgage or otherwise encumber the aforementioned
security during the Term of this Lease. It is expressly understood and agreed
that the Landlord shall have the right to co-mingle the security funds with its
general funds and said security shall not be required to be segregated.
50. PRIOR LEASE SUPERSEDED
Anything herein contained to the contrary notwithstanding, effective as of
the Commencement Date, the within Lease shall supersede that certain lease
between the Landlord and Tenant dated September 7, 1993, and the terms and
conditions thereof shall be null and void and of no further force and effect in
connection with the leasing of any space in the Building by Landlord to Tenant,
with the exception of the sublease of the premises located on the first floor of
the Building commonly referred to as the Lucas Capital Management space
containing 1,637 gross rentable square feet. Anything in this Article 50 to the
contrary notwithstanding, the Landlord covenants, agrees and acknowledges that
the Tenant shall not be obligated to vacate and remove from any of its existing
lease spaces or sublease spaces until the Landlord delivers actual possession of
the Leased Premises to the Tenant in accordance with the terms and conditions of
this Lease.
51. OPTION TO RENEW
51.1 Provided the Tenant is not in default pursuant to the terms and
conditions of this Lease, the Tenant is hereby given the right and privilege to
renew the within Lease for one (1) six- (6) year renewal period, to commence at
the end of the initial Term of this Lease (the "Renewal Term"), which Renewal
Term shall be upon the same terms and conditions as in this Lease contained,
except that the Annual Basic Rent to be paid during the Renewal Term shall be
the sum of FIVE HUNDRED FORTY-SIX THOUSAND TWO HUNDRED EIGHTY-EIGHT AND 00/100
($546,288.00) DOLLARS per annum (the "Renewal Rent"), payable in equal monthly
installments of FORTY-FIVE THOUSAND FIVE HUNDRED TWENTY-FOUR AND 00/100
($45,524.00) DOLLARS per month.
51.2 The right, option, and privilege of the Tenant to renew this Lease as
hereinabove set forth is expressly conditioned upon the Tenant delivering to the
Landlord, in writing, by certified mail, return receipt requested, twelve (12)
months' prior notice of its intention to renew, which notice shall be given to
the Landlord by the Tenant no later than twelve (12) months prior to the
Termination Date hereinabove set forth.
51.3 In addition to the Renewal Rent hereinabove provided, Tenant shall pay
to Landlord during the Renewal Term all Additional Rent required to be paid
pursuant to this Lease.
52. COMMENCEMENT DATE DELAY
Anything in this Lease to the contrary notwithstanding, Landlord and Tenant
recognize that Smith Barney & Company will be occupying, prior to the
Commencement Date as established pursuant to Article 3 of the Statement of
Facts, a portion of the Leased Premises intended to be delivered to the Tenant.
Landlord agrees that it will use its best efforts to require Smith Barney &
Company to vacate, prior to January 1, 1998, that portion of the Leased Premises
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now occupied by Smith Barney & Company. To the extent, however, that Landlord
cannot accomplish the vacation of occupancy of that portion of the Leased
Premises occupied by Smith Barney & Company prior to January 1, 1998, Landlord
agrees that it will pay to the Tenant hereunder an amount equal to the 50% of
the penalty for the holdover by Smith Barney & Company, as such penalty sum
exceeds the current monthly rent being paid by Smith Barney & Company.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals or
caused these presents to be signed by their proper corporate officers and caused
their proper corporate seals to be hereunto affixed, the day and year first
above written.
RIVER OFFICE EQUITIES,
WITNESS: a New Jersey Partnership
By:
MARK DUBROW, General Partner
FIRST MONTAUK SECURITIES CORP.,
a New York Corporation
ATTEST/WITNESS:
______________________________ By:_______________________________
STATE OF NEW JERSEY )
) SS.:
COUNTY OF MONMOUTH )
BE IT REMEMBERED, that on this 5th day of March, 1997, before me, the
subscriber, personally appeared MARK DUBROW, General Partner of RIVER OFFICE
EQUITIES, a New Jersey Partnership, who, I am satisfied, is the Landlord
mentioned in the within Instrument, and thereupon he acknowledged that he
signed, sealed and delivered the same as his act and deed, for the uses and
purposes therein expressed.
STATE OF NEW JERSEY )
) SS.
COUNTY OF MONMOUTH )
BE IT REMEMBERED, that on this 5th day of March, 1997, before me, the
subscriber, personally appeared who, I am satisfied, is the person who signed
the within Instrument as of FIRST MONTAUK SECURITIES CORP., a New York
corporation, the Tenant named therein, and he thereupon acknowledged that the
said instrument made by the corporation and sealed with its corporate seal, was
signed, sealed with the corporate seal and delivered by him as such officer and
is the voluntary act and deed of the corporation, made by virtue of authority
from its Board of Directors.
<PAGE>
77
L E A S E A G R E E M E N T
BY AND BETWEEN
RIVER OFFICE EQUITIES,
a New Jersey Partnership
"Landlord"
-and-
FIRST MONTAUK SECURITIES CORP.,
a New York corporation
"Tenant"
DATED: March 5, 1997
LAW OFFICES
EPSTEIN, EPSTEIN, BROWN & BOSEK,
A Professional Corporation
245 Green Village Road
P. O. Box 901
Chatham Township, New Jersey 07928-0901
Tele. (201) 593-4900
Fax (201) 593-4966
File No. 11684-210
First Montauk Financial Corp.
Computation of Income per Share
Exhibit 11
<TABLE>
<CAPTION>
"Years ended December 31,"
1996 1995
Primary:
<S> <C> <C>
Net income $ 32,789 $ 768,088
--------- ---------
--------- ---------
Weighted average number of
common shares outstanding 7,977,724 8,044,622
Assuming exercise of options reduced by the number of shares which could have
been purchased with the proceeds from exercise of such options based on average
market price 645,814 377,743
--------- ---------
Weighted average number of
common shares outstanding,
as adjusted 8,623,538 8,422,365
--------- ---------
--------- ---------
Net income per share $ 0.01 $ 0.09
--------- ---------
--------- ---------
Assuming full dilution:
Net income $ 32,789 $ 768,088
--------- ---------
--------- ---------
Weighted average number of
common shares outstanding 7,977,724 8,044,622
Assuming exercise of options
reduced
by the number of shares which
could have been purchased
with the proceeds from
exercise of such options
based on ending market price 689,135 856,709
--------- ---------
Weighted average number of
common shares outstanding,
as adjusted 8,666,859 * 8,901,331
--------- ---------
--------- ---------
Net income per share $ 0.01 $ 0.09
</TABLE>
*This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion
No. 15 because it results in dilution of less than 3%.
