-----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, RD6vCA4IWiQXZGMCYMlhbp005g7Kjnn394HnaFkbv87sK4jCyb9cz+Qu9o01AK6m 5K1AH0UxfRbrz3b+u8yX6Q== 0000316028-01-500008.txt : 20010807 0000316028-01-500008.hdr.sgml : 20010807 ACCESSION NUMBER: 0000316028-01-500008 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KENT FINANCIAL SERVICES INC CENTRAL INDEX KEY: 0000316028 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 751695953 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-07986 FILM NUMBER: 1698573 BUSINESS ADDRESS: STREET 1: 376 MAIN ST PO BOX 74 CITY: BEDMINSTER STATE: NJ ZIP: 07921 BUSINESS PHONE: 9082340078 MAIL ADDRESS: STREET 1: 376 MAIN STREET STREET 2: P O BOX 74 CITY: BEDMINSTER STATE: NJ ZIP: 07921 FORMER COMPANY: FORMER CONFORMED NAME: TEXAS AMERICAN ENERGY CORP DATE OF NAME CHANGE: 19900815 10QSB 1 kent10q601.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2001 ------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No.: 1-7986 ------ Kent Financial Services, Inc. ------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 75-1695953 - ------------------------------- ------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 376 Main Street, P.O. Box 74, Bedminster, New Jersey 07921 ----------------------------------------------------------- (Address of principal executive offices) (908) 234-0078 ----------------------------------- (Issuer's telephone number) N/A --------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- State the number of shares outstanding of each of the issuer's classes of common stock: As of July 31, 2001, the issuer had 1,715,450 shares of its common stock, par value $.10 per share, outstanding. Transitional Small Business Disclosure Format (check one). Yes No X --- --- PART I - FINANCIAL INFORMATION - ------ --------------------- Item 1. - Financial Statements - ------ -------------------- KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED) ($000 Omitted) June 30, 2001 -------- Assets - ------ Cash and cash equivalents $ 4,007 Securities owned 8,000 Receivable from clearing broker 364 Property and equipment: Land and building 1,447 Office furniture and equipment 277 -------- 1,724 Accumulated depreciation ( 642) -------- Net property and equipment 1,082 -------- Other assets 94 -------- Total assets $ 13,547 ======== Liabilities and stockholders' equity - ------------------------------------ Liabilities: Securities sold, not yet purchased $ 219 Accounts payable and accrued expenses 768 Mortgage payable 685 Accrual for previously discontinued operations 273 -------- Total liabilities 1,945 -------- Contingent liabilities Stockholders' equity: Preferred stock without par value, 500,000 shares authorized; none outstanding - Common stock, $.10 par value, 4,000,000 shares authorized; 1,715,450 outstanding 172 Additional paid-in capital 13,830 Accumulated deficit ( 2,400) -------- Total stockholders' equity 11,602 -------- Total liabilities and stockholders' equity $ 13,547 ======== See accompanying notes to consolidated financial statements. 2 KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ($000 Omitted, except per share data) Three Months Ended June 30, ------------------- 2001 2000 ------ ------ Revenues: Brokerage commissions $ 384 $ 479 Principal transactions: Trading 84 256 Investing gains (losses) 122 ( 271) Management fee income 46 45 Interest, dividends and other 167 269 ------ ------ 803 778 ------ ------ Expenses: Brokerage 354 531 General, administrative and other 560 415 Interest 96 115 ------ ------ 1,010 1,061 ------ ------ Loss before income taxes ( 207) ( 283) Provision for income taxes 2 6 ------ ------ Net loss ($ 209) ($ 289) ====== ====== Basic and diluted net loss per common share ($ .12) ($ .16) ====== ====== Weighted average number of common shares outstanding (in 000's) 1,737 1,850 ====== ====== See accompanying notes to consolidated financial statements. 3 KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ($000 Omitted, except per share data) Six Months Ended June 30, ---------------- 2001 2000 ---- ---- Revenues: Brokerage commissions $ 713 $ 1,071 Principal transactions: Trading 241 1,765 Investing gains 676 569 Management fee income 92 90 Interest, dividends and other 402 517 ------- ------- 2,124 4,012 ------- ------- Expenses: Brokerage 697 1,831 General, administrative and other 989 888 Interest 214 214 ------- ------- 1,900 2,933 ------- ------- Earnings before income taxes 224 1,079 Provision for income taxes 3 9 ------- ------- Net earnings $ 221 $ 1,070 ======= ======= Basic and diluted net earnings per common share $ .13 $ .57 ======= ======= Weighted average number of common shares outstanding (in 000's) 1,751 1,869 ======= ======= See accompanying notes to consolidated financial statements. 4 KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ($000 Omitted) Six Months Ended June 30, -------------------------- 2001 2000 ------ ------ Cash flows from operating activities: Net earnings $ 221 $ 1,070 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 27 37 Change in unrealized gains and losses on securities owned ( 683) ( 341) Provision for non-marketable investments 123 - Change in operating assets and liabilities: Change in securities owned 1,135 ( 1,488) Change in receivable from clearing broker ( 117) 263 Change in accounts payable and accrued expenses ( 162) ( 242) Other, net ( 68) 4 ------- ------- Net cash provided by (used in) operating activities 476 ( 697) ------- ------- Cash flows from investing activities- Purchase of property and equipment ( 4) ( 5) ------- ------- Cash flows from financing activities: Purchase of common stock ( 272) ( 332) Issuance of common stock - 47 Payments on debt ( 5) ( 5) ------- ------- Net cash used in financing activities ( 277) ( 290) ------- ------- Net increase (decrease) in cash and cash equivalents 195 ( 992) Cash and cash equivalents at beginning of period 3,812 4,043 ------- ------- Cash and cash equivalents at end of period $ 4,007 $ 3,051 ======= ======= Supplemental disclosure of cash flow information: Cash paid for: Interest $ 214 $ 214 ======= ======= Taxes $ 18 $ 1 ======= ======= See accompanying notes to consolidated financial statements. 5 KENT FINANCIAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 AND 2000 (Unaudited) 1. Basis of Presentation --------------------- The accompanying unaudited consolidated financial statements of Kent Financial Services, Inc. and subsidiaries (the "Company") as of June 30, 2001 and for the three and six month periods ended June 30, 2001 and 2000, reflect all material adjustments consisting of only normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods. Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although the Company believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the year-end consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000 as filed with the Securities and Exchange Commission. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain reclassifications have been made to the prior year's financial statements to conform to the current year's presentation. The results of operations for the three and six month periods ended June 30, 2001 and 2000 are not necessarily indicative of the results to be expected for the entire year or for any other period. 