SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997 Commission file number 014140
F I R S T A L B A N Y C O M P A N I E S I N C .
(Exact name of registrant as specified in its charter)
New York 22-2655804
- ------------------ ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 S. Pearl Street, Albany, New York 12207
- ------------------------------------ ---------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (518) 447-8500
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
none none
- ------------------- --------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common stock par value $.01 per share
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
-------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 13, 1998, 5,886,806 shares, par value $.01 per share, were
outstanding. The aggregate market value of the shares of common stock of
the Registrant held by non-affiliates (based upon the closing price of
Registrant's shares as reported on the NASDAQ system on March 13, 1998,
which was $14.50) was approximately $41,613,564.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement to be filed with
the Securities and Exchange Commission are incorporated by reference into
Part III.
</PAGE>
<PAGE>
Part I
Item 1. Business
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First Albany Companies Inc. (the Company), through its wholly owned subsidiary
First Albany Corporation (First Albany), conducts a full service investment
banking business with brokerage activity predominantly in New York and New
England. These activities include securities brokerage for individual and
institutional customers, and market-making and trading of corporate, government,
and municipal securities. In addition, First Albany underwrites and distributes
municipal and corporate securities, provides securities clearance activities for
other brokerage firms, and offers financial advisory services to its customers.
Another of the Company's subsidiaries is First Albany Asset Management
Corporation ("FAAM"). FAAM serves as investment manager to individual and
institutional customers. FAAM directs the investment of customer and mutual
fund assets by making investment decisions, placing purchase and sales orders,
and providing research, statistical analysis, and continuous supervision of the
portfolios.
Brokerage services to retail and institutional customers are provided through
First Albany's salesforce of Investment Executives and Institutional
Salespeople. First Albany believes that its Investment Executives and
Institutional Salespeople are a key factor to the success of its business. Over
the last five years, the number of full-time Investment Executives and
Institutional Salespeople has grown from approximately 234 to 337, many of whom
joined First Albany after previous associations with national brokerage firms.
First Albany has organized its business to focus on and serve the needs and
financial/capital requirements of institutions, individuals, corporations, and
municipalities. As investment bankers, First Albany is positioned to advise,
manage, and conduct a variety of activities as requested including under-
writings, initial and secondary offerings, advisory services, mergers and
acquisitions, and private placements. As a brokerage firm, First Albany offers
customers a full array of investment opportunities.
First Albany operates a total of 27 Retail, Institutional, and Investment
Banking offices in 10 states. First Albany's executive office and largest
sales office are both located in Albany, New York.
The Company (formed in 1985) and First Albany (formed in 1953) are New York
corporations. First Albany is a member of the New York Stock Exchange,
Inc. ("NYSE"), the American Stock Exchange, Inc. ("ASE"), and the Boston
Stock Exchange, Inc. ("BSE") and is registered as a broker-dealer with the
Securities and Exchange Commission ("SEC"). First Albany is also a member
of the National Association of Securities Dealers, Inc. ("NASD") and the
Securities Investor Protection Corporation ("SIPC"), which insures customer
funds and securities deposited with a broker-dealer up to $500,000 per
customer, with a limitation of $100,000 on claims for cash balances. First
Albany has obtained additional coverage of $24,500,000 per account from
National Union, a wholly owned subsidiary of American International Group
(AIG), America's largest commercial insurer. Both companies are rated A+15
(highest rating) by A.M. Best.
</PAGE>
<PAGE>
Sources of Revenues
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A breakdown of the amount and percentage of revenues from each principal
source for the periods indicated follows:
<TABLE>
For the Years Ended
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December 31, December 31, December 31,* September 29,*
1997 1996 1995 1995
(three-months)
- ---------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
(In thousands of dollars)
Securities commissions:
Listed $ 22,523 1.6% $ 20,507 12.2% $ 5,128 13.7% $ 17,852 14.5%
Over-the-counter 11,327 5.9 7,749 4.6 1,402 3.7 4,395 3.6
Options 2,843 1.5 1,894 1.1 382 1.0 1,240 1.0
Mutual funds 15,805 8.2 12,258 7.3 2,712 7.3 8,228 6.7
Other 489 0.3 303 0.2 15 0.1 174 0.1
- ---------------------------------------------------------------------------------------------
Sub-total 52,987 27.5 42,711 25.4 9,639 25.8 31,889 25.9
Principal transactions 63,235 32.7 63,438 37.7 12,322 32.9 43,198 35.1
Investment banking 19,636 10.1 19,558 11.6 5,435 14.5 14,625 11.9
Clearing revenues 1,090 0.6 1,100 0.7 267 0.7 1,059 0.8
Fees and other 10,550 5.5 9,144 5.4 1,603 4.3 6,155 5.0
- ---------------------------------------------------------------------------------------------
Total operating
revenues 147,498 76.4 135,951 80.8 29,266 78.2 96,926 78.7
- ---------------------------------------------------------------------------------------------
Interest income 45,474 23.6 32,240 19.2 8,138 21.8 26,173 21.3
- ---------------------------------------------------------------------------------------------
Total revenues $192,972 100.0% $168,191 100.0% $ 37,404 100.0% $123,099 100.0%
=============================================================================================
</TABLE>
*In July 1996, the Company changed its fiscal year end to a calendar year end.
Accordingly, results from operations for the period ending December 31, 1996
reflect a twelve-month period ("calendar year") while results for the
transitional period ending December 31, 1995 reflect a three-month period.
Securities Commissions
- ----------------------
In executing customers' orders to buy or sell listed securities and securities
in which it does not make a market, First Albany generally acts as an agent and
charges a commission.
Principal Transactions
- ----------------------
First Albany buys and maintains inventories of municipal debt, corporate debt,
and equity securities as a "market maker" for sale of those securities to other
dealers and to customers. A staff of 56 traders, underwriters, and assistants
manage First Albany's inventory of securities. First Albany Investment
Executives work directly with these traders. As of December 31, 1997, First
Albany made a market in 222 common stocks quoted on National Association of
Securities Dealers Automated Quotation ("NASDAQ") and other less actively traded
securities. First Albany also trades municipal bonds and taxable debt
obligations, including U.S. Treasury bills, notes, and bonds; U.S. Government
agency notes and bonds; bank certificates of deposit; mortgage-backed
securities; and corporate obligations. Principal transactions have been a
significant source of revenue and should continue to be so in the future.
Continuation of these activities depends on the availability of sufficient
capital and the services of highly skilled traders, Investment Executives, and
Institutional Salespeople.
In fiscal 1995, First Albany added an institutional municipal risk trading
operation, in which certain inventory positions are hedged by highly liquid
future contracts. Most of the inventory positions are carried for the purpose
of generating sales by the retail and institutional salesforce.
First Albany's trading activities
</PAGE>
<PAGE>
require the commitment of capital and may place First Albany's capital at risk.
Profits and losses are dependent upon the skill of traders, price movement,
trading activity, and the size of inventories.
In executing customers' orders to buy or sell in the over-the-counter market in
a security in which it makes a market, First Albany may sell to or purchase from
its customers at a price which is substantially equal to the current inter-
dealer market price, plus or minus a markup or markdown. Alternatively, First
Albany may act as an agent, executing a customer's purchase or sale order with
another broker-dealer, who acts as a market maker, at the best inter-dealer
market price available and charging a commission.
The following table sets forth the highest, lowest, and average month-end
inventories (including the net of securities owned and securities sold, but not
yet purchased) for calendar 1997 by securities category where First Albany acted
as principal.
<TABLE>
Highest Lowest Average
(In thousands of dollars) Inventory Inventory Inventory
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
State and municipal bonds $163,106 $ 54,447 $ 95,850
Corporate obligations 21,346 3,313 9,580
Corporate stocks 3,312 813 1,905
U.S. Government and federal
agencies obligations 12,814 (3,332) 4,478
</TABLE>
Underwriting and Investment Banking
- -----------------------------------
First Albany manages, co-manages, and participates in tax-exempt and corporate
securities distributions. For the periods indicated, the table below highlights
the number and dollar amount of corporate and tax-exempt securities offerings
managed or co-managed by First Albany and the number and amount of First
Albany's underwriting participations in syndicates, including those managed or
co-managed by First Albany:
<TABLE>
Corporate Stock and Bond Offerings
Managed or Co-Managed Syndicate Participations
- --------------------------------------------------------------------------------
Year Number of Amount of Number of Amount of
Ended Issues Offering Participations Participation
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
(In thousands of dollars)
December 1997 12 $322,137 110 $126,250
December 1996 9 348,292 177 218,452
December 1995
(three-months) 2 86,828 74 73,303
September 1995 13 514,583 203 227,170
September 1994 13 483,814 334 349,723
September 1993 3 158,300 344 366,314
</TABLE>
<TABLE>
Tax-Exempt Bond Offerings
Managed or Co-Managed Syndicate Participations
- --------------------------------------------------------------------------------
Year Number of Dollar Number of Dollar
Ended Issues Amount Participations Amount
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
(In thousands of dollars)
December 1997 243 $26,480,340 293 $ 4,398,478
December 1996 267 19,291,904 302 3,226,226
December 1995
(three-months) 47 6,322,205 59 522,292
September 1995 113 12,235,469 222 1,362,845
September 1994 123 14,744,502 332 1,598,182
September 1993 171 18,379,821 349 1,741,206
</TABLE>
</PAGE>
<PAGE>
Participation in an underwriting syndicate or selling group involves both
economic and regulatory risks. An underwriter or selling group member may
incur losses if it is forced to resell the securities it is committed to
purchase at less than the agreed-upon purchase price. In addition, under the
federal securities laws, other statutes, and court decisions with respect to
underwriters' liabilities and limitations on indemnification of underwriters by
issuers, an underwriter is subject to substantial potential liability for
material misstatements or omissions in prospectuses and other communications
with respect to underwritten offerings. Further, underwriting or selling
commitments constitute a charge against net capital and First Albany's
underwriting or selling commitments may be limited by the requirements that it
must at all times be in compliance with the net capital rule. See "Net Capital
Requirements".
Interest
- --------
First Albany derives interest income primarily from the financing of customer
margin loans, securities lending activities, and securities owned.
Customers' securities transactions are effected on either a cash or margin
basis. In margin transactions, First Albany extends credit, which is
collateralized by securities and cash in the customer's account, to the
customer. In accordance with Federal Reserve Bank regulations, NYSE
regulations, and internal policy, First Albany earns interest income as a result
of charging customers at a rate of up to 2 3/4% over the brokers' call rate.
During the past several years, cash balances in customers' accounts have been a
source of funds to finance customers' margin account debit balances. SEC
regulations restrict the use of customers' funds by broker-dealers by providing
generally that free credit balances and funds derived from pledging and lending
customers' securities are to be used only to finance customers' margin account
debit balances, and, to the extent not so used, the funds must be deposited in a
special reserve bank account for the exclusive benefit of customers. The
regulations also require broker-dealers, within designated periods of time, to
obtain physical possession or control of, and to segregate, customers' fully
paid and excess margin securities.
In the ordinary course of both its trading and brokerage activities, First
Albany borrows securities to cover short sales and to complete transactions in
which customers or other brokers have failed to deliver securities by the
required settlement date. First Albany also lends securities to other brokers
and dealers for similar purposes.
When borrowing securities, First Albany is required to deposit cash or other
collateral, or to post a letter of credit with the lender and receive a rebate
(based on the amount of cash deposited) calculated to yield a negotiated rate of
return. When lending securities, First Albany receives cash and generally pays
a rebate (based on the amount of cash received) to the other party to the
transaction. Securities borrow and loan transactions are executed pursuant to
written agreements with counter-parties which provide that the securities
borrowed or loaned be marked to market on a daily basis and that excess
collateral be refunded or that additional collateral be furnished in the event
of changes in the market value of the securities. Collateral adjustments are
usually made on a daily basis through the facilities of various clearinghouses.
Operations, Clearing, and Systems
- ---------------------------------
First Albany's operations include: execution of orders; processing of
transactions; receipt, identification, and delivery of funds and securities;
custody of customers' securities; internal financial control; and compliance
with regulatory and legal requirements.
The volume of transactions handled by the operations staff fluctuates
substantially. The monthly number of purchase and sale transactions processed
for the periods indicated were as follows:
</PAGE>
<PAGE>
<TABLE>
Number of Monthly
Transactions
Year Ended High Low Average
- ---------- ------------------------------------------------
<S> <C> <C> <C>
December 1997 101,571 52,773 69,609
December 1996 75,140 49,631 56,956
December 1995 (three months) 60,880 45,543 50,880
September 1995 56,251 35,440 42,181
September 1994 44,917 30,685 36,412
September 1993 40,326 28,784 33,630
</TABLE>
First Albany has established internal controls and safeguards against securities
theft, including use of depositories and periodic securities counts. As
required by the NYSE and certain other authorities, First Albany carries
fidelity bonds covering loss or theft of securities as well as embezzlement and
forgery.
First Albany clears its own securities transactions and posts its books and
records daily. Periodic reviews of controls are conducted, and administrative
and operations personnel meet frequently with management to review operating
conditions. Operations, compliance, and legal personnel monitor compliance
with applicable laws, rules, and regulations.
In addition to processing its own customer transactions, First Albany processes,
for a fee, the transactions of other brokerage firms whose customer accounts are
carried on a fully disclosed basis with all security positions, margin accounts
receivable, and credit balances reflected on the books and records of First
Albany.
Financial Services
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Customized financial services are available to customers of First Albany.
The Financial Services Department advises customers on a variety of interrelated
financial matters, including investment portfolio review, tax management,
insurance analysis, education and retirement planning, survivor income needs,
and estate tax analysis. For a fee, financial planners will prepare a detailed
analysis with specific recommendations aimed at accumulating wealth and
attaining financial goals.
First Albany also offers a range of retirement plans, including IRAs, SEP Plans,
profit sharing, 401(k), and pension programs. Fixed and variable annuities are
available as well as life, disability, and nursing home insurance programs,
limited partnership interests in real estate, oil and gas drilling, and similar
ventures.
Research
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First Albany maintains a professional staff of equity analysts. Research is
focused on five industry sectors: technology, financial services, energy,
utilities, and basic industry. First Albany employs 12 analysts and 12 research
assistants who support First Albany's institutional and corporate finance
activities.
In fiscal 1995, First Albany enlarged the scope of its research in the
technology sector by entering into a strategic alliance with the META Group,
Inc. ("META"). META, an independent market assessment company, provides
research and analysis of developments and trends in information technology
("IT"), including computer hardware, software, communications and related
information technology industries to both IT users and IT vendors. The alliance
with META enables First Albany to provide its investors with insights drawn from
META's analysis of technology trends, user experience, and vendor pricing and
negotiating tactics.
Research services include review and analysis of the economy; general market
conditions; technology trends, industries and specific companies via both
fundamental and technical analyses; recommendations of specific action with
regard to industries and specific companies; preparation of research reports
which are provided to retail and institutional customers; and responses to
inquiries from customers. In addition, First
</PAGE>
<PAGE>
Albany purchases outside research services including economic reports, charts,
data bases, company analyses, and technical analyses.
Retail Business
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Revenues from First Albany's retail brokerage activities are generated through
customer purchases and sales of stocks, bonds, mutual funds, and other
investment products. For the calendar years ended December 31, 1997,
December 31, 1996, the three month period ended December 31, 1995 and fiscal
year 1995, these revenues accounted for approximately 52%, 45%, 49%, and 53%, of
operating revenues, respectively.
Institutional Business
- ----------------------
Revenues generated from securities transactions with major institutions for the
calendar years ended December 31, 1997, December 31, 1996, the three month
period ended December 31, 1995 and fiscal year 1995, accounted for approximately
32%, 34%, 36%, and 31%, of operating revenues, respectively. Institutional
revenues are derived from sales of tax-exempt securities, taxable debt
obligations, and equities and are generated by 83 Institutional Salespeople.
Municipal Bond Business
- -----------------------
The tax-exempt department consists of 105 professionals and offers a broad range
of services, including primary market underwriting, secondary market trading,
institutional sales, sales liaison with branches, portfolio analysis, credit
analysis, investment banking services, and financial advisory services.
Sales revenues from all secondary market tax-exempt products were $14.9 million
for the calendar year ended December 31, 1997; $15.0 million for the calendar
year ended December 31, 1996; $3.2 million for the three-month period ended
December 31, 1995; and $12.9 million in fiscal 1995.
Employees
- ---------
At December 31, 1997, the Company had 843 full-time employees, of which 252 were
Retail Investment Executives, 127 were Institutional Salespeople and
Institutional Traders, 155 were in branch sales support, 141 were in other
revenue producing positions, 60 were in operations, and 108 were in other
support and administrative functions.
New Investment Executives are required to take examinations given by the NASD
and approved by the NYSE and all principal exchanges as well as state securities
authorities in order to be registered. There is intense competition among
securities firms for Investment Executives with proven sales production records.
The Company considers its employee relations to be good and believes that its
compensation and employee benefits are competitive with those offered by other
securities firms. None of the Company's employees are covered by a collective
bargaining agreement.
Competition
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First Albany is engaged in a highly competitive business. Its competition
includes, with respect to one or more aspects of its business, all of the member
organizations of the NYSE and other registered securities exchanges, all members
of the NASD, members of the various commodity exchanges, and commercial banks
and thrift institutions. Many of these organizations are national firms and
have substantially greater financial and human resources than First Albany.
Discount brokerage firms seeking to expand their share of the retail market,
including firms affiliated with commercial banks and thrift institutions, are
devoting substantial funds to advertising and direct solicitation of customers.
In many instances, First Albany is competing directly with such organizations.
In addition, there is competition for investment funds from the real estate,
insurance, banking, and savings and loan industries. The Company believes that
the principal factors affecting competition for the securities industry are the
quality and ability of professional personnel and relative prices of services
and products offered.
</PAGE>
<PAGE>
Regulation
- ----------
The securities industry in the United States is subject to extensive regulation
under federal and state laws. The SEC is the federal agency charged with
administration of the federal securities laws. Much of the regulation of
broker-dealers, however, has been delegated to self-regulatory organizations,
principally the NASD and the national securities exchanges. These self-
regulatory organizations adopt rules (subject to approval by the SEC) which
govern the industry and conduct periodic examinations of member broker-dealers.