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENT OF FINANCIAL CONDITION - DECEMBER 31, 1996 AND CONSOLIDATED STATEMENT
OF INCOME AS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10KSB DECEMBER 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,070
<RECEIVABLES> 720
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 2,129
<PP&E> 1,201
<TOTAL-ASSETS> 8,742
<SHORT-TERM> 0
<PAYABLES> 4,467
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 128
<LONG-TERM> 458
0
0
<COMMON> 3,602
<OTHER-SE> 93
<TOTAL-LIABILITY-AND-EQUITY> 8,742
<TRADING-REVENUE> 7,661
<INTEREST-DIVIDENDS> 1,045
<COMMISSIONS> 25,750
<INVESTMENT-BANKING-REVENUES> 634
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 106
<COMPENSATION> 25,428
<INCOME-PRETAX> 15
<INCOME-PRE-EXTRAORDINARY> 33
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of January, 1996, by and between Herbert
Kurinsky, residing at 68 Cotswold Circle, Ocean, New Jersey 07712 (hereinafter
referred to as the "Employee") and First Montauk Financial Corp., a New Jersey
corporation with principal offices Parkway 109, Red Bank, New Jersey 07701
(hereinafter referred to as the "Company").
W I T N E S S E T H :
WHEREAS, the Company, through its wholly owned subsidiary First Montauk
Securities Corp, is engaged in the investment banking and general securities
business as a registered broker-dealer; and
WHEREAS, the Company desires to employ and secure for the Company, the
experience, ability and services of Employee; and
WHEREAS, the Employee desires to continue his present employment with the
Company, pursuant to the terms and conditions herein set forth, superseding all
prior agreements between the Company, its subsidiaries and/or predecessors and
Employee;
NOW, THEREFORE, it is mutually agreed by and between the parties hereto as
follows:
ARTICLE I
EMPLOYMENT
Subject to and upon the terms and conditions of this Agreement, the Company
hereby employs and agrees to continue the employment of the Employee, and the
Employee hereby accepts such continued employment in his capacity as Chairman of
the Board and President. In this capacity, Employee will report to the Board of
Directors.
ARTICLE II
DUTIES
(A) The Employee shall, during the term of his employment with the Company,
perform such services and duties of an executive nature in connection with the
business, affairs and operations of the Company, and its subsidiaries, as may be
reasonably and in good faith assigned or delegated to him from time to time by
or under the authority of the Board of Directors of the Company and consistent
with the position of President.
(B) The Employee agrees to use his best efforts in the promotion and
advancement of the Company and its welfare and business. Employee agrees to
devote his primary professional time to the business of the Company as Employee
deems reasonably necessary; provided, however, that the Company acknowledges
that Employee shall be entitled to pursue unrelated personal business ventures
that do not materially conflict with the performance of Employee's duties to the
Company.
(C) Employee shall be based in the Red Bank New Jersey area, and shall
undertake such occasional travel, within or without the United States as is or
may be reasonably necessary in the interests of the Company.
<PAGE>
81
ARTICLE III
COMPENSATION
(A) Commencing with the commencement date hereof, the Company shall pay to
Employee a salary at the rate of $175,000 per annum and increasing 10% per annum
on each anniversary hereof during the period this Agreement shall be in effect
(payable in equal weekly installments or pursuant to such regular pay periods
adopted by the Company) (the "Base Salary").
(B) Employee shall be entitled to receive a bonus (the "Bonus") during each
year of this Agreement, determined as follows: The amount to be paid as a Bonus
shall be determined as of each June 30 based upon the fiscal year end and shall
be equal to five (5%) percent of the net pre-tax profit of the Company as
determined by the Company's independent auditors no later than 90 days following
the end of the Company's fiscal year without giving effect to loss carryforwards
or non-cash items and giving effect to and including revenues received by the
Company during the fiscal year and which revenues may have otherwise been
excluded in computing net pre-tax profit by reason of any revenue recognition
rules otherwise utilized in the application of generally accepted accounting
principles, and excluding any expense deduction attributed to such Bonus paid to
William J. Kurinsky (the "Net Pre-Tax Profit"); provided that, in the event the
Net Pre-Tax Profit of the Company for any fiscal year 1996 is less than
$500,000, no bonus shall be paid by the Company to the Employee pursuant to this
subparagraph (B). Such determination, for Bonus purposes only, shall be made in
accordance with generally accepted accounting principles, as modified by these
resolutions.
(C) Employee may receive such other additional compensation as may be
determined from time to time by the Board of Directors. Nothing herein shall be
deemed or construed to require the Board to award any bonus or additional
compensation.
(D) The Company shall deduct from Employee's compensation all federal,
state and local taxes which it may now or may hereafter be required to deduct.
(E) Employee shall also be entitled to receive brokerage commissions on in
accordance with the commission schedule in effect for other non-affiliate
brokers employed by the Company.
ARTICLE IV
BENEFITS
(A) During the term hereof, (i) the Company shall provide Employee with
Blue Cross/Blue Shield or equivalent health insurance benefits and major medical
insurance; (ii) Employee shall be reimbursed by the Company upon presentation of
appropriate vouchers for all business expenses incurred by the Employee on
behalf of the Company; (iii) the Company shall provide the Employee with an
automobile suitable for his position, equipped with a mobile telephone, or at
Employee's option, an appropriate automobile allowance, and reimburse reasonable
automobile expenses including repairs, maintenance, gasoline charges, mobile
phone, etc. via receipted expense reports.
(B) In the event the Company wishes to obtain Key Man life insurance on the
life of Employee, Employee agrees to cooperate with the Company in completing
any applications necessary to obtain such insurance and promptly submit to such
physical examinations and furnish such information as any proposed insurance
carrier may request.
(C) For each year of the term hereof, Employee shall be entitled to four
weeks paid vacation.
<PAGE>
82
ARTICLE V
NON-DISCLOSURE
The Employee shall not, at any time during or after the termination of his
employment hereunder except when acting on behalf of and with the authorization
of the Company, make use of or disclose to any person, corporation, or other
entity, for any purpose whatsoever, any trade secret or other confidential
information concerning the Company's business, finances, research, services or
products, and information relating to any client or account of the Company
(collectively referred to as the "Proprietary Information"). For the purposes of
this Agreement, trade secrets and confidential information shall mean
information disclosed to the Employee or known by his as a consequence of his
employment by the Company, whether or not pursuant to this Agreement, and not
generally known in the industry, concerning the business, finances, methods,
operations, clients, accounts, service or product information of the Company.
The Employee acknowledges that trade secrets and other items of confidential
information, as they may exist from time to time, are valuable and unique assets
of the Company, and that disclosure of any such information would cause
substantial injury to the Company. The foregoing is intended to be confirmatory
of the common law of the state of New York relating to trade secrets and
confidential information.