6 2. Business -------- The Company's business is comprised principally of the operation of T. R. Winston & Company, Inc. ("Winston"), a wholly-owned subsidiary. Winston is a licensed securities broker-dealer and is a member of the National Association of Securities Dealers, Inc., and the Securities Investor Protection Corporation. All safekeeping, cashiering, and customer account maintenance activities are provided by an unrelated broker-dealer pursuant to a clearing agreement. Pursuant to the net capital provisions of Rule 15c3-1 of the Securities Exchange Act of 1934, Winston is required to maintain minimum net capital. At June 30, 2001, Winston had net capital, as defined, of approximately $480,000, which was approximately $380,000 in excess of the required minimum. The Company also invests through its wholly-owned subsidiary, Asset Value Fund Limited Partnership ("AVF"). AVF primarily invests in a limited number of portfolio companies, the securities of which are considered undervalued by AVF's management. As of June 30, 2001, AVF held 15 equity investments, of which five consisted of owning more than 5% of the investee's outstanding capital stock. AVF owns more than 39% of Cortech, Inc., a company supervising the exploitation of its technology by third parties and also seeking a new business; 23% of General Devices, Inc., a non-operating company seeking a new business; 16% of Gish Biomedical, Inc., a manufacturer of medical devices; 9.9% of Star Buffet, Inc., a company that is engaged in the restaurant industry; and 5% of GolfRounds.com, Inc., an internet content provider. 3. Securities owned and securities sold, not yet purchased ------------------------------------------------------- Securities owned consist of proprietary trading positions held for resale to customers and portfolio positions held for capital appreciation, all of which are valued at fair value. The fair values of the portfolio positions generally are based on listed market prices. If listed market prices are not indicative of fair value or if liquidating the Company's positions would reasonably be expected to impact market prices, fair value is determined based on other relevant factors. Among the factors considered by management in determining fair value of the portfolio positions are the financial condition, asset composition and operating results of the issuer, the long-term business potential of the issuer and other factors generally pertinent to the valuation of investments. The fair value of these investments are subject to a high degree of volatility and may be susceptible to significant fluctuation in the near term. 7 Securities owned and securities sold, not yet purchased as of June 30, 2001, consist of the following (in 000's): Sold, Not Yet Owned Purchased ----- --------- Marketable equity securities: Portfolio positions of greater than 5% of outstanding common stock: Cortech, Inc.(1,451,200 shares) $ 5,311 $ - Gish Biomedical, Inc.(587,300 shares) 517 - Star Buffet, Inc. (294,000 shares) 876 - Golf Rounds.com, Inc.(189,600 shares) 182 - General Devices, Inc.(316,558 shares) 63 - All other portfolio positions 936 212 Held for resale to customers 115 7 ------- ------ Fair value $ 8,000 $ 219 ======= ====== Securities owned which are valued at amounts lower than listed market prices at June 30, 2001 amounted to $6,073,000. 4. Income taxes ------------ The components of income tax expense for the three and six months ended June 30, 2001 and 2000 are as follows: ($000 Omitted) Three Months Six Months Ended June 30, Ended June 30, -------------- -------------- 2001 2000 2001 2000 ---- ---- ---- ---- Federal-Current $ - $ - $ - $ - State-Current 2 6 3 9 Deferred - - - - ---- ---- ---- ---- Total $ 2 $ 6 $ 3 $ 9 ==== ==== ==== ==== 8 Total income tax expense for the three and six months ended June 30, 2001 and 2000 is different from the amounts computed by multiplying total earnings before income taxes by the statutory Federal income tax rate of 34%. The reasons for these differences and the related tax effects are: ($000 Omitted) ($000 Omitted) Three Months Six Months Ended June 30, Ended June 30, ----------------- ---------------- 2001 2000 2001 2000 ---- ---- ---- ---- Income tax expense computed at statutory rates on total earnings before income taxes ($ 70) ($ 96) $ 76 $367 Increase (decrease) in tax from: Valuation allowance on net operating loss carryforward 70 96 ( 76) ( 367) State income tax, net of Federal benefit 2 6 3 9 ---- ---- ---- ---- Total $ 2 $ 6 $ 3 $ 9 ==== ==== ==== ==== 5. Capital Stock Activity ---------------------- Common Stock Repurchases ------------------------ In February 2000 the Board of Directors approved a plan to repurchase up to 200,000 shares of the Company's common stock at prices deemed favorable in the open market or in privately negotiated transactions subject to market conditions, the Company's financial position and other considerations ("2000 Plan"). In March 2001, the Board of Directors approved a plan to repurchase up to an additional 150,000 shares of the Company's common stock at prices deemed favorable in the open market or in privately negotiated transactions subject to market conditions, the Company's financial position and other considerations. For the six months ended June 30, 2001 the Company repurchased 66,810 shares and returned these shares to the status of authorized and unissued. These shares were repurchased under the 2000 Plan and the Company can still repurchase approximately 19,000 shares under the 2000 Plan. None of the designated shares under the 2001 Plan have been repurchased as of June 30, 2001. 9 Common Stock Options -------------------- During the six months ended June 30, 2000, 21,000 shares of common stock were issued at $2.25 per share due to the exercise of options which had been granted in 1995. Since June 30, 2000 there were no outstanding options. 6. Related Party Transactions -------------------------- A management fee of $15,200 per month is paid to the Company by affiliates for management services performed by the Company on behalf of the affiliates. These services include corporate governance, financial management and accounting services. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results - ------ of Operations ----------------------------------------------------------------------- Liquidity and Capital Resources - ------------------------------- Kent Financial Services, Inc. (the "Company") had cash and cash equivalents (U.S. Treasury bills with original maturities of ninety days or less) of approximately $4 million and securities owned of approximately $8 million at June 30, 2001. Substantially all securities are owned by AVF. Securities carried at fair value of $6,073,000 were valued based on management's estimates. These securities are subject to a high degree of volatility and may be susceptible to significant fluctuation in the near term. The remainder of the securities owned are valued at quoted market prices. Net cash provided by operations was $476,000 in the six months ended June 30, 2001 compared to net cash used in operations of approximately $697,000 in the comparable period of 2000. Net cash provided by operations for the six months ended June 30, 2001 increased from the comparable period in 2000 principally from the change in securities owned offset by the decrease in net income. Unrealized gains on securities owned are included in the results of operations but do not generate cash flows from operations. Net cash used in financing activities of $277,000 and $290,000 in the six month periods ended June 30, 2001 and 2000, respectively, was comprised of the purchase of Company common stock, which was subsequently retired, and payments on the mortgage loan collateralized by the Company's headquarters building. Additionally, in the six months ended June 30, 2000 the Company issued 21,000 shares of common stock in connection with the exercise of options from its non-qualified stock option plan for proceeds of $47,000. The Company believes that its liquidity is sufficient for future operations. 