Exhibit 10.1
May 8, 2007
Xx. Xxxxxx X. Xxxx
Investment Properties of America, LLC
FMFG OWNERSHIP, INC.
FMFG OWNERSHIP II, INC.
FMFG ACQUISITIONCO, INC.
00000 Xxxxxxxxxx Xxxxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxx 00000
Dear Xx. Xxxx:
The following will set forth the terms upon which First Montauk
Financial Corp., a New Jersey corporation ("Montauk"), Xxxxxx Xxxxxxx, Xxxx X.
Xxxxx, Xx., Xxxxx Xxxxxxx, Xxxxx X. Xxxxxxx, and Xxxxx Xxxxxxxx (collectively,
the "Montauk Parties") and Xxxxxx X. Xxxx, Investment Properties of America,
LLC, IPofA Water View, LLC ("Water View"), FMFG AcquisitionCo, Inc., a New
Jersey corporation ("AcquisitionCo"), FMFG Ownership, Inc. ("Ownership I"), a
Delaware corporation, and FMFG Ownership II, Inc., a Delaware corporation
("Ownership II" and together with Ownership I, collectively, the "Xxxx
Parties"), agree to settle all the disputes among the parties. This letter shall
not constitute a final and binding obligation on the part of any party unless
and until court approval is obtained as provided in Paragraph 14 hereof.
1. Upon the Effective Date, as defined in Paragraph 14 below, Ownership I
will cause to be issued to the shareholders of Montauk other than the
Xxxx Parties (the "Minority Shareholders" or the "Holders"), the right
(the "Put"), but not the obligation, to sell their shares of Montauk
Common Stock to a designated Xxxx Party for $1.00 per share in cash
(the "Exercise Price") on the following terms and conditions:
a. The Put shall be exercisable by the Holders during the period
commencing on the 18th month anniversary date of the Effective
Date (the "Commencement Date") and terminating sixty (60) days
thereafter (the "Expiration Date"). Any Put not exercised prior
to 5:00 p.m. (New York time) on the Expiration Date shall be
deemed void without any further force or effect.
b. In the event the average closing price of Montauk's Common Stock
is less than the Exercise Price for the twenty (20) consecutive
trading days ending within five (5) trading days of the
Commencement Date, the Xxxx Parties shall cause to be deposited
with Montauk's transfer agent (the "Transfer Agent") within
forty-five (45) days from the Commencement Date, such amount of
cash as shall be necessary to pay the aggregate Exercise Price to
the Holders. The cash shall be deposited into an escrow account
(the "Escrow Account") and subject to the terms of an escrow
agreement among the Xxxx Parties, Montauk and the Transfer Agent,
which shall include provisions ensuring the availability of the
escrowed funds for distribution to the Holders upon their
exercise of the Put. All interest earned on the funds deposited
in the Escrow Account shall be paid to the Xxxx Parties upon the
fulfillment of all of the Put obligations.
Xx. Xxxxxx X. Xxxx
May 8, 2007
Page 2
c. In the event the Xxxx Parties are not required to so
deposit the Exercise Price under the terms of
subparagraph 1b, and Holders nevertheless exercise
Puts, the Xxxx Parties shall cause to be deposited with
the Transfer Agent sufficient cash to pay the Exercise
Price for each Put exercised within thirty (30) days of
receipt of notice of such exercise.
d. Within sixty (60) days of receipt of notice of exercise
of a Put properly verified by the Transfer Agent, and
the accompanying stock certificate of the Holder duly
endorsed for transfer to FMFG, the Transfer Agent shall
pay the Exercise Price in good funds to the exercising
Holder.
e. Other Conditions.
i. The Put shall be redeemable by Montauk, in its
discretion, in the event of a default by the Xxxx
Parties for $.001 per Put. Such redemption shall not
relieve the Xxxx Parties of any liability for the
default.
