-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BA3tui1lrQ2RBKfeHM0tK/gkIV9rXzFQL0Fu1vnugwN613JtRSN/0mHnDYbyNmoD aYY6mnier5T8e8hgDL0cvA== 0000083125-05-000018.txt : 20050503 0000083125-05-000018.hdr.sgml : 20050503 20050503172818 ACCESSION NUMBER: 0000083125-05-000018 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050503 ITEM INFORMATION: Other Events FILED AS OF DATE: 20050503 DATE AS OF CHANGE: 20050503 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST MONTAUK FINANCIAL CORP CENTRAL INDEX KEY: 0000083125 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 221737915 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-06729 FILM NUMBER: 05796206 BUSINESS ADDRESS: STREET 1: 328 NEWMAN SPRINGS RD STREET 2: PKWY 109 OFFICE CTR CITY: RED BANK STATE: NJ ZIP: 07701 BUSINESS PHONE: 7328424700 MAIL ADDRESS: STREET 1: 328 NEWMAN SPRINGS RD STREET 2: PKWY 109 OFFICE CTR CITY: RED BANK STATE: NJ ZIP: 07701 FORMER COMPANY: FORMER CONFORMED NAME: MCC PRESIDENTIAL INC DATE OF NAME CHANGE: 19871203 FORMER COMPANY: FORMER CONFORMED NAME: RENAULT WINERY INC DATE OF NAME CHANGE: 19740725 FORMER COMPANY: FORMER CONFORMED NAME: PRESIDENTIAL APARTMENTS INC DATE OF NAME CHANGE: 19740327 8-K 1 form8kmay2005.txt FORM 8-K DATE OF REPORT MAY 3, 2005 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): May 3, 2005 FIRST MONTAUK FINANCIAL CORP. ----------------------------- (Exact name of registrant as specified in its charter) COMMISSION FILE NUMBER: 0-6729 ------ NEW JERSEY 22-1737915 ---------- ---------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) Parkway 109 Office Center 328 Newman Springs Road Red Bank, NJ 07701 (Address and zip code of principal executive offices) (732) 842-4700 (Registrant's telephone number, including area code CHECK THE APPROPRIATE BOX BELOW IF THE FORM 8-K FILING IS INTENDED TO SIMULTANEOUSLY SATISFY THE FILING OBLIGATION OF THE REGISTRANT UNDER ANY OF THE FOLLOWING PROVISIONS: |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) 1 of 2 Item 7.01 REGULATION FD DISCLOSURE The Board of Directors of Registrant has sent to its shareholders a letter regarding certain recent events and in response to letters sent by a dissident group of shareholders. A copy of the letter is filed as Exhibit 99.1 to this Form 8-K. The attached exhibit is furnished pursuant to Regulation FD. Item 9.01 FINANCIAL STATEMENTS AND EXHIBITS Exhibit Letter to shareholders dated May 3, 2005. 99.1 SIGNATURE FIRST MONTAUK FINANCIAL CORP. By: /s/ Victor K. Kurylak ----------------------------- Name: Victor K. Kurylak Title: Chief Executive Officer Date: May 3, 2005 EXHIBIT INDEX Exhibit Number Description ------ ------------ 99.1 Letter to shareholders dated May 3, 2005. 2 of 2 EX-99.1 2 exh1may2005.txt LETTER TO SHAREHOLDERS DATED MAY 3, 2005. 3 May 3, 2005 Dear Shareholder: We are aware that there has been a concerted effort by a group of persons to disparage current and past management and the performance of our company. You may have received some correspondence from a law firm representing a group of former affiliates and Montauk Financial shareholders, whose interests seem to be to discredit our performance, attack our management and seize control of the firm. In waging their smear campaign, we want to bring to your attention that the group has distorted information, misrepresented facts and reached false conclusions that have left us with no choice but to respond to these allegations. The management of Montauk Financial fully understands the difficulties and challenges of today's business environment. Toward the end of 2003 and the beginning of 2004, the management of Montauk Financial implemented a plan to, not only rid itself of the regulatory problems of the past, but to return itself to profitability and maximize shareholder value. Since that time we have made a great deal of progress. On behalf of the management of First Montauk Financial Corp., we are pleased to provide you with a summary of our financial performance and to inform you of the changes made that we believe position our firm very well for the future. 2004 - 2005 FINANCIAL AND OPERATING PERFORMANCE This past year marked a significant change in the overall strategy of Montauk Financial. Together with Herbert and William Kurinsky, Chairman and former CEO, respectively, the senior management and board of directors set some very aggressive goals for the firm. As stated earlier, the primary goal of the firm was to return Montauk Financial to profitability and improve shareholder value. The second was to improve our regulatory and risk profile and build a strong foundation upon which to grow. Below is a summary of the changes made since the beginning of 2004. New Leadership, New Direction On December 15, 2003, we appointed Victor K. Kurylak as President and Chief Operating Officer of First Montauk. Mr. Kurylak, a Princeton graduate, has served as a consultant for Arthur Andersen, as Chief Operating Officer for Nat West Government Securities and as Chief Information Officer for Rockefeller Financial