ARTICLE VI
RESTRICTIVE COVENANT
(A) In the event of the voluntary termination of employment with the
Company, except for Good Reason as defined in Article XIX, or Employee's
discharge for cause, as defined in Article VII hereof, Employee agrees that he
will not (i) for a period of one (1) year from the date of termination, directly
or indirectly solicit brokers or employees of the Company, or any sister or
subsidiary of the Company for employment with any other entity, or (ii) during
the term and for a period of one (1) year from the date of termination or
discharge, solicit or accept any corporate finance client relating to a
transaction involving a public offering, private placement, or merger and
acquisition advisory services, or research project which was already pending and
in existence at the time of Employee's termination or discharge, or which was
being negotiated at the time of Employee's termination or discharge.
(B) If any court shall hold that the duration of non-competition or any
other restriction contained in this paragraph is unenforceable, it is our
intention that same shall not thereby be terminated but shall be deemed amended
to delete therefrom such provision or portion adjudicated to be invalid or
unenforceable or in the alternative such judicially substituted term may be
substituted therefor.
ARTICLE VII
TERM
This Agreement shall be for a term commencing on the date first set forth
above and terminating December 31, 1999, unless sooner terminated pursuant to
the terms hereof, and renewable as provided for herein, for one additional
period of one year. The Company agrees to notify Employee in writing of its
intent to negotiate an extension of this Agreement six months prior to the
expiration of the original term hereof. If the Company fails to so notify
Employee, or after having timely notified Employee of its intention to extend,
fails to reach agreement with Employee on the terms of such extension, this
agreement shall be renewable, at the option of the Employee, for an additional
period of one year from the expiration of the original term, except that the
Employee's base salary shall be increased 10% above the prior year, and Employee
shall be entitled to stock options equivalent to one-third of the options
granted during the initial term of this agreement on comparable terms and
conditions. If the Company elects not to seek to negotiate an extension and has
<PAGE>
83
so timely notified Employee, then the Company shall pay Employee, upon the
expiration of the original term of this Agreement, a severance benefit equal to
the aggregate amount of Employee's then prevailing annual Base Salary and Bonus
payable in 12 equal monthly installments commencing on the original expiration
date of this Agreement.
ARTICLE VIII
DISABILITY DURING TERM
In the event that the Employee becomes totally disabled so that he is
unable or prevented from performing any one or all of his usual duties hereunder
for a period of four (4) consecutive months then, and in that event, the Company
shall continue to compensate him and he shall receive his Base Salary as
provided under Article III of this Agreement for a period of twelve (12) months
commencing from the date of such total disability. The aforesaid obligations of
the Company shall not extend beyond the term of this Agreement. The obligation
of the Company to make the aforesaid payments shall be modified and reduced and
the Company shall receive a credit for all disability insurance payments which
Employee may receive or to which he may become entitled; and provided further
that the payments herein provided shall not extend beyond the term of this
Agreement.
ARTICLE IX
TERMINATION
The Company may terminate this Agreement:
(A) Upon the death of Employee during the term hereof, except that the
Employee's legal representatives, successors, assigns and heirs shall have those
rights and interests as other wise provided in this Agreement, including the
right to receive accrued but unpaid bonus compensation, if any.
(B) Subject to the terms of Article VIII herein, upon written notice from
the Company to the Employee, if Employee becomes totally disabled and as a
result of such total disability, has been prevented from and unable to perform
all of his duties hereunder for a consecutive period of four (4) months.
(C) Upon written notice from the Company to the Employee, if the Employee
is convicted of a felony, or the final adjudication by any federal or state
judicial or regulatory authority or any action or proceeding arising out of the
violation of any material securities law, rule or regulation where such action
by proceeding resulted in Employee being a statutorily disqualified person as
that term is defined in Section 3(a)(39) of the Security and Exchange Act of
1934.
ARTICLE X
TERMINATION OF PRIOR AGREEMENTS
This Agreement sets forth the entire agreement between the parties and
supersedes all prior agreements between the parties, whether oral or written,
without prejudice to Employee's right to all accrued compensation prior to the
effective date of this Agreement.
<PAGE>
84
ARTICLE XI
ARBITRATION
Any dispute arising out of the interpretation, application and/or
performance of this Agreement with the sole exception of any claim, breach or
violation arising under Articles V or VI hereof shall be settled through final
and binding arbitration before a panel arbitrators in accordance with the rules
of the National Association of Securities Dealers (the "NASD"). Any judgment
upon any arbitration award may be entered in any court, federal or state, having
competent jurisdiction of the parties.
ARTICLE XII
SEVERABILITY
If any provision of this Agreement shall be held invalid and unenforceable,
the remainder of this Agreement shall remain in full force and effect. If any
provision is held invalid or unenforceable with respect to particular
circumstances, it shall remain in full force and effect in all other
circumstances.
ARTICLE XIII
NOTICE
All notices required to be given under the terms of this Agreement shall be
in writing and shall be deemed to have been duly given only if delivered to the
addressee in person or mailed by certified mail, return receipt requested, as
follows:
IF TO THE COMPANY: First Montauk Financial Corp.
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, New Jersey 07701
IF TO THE EMPLOYEE: Herbert Kurinsky
68 Cotswold Circle
Ocean, New Jersey 07712
or to any such other address as the party to receive the notice shall
advise by due notice given in accordance with this paragraph.
ARTICLE XIV
BENEFIT
This Agreement shall inure to, and shall be binding upon, the parties
hereto, the successors and assigns of the Company, and the heirs and personal
representatives of the Employee.
ARTICLE XV
WAIVER
The waiver by either party of any breach or violation of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach of construction and validity.
<PAGE>
85
ARTICLE XVI
GOVERNING LAW
This Agreement has been negotiated and executed in the State of New York,
and New Jersey law shall govern its construction and validity.
ARTICLE XVII
JURISDICTION
Any or all actions or proceedings which may be brought by the Company or
Employee under this Agreement shall be brought before an arbitration panel, or
if otherwise permissible under the terms of this agreement, a court, having a
situs within the State of New Jersey, and Employee hereby consents to the
jurisdiction of any tribunal or local, state or federal court located within the
State of New Jersey.
ARTICLE XVIII
ENTIRE AGREEMENT
This Agreement contains the entire agreement between the parties hereto. No
change, addition or amendment shall be made hereto, except by written agreement
signed by the parties hereto.
ARTICLE XIX
SEVERANCE COMPENSATION
The Company's Board of Directors has determined that it is appropriate to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including the Employee, to their assigned duties without
distraction in potentially disturbing circumstances arising from the possibility
of a change in control of the Company.
This Article XIX sets forth the severance compensation which the Company
agrees it will pay to the Employee if the Employee's employment with the Company
terminates under one of the circumstances described herein following a Change in
Control of the Company (as defined herein). The terms of this Article XIX shall
supersede any other provision of this Agreement after a Change in Control as
defined below. (References to Sections refers to Sections in this Article XIX.)