Securities firms are also subject to regulation by state securities commissions
in the states in which they are registered. First Albany is currently
registered as a broker-dealer in 50 states and the District of Columbia.
The regulations to which broker-dealers are subject cover all aspects of the
securities business, including sales methods, trade practices among broker-
dealers, capital structure of securities firms, recordkeeping, and conduct of
directors, officers, and employees. Additional legislation, changes in rules
promulgated by the SEC and by self-regulatory organizations, or changes in the
interpretation or enforcement of existing laws and rules often directly affect
the method of operation and profitability of broker-dealers. The SEC, self-
regulatory organizations, and state security regulators may conduct
administrative proceedings which can result in censure, fine, suspension, or
expulsion of a broker-dealer, its officers, or employees. The principal purpose
of regulation and discipline of broker-dealers is the protection of customers
and the securities markets rather than protection of creditors and stockholders
of broker-dealers.
Net Capital Requirements
- ------------------------
As a broker-dealer and member of the NYSE, First Albany is subject to the
Uniform Net Capital Rule promulgated by the SEC. The rule is designed to measure
the general financial condition and liquidity of a broker-dealer, and it imposes
a minimum amount of net capital requirement deemed necessary to meet the broker-
dealer's continuing commitments to its customers.
A broker-dealer may be required to reduce its business and to restrict
withdrawal of subordinated capital if its net capital is less than 4% of
aggregate debit balances; it may be prohibited from expanding its business and
declaring cash dividends if its net capital is less than 5% of aggregate debit
balances; and it will be subject to closer supervision by the NYSE if its net
capital is less than 6% of aggregate debit balances. Compliance with the Net
Capital Rule may limit those operations which require the use of its capital for
purposes, such as maintaining the inventory required for a firm trading in
securities, underwriting securities, and financing customer margin account
balances. Net capital and aggregate debit balances change from day to day and,
at December 31, 1997, First Albany's net capital was $18,605,000 which was 9.5%
of its aggregate debit balances (2% minimum requirement) and $14,670,000 in
excess of required minimum net capital.
</PAGE>
<PAGE>
Item 2. Properties
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As of February 1998, the Company had a total of 27 Retail, Institutional, and
Investment Banking offices in 10 states, all of which are leased or rented. The
Company's executive offices are located at 30 South Pearl Street, Albany, New
York. The order entry, trading, investment banking, research, data processing,
operations, and accounting activities are centralized in the Albany office.
The offices at 30 South Pearl Street are operated under a lease which currently
expires in the year 2002. All other offices are subject to lease or rental
agreements that expire at various times through March 2008. These leases, in the
opinion of management, are sufficient to meet the needs of the Company. A list
of locations are as follows:
Albany, NY Garden City, NY Norwich, NY
30 South Pearl St. Retail Sales Retail Sales
Retail & Institutional
Sales, Investment Banking,
DP, Research, Back Office Hartford, CT Oneonta, NY
Retail & Institutional Retail Sales
Sales
80 State St. Johnstown, NY Philadelphia, PA
Retail Sales Retail Sales Institutional Sales
Bonita Springs, FL Los Angeles, CA Pittsfield, MA
Institutional Sales Investment Banking Retail Sales
Boston, MA Manchester, NH San Francisco
Retail & Institutional Sales Retail Sales (Burlingame), CA
Investment Banking, DP, Research Investment Banking
Buffalo, NY Morristown, NJ Syracuse, NY
Retail Sales Institutional Sales Retail Sales
Colchester(Burlington), VT Nashua, NH Vestal
Retail Sales Retail Sales (Binghamton), NY
Retail Sales
Chicago, IL New York, NY Wellesley, MA
Retail Sales One Penn Plaza 40 Grove St.
Retail & Institutional Institutional Sales
Sales, Investment Banking,
Elmira, NY DP, Research, Back Office
Retail Sales 330 Washington St.
Retail Sales
Fairfield, CT 17 State St.
Retail Sales Retail Sales
Operations
Item 3. Legal Proceedings
- --------------------------
In the normal course of business, the Company has been named a defendant, or
otherwise has possible exposure, in several claims. Certain of these claims are
class actions which seek unspecified damages that could be substantial.
Although there can be no assurance as to the eventual outcome of litigation in
which the Company has been named as a defendant or otherwise has possible
exposure, the Company has provided for those actions it believes are likely to
result in adverse dispositions. Although further losses are possible, the
opinion of management, based upon the advice of its attorneys and general
counsel, is that such litigation will not, in the aggregate, have a material
adverse effect on the Company's liquidity or financial position, although it
could have a material effect on quarterly or annual operating results in the
period in which it is resolved.
</PAGE>
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
- ---------------------------------------------------------------------------
The Company's common stock trades on the NASDAQ Stock Market under the symbol
"FACT". As of March 13, 1998 there were approximately 1,446 holders of record
of the Company's common stock. The following table sets forth the high and low
bid quotations for the common stock as adjusted for subsequent stock dividends,
along with cash dividends during each quarter for the fiscal years ended:
<TABLE>
December 31, 1997 Quarters Ended
- --------------------------------------------------------------------------------
Stock Price Range Mar. 28 June 27 Sept.26 Dec. 31
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
High $10 3/8 $14 1/2 $15 1/2 $16 3/8
Low $ 9 1/8 $ 9 1/4 $12 1/8 $12 5/8
Cash Dividend per Share $ 0.05 $ 0.05 $ 0.05 $ 0.05
December 31, 1996 Quarters Ended
- --------------------------------------------------------------------------------
Stock Price Range Mar. 29 June 28 Sept.27 Dec. 31
- --------------------------------------------------------------------------------
High $ 9 1/4 $ 9 1/2 $ 9 1/2 $ 9 3/4
Low $ 8 1/8 $ 8 1/8 $ 8 1/8 $ 7 7/8
Cash Dividend per Share $ 0.05 $ 0.05 $ 0.05 $ 0.05
December 31, 1995 Three-month period
- --------------------------------------------------------------------------------
Stock Price Range Dec. 31
- --------------------------------------------------------------------------------
High $ 8 5/8
Low $ 6 3/8
Cash Dividend per Share $ 0.05
</TABLE>
The Board of Directors has from time to time authorized the Company to
repurchase shares of its common stock either in the open market or otherwise.
As of December 31, 1997, the total number of treasury shares was 109,279. When
appropriate, the Company will consider making additional purchases.
During calendar 1997, the Company declared and paid four quarterly cash
dividends totaling $.20 per share of common stock, and declared and issued two
5% common stock dividends.
In January 1998, subsequent to the period reflected in this report, the Company
declared the regular quarterly cash dividend of $0.05 per share payyable on
February 26, 1998 to shareholders of record on February 12, 1998.
</PAGE>
<PAGE>
Item 6. Selected Financial Data
- --------------------------------
The following selected financial data have been derived from the Consolidated
Financial Statements of the Company.
<TABLE>
First Albany Companies Inc.
FINANCIAL SUMMARY
(In thousands of dollars except per share amounts)
------------------------For the Years Ended----------------------------
Dec. 31, Dec. 31, Dec. 31, Sept. 29, Sept.30, Sept. 24,
For the years ended 1997 1996 1995 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Operating Results
Revenues:
Commissions $ 52,987 $ 42,711 $ 34,941 $ 31,889 $ 29,553 $ 28,884
Principal transactions 63,235 63,438 44,821 43,198 36,167 34,857
Investment banking 19,636 19,558 16,311 14,625 19,164 23,265
Fees and other 11,640 10,244 7,530 7,214 6,578 5,901
- --------------------------------------------------------------------------------------------------
Operating revenues 147,498 135,951 103,603 96,926 91,462 92,907
Interest income 45,474 32,240 28,075 26,173 16,222 9,483
- --------------------------------------------------------------------------------------------------
Total revenues 192,972 168,191 131,678 123,099 107,684 102,390
Interest expense 38,615 26,030 21,985 19,904 10,467 5,257
- --------------------------------------------------------------------------------------------------
Net revenues 154,357 142,161 109,693 103,195 97,217 97,133
- --------------------------------------------------------------------------------------------------
Expenses (excluding interest):
Compensation and
benefits 105,080 95,691 74,596 71,064 65,513 64,388
Clearing, settlement
and brokerage costs 3,358 2,868 2,378 2,258 1,894 1,981
Communications and data
processing 12,872 10,897 8,244 7,794 7,198 6,209
Occupancy and
depreciation 13,203 8,527 6,909 6,660 5,710 5,395
Selling 8,027 7,246 5,231 4,817 4,779 4,152
Other 8,915 7,840 5,912 5,382 4,755 6,242
- --------------------------------------------------------------------------------------------------
Total expenses (excl.
interest) 151,455 133,069 103,270 97,975 89,849 88,367
- --------------------------------------------------------------------------------------------------
Income before income taxes 2,902 9,092 6,423 5,220 7,368 8,766
Income tax expense 1,251 3,592 2,363 1,870 2,876 3,375
- ---------------------------------------------------------------------------------------------------
Income before extraordinary
gain 1,651 5,500 4,060 3,350 4,492 5,391
Extraordinary gain,
net of $255 taxes 305
- ---------------------------------------------------------------------------------------------------
Net income $ 1,956 $ 5,500 $ 4,060 $ 3,350 $ 4,492 $ 5,391
===================================================================================================
Per Common Share: *
Earnings-basic $ 0.34 $ 1.00 $ 0.74 $ 0.61 $ 0.83 $ 0.99
Cash dividend 0.20 0.20 0.20 0.20 0.20 0.20
Book value 7.64 7.55 6.82 6.59 6.16 5.50
- ---------------------------------------------------------------------------------------------------
Financial Condition:
Total assets $831,921 $675,785 $510,081 $543,255 $482,749 $514,794
Notes payable 7,271 4,583 1,641 1,791 94 456
Obligations under
capitalized leases 3,088 1,426
Subordinated debt 7,500 5,000 2,250
Stockholders' equity 44,548 42,274 37,558 36,192 33,230 30,088
- ---------------------------------------------------------------------------------------------------
</TABLE>
*All per share figures have been restated for all common stock dividends paid.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
- ------------------------------------------------------------------------
BUSINESS ENVIRONMENT
First Albany Corporation (First Albany), a wholly owned subsidiary of First
Albany Companies Inc. (the Company), is a full service investment banking and
brokerage firm. Its primary business includes the underwriting, distribution,
and trading of fixed income and equity securities. The investment banking and
brokerage businesses earn revenues in direct correlation with the general level
of trading activity in the stock and bond markets. This level of activity
cannot be controlled by the Company; however, many of the Company's costs are
fixed. Therefore, the Company's earnings, like those of others in the industry,
reflect the activity in the markets and can fluctuate accordingly.
In July 1996, the Company changed its fiscal year end to a calendar year end.
Accordingly, results from operations for the period ending December 31, 1996
reflect a twelve-month period ("calendar year") while results for the
transitional period ending December 31, 1995 reflect a three-month period.
This is a highly competitive business. The competition includes not only full
service national firms and discount houses, but also mutual funds that sell
directly to the customer as well as banks and insurance companies that offer a
variety of investment products.
1997 was an unusually good year for the equity markets in general. The yield
on long-term U.S. Treasury bonds decreased from 6.64% to 5.92% while the Dow
Jones Industrial Average rose from 6448 to 7908. As a result, stock prices
registered a total return of 33.3% as measured by the S&P 500, and bonds
registered a return of 9.8% as measured by the Lehman Brothers
Government/Corporate Index. The stock market return was unusual. The
compound annual returns with all the dividends and interest reinvested between
1925 and 1997 for government bonds was 5.2% and for equities was 11%.
Although First Albany remains optimistic about the outlook for equity prices in
1998, a pullback in prices could occur. If such a pullback should occur, it
would have a damaging effect on the secondary markets. Revenues from security
trading, commission revenues, and underwriting fees and profits of First Albany
Corporation would most likely suffer.
</PAGE>
<PAGE>
RESULTS OF OPERATIONS
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
<TABLE>
1997 vs.
Twelve Months Ended 1996 Percentage
December 31, December 31, Increase Increase
(In thousands of dollars) 1997 1996 (Decrease) (Decrease)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
Revenues:
Commissions $ 52,987 $ 42,711 $ 10,276 24%
Principal transactions 63,235 63,438 (203) 0%
Investment banking 19,636 19,558 78 0%
Fees and other 11,640 10,244 1,396 14%
- -------------------------------------------------------------------------------------
Operating revenue 147,498 135,951 11,547 9%
Interest income 45,474 32,240 13,234 41%
- -------------------------------------------------------------------------------------
Total Revenues 192,972 168,191 24,781 15%
Interest expense 38,615 26,030 12,585 48%
- -------------------------------------------------------------------------------------
Net revenues 154,357 142,161 12,196 9%
- -------------------------------------------------------------------------------------
Expenses (excluding interest):
Compensation and benefits 105,080 95,691 9,389 10%
Clearing, settlement and
brokerage cost 3,358 2,868 490 17%
Communications and
data processing 12,872 10,897 1,975 18%
Occupancy and depreciation 13,203 8,527 4,676 55%
Selling 8,027 7,246 781 11%
Other 8,915 7,840 1,075 14%
- -------------------------------------------------------------------------------------
Total expenses (excluding
interest) 151,455 133,069 18,386 14%
- -------------------------------------------------------------------------------------
Income before income taxes 2,902 9,092 (6,190) (68%)
Income tax expense 1,251 3,592 (2,341) (65%)
- -------------------------------------------------------------------------------------
Income before extraordinary
items 1,651 5,500 (3,849) (70%)
Extraordinary gain,
net of $255 taxes 305 305
- -------------------------------------------------------------------------------------
Net Income $ 1,956 $ 5,500 $ (3,544) (64%)
=====================================================================================
Net interest income:
Interest income $ 45,474 $ 32,240 $ 13,234 41%
Interest expense 38,615 26,030 12,585 48%
- -------------------------------------------------------------------------------------
Net interest income $ 6,859 $ 6,210 $ 649 10%
=====================================================================================
</TABLE>
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
Calendar Year 1997 Compared with Calendar Year 1996
Net Income
- ----------
Net income for the calendar year ended December 31, 1997 was $2.0 million or
$0.34 basic earnings per share compared to $5.5 million or $1.00 basic earnings
per share a year ago. This year's increase in net revenues of $12.2 million,
primarily reflects increases in the Company's municipal and retail divisions.
Although earnings continued to improve throughout 1997, earnings remain
negatively impacted by our investment in people and technology. In the fourth
quarter of calendar 1997, we began to see progress from our cost reduction
efforts, with a 5% decrease in non-compensation related expenses over the
previous quarter. We expect to continue our cost reduction efforts throughout
1998.
Commissions
- -----------
Commission revenues increased $10.3 million or 24% in calendar 1997
reflecting active trading in all major markets. Revenues from listed stocks and
over-the-counter agency stock commissions increased $5.6 million or 20%, with
mutual fund commission revenues increasing $3.6 million or 29% and options
commissions increased $1.0 million or 50%.
Principal Transactions
- ----------------------
Principal transactions remained stable in calendar 1997. Taxable fixed income
increased $2.4 million, municipal bonds increased $2.1 million, equities
decreased $3.8 million, and investment income decreased $0.9 million.
Investment Banking
- ------------------
Investment banking revenues remained stable in calendar 1997. Revenues from
investment banking fees increased $2.3 million (municipal finance fees increased
$1.6 million while corporate finance fees increased $0.7 million). Selling
concessions were down $1.8 million (municipals were the same as the prior year,
equities decreased $1.4 million and taxable fixed income decreased $0.4
million), and underwriting fees decreased $0.4 million (municipals increased
$0.5 million, equities decreased $0.9 million).
Fees and Other
- --------------
Fees and other revenues increased $1.4 million or 14% in calendar 1997
primarily reflecting increased service charge income and financial service
revenues.
Compensation and Benefits
- -------------------------
Compensation and benefits increased $9.4 million or 10% in calendar 1997 due
partly to the increase in revenues. Sales-related compensation increased $3.2
million, salaries increased $3.5 million, and benefits increased $2.7 million
partly due to an increase in medical insurance costs. In late 1997, the Company
changed its medical insurance plan, which will reduce its costs in 1998.
Communications and Data Processing
- ----------------------------------
Communications and data processing increased $2.0 million or 18% in calendar
1997. Communications expense increased $1.5 million due mainly to the firm's
upgrade in technology and increased headcount. Data processing expense
increased $0.5 million due in most part to a greater number of transactions.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
Occupancy and Depreciation
- --------------------------
Occupancy and depreciation expense increased $4.7 million or 55% in calendar
1997 primarily as a result of the upgrade of our retail branch technology and
the expansion of our retail and institutional offices in New York City.
Other
- -----
Other expense increased $1.1 million or 14% in calendar 1997 due to an
increase in consulting fees and investments in enhanced client communications.
Extraordinary Gain, net of taxes
- --------------------------------
The Company realized an extraordinary gain of $0.3 million, net of taxes.
This extraordinary gain was the result of the Company's investment in Mechanical
Technology Incorporated ("MTI"). The Company's investment in MTI is recorded
under the equity method. The Company recorded its share of MTI's extraordinary
gains as an extraordinary gain on the Company's books. During the first quarter
of MTI's 1997 fiscal year, MTI realized an extraordinary gain due to the
extinguishment of debt.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
<TABLE>
================================================================================
1996 vs.