Services. In February 2005, Mr. Kurylak was named Chief Executive Officer of Montauk Financial, succeeding William J. Kurinsky, who retired as CEO of the company. Reducing Risk and Expenses Staff changes and enhancements to our management processes and controls have led to a better understanding and control of our business risks and a corresponding reduction in expenses. The most significant reduction in expenses for 2004 was in our professional fees and litigation related costs. New leadership and direction in our business development area has begun to show encouraging results in the quality and caliber of financial professionals seeking to join our organization and integrate their established businesses with ours. We believe these efforts will lead to improved and sustained shareholder value as we continue to make progress. Strategic Combinations and Acquisitions In February 2005, we announced we had signed a definitive merger agreement between Olympic Cascade/National Securities and First Montauk. Our Board believes that the combination of our two firms will provide us with the critical mass necessary to thrive in the volatile securities markets. Combined, we will have over 750 registered representatives in over 30 states, making us one of the 25 largest independent contractor based brokerage firms in the United States. March 2005 marked another significant development for Montauk Financial with the purchase of FISERV, our clearing firm, by Fidelity Investments through their clearing subsidiary, National Financial. A clearing firm, you may recall, is an essential business partner of a securities firm such as ours and all other securities firms and provides numerous services to clients of the securities firm. National Financial is well recognized as one of the premier clearing service providers in the industry. Their dedication to quality service, investment in technical innovation and enormous asset base will strengthen our ability to serve our clients and provide a strategic relationship that we believe will assist Montauk Financial in strengthening our position in the marketplace and have a positive effect on our financial performance and growth plans. Eliminating Significant Liabilities We successfully negotiated the elimination of approximately $4.9 million of outstanding liabilities to our previous clearing firm, strengthening our balance sheet and increasing our stockholders' equity. As a result, we have no outstanding financial liabilities to our clearing firm other than those incurred in the ordinary course. We do not believe that our new clearing firm would have agreed to this significant transaction if it did not believe in our business or current management. A Return to Profitability Last month we issued our 2004 financial results and announced a profit for the first time since 1999. Net income applicable to common shareholders was $640,000 or $.07 per basic share, or $.04 per diluted share. We made significant progress over the course of 2004--improving our operating performance, containing costs, improving our business risk profile and strengthening our balance sheet. In addition, many of our shareholders have seen a significant increase in the value of our stock over the course of the year. MISREPRESENTATION OF FACTS BY THE DISSIDENT GROUP As previously mentioned, some of our shareholders recently received a letter from a law firm representing two former registered representatives of Montauk Financial who are seeking to discredit the management and Board of Directors and seize control of the firm. For the record, we would like to provide you with our response to these often false and misleading accusations. o Consider the Source! - The information provided in the letter originated from two former registered representatives of First Montauk, Shlomo Eplboim and Michael Poutre, who were asked to leave our firm, and subsequently were permitted to resign from their next firm for their failure to follow internal corporate procedures. The law firm which sent the letter, Levin & Weiser, represents Mr. Eplboim and Mr. Poutre and BMAC. o Potential SEC Violations - We believe that BMAC Corp., some of whose principals are clients of Eplboim Poutre, did not properly disclose the members of its group and are in violation of federal securities laws. We have notified the Securities and Exchanges Commission of these failures. o Use of Corporate Funds and Executive Compensation - Contrary to the assertions in their letter, the use of proceeds from the offerings were properly used for corporate purposes and were not misused or taken out of the company. Because of positive operating results during the last year, the proceeds still remain in the company. The increase in total executive compensation was primarily due to the appointment of Victor K. Kurylak as President and COO. o No Connection Between offering proceeds and Executive Bonuses - The dissident group claims that the proceeds from our offering were used to pay senior members of the firm. This allegation is an outright lie. Bonuses were granted by the Board's Compensation Committee to Herbert Kurinsky and William J. Kurinsky primarily to repay long-standing officer loans to the Company. It provided little cash benefit to either individual, and a small outlay of cash by the company. No debt was forgiven and all outstanding loans were repaid. 