11 Results of Operations - --------------------- The Company incurred a net loss of $209,000, or $.12 basic and diluted loss per share, for the three months ended June 30, 2001 compared to a net loss of $289,000 or $.16 basic and diluted loss per share, for the comparable quarter in 2000. For the six months ended June 30, 2001, net income was $221,000 or $.13 basic and diluted earnings per share, compared to net income of $1,070,000 or $.57 basic and diluted earnings per share, for the comparable period in 2000. Total brokerage income (consisting of brokerage commissions and trading gains) for the three months ended June 30, 2001 was $468,000, a decrease of $267,000, or 36%, from $735,000 in the comparable 2000 period. Total brokerage income was $954,000 for the six months ended June 30, 2001, a decrease of $1,882,000 or 66% from $2,836,000 for the six month period ended June 30, 2000. Brokerage expenses (including all fixed and variable expenses) decreased by $177,000, or 33%, from $531,000 in the quarter ended June 30, 2000, to $354,000 for the quarter ended June 30, 2001. For the six months ended June 30, 2001, brokerage expenses were $697,000 compared to $1,831,000 for the comparable period in the prior year, a decrease of $1,134,000 or 62%. Net brokerage income of $114,000 for the three months ended June 30, 2001 decreased $90,000 or 44% from $204,000 for the same period in 2000. For the six month period ended June 30, 2001, net brokerage income was $257,000, compared to $1,005,000 for the six months ended June 30, 2000, a decrease of $748,000 or 74%. The decrease in total brokerage income, total brokerage expense and net brokerage income for the quarter and six months ended June 30, 2001 compared to the comparable periods of 2000 was due to decreased activity by the brokers employed at T. R. Winston & Company, Inc., which was consistent with the activity in the equity markets in general. Net investing gains were $122,000 and $676,000 for the three and six months ended June 30, 2001, respectively, compared to net investing gains (losses) of ($271,000) and $569,000 for the comparable periods in 2000. The net investing gains for the three months ended June 30, 2001 related to a decrease of $48,000 in the fair value of portfolio positions in which the Company owns greater than five percent of the common stock outstanding offset by net realized and unrealized gains in other securities of approximately $170,000. 12 The majority of the net investing gains for the six months ended June 30, 2001 related to an increase of approximately $255,000 in the fair value of portfolio positions in which the Company owns greater than five percent of the common stock outstanding. This increase along with net realized and unrealized gains in other securities held of approximately $421,000 accounted for the six month investing gains. A management fee of $15,200 per month is paid to the Company by affiliates for management services performed by the Company on behalf of the affiliates. These services include corporate governance, financial management and accounting services. Interest, dividends and other income was $167,000 and $402,000 for the three and six months ended June 30, 2001, respectively, compared to $269,000 and $517,000 for the three and six months ended June 30, 2000, respectively. These decreases were the result of lower interest income earned due to lower available interest rates on the Company's cash equivalents. Also, during 2000 AVF received dividends on one of it's positions that amounted to $42,000 and $87,000 during the three and six months ended June 30, 2000, respectively. This position was sold during the third quarter of 2000. General and administrative expenses were $560,000 and $415,000 for the quarters ended June 30, 2001 and 2000, respectively, an increase of $145,000 or 35%. The increase in general and administrative expense for the quarter ended June 30, 2001 versus the quarter ended June 30, 2000 was due principally to provisions of $114,000 for non-marketable investments included in other assets and increases in legal and accounting fees. For the six month periods ended June 30, 2001 and 2000, general and administrative expenses were $989,000 and $888,000 respectively, an increase of $101,000 or 11%. This increase for the six months ended June 30, 2001 compared to the same period in 2000 is also due principally to provisions of $123,000 for non-marketable investments included in other assets and increases in legal and accounting fees offset by decreases in various other administrative expenses. 13 PART II - OTHER INFORMATION - ------- ----------------- Item 1. - Legal Proceedings - ------ ----------------- Environmental Matters - Texas American Petrochemicals, Inc. ("TAPI") - -------------------------------------------------------------------- In May 2001, the State of Texas notified TAPI and a group of other potentially responsible parties ("PRP's) that the State of Texas incurred costs for remedial investigation, feasibility studies and remedial design at an allegedly contaminated site in Texas known as the Sonics International Superfund Site, and that it would join TAPI and the other PRP's as parties to a pending lawsuit in the state courts of Texas to recover its costs and attorney's fees, which are alleged to be approximately $203,000. In July 2001, the State of Texas served the complaint in State of Texas v. Sonics International, Inc. et al, GV002838, Travis County, Texas District Court, by serving the Secretary of State. Due to the uncertainty and cost of litigation, TAPI and the Company agreed to a proposed settlement with the other PRP's, in which TAPI and the Company agreed to pay approximately $17,000 towards an overall settlement with the State of Texas even while denying liability. This settlement agreement with the other PRP's will become effective if, as and when the PRP's as a group, agree to pay at least $180,000 of the proposed $203,000 settlement. If that occurs, then TAPI and the Company, as well as the participating PRP's will execute a written settlement agreement with the State of Texas and will receive a release and contribution protection from the State of Texas. Item 6. - Exhibits and Reports on Form 8-K - ------ -------------------------------- (a) Exhibits -------- 10.2 Employment Agreement, dated July 1, 2001 by and between Kent Financial Services, Inc., and Paul O. Koether. 10.3 Employment Agreement dated July 1, 2001 by and between Kent Financial Services, Inc., and John W. Galuchie, Jr. (b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the quarter for which this report is being filed. 14 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KENT FINANCIAL SERVICES, INC. Dated: August 6, 2001 By: /s/ John W. Galuchie, Jr. -------------------------- John W. Galuchie, Jr. Executive Vice President 15 EX-10 3 jackempagrm.txt Exhibit 10.3 ------------ This is an EMPLOYMENT AGREEMENT (the "Agreement"), dated as of July 1, 2001, by and between KENT FINANCIAL SERVICES, INC., a Delaware corporation (the "Company"), and John W. Galuchie, Jr. (the "Executive"). Recitals -------- The Executive currently serves as Executive Vice President of the Company. The Company desires the Executive to continue to serve as the Company's Executive Vice President, and the Executive desires to continue to serve the Company as its Executive Vice President, on the terms and conditions set forth in this Agreement. NOW, THEREFORE, the parties agree as follows: 1. Employment. The Company hereby employs the Executive as Executive Vice ---------- President of the Company, and the Executive hereby accepts such employment, upon the terms and conditions set forth herein. 2. Duties and Powers. ----------------- 2.1 Duties. The Executive shall serve as Executive Vice President of the ------ Company and perform the duties of Executive Vice President as defined in the Bylaws of the Company in effect on the date of this Agreement. The Executive Vice President shall receive the compensation provided herein notwithstanding any future amendment to the Bylaws of the Company which diminishes or alters the duties of the Executive Vice President of the Company. The Executive shall not be required to devote his entire working time to the business of the Company, and may devote time to other business interests, including directorships of other companies public and private. 