1. Term. This Article XIX shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earliest of (i) the termination of this Agreement including any renewal period,
if a Change in Control of the Company has not occurred within such two-year
period; (ii) the termination of the Employee's employment with the Company based
on death, Disability (as defined in Section 3(b)), Retirement (as defined in
Section 3(c)) or Cause (as defined in Section 3(d)) or by the Employee other
than for Good Reason (as defined in Section 3(e)); and (iii) one year from the
date of a Change in Control of the Company if the Employee has not terminated
his employment for Good Reason as of such time.
2. Change in Control. No compensation shall be payable under this Article
XIX unless and until (a) there shall have been a Change in Control of the
Company, while the Employee is still an employee of the Company and (b) the
Employee's employment by the Company thereafter shall have been terminated in
accordance with Section 3. For purposes of this Agreement, a Change in Control
of the Company shall be deemed to have occurred if (I) there shall be
consummated (x) any consolidation or merger of the Company in which the Company
is not the continuing or surviving corporation or pursuant to which shares of
<PAGE>
86
the Company's Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, or (y) 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 (ii) the stockholders of the Company approved
any plan or proposal for the liquidation or dissolution of the Company, or (iii)
any person (as such term is used in Sections 13(d) and 13(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall become
the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act)
of 20% or more of the Company's outstanding Common Stock, or (iv) during any
period of two consecutive years, 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 two-thirds of the directors then still in office who were
directors at the beginning of the period.
3. Termination Following Change in Control.
(a) If a Change in Control of the Company shall have occurred while the
Employee is still an employee of the Company, the Employee shall be entitled to
the compensation provided in Section 4 upon the subsequent termination of the
Employee's employment with the Company by the Employee or by the Company unless
such termination is as a result of (i) the Employee's death; (ii) the Employee's
Disability (as defined in Section 3(b) below); (iii) the Employee's Retirement
(as defined in Section 3(c) below); (iv) the Employee's termination by the
Company for Cause (as defined in Section 3(d) below); or (v) the Employee's
decision to terminate employment other than for Good Reason (as defined in
Section 3(e) below).
(b) Disability. If, as a result of the Employee's incapacity due to
physical or mental illness, the Employee shall have been absent from his duties
with the Company on a full-time basis for four months and within 30 days after
written notice of termination is thereafter given by the Company the Employee
shall not have returned to the full-time performance of the Employee's duties,
the Company may terminate this Agreement for "Disability."
(c) Retirement. The term "Retirement" as used in this Article XIX shall
mean termination by the Company or the Employee of the Employee's employment
based on the Employee's having reached age 65 or such other age as shall have
been fixed in any arrangement established with the Employee's consent with
respect to the Executive.
(d) Cause. The Company may terminate the Employee's employment for Cause.
For purposes of this Agreement only, the Company shall have "Cause" to terminate
the Employee's employment hereunder only on the basis of fraud, misappropriation
or embezzlement on the part of the Employee. Notwithstanding the foregoing, the
Employee shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to the Employee a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Company's Board of Directors at a meeting of the Board called
and held for the purpose (after reasonable notice to the Employee and an
opportunity for the Employee, together with the Employee's counsel, to be heard
before the Board), finding that in the good faith opinion of the Board the
Employee was guilty of conduct set forth in the second sentence of this Section
3(d) and specifying the particulars thereof in detail.
(e) Good Reason. The Employee may terminate the Employee's employment for
Good Reason at any time during the term of this Agreement. For purposes of this
Agreement "Good Reason" shall mean any of the following (without the Employee's
express written consent):
<PAGE>
87
(i) the assignment to the Employee by the Company of duties inconsistent
with the Employee's position, duties, responsibilities and status with the
Company immediately prior to a Change in Control of the Company, or a change in
the Employee's titles or offices as in effect immediately prior to a Change in
Control of the Company, or any removal of the Employee from or any failure to
reelect the Employee to any of such position, except in connection with the
termination of his employment for Disability, Retirement or Cause or as a result
of the Employee's death or by the Employee other than for Good Reason;
(ii) a reduction by the Company in the Employee's base salary as in effect
on the date hereof or as the same may be increased from time to time during the
term of this Agreement or the Company's failure to increase (within 12 months of
the Employee's last increase in base salary) the Employee's base salary after a
Change in Control of the Company in an amount which at least equals, on a
percentage basis, the average percentage increase in base salary for all
officers of the Company effected in the preceding 12 months;
(iii) any failure by the Company to continue in effect any benefit plan or
arrangement (including, without limitation, the Company's life insurance and
medical, dental, accident and disability plans) in which the Employee is
participating at the time of a Change in Control of the Company (or any other
plans providing the Employee with substantially similar benefits) (hereinafter
referred to as "Benefit Plans"), or the taking of any action by the Company
which would adversely affect the Employee's participation in or materially
reduce the Employee's benefits under any such Benefit Plan or deprive the
Employee of any material fringe benefit enjoyed by the Employee at the time of a
Change in Control of the Company;
(iv) any failure by the Company to continue in effect any incentive plan or
arrangement (including, without limitation, bonus and contingent bonus
arrangements and credits and the right to receive performance awards and similar
incentive compensation benefits) in which the Employee is participating at the
time of a Change in Control of the Company (or any other plans or arrangements
providing him with substantially similar benefits) (hereinafter referred to as
"Incentive Plans") or the taking of any action by the Company which would
adversely affect the Employee's participation in any such Incentive Plan or
reduce the Employee's benefits under any such Incentive Plan, expressed as a
percentage of his base salary, by more than 10 percentage points in any fiscal
year as compared to the immediately preceding fiscal year;
(v) any failure by the Company to continue in effect any plan or
arrangement to receive securities of the Company (including, without limitation,
the Company's Incentive Stock Option Plan and any other plan or arrangement to
receive and exercise stock options, stock appreciation rights, restricted stock
or grants thereof) in which the Employee is participating at the time of a
Change in Control of the Company (or plans or arrangements providing him with
substantially similar benefits) (hereinafter referred to as "Securities Plans")
or the taking of any action by the Company which would adversely affect the
Employee's participation in or materially reduce the Employee's benefits under
any such Securities Plan;
(vi) a relocation of the Company's principal executive offices to a
location outside of Monmouth County, New Jersey, or the Employee's relocation to
any place other than the location at which the Employee performed the Employee's
duties prior to a Change in Control of the Company, except for required travel
by the Employee on the Company's business to an extent substantially consistent
with the Employee's business travel obligations at the time of a Change in
Control of the Company;
<PAGE>
88
(vii) any failure by the Company to provide the Employee with the number of
paid vacation days to which the Employee is entitled at the time of a Change in
Control of the Company;
(viii) any material breach by the Company of any provision of this
Agreement;
(ix) any failure by the Company to obtain the assumption of this Agreement
by any successor or assign of the Company; or
(x) any purported termination of the Employee's employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
Section 3(f), and for purposes of this Agreement, no such purported termination
shall be effective.