ii. The Put shall be nontransferable and shall attach to
the shares held by the Holders on the record date (the
"Record Date") established for the distribution of the
Put. In the event a Holder publicly sells his shares of
Common Stock to which the Put is attached at any time
after the Record Date except upon exercise of the Put,
the Put shall be deemed cancelled. Each Holder shall be
required to represent upon exercise of the Put, that
the shares delivered upon exercise of the Put have been
continually held by the Holder from the Record Date.
iii. In the event the average closing stock price of
Montauk's Common Stock is at least $1.25 per share with
a minimum daily volume of 75,000 shares for a period of
forty-five (45) trading days, whether or not
consecutive in any sixty (60) day trading day period at
any time after the Effective Date but prior to the
Commencement Date, the Put shall be deemed cancelled.
f. Exemption from registration.
i. The parties contemplate that the issuance of the Put
will be exempt from registration pursuant to Section
3(a) (10) of the Securities Act of 1933, as amended
(the "Securities Act") and applicable state securities
laws and regulations. The parties agree to cooperate in
the fulfillment of the conditions to the exemption
including court approval and notice to shareholders.
ii. In the event an exemption under Section 3(a) (10) is
not available, the parties agree to amend this
paragraph 1 to allow for Securities Act compliance,
subject to their mutual agreement. The parties further
agree that the issuer of the Put shall not be required
to comply with the reporting obligations of the
Exchange Act of 1934, as amended (the "Exchange Act"),
and in the event Exchange Act compliance is required,
the parties agree to deem the issuance of the Put not
exempt for the purposes of this subparagraph f(i).
Xx. Xxxxxx X. Xxxx
May 8, 2007
Page 3
g. Security
h. The Xxxx Parties shall secure their timely obligation
to pay the Exercise Price with all of the shares of
Montauk securities held by Ownership I and Ownership II
on the date hereof (the "Xxxx Securities"), and the
Convertible Debenture or Convertible Preferred Stock,
as defined below (collectively, the "Security").
Montauk shall have a first priority lien on the
Security until the complete fulfillment of the Put
obligations by the Xxxx Parties.
i. Notwithstanding the foregoing, Ownership I and
Ownership II shall be entitled to replace the Security
at any time with cash or, an irrevocable letter of
credit reasonably satisfactory to Montauk's Board of
Directors equal to $1.00 times the number of Puts
outstanding (the "Security Minimum"). Ownership I and
II shall also be entitled to sell the Security for cash
and deposit the cash in escrow as Security; provided
however, in the event the cash plus the market value of
the shares of Common Stock held as Security exceeds the
Security Minimum, Ownership I and II shall be entitled
to withdraw the amount of cash that exceeds the
Security Minimum. In the event Ownership I and II
withdraws cash from the Security and the value of the
Security falls below the Security Minimum, Ownership I
and II shall contribute such amount of cash to the
Security as shall cause the value of the Security to
equal the Security Minimum up to the amount of cash
withdrawn The value of the Security for the purposes of
determining the right to withdraw cash, or the
obligation to contribute cash, shall be determined
monthly. Payments or withdrawals shall be made within
five business days.
ii. In the event the Xxxx Parties fail to pay the Exercise
Price upon exercise by the Holders as required by the
Put, the Xxxx Securities (including the Convertible
Preferred Stock if issued) shall be deemed surrendered
for cancellation and the Convertible Debenture shall be
deemed fully paid.
2. On the Effective Date, the parties shall direct the
escrow agent, Signature Bank New York, to pay to
Ownership I all of the funds on deposit by the Xxxx
Parties under the Escrow Agreement executed and
delivered pursuant to the May 5, 2006 Merger Agreement
by and among Montauk, Ownership I and AcquisitionCo.