2 o Preferred Stock Dividends - Contrary to misleading assertions in the letter, the Company was not legally able to pay any dividends to shareholders while the Company's liabilities exceeded its assets. Now that the balance sheet reflects positive shareholder equity, the company intends to declare and pay all outstanding Series A preferred dividends, including those that were missed due to the legal prohibition. o The Board of Directors - The group asserts that decisions in regards to compensation matters are made by insiders of the firm who are looking to over compensate management. In fact, two "independent" directors, Mr. Ward Jones and Mr. Barry Shapiro, serve on our board and are the in charge of our compensation committee. All compensation provided to our senior executives is approved by the independent directors of the company. If you wish to have more detailed information concerning the misstatements in the Levin & Weiser letter, please read the enclosed response. To obtain more current information about the company in general, we recommend that you review our publicly filed reports, which can be found on our web site, www.montaukfinancial.com., or the web site of the SEC at www.sec.gov. You may also call us at any time at 800-876-3672 if you have any questions and concerns. We appreciate your continued support. On behalf of your Board of Directors, /s/ Herbert Kurinsky Herbert Kurinsky Chairman FORWARD LOOKING STATEMENTS We are not soliciting your proxy and are not asking you to vote on any matters. This letter is intended only to provide you with current information about the Company and to respond to the misinformation you may have received. 3 EX-99.1 3 ex2may2005.txt LETTER TO SHAREHOLDERS DATED MAY 3, 2005. 6 DETAILED RESPONSE TO LEVIN & WEISER SHAREHOLDER LETTER Many of our shareholders recently received a letter from a law firm representing two former registered representatives of Montauk Financial who are seeking to discredit the management and Board of Directors of the firm and seize control. For the record, we would like to provide you with our response to these often false and misleading accusations. Some context and background information is crucial in understanding the reasons for this negative letter and its proponents. In 2002 and 2003, we raised $3.1 million through the issuance of convertible debentures to accredited investors which were sold through First Montauk Securities Corp. our broker/dealer subsidiary. Of the many registered representatives who participated in these offerings, about half of the total raised was sold by two registered representatives, Shlomo Eplboim and Michael Poutre of Eplboim Poutre & Co. ("Eplboim Poutre") who are no longer with First Montauk. Levin & Weiser, the Colorado law firm that sent the shareholders letter represents Eplboim Poutre. These two former registered representatives have approached management on behalf of a group of their clients in an attempt to buy the firm and take control. We believe that the actions of Eplboim Poutre and possibly some of their clients are inconsistent with their legal obligations under the securities laws, and, as previously stated, we have notified the appropriate regulatory authorities and requested their intervention. In addition, Mr. Eplboim and Mr. Poutre each has outstanding loans to Montauk Financial Group that together total over $100,000 which we are pursuing in the appropriate legal forum. Levin & Weiser first communicated with our debenture holders in February 2005 under the guise of representing "a group of investors with holdings in First Montauk Financial Corp.". When directly confronted by our management, this law firm finally admitted that they did not represent any shareholders of First Montauk Financial, but rather the two former registered representatives who were asked to leave the firm in August 2004 and subsequently were permitted to resign from their next broker/dealer, J.P. Turner & Company because of their failure to follow internal corporate procedures. They are now affiliated with their third brokerage firm in less than one year. We ask that when evaluating the credibility of the information in the letter, you consider the source and the ulterior motives of the individuals behind the communication. Furthermore, you may be aware that a corporate entity named BMAC Corp. has filed a Form13d with the SEC. A Form 13d is filed by persons who have become the owners of 5% or more of a public company's shares. In its filing, BMAC stated, among other things, that it intended to seek management changes at First Montauk. It is our position that BMAC did not properly disclose the other members of its group, as required by