(f) Notice of Termination. Any termination by the Company pursuant to
Section 3(b), 3(c) or 3(d) shall be communicated by a Notice of Termination. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) Date of Termination. "Date of Termination" shall mean (a) if this
Agreement is terminated by the Company for Disability, 30 days after Notice of
Termination is given to the Employee (provided that the Employee shall not have
returned to the performance of the Employee's duties on a full-time basis during
such 30-day period) or (b) if the Employee's employment is terminated by the
Company for any other reason, the date on which a Notice of Termination is
given; provided that if within 30 days after any Notice of Termination is given
to the Employee by the Company the Employee notifies the Company that a dispute
exists concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual agreement by the parties or
upon final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected).
4. Severance Compensation upon Termination of Employment.
If the Company shall terminate the Employee's employment other than
pursuant to Section 3(b), 3(c) or 3(d) or if the Employee shall terminate his
employment for Good Reason, then the Company shall:
(i) pay to the Employee as severance pay in a lump sum, in cash, on the
fifth day following the Date of Termination, an amount equal to three times the
aggregate annual compensation paid to the Employee during the calendar year
preceding the change in control of the Company by the Company and any of its
subsidiaries subject to United States income taxes; provided, however, that if
the lump sum severance payment under this Section 4, either alone or together
with other payments which the Employee has the right to receive from the
Company, would constitute a "parachute payment" (as defined in Section 280G of
the Internal Revenue Code of 1954, as amended (the "Code")), such lump sum
severance payment shall be reduced to the largest amount as will result in no
portion of the lump sum severance payment under this Section 4 being subject to
the excise tax imposed by Section 4999 of the Code. The determination of any
reduction in the lump sum severance payment under this Section 4 pursuant to the
foregoing proviso shall be made by the Employee in good faith, and such
determination shall be conclusive and binding on the Company; and
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(ii) within ten days following the Date of Termination, shall cause the
Employee to be relieved of any and all personal guarantees of Company
obligations, and fully pay all outstanding loans and other obligations of the
Company to the Executive. If, for any reason, the Company fails to comply with
its obligations under this subparagraph, the Employee shall have the option, at
his sole discretion, to convert up to the principal amount of such Notes to
shares of the Company's Common Stock at the rate of $.50 per share; provided,
that the conversion of all or a portion of any outstanding loans by the Employee
shall not relieve the Company of any of its obligations arising under this
subparagraph including the obligations to repay any unconverted loans and
relieve the Employee of any personal guarantees.
5. No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights.
(a) The Employee shall not be required to mitigate damages or the amount of
any payment provided for under this Article XIX by seeking other employment or
otherwise, nor shall the amount of any payment provided for under this Article
XIX be reduced by any compensation earned by the Employee as the result of
employment by another employer after the Date of Termination, or otherwise.
(b) The provisions of this Article XIX, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Employee's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or arrangement.
6. Successor to the Company.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Employee to terminate the Employee's employment for Good Reason. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor or assign to its business and/or assets as aforesaid which executes
and delivers the agreement provided for in this Section 6 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law. If at any time during the term of this Agreement the Employee is employed
by any corporation a majority of the voting securities of which is then owned by
the Company, "Company" as used in Sections 3 and 4 hereof shall in addition
include such employer. In such event, the Company agrees that it shall pay or
shall cause such employer to pay any amounts owed to the Employee pursuant to
Section 4 hereof.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Employee's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Employee should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Employee's devisee, legatee, or other designee or, if
there be no such designee, to the Employee's estate.
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7. Legal Fees and Expenses. The Company shall pay all legal fees and
expenses which the Employee may incur as a result of the Company's contesting
the validity, enforceability or the Employee's interpretation of, or
determinations under, this Article XIX.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
affixed their hands and seals the day and year first above written.
(Corporate Seal) FIRST MONTAUK FINANCIAL CORP.
By_________________________
William Kurinsky
- - -------------------------------
Herbert Kurinsky (Employee)
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of January, 1996, by and between William
J. Kurinsky, residing at 4 Cotswold Circle, Ocean, New Jersey 07712 (hereinafter
referred to as the "Employee") and First Montauk Financial Corp., a New Jersey
corporation with principal offices Parkway 109, Red Bank, New Jersey 07701
(hereinafter referred to as the "Company").
W I T N E S S E T H :
WHEREAS, the Company, through its wholly owned subsidiary First Montauk
Securities Corp, is engaged in the investment banking and general securities
business as a registered broker-dealer; and
WHEREAS, the Company desires to employ and secure for the Company, the
experience, ability and services of Employee; and
WHEREAS, the Employee desires to continue his present employment with the
Company, pursuant to the terms and conditions herein set forth, superseding all
prior agreements between the Company, its subsidiaries and/or predecessors and
Employee;
NOW, THEREFORE, it is mutually agreed by and between the parties hereto as
follows:
ARTICLE I
EMPLOYMENT
Subject to and upon the terms and conditions of this Agreement, the Company
hereby employs and agrees to continue the employment of the Employee, and the
Employee hereby accepts such continued employment in his capacity as member of
the Board of Directors, Vice-President, Secretary and Treasurer. In this
capacity, Employee will report to the Board of Directors.
ARTICLE II
DUTIES
(A) The Employee shall, during the term of his employment with the Company,
perform such services and duties of an executive nature in connection with the
business, affairs and operations of the Company, and its subsidiaries, as may be
reasonably and in good faith assigned or delegated to him from time to time by
or under the authority of the Board of Directors and the President of the
Company and consistent with the position of Vice-President.
(B) The Employee agrees to use his best efforts in the promotion and
advancement of the Company and its welfare and business. Employee agrees to
devote his primary professional time to the business of the Company as Employee
deems reasonably necessary; provided, however, that the Company acknowledges
that Employee shall be entitled to pursue unrelated personal business ventures
that do not materially conflict with the performance of Employee's duties to the
Company.
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(C) Employee shall be based in the Red Bank New Jersey area, and shall
undertake such occasional travel, within or without the United States as is or
may be reasonably necessary in the interests of the Company.
ARTICLE III
COMPENSATION
(A) Commencing with the commencement date hereof, the Company shall pay to
Employee a salary at the rate of $175,000 per annum and increasing 10% per annum
on each anniversary hereof during the period this Agreement shall be in effect
(payable in equal weekly installments or pursuant to such regular pay periods
adopted by the Company) (the "Base Salary").
(B) Employee shall be entitled to receive a bonus (the "Bonus") during each
year of this Agreement, determined as follows: The amount to be paid as a Bonus
shall be determined as of each June 30 based upon the fiscal year end and shall
be equal to five (5%) percent of the net pre-tax profit of the Company as
determined by the Company's independent auditors no later than 90 days following
the end of the Company's fiscal year without giving effect to loss carryforwards
or non-cash items and giving effect to and including revenues received by the
Company during the fiscal year and which revenues may have otherwise been
excluded in computing net pre-tax profit by reason of any revenue recognition
rules otherwise utilized in the application of generally accepted accounting
principles, and excluding any expense deduction attributed to such Bonus paid to
Herbert. Kurinsky (the "Net Pre-Tax Profit"); provided that, in the event the
Net Pre-Tax Profit of the Company for any fiscal year 1996 is less than
$500,000, no bonus shall be paid by the Company to the Employee pursuant to this
subparagraph (B). Such determination, for Bonus purposes only, shall be made in
accordance with generally accepted accounting principles, as modified by these
resolutions.