Within ninety (90) days of the Effective Date, the Xxxx
Parties shall invest $2.0 million in Montauk, to be
used to fund Montauk's broker-dealer operations in such
manner as determined by the First Montauk board of
directors. Montauk shall issue to the Xxxx Parties, at
their sole option, either a convertible debenture (the
"Convertible Debenture") in such principal amount or a
new series of convertible preferred stock (the
"Convertible Preferred Stock") with an aggregate par
value equal to $2.0 million.
a. The Convertible Debenture or Convertible Preferred
Stock shall be convertible into shares of Common Stock
at a conversion price equal to $.75 per share,
commencing on the fulfillment, or cancellation, of all
Put obligations by the Xxxx Parties, according to the
terms of the Put
Xx. Xxxxxx X. Xxxx
May 8, 2007
Page 4
b. The Convertible Debenture or Convertible Preferred
Stock shall accrue interest or cumulative dividends, as
the case may be, commencing on the date of issuance at
a rate equal to 12% per annum, payable, at the option
of the Company, in cash or shares of the Company's
Common Stock evaluated at the closing price of the
Common Stock on the last trading day immediately
preceding the date of payment.
c. In the event the Xxxx Parties fail to purchase the
Debenture or Perferred Stock as required by this
paragraph 2, the Xxxx Securities shall be deemed
surrendered for cancellation and the Convertible
Debenture shall be deemed fully paid.
3. Upon the date hereof, Xxxxx X. Xxxxxx shall be
appointed Chief Executive Officer and a director of
First Montauk Financial Corp.
a. Xx. Xxxxxx shall enter into an employment agreement on
mutually agreeable terms to serve as Chief Executive
Officer of Montauk, which agreement shall include
negative and restrictive covenants for the period
commencing on the date of employment and terminating
one year after termination of employment for any
reason.
b. Xx. Xxxxxx shall complete a directors' and officers'
questionnaire as reasonably requested by Montauk.
c. Xx. Xxxxxx shall report to the board of directors of
Montauk.
4. Upon the date hereof, Xxxxxx X. Xxxxxxx shall enter
into a modification of his existing employment
agreement expiring December 31, 2007 with Montauk. Such
employment agreement shall be on the same terms and
conditions of Xx. Xxxxxxx'x existing employment
agreement except Xx. Xxxxxxx'x title and position shall
be President of First Montauk Financial Corp. and
President and Chief Executive Officer of First Montauk
Securities Corp, reporting jointly to Xx. Xxxxxx and
the Board of Directors. The agreement shall include a
one year severance provision for termination of
employment, before or after the expiration of the term
of his employment agreement for any reason, under which
Xx. Xxxxxxx shall receive base compensation and
benefits for one year after the termination of
employment. The Xxxx Parties agree to nominate Xx.
Xxxxxxx and vote the Xxxx Securities for Xx. Xxxxxxx'x
election to the board of directors during the term of
his employment.
Xx. Xxxxxx X. Xxxx
May 8, 2007
Page 5
a. The Xxxx Parties will cooperate with Xx. Xxxxxxx in
expunging from the Central Registration Depository
("CRD") any reference to any complaint by the Xxxx
Parties against Xx. Xxxxxxx that Xx. Xxxxxxx and/or the
Company is the subject of an alleged investment-related
sales practice violation, forgery, theft,
misappropriation, or conversion of funds. This
cooperation will include, without limitation, (i)
filing or participating in an arbitration before the
National Association of the Securities Dealers (the
"NASD") and/or a court proceeding directing the NASD to
expunge from Xx. Xxxxxxx'x CRD the complaint of FMFG,
and (ii) executing a Stipulated Award or Consent Order
recommending or granting expungment. In connection
therewith and to the extent necessary to the obtain an
expungment order, FMFG will also acknowledge and
consent to findings that, after further investigation,
its information, claim, or allegation is factually
impossible or clearly erroneous; that Xx. Xxxxxxx was
not involved in the alleged investment-related sales
practice violation, forgery, theft, misappropriation,
or conversion of funds; or the claim, allegation, or
information is false.
5. Upon the Effective Date, Xxxxxx X'Xxxxxxx shall enter
into an employment agreement on mutually agreeable
terms to serve as Chief Operating Officer of Montauk,
which agreement shall include negative and restrictive
covenants for the period commencing on the date of
employment and terminating one year after termination
of employment for any reason.