law, and the transactions by which they have accumulated stock. Further, we have been provided with written documentation that Eplboim Poutre represents BMAC Corp as financial advisor. Use Of The Offering Proceeds And Management Of Corporate Funds The proceeds of the two debenture offerings were used for general working capital of the company, as stated in each offering memorandum. The letter attempts to directly tie the proceeds of the offering to changes in executive compensation when, in fact there is no correlation. The changes in executive compensation were related to the appointment of Mr. Kurylak as the new president and chief operating officer, and new roles for Herbert Kurinsky and William Kurinsky. In fact our company has been profitable since the conclusion of the last offering, the funds that were raised in the offerings have served to substantially increase our capital base and are available to be used for the growth and development of the company. The writer's attempt to link these events is self serving and inaccurate. Executive Compensation Was Fair And Reasonable Conspicuously absent from the discussion of executive compensation, was any mention of the salary that both Herbert Kurinsky and William J. Kurinsky voluntarily relinquished and to which they were entitled under their employment agreements during 2001, 2002 and 2003. That amount totaled over $415,000. They voluntarily reduced their contracted compensation in recognition of the difficulties facing the company during this period. The amount of executive compensation increased for 2004 because it included the salary for Victor K. Kurylak who joined the firm as President and COO in January 1, 2004. Although the letter implies that $750,000 was paid to Messrs. Herbert and William Kurinsky, the amount noted in the letter included compensation for Mr. Kurylak as the new president and chief operating officer. Here again these parties are attempting to mislead you into thinking that the $750,000 salary was paid solely to Herbert Kurinsky and William Kurinsky when in fact that is not the case. The bonus awarded to Herbert Kurinsky by the board's independent compensation committee was based upon his relinquishing his role of President and CEO, receiving a reduction in his contracted salary and a shorter term of employment. In exchange for these concessions, the board awarded Herbert Kurinsky a bonus that was to be used exclusively for the repayment of loans and payment of taxes owed on the bonus. The loan was repaid simultaneously with the grant of the bonus, providing little cash benefit to Herbert Kurinsky and a manageable cash cost to the company. Contrary to the assertions in the letter, no debt was forgiven and all outstanding loans were repaid as of December 31, 2003. The bonus awarded to William Kurinsky, by the board's independent compensation committee, was based upon his promotion to the position of CEO. His bonus amount was also used to pay off a loan and payment of the taxes owed on the bonus. The loan was repaid simultaneously with the grant of the bonus, providing little cash benefit to William Kurinsky and a manageable cash cost to the company. Contrary to the assertions in the letter, no debt was forgiven and all outstanding loans were repaid as of December 31, 2003. The paragraph also contains a statement that "expenses for commissions and employee compensation accounted for $46.2 million, which is equal to roughly 79% of First Montauk's gross revenues for 2003" and that this is an "unacceptable figure in the financial services industry". To make such a statement without providing statistical data is both misleading and negligent. The language in the letter appears to reflect a total lack of understanding of our business. What the letter fails to explain is that the compensation includes commission expense for all registered representatives. The independent firm model, such as Montauk, inherently has a much higher payout structure (in which Eplboim Poutre participated) than traditional wire house firms, and as such, will have a much higher percentage of revenues attributable to commissions paid to reps. We believe that this fundamental lack of understanding of our business reflected in the letter, or at best, the utter lack of respect for the truth, should give you great pause in trusting these individuals with your company. Again, we believe that their sole purpose is to create anxiety in the marketplace and cause shareholders to sell their stock to them so they can take over the company. Merger With Olympic Cascade The group who has sent the letter is apparently seeking to block the merger with Olympic Cascade, not because the transaction is bad for the company or its shareholders, but because it interferes with the groups stated objective of taking control of the company. National Securities, Olympics broker-dealer subsidiary, like First Montauk and all brokerage firms, is subject to regulatory sanctions when it runs afoul of the regulations. The delisting of Olympic's stock from the