(C) Employee may receive such other additional compensation as may be
determined from time to time by the Board of Directors. Nothing herein shall be
deemed or construed to require the Board to award any bonus or additional
compensation.
(D) The Company shall deduct from Employee's compensation all federal,
state and local taxes which it may now or may hereafter be required to deduct.
(E) Employee shall also be entitled to receive brokerage commissions on in
accordance with the commission schedule in effect for other non-affiliate
brokers employed by the Company.
ARTICLE IV
BENEFITS
(A) During the term hereof, (i) the Company shall provide Employee with
Blue Cross/Blue Shield or equivalent health insurance benefits and major medical
insurance; (ii) Employee shall be reimbursed by the Company upon presentation of
appropriate vouchers for all business expenses incurred by the Employee on
behalf of the Company; (iii) the Company shall provide the Employee with an
automobile suitable for his position, equipped with a mobile telephone, or at
Employee's option, an appropriate automobile allowance, and reimburse reasonable
automobile expenses including repairs, maintenance, gasoline charges, mobile
phone, etc. via receipted expense reports.
(B) In the event the Company wishes to obtain Key Man life insurance on the
life of Employee, Employee agrees to cooperate with the Company in completing
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93
any applications necessary to obtain such insurance and promptly submit to such
physical examinations and furnish such information as any proposed insurance
carrier may request.
(C) For each year of the term hereof, Employee shall be entitled to four
weeks paid vacation.
ARTICLE V
NON-DISCLOSURE
The Employee shall not, at any time during or after the termination of his
employment hereunder except when acting on behalf of and with the authorization
of the Company, make use of or disclose to any person, corporation, or other
entity, for any purpose whatsoever, any trade secret or other confidential
information concerning the Company's business, finances, research, services or
products, and information relating to any client or account of the Company
(collectively referred to as the "Proprietary Information"). For the purposes of
this Agreement, trade secrets and confidential information shall mean
information disclosed to the Employee or known by him as a consequence of his
employment by the Company, whether or not pursuant to this Agreement, and not
generally known in the industry, concerning the business, finances, methods,
operations, clients, accounts, service or product information of the Company.
The Employee acknowledges that trade secrets and other items of confidential
information, as they may exist from time to time, are valuable and unique assets
of the Company, and that disclosure of any such information would cause
substantial injury to the Company. The foregoing is intended to be confirmatory
of the common law of the state of New York relating to trade secrets and
confidential information.
ARTICLE VI
RESTRICTIVE COVENANT
(A) In the event of the voluntary termination of employment with the
Company, except for Good Reason as defined in Article XIX, or Employee's
discharge for cause, as defined in Article VII hereof, Employee agrees that he
will not (i) for a period of one (1) year from the date of termination, directly
or indirectly solicit brokers or employees of the Company, or any sister or
subsidiary of the Company for employment with any other entity, or (ii) during
the term and for a period of one (1) year from the date of termination or
discharge, solicit or accept any corporate finance client relating to a
transaction involving a public offering, private placement, or merger and
acquisition advisory services, or research project which was already pending and
in existence at the time of Employee's termination or discharge, or which was
being negotiated at the time of Employee's termination or discharge.
(B) If any court shall hold that the duration of non-competition or any
other restriction contained in this paragraph is unenforceable, it is our
intention that same shall not thereby be terminated but shall be deemed amended
to delete therefrom such provision or portion adjudicated to be invalid or
unenforceable or in the alternative such judicially substituted term may be
substituted therefor.
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ARTICLE VII
TERM
This Agreement shall be for a term commencing on the date first set forth
above and terminating December 31, 1999, unless sooner terminated pursuant to
the terms hereof, and renewable as provided for herein, for one additional
period of one year. The Company agrees to notify Employee in writing of its
intent to negotiate an extension of this Agreement six months prior to the
expiration of the original term hereof. If the Company fails to so notify
Employee, or after having timely notified Employee of its intention to extend,
fails to reach agreement with Employee on the terms of such extension, this
agreement shall be renewable, at the option of the Employee, for an additional
period of one year from the expiration of the original term, except that the
Employee's base salary shall be increased 10% above the prior year, and Employee
shall be entitled to stock options equivalent to one-third of the options
granted during the initial term of this agreement on comparable terms and
conditions. If the Company elects not to seek to negotiate an extension and has
so timely notified Employee, then the Company shall pay Employee, upon the
expiration of the original term of this Agreement, a severance benefit equal to
the aggregate amount of Employee's then prevailing annual Base Salary and Bonus
payable in 12 equal monthly installments commencing on the original expiration
date of this Agreement.
ARTICLE VIII
DISABILITY DURING TERM
In the event that the Employee becomes totally disabled so that he is
unable or prevented from performing any one or all of his usual duties hereunder
for a period of four (4) consecutive months then, and in that event, the Company
shall continue to compensate him and he shall receive his Base Salary as
provided under Article III of this Agreement for a period of twelve (12) months
commencing from the date of such total disability. The aforesaid obligations of
the Company shall not extend beyond the term of this Agreement. The obligation
of the Company to make the aforesaid payments shall be modified and reduced and
the Company shall receive a credit for all disability insurance payments which
Employee may receive or to which he may become entitled; and provided further
that the payments herein provided shall not extend beyond the term of this
Agreement.
ARTICLE IX
TERMINATION
The Company may terminate this Agreement:
(A) Upon the death of Employee during the term hereof, except that the
Employee's legal representatives, successors, assigns and heirs shall have those
rights and interests as other wise provided in this Agreement, including the
right to receive accrued but unpaid bonus compensation, if any.
(B) Subject to the terms of Article VIII herein, upon written notice from
the Company to the Employee, if Employee becomes totally disabled and as a
result of such total disability, has been prevented from and unable to perform
all of his duties hereunder for a consecutive period of four (4) months.
(C) Upon written notice from the Company to the Employee, if the Employee
is convicted of a felony, or the final adjudication by any federal or state
judicial or regulatory authority or any action or proceeding arising out of the
violation of any material securities law, rule or regulation where such action
by proceeding resulted in Employee being a statutorily disqualified person as
that term is defined in Section 3(a)(39) of the Security and Exchange Act of
1934.
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ARTICLE X
TERMINATION OF PRIOR AGREEMENTS
This Agreement sets forth the entire agreement between the parties and
supersedes all prior agreements between the parties, whether oral or written,
without prejudice to Employee's right to all accrued compensation prior to the
effective date of this Agreement.