2.2 Service as Director. If elected, the Executive shall serve as a -------------------- director of the Company without additional compensation, and shall have the right at any time to serve as a director of any subsidiary of the Company. 3. Term of Agreement. The initial term of employment under this Agreement ----------------- shall be three years commencing effective as of July 1, 2001 (the "Effective Date") and shall extend until June 30, 2004 unless sooner terminated pursuant to Section 6 below. The term of the Executive's employment under this Agreement shall be automatically extended one day for each day elapsed after the Effective Date. Employment of the Executive by the Company prior to the Effective Date shall, subject to the terms and conditions of the benefit plans and arrangements referred to in Section 5.1 below, be counted in determining the Executive's continuous service with the Company for purposes of any benefit computation. 4. Compensation. For all services rendered by the Executive under this ------------ Agreement, the Company shall pay the Executive an annual salary of $190,000 (the "Base Salary"), payable in equal semi-monthly installments. The Board of Directors of the Company shall from time to time review the compensation to be paid to the Executive under this Agreement and shall increase (but not decrease) the compensation in such amounts, if any, as the Board of Directors determines. 1 5. Benefits, Expenses, Reimbursement, etc. --------------------------------------- 5.1 Benefit Plans. The Company shall provide the Executive with such -------------- medical and disability insurance, hospital insurance and group life insurance and other benefits made available to executive level employees of the Company, subject to the terms and conditions of such benefit plans and arrangements. 5.2 Expenses. The Company shall pay all expenses incurred by the Executive -------- in furtherance of or in connection with the business of the Company and its subsidiaries and affiliates including, without limitation, all (i) travel and living expenses while away from home on business or at the request and in the service of the Company or its subsidiary or affiliate, and (ii) entertainment expenses, upon submission of appropriate receipts or vouchers and in accordance with the standard expense reimbursement policies of the Company as in effect from time to time. If any such expenses are paid by the Executive, the Company shall reimburse him promptly for those expenses. The Executive shall also be entitled to reimbursement for the annual fee(s) of any credit cards the Executive acquires for use in charging expenditures incurred in the performance of his duties under this Agreement. 5.3 Vacations. The Executive shall be entitled each year to a vacation of --------- four weeks (twenty working days), during which time his compensation shall be paid in full and such holidays and other non-working days as are consistent with the policies of the Company for executives generally. All vacations shall be scheduled so as to cause minimal interference with the operations of the Company. If the Executive's employment under this Agreement is terminated pursuant to Section 6, the Executive shall be entitled to payment for all untaken vacation days. 5.4 Death Benefits. In the event of the Executive's death during the term -------------- of this Agreement or thereafter during the period of any disability described in Section 5.5C, the Company shall pay to such beneficiaries as the Executive shall designate in writing prior to the Executive's death, or if he fails to designate a beneficiary, to the Executive's spouse or, if none, to the Executive's estate, an annual benefit equal to three times the Executive's Base Salary (the "Death Benefit"). The Death Benefit shall be payable in equal monthly installments for a period of 3 years, commencing on the first day of the next month following the month in which the Executive's death occurs. Payments made pursuant to this Section 5.4 shall be made in lieu of any and all payments provided for in Section 4 of this Agreement. 2 5.5 Disability. ---------- A. The Executive shall be paid such benefits to which he is entitled under the terms of such long-term disability insurance as the Company has provided under Section 5.1 of this Agreement. However, if at any time during the term of this Agreement (i) the Company is not providing the Executive with long-term disability insurance coverage, or (ii) the amount of coverage provided pays benefits less than an annual benefit of 70% of the Executive's Base Salary, which the Executive is being paid prior to the commencement of disability benefits, or (iii) fails to pay benefits to age 65, and the Executive suffers from a Condition (defined below), then the Executive shall be paid the amount specified in Section 5.5B of this Agreement. B. If during the term of this Agreement (i) the Executive shall be deemed disabled and unable to perform his duties hereunder by an insurance company under any disability insurance policy covering the Executive, (ii) the Executive suffers any illness, disability or incapacity which renders him unable to perform his duties hereunder and such illness, disability or incapacity is deemed by a duly licensed physician (who may be the Executive's personal physician) to be permanent, or (iii) the Executive is unable to render services to the Company of the nature required by this Agreement because of illness, disability or incapacity for a period of 90 days, whether or not such days are consecutive, during any year of the term hereof (each of the events described in paragraphs (i),(ii) and(iii) above being defined as a "Condition"), then the Executive shall continue to use his best efforts to render advisory and consulting services as he is able and as may be reasonably requested by the Company and the Company shall pay to the Executive disability payments equal to the difference, if any, between 70% of the Executive's Base Salary and the amount the Executive actually receives under the Company's long-term disability insurance policy. The disability payments shall be paid to the Executive in equal monthly installments until the Executive attains age 65. The total amount payable to the Executive under this section 5.5B shall be the "Disability Benefit." Such payments shall commence on the first day of the month following the month in which the Condition occurs and shall be made even if the Executive is unable to render any services to the Company. Such payments shall be paid in lieu of any and all compensation provided for in Section 4 of this Agreement. 3 C. In the event of the Executive's death at any time during the period in which payments in respect of the Disability Benefit are required to be paid pursuant to Sections 5.5A and 5.5B above, the Company shall cease paying any such payments and shall pay the Death Benefit provided in Section 5.4. 