Twelve Months Ended 1995 Percentage
December 31, December 31, Increase Increase
(In thousands of dollars) 1996 1995 (Decrease) (Decrease)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Revenues:
Commissions $ 42,711 $ 34,941 $ 7,770 22%
Principal transactions 63,438 44,821 18,617 42%
Investment banking 19,558 16,311 3,247 20%
Fees and other 10,244 7,530 2,714 36%
- --------------------------------------------------------------------------------
Operating revenues 135,951 103,603 32,348 31%
Interest income 32,240 28,075 4,165 15%
- --------------------------------------------------------------------------------
Total Revenues 168,191 131,678 36,513 28%
Interest expense 26,030 21,985 4,045 18%
- --------------------------------------------------------------------------------
Net revenues 142,161 109,693 32,468 30%
- --------------------------------------------------------------------------------
Expenses (excluding interest):
Compensation and benefits 95,691 74,596 21,095 28%
Clearing, settlement and
brokerage cost 2,868 2,378 490 21%
Communications and
data processing 10,897 8,244 2,653 32%
Occupancy and depreciation 8,527 6,909 1,618 23%
Selling 7,246 5,231 2,015 39%
Other 7,840 5,912 1,928 33%
- --------------------------------------------------------------------------------
Total expenses (excluding
interest) 133,069 103,270 29,799 29%
- --------------------------------------------------------------------------------
Income before income taxes 9,092 6,423 2,669 42%
Income tax expense 3,592 2,363 1,229 52%
- --------------------------------------------------------------------------------
Net income $ 5,500 $ 4,060 $ 1,440 35%
================================================================================
Net interest income:
Interest income $ 32,240 $ 28,075 $ 4,165 15%
Interest expense 26,030 21,985 4,045 18%
- --------------------------------------------------------------------------------
Net interest income $ 6,210 $ 6,090 $ 120 2%
================================================================================
</TABLE>
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
Calendar Year 1996 Compared with Calendar Year 1995
Net Income
- ----------
Net income for the calendar year ended December 31, 1996 was $5.5 million or
$1.00 basic earnings per share compared to $4.1 million or $0.74 basic earnings
per share a year ago. The 1996 revenue gain reflects significant increases in
both the Company's institutional and retail divisions. Net revenues increased
over 60% for our equity capital markets division and over 50% for our fixed
income capital markets division, while revenues in the retail division increased
nearly 25%. In the second half of 1996, continued strong revenues were offset
in part by our investment in people and systems.
Commissions
- -----------
Commission revenues increased $7.8 million or 22% in calendar 1996 reflecting
active trading in all major markets. Revenues from listed stocks and over-the-
counter agency stock commissions increased $4.5 million or 19% with mutual fund
commission revenues increasing $3.1 million or 33%.
Principal Transactions
- ----------------------
Principal transactions increased $18.6 million or 42% in calendar 1996. This
growth was comprised of an increase in equity securities of $10.3 million, an
increase in municipal bonds of $0.7 million, an increase in taxable fixed income
of $5.9 million and an increase in investment income of $1.7 million, primarily
from META Group, Inc.
Investment Banking
- ------------------
Investment banking revenues increased $3.2 million or 20% in calendar 1996.
Revenues from selling concessions were up $0.7 million (municipals increased
$1.6 million, equities decreased $0.8 million and taxable fixed income decreased
$0.1 million), underwriting fees increased $0.5 million (primarily equities),
and investment banking fees increased $2.0 million (municipal finance fees
increased $1.5 million while corporate finance fees increased $0.5 million).
Fees and Other
- --------------
Fees and other revenues increased $2.7 million or 36% in calendar 1996
primarily reflecting increased service charge income and financial service
revenues.
Compensation and Benefits
- -------------------------
Compensation and benefits increased $21.1 million or 28% in calendar 1996 due
primarily to the increase in revenues. Sales-related compensation increased
$17.8 million, salaries increased $2.7 million, and benefits increased $0.6
million.
Communications and Data Processing
- ----------------------------------
Communications and data processing increased $2.7 million or 32% in calendar
1996. Communications expense increased $2.2 million due mainly to the
Company's continued commitment to upgrading technology, its increase in
personnel and the growth of its business related activity. Data processing
expense increased $0.5 million due in most part to a greater number of
transactions.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
Occupancy and Depreciation
- --------------------------
Occupancy and depreciation expense increased $1.6 million or 23% in calendar
1996 primarily as a result of our continuing investment in new automated
systems.
Selling
- -------
Selling expense increased $2.0 million or 39% in calendar 1996 mainly
reflecting greater promotional- related expenses resulting from increased retail
and institutional activity.
Other
- -----
Other expense increased $1.9 million or 33% in calendar 1996 due to an
increase in consulting costs and expenses related to an upgrade in our customer
statement.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
<TABLE>
===================================================================================
1995 vs.
Three Months Ended 1994 Percentage
December 31, December 31, Increase Increase
(In thousands of dollars) 1995 1994 (Decrease) (Decrease)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
Revenues:
Commissions $ 9,639 $ 6,587 $ 3,052 46%
Principal transactions 12,322 10,699 1,623 15%
Investment banking 5,435 3,749 1,686 45%
Fees and other 1,870 1,553 317 20%
- -----------------------------------------------------------------------------------
Operating revenues 29,266 22,588 6,678 30%
Interest income 8,138 6,237 1,901 30%
- -----------------------------------------------------------------------------------
Total Revenues 37,404 28,825 8,579 30%
Interest expense 6,631 4,551 2,080 46%
- -----------------------------------------------------------------------------------
Net revenues 30,773 24,274 6,499 27%
- -----------------------------------------------------------------------------------
Expenses (excluding interest):
Compensation and benefits 20,433 16,900 3,533 21%
Clearing, settlement and
brokerage cost 613 493 120 24%
Communications and
data processing 2,264 1,814 450 25%
Occupancy and depreciation 1,842 1,593 249 16%
Selling 1,563 1,149 414 36%
Other 1,576 1,046 530 51%
- -----------------------------------------------------------------------------------
Total expenses (excluding
interest) 28,291 22,995 5,296 23%
- -----------------------------------------------------------------------------------
Income before income taxes 2,482 1,279 1,203 94%
Income tax expense 929 436 493 113%
- -----------------------------------------------------------------------------------
Net income $ 1,553 $ 843 $ 710 84%
===================================================================================
Net interest income:
Interest income $ 8,138 $ 6,237 $ 1,901 30%
Interest expense 6,631 4,551 2,080 46%
- -----------------------------------------------------------------------------------
Net interest income $ 1,507 $ 1,686 $ (179) (11)%
===================================================================================
</TABLE>
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
Three Month Period Ended December 31, 1995 and December 31, 1994
Net Income
- -----------
Net income for the quarter ended December 31, 1995, was $1.6 million or $0.28
basic earnings per share compared to $0.8 million or $0.16 basic earnings per
share a year ago. Most of the Company's business units showed significant
revenue gains in the three month period ending December 31, 1995 compared to the
three month period ending December 31, 1994. Revenues in both the equity
capital markets and municipal divisions increased over 50%, while revenues in
the retail division were up almost 20%.
Commissions
- -----------
Commission revenues increased $3.1 million or 46% in the three month period
ending December 31, 1995 reflecting active trading in all major markets.
Revenues from listed and over-the-counter agency stock commissions increased
$2.0 million or 44% with mutual fund commission revenues increasing $1.0 million
or 57%.
Principal Transactions
- ----------------------
Principal transactions increased $1.6 million or 15% in the three month period
ending December 31, 1995. This growth was comprised of an increase in equity
securities of $0.9 million, an increase in municipal bonds of $0.3 million and
an increase in taxable fixed income of $0.4 million.
Investment Banking
- ------------------
Investment banking revenues increased $1.7 million or 45% in the three month
period ending December 31, 1995. Revenues from selling concessions were up $1.0
million (equities increased $0.4 million, municipals increased $0.4 million and
taxable fixed income increased $0.2 million), underwriting fees increased $0.6
million (primarily municipal bonds), and investment banking fees increased $0.1
million (municipal finance fees increased $0.3 million while corporate finance
fees decreased $0.2 million).
Fees and Other
- --------------
Fees and other revenues increased $0.3 million or 20% reflecting increased
service charge income and financial service revenues.
Compensation and Benefits
- -------------------------
Compensation and benefits increased $3.5 million or 21% due primarily to the
increase in revenues. Sales-related compensation increased $2.4 million,
salaries increased $0.9 million, and benefits increased $0.2 million.
Communications and Data Processing
- ----------------------------------
Communications and data processing increased $0.5 million or 25% in the three
month period ending December 31, 1995. Communications expense increased $0.4
million due mainly to the Company's buildup in institutional equity sales and
research. Data processing expense increased $0.1 million due primarily to a
greater number of transactions.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
Selling
- -------
Selling expense increased $0.4 million or 36% mainly reflecting higher
promotional related costs resulting from institutional sales activity.
Other
- -----
Other expenses increased $0.5 million or 51% in the three month period
ending December 31, 1995, partially due to an increase in consulting costs.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
LIQUIDITY AND CAPITAL RESOURCES
A substantial portion of the Company's assets, similar to other brokerage and
investment banking firms, is liquid, consisting of cash and assets readily
convertible into cash. These assets are financed primarily by the Company's
interest-bearing and non-interest-bearing payables to customers, payables to
brokers and dealers secured by loaned securities, and bank lines-of-credit.
Securities borrowed and securities loaned along with receivables from customers
and payable to customers will fluctuate primarily due to the current level of
business activity in these areas. Securities owned will fluctuate as a result
of the changes in the level of positions held to facilitate customer
transactions and changes in market conditions. Short-term bank loans decreased
due partly to a decrease in securities owned. Securities loaned, net, increased
primarily due to an increase in net customer receivables. Receivables from
others and payables to others will fluctuate primarily due to the change in the
adjustment to record securities owned on a trade date basis.
At fiscal year-end 1997, First Albany Corporation, a registered broker-
dealer subsidiary of First Albany Companies Inc., was in compliance with the net
capital requirements of the Securities and Exchange Commission and had capital
in excess of the minimum required.
Management believes that funds provided by operations and a variety of bank
lines-of-credit-totaling $190,000,000 of which approximately $90,298,000 were
unused as of December 31, 1997-will provide sufficient resources to meet present
and reasonably foreseeable short-term financial needs.
During 1997, the Company declared and paid four quarterly cash dividends
totaling $0.20 per share of common stock, as well as declared and issued two 5%
common stock dividends.
In January 1998, subsequent to the period reflected in this report, the
Company declared the regular quarterly cash dividend of $0.05 per share payable
on February 26, 1998, to shareholders of record on February 12, 1998.
Management believes that funds provided by operations will be sufficient to
fund the acquisition of office equipment, leasehold improvements, and other
long-term requirements.
New Accounting Standards
- ------------------------
Financial Accounting Standards Board No. 125 - "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." This
statement, which would be effected for all transfers after December 31, 1997,
addresses several matters that have a significant impact of the Broker/Dealer
industry. It addresses how and when to record transferred assets, transfers of
partial interest, servicing of financial assets, securitizations, transfers of
sales-type and direct financing lease receivables, securities lending
transactions, repurchase agreements including "dollar rolls," "wash sales," loan
syndications and participations, risk participations in banker's acceptances,
factoring arrangements, transfer of receivables with recourse, and
extinguishment of liabilities, collateral, repurchase agreements and how to
amortize servicing assets and liablities. Management has reviewed this
statement and has determined that it has no material effect on the presentation
of the consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive
Income" ("SFAS 130") and "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"), respectively (collectively, the
Statements"). The Statements are effective for fiscal years beginning after
December 15, 1997. SFAS 130 establishes standards for reporting of
comprehensive income and its components in annual financial statements. SFAS
131 establishes standards for reporting financial and descriptive information
about an enterprise's operating segments in its annual financial statements and
selected segment information in
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.)
interim financial reports. Reclassification or restatement of comparative
financial statements or financial information for earlier periods is required
upon adoption of SFAS 130 and SFAS 131, respectively, Application of the
Statements' requirements is not expected to have a material impact on the
Company's consolidated financial position, results of operations or earnings per
share data as currently reported.
Year 2000
- ---------
The Company relies on both internal systems and systems of other parties in
regard to its business, accounting and operational software. As the millennium
approaches, the Company is working toward becoming year 2000 compliant. Many of
our internal systems are already year 2000 compliant. The Company currently has
plans that if successful will have all internal systems year 2000 compliant
during 1998.
The Company has contacted its outside vendor software providers regarding the
year 2000 and has developed specific plans to address this issue. These vendors
are in the process of implementing these plans with an expected completion date
of late 1998. If any vendor is not successful, the Company will evaluate
selecting alternative vendors at that time.
The incremental costs of this project are estimated to be approximately
$700,000. Most of these costs are attributable to software/hardware upgrades.
The Company presently believes that with modifications to existing software or
conversion to new software, year 2000 problems can be effectively avoided.
However, if such modifications and conversions are not made, or are not
completed timely, year 2000 problems could have a material impact on the
operations of the Company.
</PAGE>
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements and Supplementary Data
----------------------------------------------------
Page
----
REPORT OF INDEPENDENT ACCOUNTANTS 25
FINANCIAL STATEMENTS:
Consolidated Statements of Income For the Calendar
Years Ended December 31, 1997, and December 31, 1996;
the three-month Transition Period ended December 31,
1995; and the Fiscal Year Ended September 29, 1995 26
Consolidated Statements of Financial Condition
as of December 31, 1997, December 31, 1996
and December 31, 1995 (unaudited) 27
Consolidated Statements of Changes in Stockholders'
Equity for the Calendar Years Ended December 31,
1997 and December 31, 1996; the three-month
Transition Period ended December 31, 1995, and
the Fiscal Year Ended September 29, 1995 28
Consolidated Statements of Cash Flows for the
Calendar Years Ended December 31, 1997 and
December 31, 1996; the Three-month Transition
Period ended December 31, 1995; and the Fiscal
Year Ended September 29, 1995, 29-30
Notes to Consolidated Financial Statements 31-45
SUPPLEMENTARY DATA:
Selected Quarterly Financial Data (Unaudited) 46
</PAGE>
<PAGE>
Report of Independent Accountants
Board of Directors and Stockholders
First Albany Companies Inc.
We have audited the consolidated statements of financial condition of First
Albany Companies Inc. as of December 31, 1997 and 1996 and the related
statements of income, changes in stockholder's equity and cash flows for the
years ended December 31, 1997 and 1996, the three months ended December 31, 1995
and the year ended September 29, 1995 and the financial statement listed in Item
14(a) of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of First Albany
Companies Inc. as of December 31, 1997 and 1996, and the consolidated results
of their operations and their cash flows for the years ended December 31, 1997
and 1996, the three months ended December 31, 1995, and for the year ended
September 29, 1995 in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Albany, New York
March 23, 1998
</PAGE>
<PAGE>
First Albany Companies Inc.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars, except per share amounts)
<TABLE>
Three-Month
Transition Period
December 31, December 31, December 31, September 29,
For the years ended 1997 1996 1995 1995
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Revenues:
Commissions $ 52,987 $ 42,711 $ 9,639 $ 31,889
Principal transactions 63,235 63,438 12,322 43,198
Investment banking 19,636 19,558 5,435 14,625
Interest 45,474 32,240 8,138 26,173
Fees and other 11,640 10,244 1,870 7,214
- ----------------------------------------------------------------------------------------
Total revenues 192,972 168,191 37,404 123,099
Interest expense 38,615 26,030 6,631 19,904
- ----------------------------------------------------------------------------------------
Net revenues 154,357 142,161 30,773 103,195
- ----------------------------------------------------------------------------------------
Expenses (excluding interest):
Compensation and benefits 105,080 95,691 20,433 71,064
Clearing, settlement and
brokerage costs 3,358 2,868 613 2,258
Communications and data
processing 12,872 10,897 2,264 7,794
Occupancy and depreciation 13,203 8,527 1,842 6,660
Selling 8,027 7,246 1,563 4,817
Other 8,915 7,840 1,576 5,382
- ----------------------------------------------------------------------------------------
Total expenses (excluding
interest) 151,455 133,069 28,291 97,975
- ----------------------------------------------------------------------------------------
Income before income taxes 2,902 9,092 2,482 5,220
Income tax expense 1,251 3,592 929 1,870
- ----------------------------------------------------------------------------------------
Income before extraordinary
items 1,651 5,500 1,553 3,350
Extraordinary gain,
net of $255 taxes 305
- ----------------------------------------------------------------------------------------
Net income $ 1,956 $ 5,500 $ 1,553 $ 3,350
========================================================================================
Basic Earnings Per Share:
Income before extraordinary
gain $ 0.29 $ 1.00 $ 0.28 $ 0.61
Extraordinary gain 0.05 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------
Net Income $ 0.34 $ 1.00 $ 0.28 $ 0.61
========================================================================================
Dilutive Earnings Per Share:
Income before extraordinary
gain $ 0.26 $ 0.93 $ 0.26 $ 0.59
Extraordinary gain 0.05 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------
Net Income $ 0.31 $ 0.93 $ 0.26 $ 0.59
========================================================================================
</TABLE>
*All per share figures have been restated to reflect all stock dividends paid.
The accompanying notes are an integral
part of the consolidated financial statements.