ARTICLE XI
ARBITRATION
Any dispute arising out of the interpretation, application and/or
performance of this Agreement with the sole exception of any claim, breach or
violation arising under Articles V or VI hereof shall be settled through final
and binding arbitration before a panel arbitrators in accordance with the rules
of the National Association of Securities Dealers (the "NASD"). Any judgment
upon any arbitration award may be entered in any court, federal or state, having
competent jurisdiction of the parties.
ARTICLE XII
SEVERABILITY
If any provision of this Agreement shall be held invalid and unenforceable,
the remainder of this Agreement shall remain in full force and effect. If any
provision is held invalid or unenforceable with respect to particular
circumstances, it shall remain in full force and effect in all other
circumstances.
ARTICLE XIII
NOTICE
All notices required to be given under the terms of this Agreement shall be
in writing and shall be deemed to have been duly given only if delivered to the
addressee in person or mailed by certified mail, return receipt requested, as
follows:
IF TO THE COMPANY: First Montauk Financial Corp.
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, New Jersey 07701
IF TO THE EMPLOYEE: William J. Kurinsky
4 Cotswold Circle
Ocean, New Jersey 07712
or to any such other address as the party to receive the notice shall
advise by due notice given in accordance with this paragraph.
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ARTICLE XIV
BENEFIT
This Agreement shall inure to, and shall be binding upon, the parties
hereto, the successors and assigns of the Company, and the heirs and personal
representatives of the Employee.
ARTICLE XV
WAIVER
The waiver by either party of any breach or violation of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach of construction and validity.
ARTICLE XVI
GOVERNING LAW
This Agreement has been negotiated and executed in the State of New York,
and New Jersey law shall govern its construction and validity.
ARTICLE XVII
JURISDICTION
Any or all actions or proceedings which may be brought by the Company or
Employee under this Agreement shall be brought before an arbitration panel, or
if otherwise permissible under the terms of this agreement, a court, having a
situs within the State of New Jersey, and Employee hereby consents to the
jurisdiction of any tribunal or local, state or federal court located within the
State of New Jersey.
ARTICLE XVIII
ENTIRE AGREEMENT
This Agreement contains the entire agreement between the parties hereto. No
change, addition or amendment shall be made hereto, except by written agreement
signed by the parties hereto.
ARTICLE XIX
SEVERANCE COMPENSATION
The Company's Board of Directors has determined that it is appropriate to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including the Employee, to their assigned duties without
distraction in potentially disturbing circumstances arising from the possibility
of a change in control of the Company.
This Article XIX sets forth the severance compensation which the Company
agrees it will pay to the Employee if the Employee's employment with the Company
terminates under one of the circumstances described herein following a Change in
Control of the Company (as defined herein). The terms of this Article XIX shall
supersede any other provision of this Agreement after a Change in Control as
defined below. (References to Sections refers to Sections in this Article XIX.)
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97
1. Term. This Article XIX shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earliest of (i) the termination of this Agreement including any renewal period,
if a Change in Control of the Company has not occurred within such two-year
period; (ii) the termination of the Employee's employment with the Company based
on death, Disability (as defined in Section 3(b)), Retirement (as defined in
Section 3(c)) or Cause (as defined in Section 3(d)) or by the Employee other
than for Good Reason (as defined in Section 3(e)); and (iii) one year from the
date of a Change in Control of the Company if the Employee has not terminated
his employment for Good Reason as of such time.
2. Change in Control. No compensation shall be payable under this Article
XIX unless and until (a) there shall have been a Change in Control of the
Company, while the Employee is still an employee of the Company and (b) the
Employee's employment by the Company thereafter shall have been terminated in
accordance with Section 3. For purposes of this Agreement, a Change in Control
of the Company shall be deemed to have occurred if (i) there shall be
consummated (x) any consolidation or merger of the Company in which the Company
is not the continuing or surviving corporation or pursuant to which shares of
the Company's Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, or (y) 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 (ii) the stockholders of the Company approved
any plan or proposal for the liquidation or dissolution of the Company, or (iii)
any person (as such term is used in Sections 13(d) and 13(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall become
the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act)
of 20% or more of the Company's outstanding Common Stock, or (iv) during any
period of two consecutive years, 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 two-thirds of the directors then still in office who were
directors at the beginning of the period.
3. Termination Following Change in Control.
(a) If a Change in Control of the Company shall have occurred while the
Employee is still an employee of the Company, the Employee shall be entitled to
the compensation provided in Section 4 upon the subsequent termination of the
Employee's employment with the Company by the Employee or by the Company unless
such termination is as a result of (i) the Employee's death; (ii) the Employee's
Disability (as defined in Section 3(b) below); (iii) the Employee's Retirement
(as defined in Section 3(c) below); (iv) the Employee's termination by the
Company for Cause (as defined in Section 3(d) below); or (v) the Employee's
decision to terminate employment other than for Good Reason (as defined in
Section 3(e) below).
(b) Disability. If, as a result of the Employee's incapacity due to
physical or mental illness, the Employee shall have been absent from his duties
with the Company on a full-time basis for four months and within 30 days after
written notice of termination is thereafter given by the Company the Employee
shall not have returned to the full-time performance of the Employee's duties,
the Company may terminate this Agreement for "Disability."
(c) Retirement. The term "Retirement" as used in this Article XIX shall
mean termination by the Company or the Employee of the Employee's employment
based on the Employee's having reached age 65 or such other age as shall have
been fixed in any arrangement established with the Employee's consent with
respect to the Executive.
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(d) Cause. The Company may terminate the Employee's employment for Cause.
For purposes of this Agreement only, the Company shall have "Cause" to terminate
the Employee's employment hereunder only on the basis of fraud, misappropriation
or embezzlement on the part of the Employee. Notwithstanding the foregoing, the
Employee shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to the Employee a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Company's Board of Directors at a meeting of the Board called
and held for the purpose (after reasonable notice to the Employee and an
opportunity for the Employee, together with the Employee's counsel, to be heard
before the Board), finding that in the good faith opinion of the Board the
Employee was guilty of conduct set forth in the second sentence of this Section
3(d) and specifying the particulars thereof in detail.