6. Upon the purchase of the Convertible Debenture or
Convertible Preferred Stock, the Xxxx Parties shall
designate four nominees to Montauk's board of directors
including Xx. Xxxxxx who shall all thereupon take
office.
7. Subsequent to the purchase of the Convertible Debenture
or Convertible Preferred Stock under paragraph 2, all
of the independent members of Montauk's board of
directors shall either resign from the board or agree
not to stand for reelection at Montauk's next annual
meeting of shareholders.
8. Upon the Effective Date, the lease between Water View
and Montauk shall be deemed void ab initio.
9. Montauk shall agree to conduct a shareholders' meeting for the
election of the Class II and Class III directors in a timely
manner after the purchase of the Debenture or Convertible
Preferred Stock under paragraph 2. The nominees for directors
shall include Xx. Xxxx'x nominees and such other nominees as
determined by the board on or after the Effective Date.
Xx. Xxxxxx X. Xxxx
May 8, 2007
Page 6
10. For a period of five (5) years after the Effective Date,
Montauk shall agree to indemnify and hold harmless any and all
former officers and directors of Montauk against any claims or
liabilities arising out of their positions with Montauk, the
execution of this Agreement or any other related matters
arising during their affiliation with Montauk, to the extent
they would otherwise be entitled to indemnification under
Montauk's Certificate of Incorporation and By-Laws, as amended
to date.
11. Due to the confidential nature of this transaction, no
party shall make any announcement or disclosure
regarding the transaction without the prior consent of
the others, unless and except as required by applicable
law. Notwithstanding this Paragraph 11, the Xxxx
Parties acknowledge and agree that Montauk may be
required to disclose in a public announcement and to
file with the Securities and Exchange Commission any
material terms and conditions of this Agreement and
otherwise make proper disclosure under federal and
state securities laws, and consents to the same,
subject to timely review by and consultation with the
Xxxx Parties. Upon the execution of this Agreement,
Montauk and the Xxxx parties may issue a mutually
approved press release. Thereafter the parties each
agree that they will not make public statements
regarding the transactions contemplated by this
Agreement without first consulting the other party with
a view toward issuing joint public statements, except
to the extent required by law.
12. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New
Jersey without giving effect to any choice or conflict
of law provision or rule (whether of the State of New
Jersey or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than
the State of New Jersey. The Parties (a) agree that any
legal suit, action or proceeding arising out of or
relating to the agreement shall be instituted
exclusively in New Jersey State Superior Court, County
of Monmouth, or in the United States District Court for
the District of New Jersey, (b) waives any objection
which any Party may have now or hereafter to the venue
of any such suit, action or proceeding, and (c)
irrevocably consent to the jurisdiction of the New
Jersey State Superior Court, County of Monmouth and the
United States District Court for the District of New
Jersey in any such suit, action or procedure.
Xx. Xxxxxx X. Xxxx
May 8, 2007
Page 7
13. Upon the Effective Date, the actions (the "Actions")
pending in (i) the Superior Court of the State of New
Jersey, Chancery Division, Monmouth County Docket No.
C-07-07 entitled First Montauk Financial Corp., against
Xxxxxx X. Xxxx, et al; (ii) the United States District
Court, District of New Jersey, Civil Action No.
07cv00725, entitled FMFG Ownership, Inc. against Xxxxxx
Xxxxxxx, et al; and (iii) the United States District
Court, Southern District of Florida, Case No.
07-20482-Civ, entitled FMFG Ownership, Inc. against
Xxxxxx Xxxxxxx, shall be dismissed with prejudice and
the parties shall exchange general releases.
a. The parties shall use their best efforts and take all
action reasonably necessary to cause the action against
Xx. Xxxxxxx to be expunged from his record with the
CRD.