American Stock Exchange had nothing to do with any broker-dealer net capital issues. Rather, Olympic was not in compliance with the AMEX listing standards for minimum shareholder equity. The delisting of Olympic's stock from the American Stock Exchange and other events related to Olympic and disparaged in the group's letter were events which were considered during our merger negotiations, and does not impact the value of the merger to our shareholders. In fact we believe that the combined entity will increase shareholder value and provide additional products and services to our reps. Furthermore, there is a substantial amount of additional information regarding the proposed merger which will be provided to all shareholders in a proxy statement. The transaction can only proceed with the affirmative approval of a majority of our shareholders and regulatory approval. We will be filing a complete proxy statement detailing the material terms of the transaction, as well as the Board's reasons for the transaction in the near future. WE ARE NOT SEEKING ANY PROXY FROM YOU AT THIS TIME. Preferred Stock Dividends The company has a Series A Preferred Stock which provides for the payment of 6% cash dividend as and when declared by the board of directors. From 1999 until June 2003, the company declared and paid each and every quarterly dividend. For the period from July 2003 to the present, the company has had the cash available to make the dividend payments, but is legally prohibited from doing so because of restrictions under New Jersey corporate law, as it relates to stockholders equity. In our view it is completely false to suggest that executive compensation had any bearing or relationship to the non-payment of dividends. Additionally, upon the consummation of the merger with Olympic Cascade, the combined company's balance sheet will contain positive stockholders' equity, which will then permit the company to declare and pay all accrued and unpaid Series A Preferred dividends. This was specifically stipulated in the recently signed merger agreement. Contrary to the assertions in the letter, the company did not have a choice to pay the Series A preferred dividends or use the money for some other purposes. The Company was and still is legally prohibited under New Jersey law from paying these dividends. The Company has always paid and continues to pay interest on time on our outstanding debentures. Now that the balance sheet reflects positive shareholder equity, the company intends to declare and pay all outstanding Series A preferred dividends, including those that were missed due to the legal prohibition. 2 Management Changes The management changes that are described in the letter were put into place in early 2005 in order to better prepare our firm for the challenges that lay ahead. In addition, the proposed merger had always contemplated certain changes in senior management to ensure a successful integration of members of both companies' management teams into the combined entity. A merger of firms in our industry can only be successful if the management team reflects the business interests of the financial professionals that are the firm's revenue generators. The recent management changes at First Montauk reflect that commitment, even to the financial detriment of certain individuals. Mr. William Kurinsky agreed to terminate his employment after many years of good service to the company, giving up substantial economic benefit to which he would have been entitled under his employment contract. He did so, opting to take certain compensation in stock, rather than in cash, in order to not burden the company with a substantial cash payment, and align himself with the interests of all of the shareholders. Mr. Kurisnky's actions reflected a concern for shareholders, unlike the self-interest of the dissident group. The Board Of Directors Here again the letter misstates several important facts. The current composition of the board of directors of First Montauk Financial Corp. is Herbert Kurinsky, William J. Kurinsky, Norma Doxey, Ward Jones, and Barry Shapiro. Both Messers. Jones and Shapiro are "independent" directors, not otherwise connected to the company, and make up the compensation committee that must approve all executive compensation. In conclusion, we ask that you consider the source and motives of the individuals seeking to discredit our board and management team at a time when we have returned the company to profitability and increased share price. We recognize our obligation to you, the shareholder, and pledge to continue on the course of profitability and increased shareholder value. If you wish to obtain more current information about the company, we recommend that you review our publicly filed reports, which can be found on our web site, www.montaukfinancial.com or the web site of the SEC at www.sec.gov. You may also call us at any time at 800-876-3672 if you have any questions and concerns. We appreciate your continued support. 3 -----END PRIVACY-ENHANCED MESSAGE-----