6. Termination. The Executive's employment hereunder may be terminated only ----------- under the following circumstances: 6.1 Cause. The Company may terminate the Executive's employment hereunder ----- for "cause" upon not less than five days prior written notice of such termination. For purposes of this Agreement, the Company shall have "cause" to terminate the Executive's employment hereunder upon (A) the continued failure by the Executive to substantially perform his duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or the removal of the Executive's office to a location more than 5 miles from its current location), which failure has not been cured (i) within three days after a written demand for substantial performance is delivered to the Executive by the Company that specifically identifies the manner in which the Company believes the Executive has not substantially performed his duties (the "Three Day Period"), or (ii) in the event such failure cannot be reasonably cured within the Three Day Period, within 20 days thereafter, provided that the Executive promptly commences and thereafter diligently prosecutes the cure thereof, or (B) the Executive's conviction of any criminal act or fraud with respect to the Company. Notwithstanding the foregoing, the Executive's employment may not be terminated for cause unless and until the Company has delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than 80 percent of the entire Board of Directors at a meeting of the Board (of which the Executive was given at least 20 days prior written notice and an opportunity, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board, the Executive has not substantially performed his duties (which failure shall be described in detail) and such failure has not been cured within the period described in (ii) above. In addition, the Company shall not have cause to terminate the Executive's employment hereunder as a result of any event occurring prior to the date hereof and previously disclosed to the Company. The burden of establishing cause shall be upon the Company. 4 6.2 Termination by the Executive. The Executive may terminate his ------------------------------- employment hereunder for "good reason" upon not less than five days prior written notice to the Company. For purposes of this Agreement, "good reason" shall mean the continued failure by the Company to perform its obligations under this Agreement (including any material change by the Company in the duties, responsibilities and powers of the Executive as set forth herein or the removal of the Executive's office to a location more than 5 miles from its current location) which failure has not been cured (i) within three days after a written demand for performance is delivered to the Company by the Executive that specifically identifies the manner in which the Executive believes the Company has not performed its obligations (the "Three Day Period"), or (ii) in the event such a failure cannot be reasonably cured within the Three Day Period, within twenty (20) days thereafter provided that the Company promptly commences and thereafter diligently prosecutes the cure thereof. 6.3 Change in Control. ----------------- A. The Executive may terminate his employment under this Agreement at any time for "good reason" (as defined below) within 36 months after the date of a Change in Control (as defined below) of the Company. B. A "Change in Control"of the Company shall be deemed to have occurred if: (1) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") as in effect on the date hereof), other than individuals beneficially owning, directly or indirectly, common stock of the Company representing 30% or more of the Company's issued and outstanding common stock as of the Effective Date, is or becomes the beneficial owner, directly or indirectly, of common stock of the Company representing 30% or more of the Company's then issued and outstanding common stock; or 5 (2) individuals who constitute the Company's Board of Directors on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a Director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the Directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for Director, without objection to such nomination) shall be, for purposes of this clause, considered as though such person were a member of the Incumbent Board. For purposes of this Section 6.3(A), "good reason" shall mean a determination solely by the Executive, in good faith, that as a result of the Change of Control of the Company he may be adversely affected (i) in carrying out his duties and powers in the fashion he previously enjoyed or (ii) in his future prospects with the Company. C. If the Executive terminates his employment after a Change of Control of the Company, he shall notify the Company in writing of the effective date of the termination (the "Termination Date") of his employment and he shall be paid the greater of (i) the Base Salary payable to the Executive under this Agreement through to the Termination Date, or (ii) an amount equal to the product of (a) the average annual Base Salary paid to the Executive during the five years preceding the Termination Date, multiplied by (b) three. The amount payable under this Section 6.3(C) shall be paid in a lump sum on or before the fifth day following the Termination Date. 6 7. Interest and Counsel Fees. ------------------------- 7.1 Interest. All amounts payable to the Executive under this Agreement -------- shall be due and payable at the time specified herein and any payment which is not made within five days of the date of written demand shall be made with interest on the amount due from the due date until paid in full at an annual rate equal to 2% over the prime rate of interest generally published in The Wall Street Journal as in effect from time to time during the period from such due date until the date such payment is made. 7.2 Counsel Fees. The Company hereby irrevocably authorizes the Executive ------------ from time to time to retain counsel of his choice at the expense of the Company to represent the Executive in connection with the Executive's initiation or defense of any litigation, arbitration or other legal action relating to this Agreement or any provision hereof (whether such action is by or against the Company or any director, officer, stockholder or other person affiliated with the Company, or in any jurisdiction). Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to the Executive entering into an attorney-client relationship with such counsel, and in that connection the Company and the Executive agree that a confidential relationship shall exist between the Executive and such counsel. The reasonable fees and expenses of counsel selected by the Executive shall be paid or reimbursed to the Executive by the Company on a regular, periodic basis upon presentation by the Executive of a statement or statements prepared by such counsel in accordance with its customary practices, up to a maximum aggregate amount of $250,000. Notwithstanding the preceding, if it should be finally determined by judgment or order of a court of competent jurisdiction (the time for the appeal of which judgment or order shall have expired), that the Executive has not prevailed in any such litigation, arbitration or other legal action, the Executive shall promptly return to the Company, upon its demand, any amounts so advanced in connection with such action together with interest thereon at the rate provided in Section 7.1 above. 7 8. No Conflicting Commitments. -------------------------- 8.1 Representation and Warranty. The Executive represents and warrants that --------------------------- he has no commitments or obligations of any kind whatsoever inconsistent with this Agreement and is under no disability of any kind whatsoever which would impair, infringe upon or limit Executive's ability to enter this Agreement or to perform the services required hereunder. 8.2 Indemnification. The Executive agrees to indemnify and hold the Company --------------- harmless against any claim or other actions asserted against the Company based upon circumstances in which it is alleged that the Executive has breached the warranty set forth in Section 8.1. 