</PAGE>
<PAGE>
First Albany Companies Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands of dollars)
<TABLE>
December 31, December 31, December 31,
1997 1996 1995
(unaudited)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
Assets
Cash $ 951 $ 4,005 $ 5,450
Cash segregated under federal regulations 1,300
Securities purchased under agreement
to resell 5,299 2,869
Securities borrowed 468,786 344,904 283,785
Receivables from:
Brokers, dealers and clearing agencies 4,421 1,856 7,231
Customers 182,976 128,130 99,759
Others 7,760 8,181 17,492
Securities owned 121,116 156,154 80,586
Investments 7,026 6,157 1,470
Office equipment and leasehold
improvements, net 12,947 12,584 6,075
Other assets 20,639 10,945 6,933
- -------------------------------------------------------------------------------------
Total Assets $831,921 $675,785 $510,081
=====================================================================================
Liabilities and Stockholders' Equity
Liabilities
Short-term bank loans $ 99,702 $134,712 $112,292
Securities sold under agreement
to repurchase 891
Securities loaned 547,847 350,577 283,146
Payables to:
Brokers, dealers and clearing agencies 2,955 3,150 3,281
Customers 49,181 48,174 48,274
Others 37,201 56,615 5,000
Securities sold but not yet purchased 8,440 10,075 4,407
Accounts payable 4,196 1,928 2,457
Accrued compensation 13,025 11,649 7,617
Accrued expenses 6,076 5,622 4,408
Notes payable 7,271 4,583 1,641
Obligations under capitalized leases 3,088 1,426
- --------------------------------------------------------------------------------------
Total Liabilities 779,873 628,511 472,523
- --------------------------------------------------------------------------------------
Commitments and Contingencies
Subordinated debt 7,500 5,000
- --------------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock; $1.00 par value;
authorized 500,000 shares; none issued
Common stock; $.01 par value; authorized
10,000,000 shares; issued 5,943,381;
5,390,594; and 4,889,747 respectively 59 54 49
Additional paid-in capital 33,024 25,591 20,257
Retained earnings 12,070 18,556 19,153
Less treasury stock at cost (605) (1,927) (1,901)
- --------------------------------------------------------------------------------------
Total Stockholders' Equity 44,548 42,274 37,558
- --------------------------------------------------------------------------------------
Total Liabilities and Stockholders'
Equity $831,921 $675,785 $510,081
======================================================================================
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
</PAGE>
<PAGE>
First Albany Companies Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Periods Ended December 31, 1997,
December 31, 1996, December 31, 1995, and September 29, 1995
(In thousands of dollars except for number of shares)
<TABLE>
Common Stock Additional
Issued Paid-In Retained Treasury Stock
Shares Amount Capital Earnings Shares Amount
<S> <C> <C> <C> <C> <C> <C>
=====================================================================================
Balance
September 30, 1994 4,435,454 $ 44 $ 16,489 $ 19,099 (408,450) $ (2,402)
Issuance of re-
stricted stock 186 (155) 19,635 130
Stock dividends
declared 454,293 5 3,582 (3,587) (35,175)
Cash dividends paid (815)
Options exercised (70) 58,251 336
Net income 3,350
- -------------------------------------------------------------------------------------
Balance
September 29, 1995 4,889,747 49 20,257 17,822 (365,739) (1,936)
Cash dividends paid (217)
Options exercised (5) 6,370 35
Net income 1,553
- -------------------------------------------------------------------------------------
Balance
December 31, 1995 4,889,747 49 20,257 19,153 (359,369) (1,901)
Issuance of re-
stricted stock 340 45 74,557 413
Stock dividends
declared 500,847 5 4,994 (4,999) (38,768)
Cash dividends paid (932)
Options exercised (211) 136,276 806
Treasury stock purchase (124,505) (1,245)
Net income 5,500
- -------------------------------------------------------------------------------------
Balance
December 31, 1996 5,390,594 54 25,591 18,556 (311,809) (1,927)
Issuance of re-
stricted stock 261 (39) 51,411 287
Stock dividends
declared 552,787 5 7,172 (7,177) (21,765)
Cash dividends paid (1,072)
Options exercised (154) 172,884 1,035
Net income 1,956
- -------------------------------------------------------------------------------------
Balance
December 31, 1997 5,943,381 $ 59 $ 33,024 $ 12,070 (109,279) $ (605)
=====================================================================================
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
</PAGE>
<PAGE>
First Albany Companies Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
Three Months
Dec. 31, Dec. 31, Dec.31, Sept. 29,
For the years ended 1997 1996 1995 1995
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,956 $ 5,500 $ 1,553 $ 3,350
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 4,562 3,230 691 2,302
Deferred income taxes 2,251 146 587 (1,278)
Undistributed earnings of affiliate (1,168) (555)
Unrealized investment gains (117) (2,343)
Realized gains on sale of investments (770)
(Increase) decrease in operating assets:
Cash and securities segregated under federal regs. 1,300 (1,300)
Securities purchased under agreement
to resell (2,430) (2,869)
Securities borrowed, net (12,243)
Net receivables from brokers, dealers, and
clearing agencies (2,760) (5,165)
Net receivable from customers (53,839) (28,471) (1,210) (10,394)
Net receivable from others (11,662) 15,865
Securities owned, net 33,403 (69,900) (27,354) (33,031)
Other assets (11,945) (4,158) (150) 1,283
Increase (decrease) in operating liabilities:
Securities loaned, net 73,388 6,312 13,335
Net payables to brokers, dealers,
and clearing agencies 5,244 (2,351)
Net payable to others (16,494) 48,934
Accounts payable and accrued expenses 4,098 4,717 487 382
- ------------------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities 30,135 (32,913) (55,766) (10,537)
- ------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of furniture, equipment,
and leaseholds (2,682) (8,288) (705) (3,213)
Purchases of investments (15) (1,789) (1,838)
Proceeds from sale of investments 1,045
- ------------------------------------------------------------------------------------------
Net cash used in investing activities (1,652) (10,077) (705) (5,051)
- ------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds (payments) of short-term
bank loans, net (35,010) 22,420 59,004 14,367
Proceeds from subordinated debt 2,500 5,000
Proceeds of notes payable 5,000 5,500 2,000
Payments of notes payable (2,312) (2,558) (150) (303)
Payments of obligations under capitalized
leases (425) (25)
Securities sold under agreement to repurchase 891
Payments for purchases of common stock for
treasury (1,245)
Proceeds from issuance of common stock from
treasury 881 595 31 266
Proceeds from issuance of restricted stock 509 798 161
Net increase (decrease) from borrowing under
line-of-credit agreements (2,499) 11,992
Dividends paid (1,072) (932) (217) (815)
- -------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (31,537) 41,545 58,668 15,676
- -------------------------------------------------------------------------------------------
Increase (decrease) in cash (3,054) (1,445) 2,197 88
Cash at beginning of the period 4,005 5,450 3,253 3,165
- -------------------------------------------------------------------------------------------
Cash at the end of the period $ 951 $ 4,005 $ 5,450 $ 3,253
===========================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Income Tax Payments $ 681 $ 3,410 $ 608 $ 1,753
Interest Payments $ 39,808 $ 25,404 $ 6,273 $ 18,989
</TABLE>
In 1997 and 1996, the Company entered into capital leases for office and
computer equipment totaling approximately $2,087,000 and $1,451,000,
respectively.
The accompanying notes are an integral
part of the consolidated financial statements.
</PAGE>
<PAGE>
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies
Organization and Nature of Business
- -----------------------------------
The consolidated financial statements include the accounts of First Albany
Companies Inc. and its wholly owned subsidiaries (the "Company"). First Albany
Corporation (the "Corporation") is the Company's principal subsidiary and a
registered broker-dealer. The Corporation is registered with the Securities and
Exchange Commission ("SEC") and is a member of various exchanges and the
National Association of Securities Dealers, Inc. The Corporation's primary
business includes securities brokerage for individual and institutional
customers, and market-making and trading of corporate, government, and municipal
securities. In addition, the Corporation underwrites and distributes municipal
and corporate securities, provides securities clearance activities for other
brokerage firms, and offers financial advisory services to its customers.
Another of the Company's subsidiaries is First Albany Asset Management
Corporation ("FAAM"). Under management agreements, FAAM serves as investment
manager to individual and institutional customers. FAAM directs the investment
of customer and mutual fund assets by making investment decisions, placing
purchase and sales orders, and providing research, statistical analysis, and
continuous supervision of the portfolios. All significant intercompany
balances and transactions have been eliminated in consolidation. Investments
in affiliates which are not majority owned are reported using the equity method.
In July 1996, the Company changed its fiscal year end to a calendar year end.
Accordingly, results from operations for the periods ending December 31, 1997
and December 31, 1996 reflect a twelve-month period ("calendar year") while
results for the transitional period ending December 31, 1995 reflect a three-
month period. Previously, the Company's fiscal year end was the last Friday in
September, and therefore, the Company's fiscal year would contain either a 52 or
53 week period. The fiscal year ended September 29, 1995 contained 52 weeks.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount 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.
Securities Transactions
- -----------------------
Proprietary securities transactions are recorded on trade date, as if
they had settled. Profit and loss arising from all securities transactions
entered for the account and risk of the Company are recorded on trade date.
Customers' securities transactions are reported on a settlement date basis
(normally the third business day following the transaction) with related
commission income and expenses reported on a trade date basis.
As a broker-dealer, the Corporation values marketable securities at market
value and securities not readily marketable at fair value as determined by
management. The resulting unrealized gains and losses are included as revenues
from principal transactions. First Albany Companies Inc. also purchases
securities for investment purposes and, as a non-broker-dealer, classifies them
as trading securities and values them at market value, unless they are
restricted from being sold, in which case they are valued at cost.
</PAGE>
<PAGE>
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Resale and Repurchase Agreements
- --------------------------------
Transactions involving purchases of securities under agreements to
resell or sales of securities under agreements to repurchase are treated as
collateralized financing transactions and are recorded at their contracted
resale or repurchase amounts plus accrued interest. It is the policy of
the Company to obtain possession or control of collateral with a market
value equal to or in excess of the principal amount loaned under resale
agreements. Collateral is valued daily, and the Company may require
counterparties to deposit additional collateral or return collateral
pledged, when appropriate. At December 31, 1997 and December 31, 1996, the
Company had entered into resale agreements in the amount of $5,299,000 and
$2,869,000, respectively. At December 31, 1997 and December 31, 1996, the
Company had entered into repurchase agreements with counterparties, in the
amounts of $891,000 and $0, respectively.
Securities-Lending Activities
- -----------------------------
Securities borrowed and securities loaned are recorded at the amount of
cash collateral advanced or received. Securities borrowed transactions
require the Company to deposit cash or other collateral with the lender.
With respect to securities loaned, the Company receives collateral in the
form of cash or other collateral in an amount generally in excess of the
market value of securities loaned. The Company monitors the market value
of securities borrowed and loaned on a daily basis, with additional
collateral obtained or refunded as necessary.
Office Equipment and Leasehold Improvements
- -------------------------------------------
Office equipment and leasehold improvements are stated at cost less
accumulated depreciation of $15,624,000 at December 31, 1997, $11,682,000
at December 31, 1996, and $10,513,000 at December 31, 1995 (unaudited).
Depreciation is provided on a straight-line basis over the shorter of the
estimated useful life of the asset (3 to 5 years) or the term of the lease.
Statement of Cash Flows
- -----------------------
For purposes of the statement of cash flows, the Company has defined cash
equivalents as highly liquid investments, with original maturities of less
than 90 days that are not segregated under federal regulations or held for
sale in the ordinary course of business.
Investment Banking
- ------------------
Investment banking revenues include gains, losses and fees, net of
syndicate expenses, arising from securities offerings in which the Company
acts as an underwriter or agent. Investment banking revenues also include
fees earned from providing merger, acquisition and financial advisory
services. Investment banking management fees are recorded on offering
date, sales concessions on trade date and underwriting fees at the time the
underwriting is completed and the income is reasonably determinable.
Income Taxes
- ------------
The amount of current taxes payable is recognized as of the date of the
financial statements, utilizing currently enacted tax laws and rates.
Deferred income taxes are recognized for the future tax consequences which
are attributed to differences between the financial statement and tax basis
of existing assets and liabilities.
</PAGE>
<PAGE>
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Earnings per Common Share
- -------------------------
Earnings per share is presented in accordance with Financial Accounting
Standards No. 128 - "Earnings Per Share." This statement which is
effective for financial statements issued for periods ending after December
15, 1997, simplifies the computation of earnings per share (EPS) by
replacing the "primary" EPS requirement with a "basic" EPS computation
based upon weighted-average shares outstanding. The "dilutive" EPS
computation is consistent with that of "basic" EPS while giving effect to
all dilutive potential common shares that were outstanding during the
period.
<TABLE>
Three-month
transition period
December 31, December 31, December 31, September 29,
1997 1996 1995 1995
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
Net Income $ 1,956 $ 5,500 $ 1,553 $ 3,350
- ---------------------------------------------------------------------------------
Weighted average shares
for basic EPS 5,731 5,508 5,504 5,463
Effect of dilutive common
equivalent shares 558 419 380 257
- --------------------------------------------------------------------------------
Weighted average shares
and dilutive common
equivalent shares for
dilutive EPS 6,289 5,927 5,884 5,720
- ---------------------------------------------------------------------------------
Basic EPS $ 0.34 $ 1.00 $ 0.28 $ 0.61
Dilutive EPS $ 0.31 $ 0.93 $ 0.26 $ 0.59
=================================================================================
</TABLE>
All per share figures have been restated for all stock dividends declared.
Reclassifications
- -----------------
Certain amounts in the financial statements have been reclassified to
conform with the 1997 presentation.
NOTE 2. Receivables From and Payables To Brokers, Dealers, and Clearing
Agencies
Amounts receivable from and payable to brokers, dealers, and clearing agencies,
other than correspondents, consists of the following:
<TABLE>
(In thousands of dollars) December 31, December 31, December 31,
1997 1996 1995
(unaudited)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
Securities failed to deliver $ 4,421 $ 1,856 $ 3,893
Receivable from clearing agencies 3,338
- -------------------------------------------------------------------------------------
Total receivables $ 4,421 $ 1,856 $ 7,231
=====================================================================================
Securities failed to receive $ 2,955 $ 3,150 $ 3,281
- -------------------------------------------------------------------------------------
Total payables $ 2,955 $ 3,150 $ 3,281
=====================================================================================
</TABLE>
</PAGE>
<PAGE>
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3. Receivables From and Payables To Customers
Receivables from and payables to customers include amounts due on cash and
margin transactions. Securities owned by customers are held as collateral for
receivables. Such collateral is not reflected in the financial statements.
Total unsecured and partly secured customer receivables were $341,000,
$329,000, and $307,000 as of December 31, 1997, December 31, 1996, and December
31, 1995 (unaudited), respectively. An allowance for doubtful accounts, based
upon specific identification, was recorded for $340,000, $304,000, and $219,000,
as of December 31, 1997, December 31, 1996, and December 31, 1995 (unaudited),
respectively.
NOTE 4. Receivables From Others
Amounts receivable from others as of:
<TABLE>
================================================================================
(In thousands of dollars) December 31, December 31, December 31,
1997 1996 1995
(unaudited)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Adjustment to record securities
on a trade date basis, net $11,249
Others $ 7,760 $ 8,181 6,243
- --------------------------------------------------------------------------------
Total $ 7,760 $ 8,181 $17,492
================================================================================
</TABLE>
For proprietary securities transactions, amounts receivable and payable
for securities transactions that have not reached their contractual settlement
date are recorded net on the statement of financial condition.
NOTE 5. Securities Owned And Sold, But Not Yet Purchased
Securities owned and sold, but not yet purchased consisted of the following as
of:
<TABLE>
(In thousands of dollars) December 31, December 31, December 31,
1997 1996 1995
(unaudited)
- -------------------------------------------------------------------------------------
Sold, but Sold, but Sold, but
not yet not yet not yet
Owned Purchased Owned Purchased Owned Purchased
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
Marketable
U.S. government and
federal agency
obligations $ 18,296 $ 5,482 $ 6,124 $ 2,923 $ 7,149 $ 1,191
State and municipal bonds 94,642 57 137,223 4,976 63,882 231
Corporate obligations 4,646 1,065 9,486 824 2,997 796
Corporate stocks 3,061 1,836 2,171 1,352 5,982 2,189
Options 1 20
Not readily marketable
securities, fair value 471 1,149 556
- -------------------------------------------------------------------------------------
$121,116 $ 8,440 $156,154 $ 10,075 $ 80,586 $ 4,407
=====================================================================================
</TABLE>
Securities not readily marketable include investment securities (a) for which
there is no market on a securities exchange or no independent publicly quoted
market, (b) that cannot be publicly offered or sold unless registration has been
effected under the Securities Act of 1933, or (c) that cannot be offered or sold
because of other arrangements, restrictions, or conditions applicable to the
securities or to the Company.
</PAGE>
<PAGE>
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6. Investments
At December 31, 1997 the Company owned approximately 2,037,000 common shares
(35% of the shares outstanding) of Mechanical Technology Incorporated (MTI).
The Company's investment in MTI is recorded under the equity method and
approximated $3,616,000, which included goodwill of approximately $783,000 which
is being amortized over ten years. The Company's equity in MTI's net income,
recorded on a one-quarter delay basis, was $1,168,000 for the year ended
December 31, 1997 and related primarily to MTI's extinguishment of debt
(reported as an extraordinary gain) and gain on sale of a division/subsidiary.
For the three month period ended December 31, 1997, MTI reported an unaudited
loss of approximately $1.6 million. The Company's equity in MTI's loss will be
recorded in the quarter ending March 27, 1998. For the year ended December 31,
1996, the Company's equity in MTI's net income was $555,000.
The following presents summarized financial information of MTI for the
year ended September 30,1997:
<TABLE>
<S> <C>
==============================================
Assets $14,756,000
Liabilities 6,543,000
----------------------------------------------
Shareholder's equity $ 8,213,000
==============================================
==============================================
Revenues $31,980,000
Operating income 580,000
Gain on sale of division/subsidiary 2,012,000
Income before extraordinary
items and income taxes 2,127,000
Gain on extinguishment of
debt, net of taxes 2,507,000
Net income 4,520,000
==============================================
</TABLE>
At December 31, 1997, the aggregate market value of the Company's shares in MTI
was $8,147,000. Under the equity method, the market value of MTI's stock is not
included in the calculation of the Company's investment.
At December 31, 1997, the Company owned 155,000 shares of META Group, Inc. The
fair market value of this investment was $3,410,000. During the year ended
December 31, 1997 the Company has recorded a realized gain of $770,000 and net
unrealized gains of $117,000 with respect to this investment. The Company
recorded an unrealized gain of $2.3 million for the year ended December 31,
1996.
NOTE 7. Bank Loans
Short-term bank loans are made under a variety of committed and uncommitted
bank lines of credit which are limited to financing securities eligible for
collateralization. This includes Company owned securities and certain customer
owned securities purchased on margin, subject to certain regulatory formulas.
These loans bear interest at fluctuating rates based primarily on the Federal
Funds interest rate. The weighted average interest rates on these loans were
6.1%, 5.9%, and 5.7% at December 31, 1997, December 31, 1996, and December 31,
1995, respectively.
Short-term bank loans were collateralized by Company owned securities of
$75,370,000 and customers' margin account securities of $43,622,000 at
December 31, 1997.