14. This Agreement and the general releases shall be
subject to approval of the federal and state courts in
which the Actions are pending, as well as federal,
state and self regulatory bodies as required; and
negotiation, execution and delivery of all documents
necessary to effectuate the transaction. Upon receipt
of all necessary approvals, this Agreement shall be
deemed fully effective (the "Effective Date"). The
parties agree to proceed in good faith to take all such
actions as are required to receive necessary court
approvals and negotiate, execute and deliver the
required documentation. If one or more of the courts in
which the Actions are pending, do not approve this
Agreement or fail to rule thereon prior to August 31,
2007, this Agreement shall terminate ab initio.
15. Until the purchase of the Convertible Debenture and
Convertible Preferred Stock under paragraph 2, neither
the Xxxx Parties nor Montauk shall purchase or sell, or
agree directly or indirectly to purchase or sell, any
securities of Montauk.
16. The Xxxx Parties and Montauk shall bear their own costs
and expenses (including expenses of representatives)
incurred in connection with this transaction. Montauk
expenses shall include the costs of indemnification of
officers and directors. The Xxxx parties shall not
request legal fees in the derivative action pending in
the United States District Court, District of New
Jersey, Civil Action No. 07cv00725.
[Signatures appear on the following page]
Xx. Xxxxxx X. Xxxx
May 8, 2007
Page 8
We look forward to concluding this transaction as promptly as
practicable. I would appreciate your countersigning this letter where indicated
as constituting your concurrence with the intent expressed herein. This letter
of intent may be executed in multiple counterparts which when taken together
shall be an original.
Very truly yours,
Dated: May 8, 2007 FIRST MONTAUK FINANCIAL CORP.
By: /s/ Xxxxxx X. Xxxxxxx
---------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: President
CONCURRED IN AND ACCEPTED AS OF MAY 8, 2007.
/s/ Xxxxxx X. Xxxx
------------------------------------
XXXXXX X. XXXX
Dated: May 8, 2007
INVESTMENT PROPERTIES OF AMERICA, LLC
By: IPofA Fund Manager, LLC, Manager
By: /s/ Xxxxxx X. Xxxx
------------------------------------
Xxxxxx X. Xxxx, Manager
Dated: May 8, 2007
IPofA WATER VIEW, LLC
By: IPofA Fund Manager, LLC, Manager
By: /s/ Xxxxxx X. Xxxx
------------------------------------
Xxxxxx X. Xxxx, Manager
Dated: May 8, 2007
[Signatures appear on the
following page]
Xx. Xxxxxx X. Xxxx
May 8, 2007
Page 9
FMFG ACQUISITION, INC.
By: /s/ Xxxxxx X. Xxxx
-------------------------------------
Xxxxxx X. Xxxx, President
Dated: May 8, 2007
FMFG OWNERSHIP I, INC.
By: /s/ Xxxxxx X. Xxxx
--------------------------------------
Xxxxxx X. Xxxx, President
Dated: May 8, 2007
FMFG ACQUISITION OWNERSHIP II, INC.
By: /s/ Xxxxxx X. Xxxx
---------------------------------------
Xxxxxx X. Xxxx, President
Dated: May 8, 2007
/s/ Xxxxxx Xxxxxxx
------------------------------------------
XXXXXX XXXXXXX
Dated: May 8, 2007
/s/ Xxxx X. Xxxxx, Xx.
------------------------------------------
XXXX X. XXXXX, XX.
Dated: May 8, 2007
/s/ Xxxxx Xxxxxxx
------------------------------------------
XXXXX XXXXXXX
Dated: May 8, 2007
[Signatures appear on the following page]
Xx. Xxxxxx X. Xxxx
May 8, 2007
Page 10
/s/ Xxxxx X. Xxxxxxx
------------------------------------------
XXXXX X. XXXXXXX
Dated: May 8, 2007
/s/ Xxxxx Xxxxxxxx
------------------------------------------
XXXXX XXXXXXXX
Dated: May 8, 2007
Xxxxx X. Xxxxxx,
with respect to paragraph 3 only
/s/ Xxxxx X. Xxxxxx
-----------------------------------------
Xxxxx X. Xxxxxx
Dated: May 8, 2007