9. Governing Law. This Agreement has been executed and delivered in the -------------- State of New Jersey, and shall in all respects be interpreted, construed, and governed by and in accordance with the law of the State of New Jersey. Except as otherwise herein provided, all actions or proceedings arising directly, indirectly or otherwise in connection with, out of, related to, or from this Agreement shall be litigated exclusively and only in courts having situs within the State of New Jersey, and the parties hereby consent and submit to the jurisdiction of any state or federal court located in the State of New Jersey. Notwithstanding the preceding, the Executive, at his sole and exclusive option, exercisable by written notice given to the Company at any time, may elect to submit any dispute arising under this Agreement to resolution by arbitration held in Somerset County, New Jersey in accordance with the rules of the American Arbitration Association. 8 10. Notices. All notices hereunder shall be in writing and personally ------- delivered or mailed by registered or certified mail, return receipt requested, to the following address: If to the Company: 376 Main Street P. O. Box 74 Bedminster, New Jersey 07921 If to the Executive: John W. Galuchie, Jr. P.O. Box 327 Gladstone, New Jersey 07934 The Company or the Executive may hereafter designate another address to the other in writing for purposes of notices under this Agreement. 11. Waivers. Any waiver by any party of any violation of, breach of or ------- default under any provision of this Agreement by the other party shall not be construed as, or constitute, a continuing waiver of such provision, or waiver of any other violation of, breach of or default under any other provision of this Agreement. 12. Assignability. This Agreement shall not be assignable by the Company ------------- without the written consent of the Executive, except that if the Company shall merge or consolidate with or into, or transfer substantially all of its assets to, another corporation or other form of business organization, this Agreement shall be binding on the Executive and be for the benefit of and binding upon the successor of the Company resulting from such merger, consolidation or transfer without the Executive's consent, subject to the Executive's right to terminate his employment under Section 6.3(C). The Executive may not assign, pledge, or encumber any interest in this Agreement or any part thereof without the express written consent of the Company, this Agreement being personal to the Executive. 9 13.Severability. Each provision of this Agreement constitutes a separate ------------ and distinct undertaking, covenant and/or provision hereof. In the event that any provision of this Agreement shall finally be determined to be unlawful, such provision shall be deemed severed from this Agreement, but every other provision of this Agreement shall remain in full force and effect, and in substitution for any such provision held unlawful, there shall be substituted a provision of similar import reflecting the original intent of the parties hereto to the extent permissible under law. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first set forth above. KENT FINANCIAL SERVICES, INC. By: /s/ Paul O. Koether ---------------------------- Title: Chairman ---------------------------- /s/ John W. Galuchie, Jr. ---------------------------- John W. Galuchie, Jr. 10 EX-10 5 pokempagrm.txt Exhibit 10.2 ------------ This is an EMPLOYMENT AGREEMENT (the "Agreement"), dated as of July 1, 2001, by and between KENT FINANCIAL SERVICES, INC., a Delaware corporation (the "Company"), and Paul O. Koether (the "Executive"). Recitals -------- The Executive currently serves as Chairman of the Company. The Company desires the Executive to continue to serve as the Company's Chairman, and the Executive desires to continue to serve the Company as its Chairman, on the terms and conditions set forth in this Agreement. NOW, THEREFORE, the parties agree as follows: 1. Employment. The Company hereby employs the Executive as Chairman of the ---------- Company, and the Executive hereby accepts such employment, upon the terms and conditions set forth herein. 2. Duties and Powers. ----------------- 2.1 Duties. The Executive shall serve as Chairman of the Company and ------ perform the duties of Chairman as defined in the Bylaws of the Company in effect on the date of this Agreement. The Chairman shall receive the compensation provided herein notwithstanding any future amendment to the Bylaws of the Company which diminishes or alters the duties of the Chairman of the Company. The Executive shall not be required to devote his entire working time to the business of the Company, and may devote time to other business interests, including directorships of other companies public and private. 2.2 Service as Director. If elected, the Executive shall serve as a -------------------- director of the Company without additional compensation, and shall have the right at any time to serve as a director of any subsidiary of the Company. 3. Term of Agreement. The initial term of employment under this Agreement ----------------- shall be three years commencing effective as of July 1, 2001 (the "Effective Date") and shall extend until June 30, 2004 unless sooner terminated pursuant to Section 6 below. The term of the Executive's employment under this Agreement shall be automatically extended one day for each day elapsed after the Effective Date. Employment of the Executive by the Company prior to the Effective Date shall, subject to the terms and conditions of the benefit plans and arrangements referred to in Section 5.1 below, be counted in determining the Executive's continuous service with the Company for purposes of any benefit computation. 4. Compensation. For all services rendered by the Executive under this ------------ Agreement, the Company shall pay the Executive an annual salary of $240,000 (the "Base Salary"), payable in equal semi-monthly installments. The Board of Directors of the Company shall from time to time review the compensation to be paid to the Executive under this Agreement and shall increase (but not decrease) the compensation in such amounts, if any, as the Board of Directors determines. 1 5. Benefits, Expenses, Reimbursement, etc. --------------------------------------- 5.1 Benefit Plans. The Company shall provide the Executive with such -------------- medical and disability insurance, hospital insurance and group life insurance and other benefits made available to executive level employees of the Company, subject to the terms and conditions of such benefit plans and arrangements. 5.2 Expenses. The Company shall pay all expenses incurred by the Executive -------- in furtherance of or in connection with the business of the Company and its subsidiaries and affiliates including, without limitation, all (i) travel and living expenses while away from home on business or at the request and in the service of the Company or its subsidiary or affiliate, and (ii) entertainment expenses, upon submission of appropriate receipts or vouchers and in accordance with the standard expense reimbursement policies of the Company as in effect from time to time. If any such expenses are paid by the Executive, the Company shall reimburse him promptly for those expenses. The Executive shall also be entitled to reimbursement for the annual fee(s) of any credit cards the Executive acquires for use in charging expenditures incurred in the performance of his duties under this Agreement. 