A note for $3,208,333, which is collateralized by fixed assets, is payable in
monthly principal payments of $114,583 and accrued interest. Interest is at the
90-day U.S. Treasury Securities rate (4.85% at December 31, 1997) plus 2.5%.
The note matures April 1, 2000.
</PAGE>
<PAGE>
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A note for $4,062,500, is collateralized by fixed assets and is payable in
monthly principal payments of $104,167 plus interest. The interest rate is 2%
over the 30-day London InterBank Offered Rate ("LIBOR") (5.71875 plus 2% on
December 31 ,1997). One of the more significant covenants requires First Albany
Corporation to maintain a minimum net capital (as defined by Rule 15c3-1 of the
Securities and Exchange Commission) equal to three times the required minimum
net capital. The required minimum net capital as of December 31, 1997 was
$3,935,000 . The amount of net capital as of December 31, 1997 was $18,605,000.
This note matures on March 27, 2001.
Future annual principal loan repayment requirements as of December 31, 1997
are as follows:
===========================================
(In thousands of dollars)
-------------------------------------------
1998 $2,625
1999 2,625
2000 1,708
2001 313
-------------------------------------------
Total $7,271
===========================================
NOTE 8. Obligations under Capitalized Leases
The Company entered into capital leases for office equipment. The following
is a schedule of future minimum lease payments under capital leases together
with the present value of the net minimum lease payments as of
December 31, 1997:
================================================
(In thousands of dollars)
------------------------------------------------
1998 $ 917
1999 919
2000 888
2001 650
2002 211
------------------------------------------------
Total Minimum Lease Payments 3,585
Less: Amount Representing Interest 497
------------------------------------------------
Present Value of Minimum Lease Payments $3,088
================================================
NOTE 9. Payables To Others
Amounts payable to others as of:
<TABLE>
<S> <C> <C> <C>
(In thousands of dollars) December 31, December 31, December 31,
1997 1996 1995
(unaudited)
- --------------------------------------------------------------------------------
Adjustment to record
securities on a trade date
basis, net $ 23,737 $ 39,401
Borrowing under line-of-credit
agreements 10,793 13,292 $ 1,300
Others 2,671 3,922 3,700
- --------------------------------------------------------------------------------
Total $ 37,201 $ 56,615 $ 5,000
================================================================================
</TABLE>
</PAGE>
<PAGE>
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For proprietary securities transactions, amounts receivable and payable for
securities transactions that have not reached their contractual settlement date
are recorded net on the statement of financial condition.
NOTE 10. Subordinated Debt
During 1997, the Company increased its subordinated debt by $2,500,000. This
debt bears interest at 8.75%. Interest is paid monthly with the principal
amount due at maturity on December 31, 2002. The lender has the right to
exercise stock options on 26,891 shares of the Company's stock at $18.594 per
share. This right expires December 31, 2002.
The Company also has an additional subordinated debt of $5,000,000 which bears
interest at 9.25%. Interest is paid monthly with the principal amount due at
maturity on December 31, 2002. The lender has the right to exercise stock
options on 88,200 shares of the Company's stock at $11.34 per share. This right
expires December 31, 2002.
Both loan agreements include restrictive financial covenants. One of the
more significant covenants requires the Company to maintain a minimum net
capital (as defined by Rule 15c3-1 of the Securities and Exchange Commission)
equal to three times the required net capital. The amount of required net
capital as of December 31, 1997 was $3,935,000. The amount of net capital as
of December 31, 1997 was $18,605,000.
NOTE 11. Stockholders' Equity
During 1997, the Company declared and paid four quarterly cash dividends
totaling $0.20 per share of common stock, and also declared and issued two 5%
common stock dividends.
In January 1998, the Board of Directors declared the regular quarterly cash
dividend of $0.05 per share payable on February 26, 1998, to shareholders of
record on February 12, 1998.
NOTE 12. Income Taxes
Under the asset and liability method, deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable for future years to differences between the financial
statement and tax basis of existing assets and liabilities. The effect of tax
rate changes on deferred taxes is recognized in the income tax provision in the
period that includes the enactment date.
The components of income taxes are:
<TABLE>
=======================================================================================
Three-Months
(In thousands of dollars) December 31, December 31, December 31, September 29,
1997 1996 1995 1995
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
Federal
Current $ (956) $ 2,455 $ 260 $ 2,051
Deferred 1,642 (3) 416 (904)
State and local
Current 181 991 82 1,097
Deferred 609 149 171 (374)
- ---------------------------------------------------------------------------------------
Total income taxes $ 1,476 $ 3,592 $ 929 $ 1,870
=======================================================================================
</TABLE>
</PAGE>
<PAGE>
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The reasons for the difference between the expected income tax expense using
the federal statutory rate and the income tax expense are as follows:
<TABLE>
Three-Months
(In thousands of dollars) December 31, December 31, December31, September 29,
1997 1996 1995 1995
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Income taxes
at federal statutory rate $ 1,167 $ 3,092 $ 844 $ 1,775
State and local income taxes,
net of federal income taxes 439 753 167 477
Tax-exempt interest income, net (405) (420) (126) (514)
Non-deductible expenses 275 167 44 132
- --------------------------------------------------------------------------------------------
Total income taxes $ 1,476 $ 3,592 $ 929 $ 1,870
============================================================================================
</TABLE>
The temporary differences that give rise to significant portions of deferred
tax assets and liabilities are as follows:
<TABLE>
===========================================================================
(In thousands of dollars) December 31, December 31, December 31,
1997 1996 1995
(unaudited)
<S> <C> <C> <C>
---------------------------------------------------------------------------
Receivables $ 149 $ 128 $ 67
Securities held for investment (915) (964) (262)
Fixed assets 9 486 309
Deferred compensation 577 1,631 1,633
Other (600) 190 (130)
---------------------------------------------------------------------------
Total deferred tax
assets (liablities) $ (780) $1,471 $1,617
===========================================================================
</TABLE>
The Company has not recorded a valuation allowance for deferred tax assets
since income in the carryback period is sufficient to realize the benefit of
future deductions.
NOTE 13. Employee Benefit Plans
The Company maintains a deferred profit sharing plan (Internal Revenue Code
Section 401(k) Plan) which permits eligible employees to defer a percentage of
their compensation. Company contributions to eligible participants may be made
at the discretion of the Board of Directors. During the years ended December
31, 1997, December 31, 1996, the transitional period ending December 31, 1995,
and the year ended September 29, 1995, the Company contributed $107,000,
$103,000, $0, and $140,000, respectively.
The Company also maintains an Employee Stock Bonus Plan (Internal Revenue Code
Section 401(a)) which permits eligible employees to contribute up to 8% of their
compensation on an after-tax basis. The Company makes matching contributions
equal to a percentage of each employee's contributions. Company contributions
vest in accordance with the Plan and are tax deferred until withdrawal.
Employee and Company contributions are invested solely in the common stock of
the Company. During the years ended December 31, 1997, December 31, 1996, the
transitional period ending December 31, 1995, and the year ended September 29,
1995, the Company contributed $788,000, $617,000, $163,000, and $408,000,
respectively.
</PAGE>
<PAGE>
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 14. Incentive Plans
In 1982, the Company established a Stock Incentive Plan (the "1982 Plan")
which, as amended by stockholders in 1987, authorized issuance of options to
officers and key employees of the Company to purchase up to 800,000 shares of
common stock. On February 27, 1989, stockholders approved adoption of the
First Albany Companies Inc. 1989 Stock Incentive Plan (the "1989 Plan").
Coincident with the adoption of the 1989 Plan, the 1982 Plan was terminated.
Options previously granted under the 1982 Plan remain valid in accordance with
the terms of the grant of such options; however, the grant of new options under
the 1982 Plan was ended. Both the 1982 Plan and 1989 Plan enable the Company
to grant incentive stock options (ISOs) which meet the requirements of Section
422A of the Internal Revenue Code of 1954, as amended, and nonqualified stock
options (NSOs). ISOs are granted at prices not less than fair value at the
date of the grant; NSOs may be issued at prices less than fair market value.
ISOs and NSOs may not have a term of more than ten years. Under certain
conditions, the Company is required to purchase shares issued under this Plan
at prices ranging from the original exercise or award price to the greater of
the then book or market value. If NSOs are exercised, the difference between
the option price and the selling price will be recognized as an expense in the
income statement.
In addition, under the 1989 Plan, stock appreciation rights (SARs) may be
granted in tandem with ISOs or NSOs. SARs may be exercised only if the related
options (or portions thereof) are surrendered and at such time as the fair
market value of the shares underlying the option exceeds the option price for
such shares. Upon exercise of SAR and surrender of the related option, an
employee will be entitled to receive an amount equal to the excess of the fair
market value of one share at the time of such surrender over the option price
per share specified in such option times the number of such shares called for by
the option, or portion thereof, which is so surrendered. Payment may be made in
cash, shares of common stock, or a combination thereof. SARs may not be
exercised before six months from date of grant. As of December 31, 1997, no
SARs have been granted.
Option transactions for the 39 month period ended December 31, 1997 under
the 1982 Plan were as follows: (all are ISOs)
<TABLE>
Shares Weighted Average
Subject Exercise
to Option Price
<S> <C> <C>
- --------------------------------------------------------------------------------
Balance at September 30, 1994 31,600 $ 4.95
Options granted 2,908 4.60
Options exercised (11,605) 4.76
- --------------------------------------------------------------------------------
Balance at September 29, 1995 22,903 4.47
Options granted 1,145 4.08
Options exercised (4,923) 4.26
- --------------------------------------------------------------------------------
Balance at December 31, 1995 19,125 4.04
Options granted 1,959 3.75
Options exercised (4,022) 3.55
- --------------------------------------------------------------------------------
Balance at December 31, 1996 17,062 3.73
Options granted 967 3.15
Options exercised (8,654) 4.04
- --------------------------------------------------------------------------------
Balance at December 31, 1997 9,375 $ 3.07
================================================================================
</TABLE>
There were no shares available for grants of options under the 1982 Plan at
December 31, 1997; December 31, 1996; December 31, 1995; and September 29, 1995.
During calendar year 1997, the
</PAGE>
<PAGE>
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Company declared two 5% common stock dividends. These dividends resulted in an
additional 967 options authorized. All shares subject to options were
exercisable at the end of each period presented. At December 31, 1997, options
outstanding and exercisable under the 1982 Plan had an average exercise price of
$3.07 and an average remaining contractual life of 1.01 years.
Option transactions for the 39 month period ended December 31, 1997 under
the 1989 Plan were as follows: (all are ISOs)
<TABLE>
Shares Weighted Average
Subject Exercise
to Option Price
<S> <C> <C>
- --------------------------------------------------------------------------------
Balance at September 30, 1994 567,483 $ 5.86
Options granted 199,454 7.28
Options exercised (46,646) 4.59
Options terminated (479) 4.51
- --------------------------------------------------------------------------------
Balance at September 29, 1995 719,812 5.85
Options granted 47,569 6.06
Options exercised (1,447) 7.14
- --------------------------------------------------------------------------------
Balance at December 31, 1995 765,934 5.60
Options granted 262,441 8.51
Options exercised (132,255) 4.39
Options terminated (51,359) 6.59
- --------------------------------------------------------------------------------
Balance at December 31, 1996 844,761 6.11
Options granted 681,161 10.03
Options exercised (164,230) 5.15
Options terminated (50,616) 8.40
- --------------------------------------------------------------------------------
Balance at December 31, 1997 1,311,076 $ 7.46
================================================================================
</TABLE>
During calendar year 1997, the Company declared two 5% common stock dividends.
These dividends resulted in an additional 153,143 options authorized.
There were 283,023; 760,402; 337,501; and 332,456 shares available for grants
of options at December 31, 1997, December 31, 1996, December 31, 1995, and
September 29, 1995, respectively.
The following table summarizes information about stock options outstanding
under the 1989 Plan at December 31, 1997:
-----------Outstanding--------- ----Exercisable------
Exercise Average Average
Price Average Life Exercise Exercise
Range Shares (years) Price Shares Price
$3.18-$3.95 330,825 3.44 $3.46 330,825 $3.46
$5.88-$6.70 198,368 5.44 6.63 191,332 6.66
$8.42-$10.20 781,883 7.73 9.36 80,176 8.78
- --------------------------------------------------------------------------------
1,311,076 6.30 $7.46 602,333 $5.19
================================================================================
At December 31, 1997 1,311,076 options were outstanding of which 828,744
were ISOs and 482,332 were NSOs.
</PAGE>
<PAGE>
The First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
At December 31, 1997, 602,333 options with an average exercise price of $5.19
were exercisable; at December 31, 1996, 581,290 options with an average exercise
price of $5.01 were exercisable; at December 31, 1995, 634,204 options with an
average exercise price of $5.27 were exercisable; and at September 29, 1995,
557,442 options with an average exercise price of $5.41 were exercisable.
The Company has elected to follow Accounting Principals Board No. 25
"Accounting for Stock Issued to Employees" ("APB 25") in accounting for the
stock option plans. Under APB 25, no compensation cost has been recognized in
calendar year 1997, calendar year 1996, short period 1995 and fiscal year 1995.
Had compensation cost and fair value been determined pursuant to Financial
Accounting Standard No. 123 (FAS 123) "Accounting for Stock-Based Compensation",
net income would have decreased from $1,956,000 to $1,557,000 in calendar year
1997, $5,500,000 to $5,388,000 in calendar year 1996, $1,553,000 to $1,530,000
in the transitional period 1995 and from $3,350,000 to $3,281,000 in fiscal year
1995. Basic earnings per share would decrease from $0.34 to $0.27 in calendar
year 1997, $1.00 to $0.98 in calendar year 1996, was unchanged in the short year
1995 and from $0.61 to $0.60 in fiscal year 1995. Dilutive earnings per share
would decrease from $0.31 to $0.25 in calendar year 1997, $0.93 to $0.91 in
calendar year 1996, was unchanged in the short year 1995 and from $0.59 to
$0.57 in fiscal year 1995. The initial impact of FASB 123 on pro forma earnings
per share may not be representative of the effect on income in future years
because options vest over several years and additional option grants may be
made each year.
The weighted average fair value of options granted during 1997, 1996 and 1995
under FAS 123 was $5.53, $3.21 and $2.45, respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option-
pricing model with the following weighted average assumptions used for grants:
dividend yield of 1.5% for 1997, and 2.76% for both 1996 and 1995; expected
volatility of 59.4% for 1997, and 54.7% for both 1996 and 1995; risk-free
interest rates of 5.50% in 1997, 5.17% to 6.26% in 1996, and 5.38% to 6.66% in
1995; and expected lives of 5.0, 2.6 and 1.2 years for 1997, 1996 and 1995,
respectively.
In 1992, the Company established the First Albany Companies Inc. Restricted
Stock Plan which authorized the issuance of up to 390,805 shares of common
stock (adjusted for all stock dividends) to certain key employees of the
Company. Awards under this plan expire over a four-year period after the award
date and are subject to certain restrictions including continued employment. As
of December 31, 1997, December 31, 1996 and December 31, 1995, 153,229, 105,226
and 36,880 shares respectively, have been awarded under this plan. The fair
market value of the awards will be amortized over the period in which the
restrictions are outstanding.
The Company has various other incentive programs which are offered to eligible
employees. These programs consist of cash incentives and deferred bonuses.
Amounts awarded vest over periods ranging from three to five years. Costs are
amortized over the vesting period and aggregated $1,271,000 in 1997, $1,983,000
in 1996, $395,000 in the transitional period ending December 31, 1995, and
$1,343,000 for the year ended September 29, 1995.
NOTE 15. Commitments and Contingencies
The Company's headquarters, sales offices, and certain office and
communication equipment are leased under noncancellable operating leases, which
expire at various times through 2008. Future minimum annual rentals payable are
as follows:
</PAGE>
<PAGE>
The First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
==============================
(In thousands of dollars)
<S> <C>
1998 $ 7,500
1999 7,575
2000 5,459
2001 4,896
2002 3,431
Thereafter 15,937
------------------------------
Total $44,798
==============================
</TABLE>
Annual rental expense including utilities for the year ended December 31, 1997,
December 31, 1996, the transitional period ending December 31, 1995, and the
fiscal year ended September 29, 1995 approximated $5,565,000, $4,175,000,
$906,000, and $3,630,000, respectively.
In the normal course of business, the Company has been named a defendant, or
otherwise has possible exposure, in several claims. Certain of these are class
actions which seek unspecified damages which could be substantial. Although
there can be no assurance as to the eventual outcome of litigation in which the
Company has been named as a defendant or otherwise has possible exposure, the
Company has provided for those actions it believes are likely to result in
adverse dispositions. Although further losses are possible, the opinion of
management, based upon the advice of its attorneys and general counsel, is that
such litigation will not, in the aggregate, have a material adverse effect on
the Company's liquidity or financial position, although it could have a material
effect on quarterly or annual operating results in the period in which it is
resolved.
The Corporation has been named in a lawsuit relating to certain real estate
investments (in which the provider of these investments was also named) for
which the Corporation acted as placement agent. Plaintiff claims damages of
approximately $16 million and the right to treble damages under the Indiana RICO
statute. The Corporation intends to vigorously defend this action. Management
believes that the risk of any possible liability to the Corporation cannot be
currently estimated. At this time, based on advice of counsel, management
believes that resolution of this matter will not have a material effect on the
inancial position of the Corporation, although it may have a material effect on
the results of operations in the period in which it is resolved. The case is
currently scheduled for trial in early 1999.
The Company is contingently liable under bank stand-by letter of credit
agreements, executed in connection with security clearing activities, totaling
$3,200,000 at December 31, 1997. In December 1997, the Company entered into an
agreement guaranteeing a note for $800,000 which is collateralized by assets
where the fair value approximates $700,000.
NOTE 16. Net Capital Requirements
The Corporation is subject to the SEC's Uniform Net Capital Rule (Rule 15c3-1),
which requires the maintenance of minimum net capital. The Corporation has
elected to use the alternative method, permitted by the Rule, which requires
that the Corporation maintain a minimum net capital equal to 2 percent of
aggregate debit balances arising from customer transactions, as defined. At
December 31, 1997, the Corporation had net capital of $18,605,000 which equaled
9.5% of aggregate debit balances and $14,670,000 in excess of required minimum
net capital.