(e) Good Reason. The Employee may terminate the Employee's employment for
Good Reason at any time during the term of this Agreement. For purposes of this
Agreement "Good Reason" shall mean any of the following (without the Employee's
express written consent):
(i) the assignment to the Employee by the Company of duties inconsistent
with the Employee's position, duties, responsibilities and status with the
Company immediately prior to a Change in Control of the Company, or a change in
the Employee's titles or offices as in effect immediately prior to a Change in
Control of the Company, or any removal of the Employee from or any failure to
reelect the Employee to any of such position, except in connection with the
termination of his employment for Disability, Retirement or Cause or as a result
of the Employee's death or by the Employee other than for Good Reason;
(ii) a reduction by the Company in the Employee's base salary as in effect
on the date hereof or as the same may be increased from time to time during the
term of this Agreement or the Company's failure to increase (within 12 months of
the Employee's last increase in base salary) the Employee's base salary after a
Change in Control of the Company in an amount which at least equals, on a
percentage basis, the average percentage increase in base salary for all
officers of the Company effected in the preceding 12 months;
(iii) any failure by the Company to continue in effect any benefit plan or
arrangement (including, without limitation, the Company's life insurance and
medical, dental, accident and disability plans) in which the Employee is
participating at the time of a Change in Control of the Company (or any other
plans providing the Employee with substantially similar benefits) (hereinafter
referred to as "Benefit Plans"), or the taking of any action by the Company
which would adversely affect the Employee's participation in or materially
reduce the Employee's benefits under any such Benefit Plan or deprive the
Employee of any material fringe benefit enjoyed by the Employee at the time of a
Change in Control of the Company;
(iv) any failure by the Company to continue in effect any incentive plan or
arrangement (including, without limitation, bonus and contingent bonus
arrangements and credits and the right to receive performance awards and similar
incentive compensation benefits) in which the Employee is participating at the
time of a Change in Control of the Company (or any other plans or arrangements
providing him with substantially similar benefits) (hereinafter referred to as
"Incentive Plans") or the taking of any action by the Company which would
adversely affect the Employee's participation in any such Incentive Plan or
reduce the Employee's benefits under any such Incentive Plan, expressed as a
percentage of his base salary, by more than 10 percentage points in any fiscal
year as compared to the immediately preceding fiscal year;
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(v) any failure by the Company to continue in effect any plan or
arrangement to receive securities of the Company (including, without limitation,
the Company's Incentive Stock Option Plan and any other plan or arrangement to
receive and exercise stock options, stock appreciation rights, restricted stock
or grants thereof) in which the Employee is participating at the time of a
Change in Control of the Company (or plans or arrangements providing him with
substantially similar benefits) (hereinafter referred to as "Securities Plans")
or the taking of any action by the Company which would adversely affect the
Employee's participation in or materially reduce the Employee's benefits under
any such Securities Plan;
(vi) a relocation of the Company's principal executive offices to a
location outside of Monmouth County, New Jersey, or the Employee's relocation to
any place other than the location at which the Employee performed the Employee's
duties prior to a Change in Control of the Company, except for required travel
by the Employee on the Company's business to an extent substantially consistent
with the Employee's business travel obligations at the time of a Change in
Control of the Company;
(vii) any failure by the Company to provide the Employee with the number of
paid vacation days to which the Employee is entitled at the time of a Change in
Control of the Company;
(viii) any material breach by the Company of any provision of this
Agreement;
(ix) any failure by the Company to obtain the assumption of this Agreement
by any successor or assign of the Company; or
(x) any purported termination of the Employee's employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
Section 3(f), and for purposes of this Agreement, no such purported termination
shall be effective.
(f) Notice of Termination. Any termination by the Company pursuant to
Section 3(b), 3(c) or 3(d) shall be communicated by a Notice of Termination. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) Date of Termination. "Date of Termination" shall mean (a) if this
Agreement is terminated by the Company for Disability, 30 days after Notice of
Termination is given to the Employee (provided that the Employee shall not have
returned to the performance of the Employee's duties on a full-time basis during
such 30-day period) or (b) if the Employee's employment is terminated by the
Company for any other reason, the date on which a Notice of Termination is
given; provided that if within 30 days after any Notice of Termination is given
to the Employee by the Company the Employee notifies the Company that a dispute
exists concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual agreement by the parties or
upon final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected).
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4. Severance Compensation upon Termination of Employment.
If the Company shall terminate the Employee's employment other than
pursuant to Section 3(b), 3(c) or 3(d) or if the Employee shall terminate his
employment for Good Reason, then the Company shall:
(i) pay to the Employee as severance pay in a lump sum, in cash, on the
fifth day following the Date of Termination, an amount equal to three times the
aggregate annual compensation paid to the Employee during the calendar year
preceding the change in control of the Company by the Company and any of its
subsidiaries subject to United States income taxes; provided, however, that if
the lump sum severance payment under this Section 4, either alone or together
with other payments which the Employee has the right to receive from the
Company, would constitute a "parachute payment" (as defined in Section 280G of
the Internal Revenue Code of 1954, as amended (the "Code")), such lump sum
severance payment shall be reduced to the largest amount as will result in no
portion of the lump sum severance payment under this Section 4 being subject to
the excise tax imposed by Section 4999 of the Code. The determination of any
reduction in the lump sum severance payment under this Section 4 pursuant to the
foregoing proviso shall be made by the Employee in good faith, and such
determination shall be conclusive and binding on the Company; and
(ii) within ten days following the Date of Termination, shall cause the
Employee to be relieved of any and all personal guarantees of Company
obligations, and fully pay all outstanding loans and other obligations of the
Company to the Executive. If, for any reason, the Company fails to comply with
its obligations under this subparagraph, the Employee shall have the option, at
his sole discretion, to convert up to the principal amount of such Notes to
shares of the Company's Common Stock at the rate of $.50 per share; provided,
that the conversion of all or a portion of any outstanding loans by the Employee
shall not relieve the Company of any of its obligations arising under this
subparagraph including the obligations to repay any unconverted loans and
relieve the Employee of any personal guarantees.
5. No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights.
(a) The Employee shall not be required to mitigate damages or the amount of
any payment provided for under this Article XIX by seeking other employment or
otherwise, nor shall the amount of any payment provided for under this Article
XIX be reduced by any compensation earned by the Employee as the result of
employment by another employer after the Date of Termination, or otherwise.
(b) The provisions of this Article XIX, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Employee's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or arrangement.
6. Successor to the Company.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Employee to terminate the Employee's employment for Good Reason. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor or assign to its business and/or assets as aforesaid which executes
and delivers the agreement provided for in this Section 6 or which otherwise
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becomes bound by all the terms and provisions of this Agreement by operation of
law. If at any time during the term of this Agreement the Employee is employed
by any corporation a majority of the voting securities of which is then owned by
the Company, "Company" as used in Sections 3 and 4 hereof shall in addition
include such employer. In such event, the Company agrees that it shall pay or
shall cause such employer to pay any amounts owed to the Employee pursuant to
Section 4 hereof.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Employee's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Employee should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Employee's devisee, legatee, or other designee or, if
there be no such designee, to the Employee's estate.
7. Legal Fees and Expenses. The Company shall pay all legal fees and
expenses which the Employee may incur as a result of the Company's contesting
the validity, enforceability or the Employee's interpretation of, or
determinations under, this Article XIX.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
affixed their hands and seals the day and year first above written.
(Corporate Seal) FIRST MONTAUK FINANCIAL CORP.
By____________________________
Herbert Kurinsky
- - -------------------------------
William J. Kurinsky (Employee)