5.3 Vacations. The Executive shall be entitled each year to a vacation of --------- four weeks (twenty working days), during which time his compensation shall be paid in full and such holidays and other non-working days as are consistent with the policies of the Company for executives generally. All vacations shall be scheduled so as to cause minimal interference with the operations of the Company. If the Executive's employment under this Agreement is terminated pursuant to Section 6, the Executive shall be entitled to payment for all untaken vacation days. 5.4 Death Benefits. In the event of the Executive's death during the term -------------- of this Agreement or thereafter during the period of any disability described in Section 5.5C, the Company shall pay to such beneficiaries as the Executive shall designate in writing prior to the Executive's death, or if he fails to designate a beneficiary, to the Executive's spouse or, if none, to the Executive's estate, an annual benefit equal to three times the Executive's Base Salary (the "Death Benefit"). The Death Benefit shall be payable in equal monthly installments for a period of 3 years, commencing on the first day of the next month following the month in which the Executive's death occurs. Payments made pursuant to this Section 5.4 shall be made in lieu of any and all payments provided for in Section 4 of this Agreement. 2 5.5 Disability. ---------- A. The Executive shall be paid such benefits to which he is entitled under the terms of such long-term disability insurance as the Company has provided under Section 5.1 of this Agreement. However, if at any time during the term of this Agreement (i) the Company is not providing the Executive with long-term disability insurance coverage, or (ii) the amount of coverage provided pays benefits less than an annual benefit of 80% of the Executive's Base Salary, which the Executive is being paid prior to the commencement of disability benefits, or (iii) fails to pay benefits to age 70, and the Executive suffers from a Condition (defined below), then the Executive shall be paid the amount specified in Section 5.5B of this Agreement. B. If during the term of this Agreement(i)the Executive shall be deemed disabled and unable to perform his duties hereunder by an insurance company under any disability insurance policy covering the Executive, (ii) the Executive suffers any illness, disability or incapacity which renders him unable to perform his duties hereunder and such illness, disability or incapacity is deemed by a duly licensed physician (who may be the Executive's personal physician) to be permanent, or (iii) the Executive is unable to render services to the Company of the nature required by this Agreement because of illness, disability or incapacity for a period of 90 days, whether or not such days are consecutive, during any year of the term hereof (each of the events described in paragraphs (i), (ii) and (iii) above being defined as a "Condition"), then the Executive shall continue to use his best efforts to render advisory and consulting services as he is able and as may be reasonably requested by the Company and the Company shall pay to the Executive disability payments equal to the difference, if any, between 80% of the Executive's Base Salary and the amount the Executive actually receives under the Company's long-term disability insurance policy. The disability payments shall be paid to the Executive in equal monthly installments until the Executive attains age 70. The total amount payable to the Executive under this section 5.5B shall be the "Disability Benefit." Such payments shall commence on the first day of the month following the month in which the Condition occurs and shall be made even if the Executive is unable to render any services to the Company. Such payments shall be paid in lieu of any and all compensation provided for in Section 4 of this Agreement. 3 C. In the event of the Executive's death at any time during the period in which payments in respect of the Disability Benefit are required to be paid pursuant to Sections 5.5A and 5.5B above, the Company shall cease paying any such payments and shall pay the Death Benefit provided in Section 5.4. 6. Termination. The Executive's employment hereunder may be terminated only ----------- under the following circumstances: 6.1 Cause. The Company may terminate the Executive's employment hereunder ----- for "cause" upon not less than five days prior written notice of such termination. For purposes of this Agreement, the Company shall have "cause" to terminate the Executive's employment hereunder upon (A) the continued failure by the Executive to substantially perform his duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or the removal of the Executive's office to a location more than 5 miles from its current location), which failure has not been cured (i) within three days after a written demand for substantial performance is delivered to the Executive by the Company that specifically identifies the manner in which the Company believes the Executive has not substantially performed his duties (the "Three Day Period"), or (ii) in the event such failure cannot be reasonably cured within the Three Day Period, within 20 days thereafter, provided that the Executive promptly commences and thereafter diligently prosecutes the cure thereof, or (B) the Executive's conviction of any criminal act or fraud with respect to the Company. Notwithstanding the foregoing, the Executive's employment may not be terminated for cause unless and until the Company has delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than 80 percent of the entire Board of Directors at a meeting of the Board (of which the Executive was given at least 20 days prior written notice and an opportunity, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board, the Executive has not substantially performed his duties (which failure shall be described in detail) and such failure has not been cured within the period described in (ii) above. In addition, the Company shall not have cause to terminate the Executive's employment hereunder as a result of any event occurring prior to the date hereof and previously disclosed to the Company. The burden of establishing cause shall be upon the Company. 4 6.2 Termination by the Executive. The Executive may terminate his ------------------------------- employment hereunder for "good reason" upon not less than five days prior written notice to the Company. For purposes of this Agreement, "good reason" shall mean the continued failure by the Company to perform its obligations under this Agreement (including any material change by the Company in the duties, responsibilities and powers of the Executive as set forth herein or the removal of the Executive's office to a location more than 5 miles from its current location) which failure has not been cured (i) within three days after a written demand for performance is delivered to the Company by the Executive that specifically identifies the manner in which the Executive believes the Company has not performed its obligations (the "Three Day Period"), or (ii) in the event such a failure cannot be reasonably cured within the Three Day Period, within twenty (20) days thereafter provided that the Company promptly commences and thereafter diligently prosecutes the cure thereof. 