</PAGE>
<PAGE>
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 17. Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, the Company's customer and correspondent
clearing activities involve the execution, settlement, and financing of various
customer securities transactions. These activities may expose the Company to
off-balance-sheet risk in the event the customer or other broker is unable to
fulfill its contracted obligations, and the Company has to purchase or sell the
financial instrument underlying the contract at a loss.
The Company's customer securities activities are transacted on either a cash
or margin basis. In margin transactions, the Company extends credit to its
customers, subject to various regulatory and internal margin requirements,
collateralized by cash and securities in the customers' accounts. In connection
with these activities, the Company executes and clears customer transactions
involving the sale of securities not yet purchased, substantially all of which
are transacted on a margin basis subject to individual exchange regulations.
Such transactions may expose the Company to significant off-balance-sheet risk
in the event margin requirements are not sufficient to fully cover losses that
customers may incur. In the event the customer fails to satisfy its
obligations, the Company may be required to purchase or sell financial
instruments at prevailing market prices to fulfill the customer's obligations.
The Company seeks to control the risks associated with its customer activities
by requiring customers to maintain margin collateral in compliance with various
regulatory and internal guidelines. The Company monitors required margin levels
daily and, pursuant to such guidelines, requires the customer to deposit
additional collateral, or to reduce positions, when necessary.
The Company's customer financing and securities settlement activities require
the Company to pledge customer securities as collateral in support of various
secured financing sources such as bank loans and securities loaned. In the
event the counterparty is unable to meet its contractual obligation to return
customer securities pledged as collateral, the Company may be exposed to the
risk of acquiring the securities at prevailing market prices in order to
satisfy its customer obligations. The Company controls this risk by monitoring
the market value of securities pledged on a daily basis and by requiring
adjustments of collateral levels in the event of excess market exposure. In
addition, the Company establishes credit limits for such activities and monitors
compliance on a daily basis.
In addition, the Company has sold securities that it does not currently own and
therefore will be obligated to purchase such securities at a future date. The
Company has recorded these obligations in the financial statements at the market
values of the related securities and will incur a loss if the market value of
the securities increases.
The Company acts as a manager and co-manager in underwriting security
transactions. In this capacity, there is risk if the potential customer does
not fulfill the obligation to purchase the securities. This risk is mitigated
by the fact that the Company deals primarily with institutional investors. In
most cases, no one institutional customer subscribes to the majority of the
securities being sold, thereby spreading the risk for this type of loss among
many established customers. The Company also maintains credit limits for
these activities and monitors compliance with applicable limits and industry
regulations on a daily basis.
NOTE 18. Concentrations of Credit Risk
The Company is engaged in various trading and brokerage activities whose
counterparties primarily include broker-dealers, banks, and other financial
institutions. In the event counterparties do not fulfill their obligations, the
Company may be exposed to risk. The risk of default depends on the credit
worthiness of the counterparty or issuer of the instrument. The Company
seeks to control credit risk by
</PAGE>
<PAGE>
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
following an established credit approval process, monitoring credit limits, and
requiring collateral where appropriate.
The Company purchases debt securities and may have significant positions in its
inventory subject to market and credit risk. In order to control these risks,
security positions are monitored on at least a daily basis. Should the Company
find it necessary to sell such a security, it may not be able to realize the
full carrying value of the security due to the significance of the position
sold. The Company reduces its exposure to changes in securities valuation with
the use of municipal bond index futures contracts. (See Note 20.)
NOTE 19. Fair Value of Financial Instruments
The financial instruments of the Company are reported on the statement of
financial condition at market or fair value or at carrying amounts that
approximate fair value, due to the short term nature of the financial
instruments, with the exception of its investment in MTI (Note 6) and its
subordinated debt. The fair value of subordinated debt at December 31, 1997
approximates its carrying value based on current rates available.
NOTE 20. Derivative Financial Instruments
The Company does not engage in the proprietary trading of derivative securities
with the exception of highly liquid index futures contracts and options. These
index futures contracts and options are used to hedge securities positions in
the Company's inventory. Gains and losses on these financial instruments are
included as revenues from principal transactions. Trading profits and losses
relating to these financial instruments were as follows:
<TABLE>
(In thousands of dollars) Year Ended Year Ended Three-Months Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31,1995 Sept.29, 1995
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Trading Profits-State
and Municipal Bonds $ 6,840 $ 2,032 $ 2,345 $ 5,068
Index Futures Hedging (2,061) 594 (457) (1,350)
Trading Profits-Corporate Stocks 1,159
Options (206)
- --------------------------------------------------------------------------------------------
Net Revenues $ 4,779 $ 2,626 $ 1,888 $ 4,671
============================================================================================
</TABLE>
As of December 31, 1997, the contractual or notional amounts related to
these financial instruments were as follows:
================================================================================
(In thousands of dollars) Average Notional or Year End Notional or
Contract Market Value Contract Market Value
- --------------------------------------------------------------------------------
Index Futures Contracts ($12,401) ($14,994)
- --------------------------------------------------------------------------------
As of December 31, 1996, the contractual or notional amounts related to
these financial instruments were as follows:
================================================================================
(In thousands of dollars) Average Notional or Year End Notional or
Contract Market Value Contract Market Value
- --------------------------------------------------------------------------------
Index Futures Contracts ($7,750) ($5,881)
- --------------------------------------------------------------------------------
</PAGE>
<PAGE>
First Albany Companies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 1995, the contractual or notional amounts related to
these financial instruments were as follows:
================================================================================
(In thousands of dollars) Average Notional or Year End Notional or
Contract Market Value Contract Market Value
- --------------------------------------------------------------------------------
Index Futures Contracts ($4,929) ($10,668)
- --------------------------------------------------------------------------------
The contractual or notional amounts related to these financial instruments
reflect the volume and activity and do not reflect the amounts at risk. The
amounts at risk are generally limited to the unrealized market valuation gains
on the instruments and will vary based on changes in market value. Futures
contracts are executed on an exchange, and cash settlement is made on a daily
basis for market movements. Open equity in the futures contracts are recorded
as receivables from clearing organizations. The settlement of these
transactions is not expected to have a material adverse effect on the financial
condition of the Company.
NOTE 21. New Accounting Standards
Financial Accounting Standards Board No. 125 - "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement, which would be effected for all transfers after December 31, 1997,
addresses several matters that have a significant impact of the Broker/Dealer
industry. It addresses how and when to record transferred assets, transfers of
partial interest, servicing of financial assets, securitizations, transfers of
sales-type and direct financing lease receivables, securities lending
transactions, repurchase agreements including "dollar rolls," "wash sales,"
loan syndications and participations, risk participations in banker's
acceptances, factoring arrangements, transfer of receivables with recourse,
and extinguishment of liabilities, collateral, repurchase agreements and
how to amortize servicing assets and liablities. Management has reviewed
this statement and has determined that it has no material effect on the
presentation of the consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive
Income" ("SFAS 130") and "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"), respectively (collectively, the
"Statements"). The Statements are effective for fiscal years beginning after
December 15, 1997. SFAS 130 establishes standards for reporting of
comprehensive income and its components in annual financial statements. SFAS
131 establishes standards for reporting financial and descriptive information
about an enterprise's operating segments in its annual financial statements and
selected segment information in interim financial reports. Reclassification
or restatement of comparative financial statements or financial information for
earlier periods is required upon adoption of SFAS 130 and SFAS 131,
respectively, Application of the Statements' requirements is not expected to
have a material impact on the Company's consolidated financial position, results
of operations or earnings per share data as currently reported.
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
SUPPLEMENTARY DATA
SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)
(In thousands of dollars, except per share data)
<TABLE>
Quarters Ended
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
1997 - Calendar Year Mar. 28 June 27 Sep. 26 Dec. 31
- --------------------------------------------------------------------------------
Total revenues $ 42,059 $ 45,770 $ 49,741 $ 55,402
Interest expense (8,424) (9,516) (10,172) (10,503)
- --------------------------------------------------------------------------------
Net revenues 33,635 36,254 39,569 44,899
Total expenses (excluding
interest) (33,605) (35,933) (38,418) (43,499)
- --------------------------------------------------------------------------------
Income before income taxes 30 321 1,151 1,400
Income tax expense 36 (130) (545) (612)
- --------------------------------------------------------------------------------
Income before extraordinary items 66 191 606 788
Extraordinary gain (net of taxes) 305
- --------------------------------------------------------------------------------
Net income $ 371 $ 191 $ 606 $ 788
================================================================================
Net income per common
and common equivalent share:
Basic $ 0.07 $ 0.03 $ 0.11 $ 0.14
Dilutive $ 0.06 $ 0.03 $ 0.09 $ 0.12
Quarters Ended
- --------------------------------------------------------------------------------
1996 - Calendar Year Mar. 29 June 28 Sep. 27 Dec. 31
- --------------------------------------------------------------------------------
Total revenues $ 40,290 $ 42,213 $ 37,951 $ 47,738
Interest expense (4,954) (5,173) (5,972) (9,932)
- --------------------------------------------------------------------------------
Net revenues 35,336 37,040 31,979 37,806
Total expenses (excluding
interest) (32,479) (34,460) (30,375) (35,756)
- --------------------------------------------------------------------------------
Income before income taxes 2,857 2,580 1,604 2,050
Income tax expense (1,103) (995) (673) (821)
- --------------------------------------------------------------------------------
Net income $ 1,754 $ 1,585 $ 931 $ 1,229
================================================================================
Net income per common
and common equivalent share:
Basic $ .31 $ .29 $ .17 $ .22
Dilutive $ .29 $ .27 $ .16 $ .21
Three months ended
- --------------------------------------------------------------------------------
1995 - Transitional Period Dec. 31
- --------------------------------------------------------------------------------
Total revenues $ 37,404
Interest expense (6,631)
- --------------------------------------------------------------------------------
Net revenues 30,773
Total expenses (excluding interest) (28,291)
- --------------------------------------------------------------------------------
Income before income taxes 2,482
Income tax expense (929)
- --------------------------------------------------------------------------------
Net income $ 1,553
================================================================================
Net income per common
and common equivalent share:
Basic $ .28
Dilutive $ .26
</TABLE>
</PAGE>
<PAGE>
FIRST ALBANY COMPANIES INC.
All per share figures have been restated for common stock dividends paid.
The sum of the quarters' earnings per share amount does not always equal
the full fiscal year's amount due to the effect of averaging the number of
shares of common stock and common stock equivalents throughout the year.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- ------------------------------------------------------------------------
None.
</PAGE>
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
- ------------------------------------------------------------
Except as set forth below, the information required by this item will be
contained under the caption "Election of Directors" in the Company's
definitive proxy statement for the Annual Meeting of Stockholders to be
held on or about May 14, 1998. Such information is incorporated herein by
reference to the proxy statement.
Information (not included in the Company's definitive proxy statement for
the 1998 Annual Meeting of Stockholders) regarding certain executive
officers of the Company is as follows:
Timothy R. Welles, age 38, joined the Company in July, 1997 as Vice
President and Chief Financial Officer. Prior to joining the Company, Mr.
Welles was Executive Vice President, Chief Operating Officer and a member
of the Board of Directors of InteliData Technologies Corp. and its
predecessor company, Colonial Data Technologies Corp., from February 1996
through July 1997. Prior to that, Mr. Welles was Senior Vice President -
Investment Banking at First Albany Corporation since 1993.
Stephen P. Wink, age 39, joined First Albany in 1996. He has been
Secretary and General Counsel of the Company since August 1997. Mr. Wink
has been Senior Vice President, General Counsel and Secretary of First
Albany Corporation since 1996, and was Assistant Secretary of the Company
from 1996 through July 1997. Before joining First Albany, Mr. Wink was an
attorney for the law firm of Cleary, Gottlieb, Steen & Hamilton since prior
to 1993.
Item 11. Executive Compensation.
- --------------------------------
The information required by this item will be contained under the caption
"Compensation of Executive Officers and Directors" in the Company's
definitive proxy statement for the Annual Meeting of Stockholders to be
held on or about May 14, 1998. Such information is incorporated herein by
reference to the proxy statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------
The information required by this item will be contained under the caption
"Stock Ownership of Principal Owners and Management" in the Company's
definitive proxy statement for the Annual Meeting of Stockholders to be
held on or about May 14, 1998. Such information is incorporated herein by
reference to the proxy statement.
Item 13. Certain Relationships and Related Transactions.
- --------------------------------------------------------
The information required by this item will be contained under the caption
"Certain Relationships and Related Transactions" in the Company's
definitive proxy statement for the Annual Meeting of Stockholders to be
held on or about May 14, 1998. Such information is incorporated herein by
reference to the proxy statement.
</PAGE>
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
- -------------------------------------------------------------------------
(a) (1) The following financial statements are included in Part II, Item 8:
Report of Independent Accountants
Financial Statements:
Consolidated Statements of Income For the Calendar
Years Ended December 31, 1997, and
December 31, 1996; the three-month
Transition Period ended December 31, 1995; and
the Fiscal Year Ended September 29, 1995
Consolidated Statements of Financial Condition
as of December 31, 1997, December 31, 1996
and December 31, 1995 (unaudited)
Consolidated Statements of Changes in Stockholders'
Equity for the Calendar Years Ended December 31,
1997 and December 31, 1996; the three-month
Transition Period ended December 31, 1995, and
the Fiscal Year Ended September 29, 1995
Consolidated Statements of Cash Flows for the
Calendar Years Ended December 31, 1997 and
December 31, 1996; the Three-month Transition
Period ended December 31, 1995; and the Fiscal
Year Ended September 29, 1995,
Notes to Consolidated Financial Statements
(2) The following financial statement schedule for the periods 1997,
1996, and 1995 are submitted herewith:
Schedule II-Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or notes
thereto.
</PAGE>
<PAGE>
(3) Exhibits included herein:
Exhibit
Number Description
- ------ -----------
3.1 Certificate of Incorporation of First Albany Companies Inc. (filed as
Exhibit No. 3.1 to Registration Statement No. 33-1353).
3.2 By-laws of First Albany Companies Inc. (filed as Exhibit No. 3.2 to
Registration Statement No. 33-1353).
3.2a By-laws of First Albany Companies Inc., as amended (as filed as
Exhibit No. 3.2a to Form 10-K for the fiscal year ended September 24,
1993).
3.2b By-laws of First Albany Companies Inc., as amended (as filed as
Exhibit No. 3.2b to Form 10-K for the calendar year ended December 31,
1996).
3.2c By-laws of First Albany Companies Inc., as amended (restated for
purpose of this filing).
4 Specimen Certificate of Common Stock, par value $.01 per share (filed
as Exhibit No. 4 to Registration Statement No. 33-1353).
10.6 Deferred Profit Sharing Plan of First Albany Corporation effective
October 1, 1982, as amended by shareholder vote, dated January 19,
1987 (filed as Exhibit 10.6 to Form 10-K for the fiscal year ended
September 30, 1986).
10.7 Incentive Stock Option Plan of First Albany Corporation effective
October 1, 1982, as amended by shareholder vote, dated January 19, 1987
(filed as Exhibit 10.7 to Form 10-K for the fiscal year ended September
30, 1987).
10.10 First Albany Companies Inc. Stock Bonus Plan effective July 8, 1987
(filed as Registration Statement No. 33-15220 (Form B) dated July 8,
1987).
10.10a First Albany Companies Inc. Stock Bonus Plan, as amended,
effective June 25, 1990 (filed as Registration Statement No. 33-35166
(Form S-8) dated June 25, 1990).
10.10b First Albany Companies Inc. Stock Bonus Plan, as amended,
effective February 4, 1994 (filed as Registration Statement 33-52153
(Form S-8) dated February 4, 1994).
10.10c First Albany Companies Inc. Stock Bonus Plan, as amended,
effective June 2, 1995 (filed as Registration Statement 33-59855
(Form S-8) dated June 2, 1995).
10.10d First Albany Companies Inc. Stock Bonus Plan, as amended,
effective June 2, 1995 (filed as Registration Statement 333-18645
(Form S-8) dated December 23, 1996).
10.12 First Albany Companies Inc. 1989 Stock Incentive Plan effective
February 27, 1989, as approved by shareholder vote dated February 27,
1989 (filed as Exhibit 10.12 to Form 10-K for the fiscal year ended
September 30, 1989).
10.15 Lease dated June 12, 1992, between First Albany Companies Inc.
and Olympia and York Limited Partnership for office space at 53 State
Street, Boston, Massachusetts (filed as Exhibit 10.15 to Form 10-K for
the fiscal year ended September 25, 1992).
10.16 The First Albany Companies Inc. Restricted Stock Plan as adopted
by the Company on April 27, 1992 (filed as Exhibit 10.16 to Form 10-K
for the fiscal year ended September 25, 1992).
</PAGE>
<PAGE>
(3) Exhibits included herein: (continued)
Exhibit
Number Description
10.18 Sublease dated October 13, 1995 between First Albany Companies
Inc. and KeyCorp for office facilities at 30 South Pearl Street,
Albany, New York. (Filed as Exhibit 10.18 to Form 10K for fiscal year
ended September 29, 1995).
10.19 Term Loan Agreement dated March 29, 1996 between First Albany
Companies Inc. and OnBank Trust & Co. (Filed as Exhibit 10.19 to Form
10K for calendar year ended December 31,1996).
10.20 Subordinated Loan Agreement dated September 16, 1996 between
First Albany Companies Inc. and Sharon M. Duker. (Filed as Exhibit
10.20 to Form 10K for calendar year ended December 31, 1996).
10.20a Subordinated Loan Agreement between First Albany Companies Inc.
and Sharon M. Duker as amended effective December 23, 1997.
10.21 Master Equipment Lease Agreement dated September 25, 1996 between
First Albany Companies Inc. and KeyCorp Leasing Ltd. (Filed as
Exhibit 10.21 to Form 10K for calendar year ended December 31, 1996).