6.3 Change in Control. ----------------- A. The Executive may terminate his employment under this Agreement at any time for "good reason" (as defined below) within 36 months after the date of a Change in Control (as defined below) of the Company. B. A "Change in Control"of the Company shall be deemed to have occurred if: (1) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") as in effect on the date hereof), other than individuals beneficially owning, directly or indirectly, common stock of the Company representing 30% or more of the Company's issued and outstanding common stock as of the Effective Date, is or becomes the beneficial owner, directly or indirectly, of common stock of the Company representing 30% or more of the Company's then issued and outstanding common stock; or 5 (2) individuals who constitute the Company's Board of Directors on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a Director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the Directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for Director, without objection to such nomination) shall be, for purposes of this clause, considered as though such person were a member of the Incumbent Board. For purposes of this Section 6.3(A), "good reason" shall mean a determination solely by the Executive, in good faith, that as a result of the Change of Control of the Company he may be adversely affected (i) in carrying out his duties and powers in the fashion he previously enjoyed or (ii) in his future prospects with the Company. C. If the Executive terminates his employment after a Change of Control of the Company, he shall notify the Company in writing of the effective date of the termination (the "Termination Date") of his employment and he shall be paid the greater of (i) the Base Salary payable to the Executive under this Agreement through to the Termination Date, or (ii) an amount equal to the product of (a) the average annual Base Salary paid to the Executive during the five years preceding the Termination Date, multiplied by (b) three. The amount payable under this Section 6.3(C) shall be paid in a lump sum on or before the fifth day following the Termination Date. 6 7. Interest and Counsel Fees. ------------------------- 7.1 Interest. All amounts payable to the Executive under this Agreement -------- shall be due and payable at the time specified herein and any payment which is not made within five days of the date of written demand shall be made with interest on the amount due from the due date until paid in full at an annual rate equal to 2% over the prime rate of interest generally published in The Wall Street Journal as in effect from time to time during the period from such due date until the date such payment is made. 7.2 Counsel Fees. The Company hereby irrevocably authorizes the Executive ------------ from time to time to retain counsel of his choice at the expense of the Company to represent the Executive in connection with the Executive's initiation or defense of any litigation, arbitration or other legal action relating to this Agreement or any provision hereof (whether such action is by or against the Company or any director, officer, stockholder or other person affiliated with the Company, or in any jurisdiction). Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to the Executive entering into an attorney-client relationship with such counsel, and in that connection the Company and the Executive agree that a confidential relationship shall exist between the Executive and such counsel. The reasonable fees and expenses of counsel selected by the Executive shall be paid or reimbursed to the Executive by the Company on a regular, periodic basis upon presentation by the Executive of a statement or statements prepared by such counsel in accordance with its customary practices, up to a maximum aggregate amount of $250,000. Notwithstanding the preceding, if it should be finally determined by judgment or order of a court of competent jurisdiction (the time for the appeal of which judgment or order shall have expired), that the Executive has not prevailed in any such litigation, arbitration or other legal action, the Executive shall promptly return to the Company, upon its demand, any amounts so advanced in connection with such action together with interest thereon at the rate provided in Section 7.1 above. 7 8. No Conflicting Commitments. -------------------------- 8.1 Representation and Warranty. The Executive represents and warrants that --------------------------- he has no commitments or obligations of any kind whatsoever inconsistent with this Agreement and is under no disability of any kind whatsoever which would impair, infringe upon or limit Executive's ability to enter this Agreement or to perform the services required hereunder. 8.2 Indemnification. The Executive agrees to indemnify and hold the Company --------------- harmless against any claim or other actions asserted against the Company based upon circumstances in which it is alleged that the Executive has breached the warranty set forth in Section 8.1. 9. Governing Law. This Agreement has been executed and delivered in the -------------- State of New Jersey, and shall in all respects be interpreted, construed, and governed by and in accordance with the law of the State of New Jersey. Except as otherwise herein provided, all actions or proceedings arising directly, indirectly or otherwise in connection with, out of, related to, or from this Agreement shall be litigated exclusively and only in courts having situs within the State of New Jersey, and the parties hereby consent and submit to the jurisdiction of any state or federal court located in the State of New Jersey. Notwithstanding the preceding, the Executive, at his sole and exclusive option, exercisable by written notice given to the Company at any time, may elect to submit any dispute arising under this Agreement to resolution by arbitration held in Somerset County, New Jersey in accordance with the rules of the American Arbitration Association. 8 10. Notices. All notices hereunder shall be in writing and personally ------- delivered or mailed by registered or certified mail, return receipt requested, to the following address: If to the Company: 376 Main Street P. O. Box 74 Bedminster, New Jersey 07921 If to the Executive: Paul O. Koether 211 Pennbrook Road Far Hills, New Jersey 07931 The Company or the Executive may hereafter designate another address to the other in writing for purposes of notices under this Agreement. 11. Waivers. Any waiver by any party of any violation of, breach of or ------- default under any provision of this Agreement by the other party shall not be construed as, or constitute, a continuing waiver of such provision, or waiver of any other violation of, breach of or default under any other provision of this Agreement. 12. Assignability. This Agreement shall not be assignable by the Company ------------- without the written consent of the Executive, except that if the Company shall merge or consolidate with or into, or transfer substantially all of its assets to, another corporation or other form of business organization, this Agreement shall be binding on the Executive and be for the benefit of and binding upon the successor of the Company resulting from such merger, consolidation or transfer without the Executive's consent, subject to the Executive's right to terminate his employment under Section 6.3(C). The Executive may not assign, pledge, or encumber any interest in this Agreement or any part thereof without the express written consent of the Company, this Agreement being personal to the Executive. 9 13. Severability. Each provision of this Agreement constitutes a separate ------------ and distinct undertaking, covenant and/or provision hereof. In the event that any provision of this Agreement shall finally be determined to be unlawful, such provision shall be deemed severed from this Agreement, but every other provision of this Agreement shall remain in full force and effect, and in substitution for any such provision held unlawful, there shall be substituted a provision of similar import reflecting the original intent of the parties hereto to the extent permissible under law. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first set forth above. KENT FINANCIAL SERVICES, INC. By: /s/ John W. Galuchie, Jr. --------------------------------- Title: Executive Vice President --------------------------------- /s/ Paul O. Koether ---------------------------- Paul O. Koether 10 -----END PRIVACY-ENHANCED MESSAGE-----