10.22 Lease dated March 21, 1996, between First Albany Companies Inc.
and Mid-City Associates for office space at One Penn Plaza, New York,
New York. (Filed as Exhibit 10.22 to Form 10K for calendar year ended
December 31, 1996).
10.23 Subordinated Loan Agreement dated December 23, 1997 between First
Albany Companies Inc. and Sharon M. Duker.
10.24 First Albany Companies Inc. Executive Officers Deferred
Compensation Plan and First Albany Companies Inc. Investment Executive
Deferred Compensation Plan effective January 7, 1998 (filed as
Registration Statement No. 333-43825 (Form S-8) dated January 7, 1998).
11 Computation of per share earnings.
21 List of Subsidiaries of First Albany Companies Inc.
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule BD
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the Registrant during the
last quarter of the period covered by this report.
(c) Exhibits:
The exhibits to this report are listed in section (a)(3) of Item 14
above.
(d) Financial Statement Schedules:
The financial statement schedules filed with this report are listed in
section (a)(2) of Item 14 above.
</PAGE>
FIRST ALBANY COMPANIES INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
PERIODS ENDED DECEMBER 31, 1997, DECEMBER 31, 1996,
DECEMBER 31, 1995, AND SEPTEMBER 29, 1995
COL. A COL. B COL. C COL. D COL. E
- --------------------------------------------------------------------------------
Additions
Balance at Charged to Balance
Beginning Costs and at End of
Description of Period Expenses Deductions Period
- --------------------------------------------------------------------------------
Allowance for doubtful
accounts -- deducted
from receivables from
customers:
Calendar Year 1997 $ 304,000 $ 120,000 $ 84,000 $ 340,000
Calendar Year 1996 $ 219,000 $ 120,000 $ 35,000 $ 304,000
Three Month
Transition
Period 1995 $ 125,000 $ 94,000 $ 0 $ 219,000
Fiscal Year 1995 $ 106,000 $ 120,000 $ 101,000 $ 125,000
</PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FIRST ALBANY COMPANIES INC.
By:/s/ GEORGE C. MCNAMEE
---------------------
George C. McNamee,
Chairman and Co-Chief Executive Officer
Date: March 23, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Title Date
/s/ GEORGE C. MCNAMEE Chairman and Co-Chief March 23, 1998
- --------------------- Executive Officer
George C. McNamee
/s/ ALAN P. GOLDBERG President and Co-Chief March 23, 1998
- --------------------- Executive Officer
Alan P. Goldberg
/s/ TIMOTHY R. WELLES Chief Financial Officer March 23, 1998
- --------------------- (Prinicpal Accounting Officer)
Timothy R. Welles
/s/ HUGH A. JOHNSON, JR. Senior Vice President and Director March 23, 1998
- ------------------------
Hugh A. Johnson, Jr.
Director , 1998
- ------------------------
Peter Barton
/s/ J. ANTHONY BOECKH Director March 23, 1998
- ---------------------
J. Anthony Boeckh
/s/ WALTER M. FIEDEROWICZ Director March 23, 1998
- -------------------------
Walter M. Fiederowicz
Director , 1998
- ------------------------
Daniel V. McNamee
/s/ CHARLES L. SCHWAGER Director March 23, 1998
- -----------------------
Charles L. Schwager
/s/ BENAREE P. WILEY Director March 23, 1998
- -----------------------
Benaree P. Wiley
</PAGE>
EXHIBIT 11
FIRST ALBANY COMPANIES INC. AND SUBSIDIARIES
Computation of Per Share Earnings *
(In thousands, except per share amounts)
(unaudited)
<TABLE>
Three Months Ended
December 31, December 31, December 31, September 29,
1997 1996 1995 1995
<S> <C> <C> <C> <C.
- -----------------------------------------------------------------------------------
Basic:
Net income $ 1,956 $ 5,500 $ 1,553 $ 3,350
===================================================================================
Weighted average number
of shares outstanding
during the period 5,731 5,508 5,504 5,463
===================================================================================
Net income per share $ 0.34 $ 1.00 $ 0.28 $ 0.61
===================================================================================
Dilutive:
Net income $ 1,956 $ 5,500 $ 1,553 $ 3,350
===================================================================================
Weighted average number
of shares outstanding
during the period 5,731 5,508 5,504 5,463
Effective of dilutive
common equivalent shares 558 419 380 257
- -----------------------------------------------------------------------------------
Weighted average shares and
dilutive common equivalent
shares for dilutive
earnings per share 6,289 5,927 5,884 5,720
===================================================================================
Net income per share $ 0.31 $ 0.93 $ 0.26 $ 0.59
===================================================================================
</TABLE>
* All per share figures have been restated for all common stock dividends
paid.
EXHIBIT 21
SUBSIDIARIES OF FIRST ALBANY COMPANIES INC.
COMPANY NAME STATE OF INCORPORATION
- ---------------- ----------------------
FIRST ALBANY CORPORATION NEW YORK
FIRST ALBANY ASSET MANAGEMENT CORPORATION NEW YORK
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of First Albany Companies Inc. on Form S-8 related to the First Albany
Companies Inc. Stock Bonus Plan (File No. 014140) of our report dated
February 13, 1998, on our audits of the consolidated financial statements
and financial statement schedule of First Albany Companies Inc. as of
December 31, 1997 and 1996, and, for the years ended December 31, 1997
and 1996, the three months ended December 31, 1995, and the year ended
September 29, 1995, which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L. L. P.
Albany, New York
March 23, 1998
</PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
First Albany Companies Inc. on Form S-8 related to the First Albany Companies
Inc. Executive Officers Deferred Compensation Plan and Investment Executives
Deferred Compensation Plan (File No. 014140) of our report dated February 13,
1998, on our audits of the consolidated financial statements and financial
statement schedule of First Albany Companies Inc. as of December 31, 1997 and
1996, and for the years ended December 31, 1997 and 1996, the three months ended
December 31, 1995, and the year ended September 29, 1995 which report is
included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L. L. P.
Albany, New York
March 23, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> $951
<RECEIVABLES> 195,157
<SECURITIES-RESALE> 5,299
<SECURITIES-BORROWED> 468,786
<INSTRUMENTS-OWNED> 128,142
<PP&E> 12,947
<TOTAL-ASSETS> 831,921
<SHORT-TERM> 99,702
<PAYABLES> 89,337
<REPOS-SOLD> 891
<SECURITIES-LOANED> 547,847
<INSTRUMENTS-SOLD> 8,440
<LONG-TERM> 7,500
0
0
<COMMON> 59
<OTHER-SE> 44,489
<TOTAL-LIABILITY-AND-EQUITY> 831,921
<TRADING-REVENUE> 63,235
<INTEREST-DIVIDENDS> 45,474
<COMMISSIONS> 52,987
<INVESTMENT-BANKING-REVENUES> 19,636
<FEE-REVENUE> 11,640
<INTEREST-EXPENSE> 38,615
<COMPENSATION> 105,080
<INCOME-PRETAX> 2,902
<INCOME-PRE-EXTRAORDINARY> 1,651
<EXTRAORDINARY> 305
<CHANGES> 0
<NET-INCOME> 1,956
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.31
<PAGE>
Prior periods restated to conform to Financial Accounting Standards No. 128-
"Earnings per share".
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] SEP-26-1997
[CASH] $ 321
[RECEIVABLES] 207,118
[SECURITIES-RESALE] 3,504
[SECURITIES-BORROWED] 587,132
[INSTRUMENTS-OWNED] 120,462
[PP&E] 13,246
[TOTAL-ASSETS] 955,158
[SHORT-TERM] 203,002
[PAYABLES] 60,837
[REPOS-SOLD] 5,031
[SECURITIES-LOANED] 606,583
[INSTRUMENTS-SOLD] 4,112
[LONG-TERM] 7,927
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 57
[OTHER-SE] 43,578
[TOTAL-LIABILITY-AND-EQUITY] 955,158
[TRADING-REVENUE] 47,246
[INTEREST-DIVIDENDS] 32,748
[COMMISSIONS] 38,347
[INVESTMENT-BANKING-REVENUES] 11,114
[FEE-REVENUE] 8,114
[INTEREST-EXPENSE] 28,112
[COMPENSATION] 73,183
[INCOME-PRETAX] 1,501
[INCOME-PRE-EXTRAORDINARY] 862
[EXTRAORDINARY] 305
[CHANGES] 0
[NET-INCOME] 1,167
[EPS-PRIMARY] 0.20
[EPS-DILUTED] 0.19
</PAGE>
<PAGE>
Prior periods restated to conform to Financial Accounting Standards No. 128-
"Earnings per share".
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] JUN-27-1997
[CASH] $ 1,314
[RECEIVABLES] 152,237
[SECURITIES-RESALE] 3,882
[SECURITIES-BORROWED] 538,785
[INSTRUMENTS-OWNED] 185,646
[PP&E] 13,608
[TOTAL-ASSETS] 924,020
[SHORT-TERM] 204,012
[PAYABLES] 76,264
[REPOS-SOLD] 5,132
[SECURITIES-LOANED] 559,711
[INSTRUMENTS-SOLD] 7,286
[LONG-TERM] 8,583
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 57
[OTHER-SE] 42,767
[TOTAL-LIABILITY-AND-EQUITY] 924,020
[TRADING-REVENUE] 31,080
[INTEREST-DIVIDENDS] 20,942
[COMMISSIONS] 23,668
[INVESTMENT-BANKING-REVENUES] 6,834
[FEE-REVENUE] 5,304
[INTEREST-EXPENSE] 17,940
[COMPENSATION] 46,968
[INCOME-PRETAX] 350
[INCOME-PRE-EXTRAORDINARY] 256
[EXTRAORDINARY] 305
[CHANGES] 0
[NET-INCOME] 561
[EPS-PRIMARY] 0.10
[EPS-DILUTED] 0.09
</PAGE>
<PAGE>
Prior periods restated to conform to Financial Accounting Standards No. 128-
"Earnings per share".
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] MAR-27-1997
[CASH] $ 4,400
[RECEIVABLES] 152,260
[SECURITIES-RESALE] 6,597
[SECURITIES-BORROWED] 402,767
[INSTRUMENTS-OWNED] 85,869
[PP&E] 14,397
[TOTAL-ASSETS] 684,898
[SHORT-TERM] 131,312
[PAYABLES] 56,073
[REPOS-SOLD] 0
[SECURITIES-LOANED] 417,069
[INSTRUMENTS-SOLD] 11,762
[LONG-TERM] 16,011
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 54
[OTHER-SE] 42,811
[TOTAL-LIABILITY-AND-EQUITY] 684,898
[TRADING-REVENUE] 14,566
[INTEREST-DIVIDENDS] 10,052
[COMMISSIONS] 11,581
[INVESTMENT-BANKING-REVENUES] 3,196
[FEE-REVENUE] 2,664
[INTEREST-EXPENSE] 8,424
[COMPENSATION] 22,888
[INCOME-PRETAX] 30
[INCOME-PRE-EXTRAORDINARY] 66
[EXTRAORDINARY] 305
[CHANGES] 0
[NET-INCOME] 371
[EPS-PRIMARY] 0.07
[EPS-DILUTED] 0.06
</PAGE>
<PAGE>
Prior periods restated to conform to Financial Accounting Standards No. 128-
"Earnings per share".
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[CASH] $ 4,005
[RECEIVABLES] 138,167
[SECURITIES-RESALE] 2,869
[SECURITIES-BORROWED] 344,904
[INSTRUMENTS-OWNED] 162,311
[PP&E] 12,584
[TOTAL-ASSETS] 675,785
[SHORT-TERM] 134,712
[PAYABLES] 107,939
[REPOS-SOLD] 0
[SECURITIES-LOANED] 350,577
[INSTRUMENTS-SOLD] 10,075
[LONG-TERM] 6,009
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 54
[OTHER-SE] 42,220
[TOTAL-LIABILITY-AND-EQUITY] 675,785
[TRADING-REVENUE]
[INTEREST-DIVIDENDS] 32,240
[COMMISSIONS] 42,711
[INVESTMENT-BANKING-REVENUES] 19,558
[FEE-REVENUE] 10,244
[INTEREST-EXPENSE] 26,030
[COMPENSATION] 95,691
[INCOME-PRETAX] 9,092
[INCOME-PRE-EXTRAORDINARY] 5,500
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 5,500
[EPS-PRIMARY] 1.00
[EPS-DILUTED] 0.93
</PAGE>
<PAGE>
Prior periods restated to conform to Financial Accounting Standards No. 128-
"Earnings per share".
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] SEP-27-1996
[CASH] $ 10,555
[RECEIVABLES] 151,558
[SECURITIES-RESALE] 0
[SECURITIES-BORROWED] 525,330
[INSTRUMENTS-OWNED] 98,836
[PP&E] 7,362
[TOTAL-ASSETS] 805,142
[SHORT-TERM] 101,567
[PAYABLES] 81,623
[REPOS-SOLD] 2,996
[SECURITIES-LOANED] 546,753
[INSTRUMENTS-SOLD] 4,443
[LONG-TERM] 9,927
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 51
[OTHER-SE] 40,812
[TOTAL-LIABILITY-AND-EQUITY] 805,142
[TRADING-REVENUE] 48,148
[INTEREST-DIVIDENDS] 20,629
[COMMISSIONS] 31,804
[INVESTMENT-BANKING-REVENUES] 12,475
[FEE-REVENUE] 7,397
[INTEREST-EXPENSE] 16,098
[COMPENSATION] 70,298
[INCOME-PRETAX] 7,041
[INCOME-PRE-EXTRAORDINARY] 4,271
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 4,271
[EPS-PRIMARY] 0.77
[EPS-DILUTED] 0.72
</PAGE>
<PAGE>
Prior periods restated to conform to Financial Accounting Standards No. 128-
"Earnings per share".
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] SEP-27-1996
[PERIOD-END] JUN-28-1996
[CASH] $ 3,362
[RECEIVABLES] 132,328
[SECURITIES-RESALE] 0
[SECURITIES-BORROWED] 288,902
[INSTRUMENTS-OWNED] 128,454
[PP&E] 6,997
[TOTAL-ASSETS] 571,368
[SHORT-TERM] 136,033
[PAYABLES] 65,953
[REPOS-SOLD] 4,975
[SECURITIES-LOANED] 298,211
[INSTRUMENTS-SOLD] 5,758
[LONG-TERM] 5,156
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 51
[OTHER-SE] 40,117
[TOTAL-LIABILITY-AND-EQUITY] 571,368
[TRADING-REVENUE] 46,067
[INTEREST-DIVIDENDS] 21,317
[COMMISSIONS] 31,982
[INVESTMENT-BANKING-REVENUES] 14,059
[FEE-REVENUE] 6,482
[INTEREST-EXPENSE] 16,758
[COMPENSATION] 69,776
[INCOME-PRETAX] 7,919
[INCOME-PRE-EXTRAORDINARY] 4,892
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 4,892
[EPS-PRIMARY] 0.89
[EPS-DILUTED] 0.82
</PAGE>
<PAGE>
Prior periods restated to conform to Financial Accounting Standards No. 128-
"Earnings per share".
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] SEP-27-1996
[PERIOD-END] MAR-29-1996
[CASH] $ 2,970
[RECEIVABLES] 119,763
[SECURITIES-RESALE] 0
[SECURITIES-BORROWED] 258,469
[INSTRUMENTS-OWNED] 75,137
[PP&E] 7,485
[TOTAL-ASSETS] 478,178
[SHORT-TERM] 95,587
[PAYABLES] 50,105
[REPOS-SOLD] 0
[SECURITIES-LOANED] 266,756
[INSTRUMENTS-SOLD] 9,874
[LONG-TERM] 5,500
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 49
[OTHER-SE] 38,713
[TOTAL-LIABILITY-AND-EQUITY] 478,178
[TRADING-REVENUE] 28,510
[INTEREST-DIVIDENDS] 14,577
[COMMISSIONS] 20,783
[INVESTMENT-BANKING-REVENUES] 9,730
[FEE-REVENUE] 4,094
[INTEREST-EXPENSE] 11,585
[COMPENSATION] 44,778
[INCOME-PRETAX] 5,339
[INCOME-PRE-EXTRAORDINARY] 3,307
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 3,307
[EPS-PRIMARY] 0.60
[EPS-DILUTED] 0.56
</PAGE>
<PAGE>
Prior periods restated to conform to Financial Accounting Standards No. 128-
"Earnings per share".
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[CASH] $ 6,750
[RECEIVABLES] 124,482
[SECURITIES-RESALE] 0
[SECURITIES-BORROWED] 283,785
[INSTRUMENTS-OWNED] 82,056
[PP&E] 6,075
[TOTAL-ASSETS] 510,081
[SHORT-TERM] 112,292
[PAYABLES] 56,555
[REPOS-SOLD] 0
[SECURITIES-LOANED] 283,146
[INSTRUMENTS-SOLD] 4,407
[LONG-TERM] 1,641
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 49
[OTHER-SE] 37,509
[TOTAL-LIABILITY-AND-EQUITY] 510,081
[TRADING-REVENUE] 12,322
[INTEREST-DIVIDENDS] 8,138
[COMMISSIONS] 9,639
[INVESTMENT-BANKING-REVENUES] 5,435
[FEE-REVENUE] 1,870
[INTEREST-EXPENSE] 6,631
[COMPENSATION] 20,433
[INCOME-PRETAX] 2,482
[INCOME-PRE-EXTRAORDINARY] 1,553
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 1,553
[EPS-PRIMARY] 0.28
[EPS-DILUTED] 0.26
</PAGE>
<PAGE>
Prior periods restated to conform to Financial Accounting Standards No. 128-
"Earnings per share".
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-29-1995
[PERIOD-END] SEP-29-1995
[CASH] $ 3,253
[RECEIVABLES] 95,464
[SECURITIES-RESALE] 0
[SECURITIES-BORROWED] 376,919
[INSTRUMENTS-OWNED] 56,025
[PP&E] 6,062
[TOTAL-ASSETS] 543,255
[SHORT-TERM] 53,288
[PAYABLES] 45,574
[REPOS-SOLD] 0
[SECURITIES-LOANED] 388,523
[INSTRUMENTS-SOLD] 3,892
[LONG-TERM] 1,791
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 49
[OTHER-SE] 36,143
[TOTAL-LIABILITY-AND-EQUITY] 543,255
[TRADING-REVENUE] 43,198
[INTEREST-DIVIDENDS] 26,173
[COMMISSIONS] 31,889
[INVESTMENT-BANKING-REVENUES] 14,625
[FEE-REVENUE] 7,214
[INTEREST-EXPENSE] 19,904
[COMPENSATION] 71,064
[INCOME-PRETAX] 5,220
[INCOME-PRE-EXTRAORDINARY] 3,350
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 3,350
[EPS-PRIMARY] 0.61
[EPS-DILUTED] 0.59
</TABLE>
Exhibit 3.2c
AMENDED AND RESTATED
BYLAWS
-of-
FIRST ALBANY COMPANIES INC.
(herein called the "Corporation")
ARTICLE I
Shareholders
Section 1.01. Annual Meeting. The annual meeting of the
stockholders of the Corporation for the election of directors and for the
transaction of such other business as may properly come before such meeting
shall be held at the principal office of the Corporation in the City of
Albany, New York, on such date and at such time as may be fixed by the
Board of Directors.
Section 1.02. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes, may be called at any time by the
President or by resolution of the Board of Directors. Special meetings of
shareholders shall be held at such place as shall be fixed by the person or
persons calling the meeting and stated in the notice or waiver of notice of
the meeting. At any special meeting only such business may be transacted
which is related to the purpose or purposes set forth in the notice or
waiver of notice of the meeting.
Section 1.03. Notice of Meetings of Shareholders. Whenever
shareholders are required or permitted to take any action at a meeting,
written notice shall be given stating the place, date and hour of the
meeting and, unless it is the annual meeting, indicating that it is being
issued by or at the direction of the person or persons calling the meeting.
Notice of a special meeting shall also state the purpose or purposes for
which the meeting is called. If, at any meeting, action is proposed to be<PAGE>
taken which would, if taken, entitle shareholders fulfilling the
requirements of Section 623 of the Business Corporation Law to receive
payment for their shares, the notice of such meeting shall include a
statement of that purpose and to that effect and shall be accompanied by a
copy of said Section 623 or an outline of its material terms. A copy of
the notice of any meeting shall be given, personally or by mail, not less
than ten nor more than fifty days before the date of the meeting, to each
shareholder entitled to vote at such meeting. If mailed, such notice is
given when deposited in the United States mail, with postage thereon
prepaid, directed to the shareholder at his address as it appears on the
record of shareholders, or, if he shall have filed with the Secretary of
the Corporation a written request that notices to him be mailed to some
other address, then directed to him at such other address.
When a meeting is adjourned to another time or place, it shall not
be necessary to give any notice of the adjourned meeting if the time and
place to which the meeting is adjourned are announced at the meeting at
which the adjournment is taken, and at the adjourned meeting any business
may be transacted that might have been transacted on the original date of
the meeting. However, if after the adjournment, the Board of Directors
fixes a new record date for the adjourned meeting, a notice of the
adjourned meeting shall be given to each shareholder of record on the new
record date entitled to notice under the next preceding paragraph.
Section 1.04. Waivers of Notice. Notice of meeting need not be
------------- ------------------
given to any shareholder who submits a signed waiver of notice, in person
or by proxy, whether before or after the meeting. The attendance of any
shareholder at a meeting, in person or by proxy, without protesting prior
to the conclusion of the meeting the lack of notice of such meeting, shall
constitute a waiver of notice by him.
Section 1.05. Quorum. The holders of a majority of the shares
------------- -------
entitled to vote thereat shall constitute a quorum at a meeting of<PAGE>
shareholders for the transaction of any business.
When a quorum is once present to organize a meeting, it is not
broken by the subsequent withdrawal of any shareholders.
The shareholders present may adjourn the meeting despite the
absence of a quorum and at any such adjourned meeting at which the
requisite amount of voting stock shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed.
Section 1.06. Fixing Record Date. For the purpose of determining
------------- -------------------
the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to express consent to or
dissent from any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action, the Board
of Directors may fix, in advance, a date as the record date for any such
determination of shareholders. Such date shall not be more than fifty nor
less than ten days before the date of such meeting, nor more than fifty
days prior to any other action.
When a determination of shareholders of record entitled to notice
of or to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof,
unless the Board of Directors fixes a new record date under this section
for the adjourned meeting.
Section 1.07. List of Shareholders at Meetings. A list of
------------ ------------------------------------
shareholders as of the record date, certified by the corporate officer
responsible for its preparation or by a transfer agent, shall be produced
at any meeting of shareholders upon the request thereat or prior thereto of
any shareholder. If the right to vote at any meeting is challenged, the
inspectors of election, or person presiding thereat, shall require such
list of shareholders to be produced as evidence of the right of the persons<PAGE>
challenged to vote at such meeting, and all persons who appear from such
list to be shareholders entitled to vote thereat may vote at such meeting.
Section 1.08. Proxies. Every shareholder entitled to vote at a
------------- --------
meeting of shareholders or to express consent or dissent without a meeting
may authorize another person or persons to act for him by proxy.
Every proxy must be signed by the shareholder or his attorney-in-
fact. No proxy shall be valid after the expiration of eleven months from
the date thereof unless otherwise provided in the proxy. Every proxy shall
be revocable at the pleasure of the shareholder executing it, except as
otherwise provided in this section. The authority of the holder of a proxy
to act shall not be revoked by the incompetence or death of the shareholder
who executed the proxy unless, before the authority is exercised, written
notice of an adjudication of such incompetence or of such death is received
by the corporate officer responsible for maintaining the list of
shareholders.
Except when other provision shall have been made by written
agreement between the parties, the record holder of shares which he holds
as pledgee or otherwise as security or which belong to another, shall issue
to the pledgor or to such owner of such shares, upon demand therefor and
payment of necessary expenses thereof, a proxy to vote or take other action
thereon.
A shareholder shall not sell his vote or issue a proxy to vote to
any person for any sum of money or anything of value, except as authorized
in this section and Section 620 of the Business Corporation Law.
A proxy which is entitled "irrevocable proxy" and which states
that it is irrevocable, is irrevocable when it is held by any of the
following or a nominee of any of the following:
(1) A Pledgee;
(2) A person who has purchased or agreed to purchase the
shares;
(3) A creditor or creditors of the Corporation who extend or
continue credit to the Corporation in consideration of
the proxy if the proxy states that it was given in
consideration of such extension or continuation of
credit, the amount thereof, and the name of the person
extending or continuing credit;
(4) A person who has contracted to perform services as an
officer of the Corporation, if a proxy is required by
the contract of employment, if the proxy states that it
was given in consideration of such contract of
employment, the name of the employee and the period of
employment contracted for;
(5) A person designated by or under an agreement under
paragraph (a) of said Section 620.
Notwithstanding a provision in a proxy, stating that it is
irrevocable, the proxy becomes revocable after the pledge is redeemed, or
the debt of the Corporation is paid, or the period of employment provided
for in the contract of employment has terminated, or the agreement under
paragraph (a) of said Section 620 has terminated; and, in a case provided
for in subparagraph (3) or (4) above, becomes revocable three years after
the date of the proxy or at the end of the period, if any, specified
therein, whichever period is less, unless the period of irrevocability is
renewed from time to time by the execution of a new irrevocable proxy as
provided in this section. This paragraph does not affect the duration of a
proxy under the second paragraph of this section.
A proxy may be revoked, notwithstanding a provision making it
irrevocable, by a purchaser of shares without knowledge of the existence of
the provision unless the existence of the proxy and its irrevocability is
noted conspicuously on the face or back of the certificate representing
such shares.
Section 1.09. Selection and Duties of Inspectors. The Board of
------------- -------------------------------------
Directors, in advance of any shareholders' meeting, may appoint one or more
inspectors to act at the meeting or any adjournment thereof. If inspectors
are not so appointed, the person presiding at a shareholders' meeting may,
and on the request of any shareholder entitled to vote thereat shall
appoint one or more inspectors. In case any person appointed fails to<PAGE>
appear or act, the vacancy may be filled by appointment made by the Board
of Directors in advance of the meeting or at the meeting by the person
presiding thereat. Each inspector, before entering upon the discharge of
his duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the
best of his ability.
The inspectors shall determine the number of shares outstanding
and the voting power of each, the shares represented at the meeting, the
existence of a quorum, the validity and effect of proxies, and shall
receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the result, and do such acts as
are proper to conduct the election or vote with fairness to all
shareholders. On request of the person presiding at the meeting or any
shareholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, question or matter determined by them and execute
a certificate of any fact found by them. Any report or certificate made by
them shall be prima facie evidence of the facts stated and of the vote as
certified by them.
Unless appointed by the Board of Directors or requested by a
shareholder, as above provided in this section, inspectors shall be
dispensed with at all meetings of shareholders.
Section 1.10. Qualification of Voters. Every shareholder of
------------- -------------------------
record shall be entitled at every meeting of shareholders to one vote for
every share standing in his name on the record of shareholders, except as
expressly provided otherwise in this section and except as otherwise
expressly provided in the Certificate of Incorporation of the Corporation.
Treasury shares and shares held by another domestic or foreign
corporation of any type or kind, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held by the<PAGE>
Corporation, shall not be shares entitled to vote or to be counted in
determining the total number of outstanding shares.
Shares held by an administrator, executor, guardian, conservator,
committee, or other fiduciary, except a trustee, may be voted by him,
either in person or by proxy, without transfer of such shares into his
name. Shares held by a trustee may be voted by him; either in person or by
proxy, only after the shares have been transferred into his name as trustee
or into the name of his nominee.
Shares held by or under the control of a receiver may be voted by
him without the transfer thereof into his name if authority so to do is
contained in an order of the court by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the
pledgee, or a nominee of the pledgee.
Redeemable shares which have been called for redemption shall not
be deemed to be outstanding shares for the purpose of voting or determining
the total number of shares entitled to vote on any matter on and after the
date on which written notice of redemption has been sent to holders thereof
and a sum sufficient to redeem such shares has been deposited with a bank
or trust company with irrevocable instruction and authority to pay the
redemption price to the holders of the shares upon surrender of
certificates therefor.
Shares standing in the name of another domestic or foreign
corporation of any type or kind may be voted by such officer, agent or
proxy as the bylaws of such corporation may provide, or, in the absence of
such provision, as the board of directors of such corporation may
determine.
If shares are registered on the record of shareholders of the
Corporation in the name of two or more persons, whether fiduciaries,
members of a partnership, joint tenants, tenants in common, tenants by the<PAGE>
entirety or otherwise, or if two or more persons have the same fiduciary
relationship respecting the same shares, unless the secretary of the
Corporation is given written notice to the contrary and is furnished with a
copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, their acts with respect to voting
shall have the following effect:
(1) If only one votes, the vote shall be accepted by the
Corporation as the vote of all;
(2) If more than one vote, the act of the majority so voting
shall be accepted by the Corporation as the vote of all,
(3) If more than one vote, but the vote is equally divided on any
particular matter, the vote shall be accepted by the Corporation as a
proportionate vote of the shares; unless the Corporation has evidence, on
the record of shareholders or otherwise, that the shares are held in a
fiduciary capacity. Nothing in this paragraph shall alter any requirement
that the exercise of fiduciary powers be by act of a majority, contained in
any law applicable to such exercise of powers (including Section 10-10.7 of
the Estates, Powers and Trusts Law of the State of New York);
(4) When shares as to which the vote is equally divided are
registered on the record of shareholders of the Corporation in the name of,
or have passed by operation of law or by virtue of any deed of trust or
other instrument to two or more fiduciaries, any court having jurisdiction
of their accounts, upon petition by any of such fiduciaries or by any party
in interest, may direct the voting of such shares for the best interest of
the beneficiaries. This paragraph shall not apply in any case where the
instrument or order of the court appointing fiduciaries shall otherwise
direct how such shares shall be voted; and
(5) If the instrument or order furnished to the Secretary of the
Corporation shows that a tenancy is held in unequal interests, a majority
or equal division for the purposes of this paragraph shall be a majority or<PAGE>
equal division in interest.
Notwithstanding the foregoing paragraphs of this section, the
Corporation shall be protected in treating the persons in whose names
shares stand on the record of shareholders as the owners thereof for all
purposes.
Section 1.11. Vote of Shareholders. Directors shall be elected
------------- ---------------------
by a plurality of the votes cast at a meeting of shareholders by the
holders of shares entitled to vote in the election. Whenever any corporate
action, other than the election of directors, is to be taken by vote of the
shareholders, it shall, except as otherwise required by the Business
Corporation Law or by the Certificate of Incorporation of the Corporation,
be authorized by a majority of the votes cast at a meeting of shareholders
by the holders of shares entitled to vote thereon.
The vote upon any question before any shareholders' meeting need
not be by ballot.
Section 1.12. Written Consent of Shareholders. Whenever
-------------- ------------------------------------
shareholders are required or permitted to take any action by vote, such
action may be taken without a meeting on written consent, setting forth the
action so taken, signed by the holders of all outstanding shares entitled
to vote thereon. This paragraph shall not be construed to alter or modify
the provisions of any section of the Business Corporation Law or any
provision in the Certificate of Incorporation of the Corporation not
inconsistent with the Business Corporation Law under which the written
consent of the holders of less than all outstanding shares is sufficient
for corporate action.
Written consent thus given by the holders of all outstanding
shares entitled to vote shall have the same effect as a unanimous vote of
shareholders.
ARTICLE II
Directors
Section 2.01. Management of Business:
------------- -----------------------
Qualifications of Directors. The business of the Corporation
shall be managed under the direction of its Board of Directors. Each
member of the Board of Directors shall be at least eighteen years of age.
Directors need not be stockholders.
The Board of Directors, in addition to the powers and authority
expressly conferred upon it by statute, by the Certificate of Incorporation
of the Corporation, by these Bylaws and otherwise, is hereby empowered to
exercise all such powers as may be exercised by the Corporation, except as
expressly provided otherwise by the Constitution and statutes of the State
of New York, by the Certificate of Incorporation of the Corporation and by
these Bylaws.
Section 2.02. Number. The number of directors which shall
------------- -------
constitute the entire Board of Directors shall be nine, but this number
may be increased and subsequently again increased or decreased by an
amendment to these Bylaws, except that the number shall never be less than
three nor more than nine and that no decrease shall shorten the term of any
incumbent director.
Section 2.03. Election and Term. At each annual meeting of
------------- ------------------
shareholders, directors shall be elected to hold office until the next
annual meeting, subject to the provisions of Section 2.05 hereof. Each
director shall hold office until the expiration of the term for which he is
elected, and until his successor has been elected and qualified.
Section 2.04. Resignations. Any director of the Corporation may
------------- -------------
resign at any time by giving written notice to the Board of Directors, the
President or the Secretary of the Corporation. Such resignation shall take
effect at the time specified therein, if any, or if no time is specified
therein, then upon receipt of such notice by the addressee; and, unless
otherwise provided therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 2.05. Removal of Directors. Any or all of the directors
------------- ---------------------
may be removed at any time (a) for cause by vote of the shareholders or by
action of the Board of Directors or (b) without cause by vote of the
shareholders, except as expressly provided otherwise by Section 706 of the
Business Corporation Law.
Section 2.06. Newly Created Directorships and Vacancies. Newly
------------- -------------------------------------------
created directorships resulting from an increase in the number of directors
and vacancies occurring in the Board of Directors for any reason except the
removal of directors without cause may be filled by vote of the Board of
Directors. If the number of directors then in office is less than a
quorum, such newly created directorships and vacancies may be filled by
vote of a majority of the directors then in office. The Board of Directors
shall fill vacancies occurring in the Board of Directors by reason of the
removal of directors without cause.
A director elected to fill a vacancy shall hold office until the
next meeting of shareholders at which the election of directors is in the
regular order of business, and until his successor has been elected and
qualified.
Section 2.07. Quorum and Vote of Directors. At all meetings of
------------ ------------------------------
the Board of Directors, a majority of the entire Board of Directors shall
be necessary and sufficient to constitute a quorum for the transaction of
business. The vote of a majority of the directors present at the time of
the vote, if a quorum is present at such time, shall be the act of the
Board of Directors, except as expressly provided otherwise in these Bylaws
and by the statutes of the State of New York.
A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting of the Board of Directors to another time
and place. Notice of any adjournment need not be given if such time and
place are announced at the meeting.
Section 2.08. Annual Meeting. The newly elected Board of
------------- ----------------
Directors shall meet immediately following the adjournment of the annual
meeting of shareholders in each year at the same place and no notice of
such meeting shall be necessary.
Section 2.09. Regular Meetings. Regular meetings of the Board of
------------- -----------------
Directors may be held at such times and places as shall from time to time
be fixed by the Board of Directors and no notice thereof shall be
necessary.
Section 2.10. Special Meetings. Special meetings may be called
------------- -----------------
at any time by the President, or by resolution of the Board of Directors.
Special meetings shall be held at such places as shall be fixed by the
person or persons calling the meeting and stated in the notice or waiver of
notice of the meeting.
Special meetings of the Board of Directors shall be held upon
notice to the directors. Notice of a special meeting need not be given to
any director who submits a signed waiver of notice whether before or after
the meeting, or who attends the meeting without protesting, prior thereto
or at its commencement, the lack of notice to him.
Unless waived, notice of each special meeting of the Board of
Directors, stating the time and place of the meeting, shall be given to
each director by delivered letter, by telegram or by personal communication
either over the telephone or otherwise, in each such case not later than
the third day prior to the meeting, or by mailed letter deposited in the
United States mail with postage thereon prepaid not later than the seventh
day prior to the meeting. Notices of special meetings of the Board of
Directors and waivers thereof need not state the purpose or purposes of the
meeting.
Section 2.11. Telephonic Meetings. A member of the Board of
------------- --------------------
Directors or any committee thereof may participate in a meeting of the
Board of Directors or of such committee by means of a conference telephone
or similar communications equipment allowing all persons participating in
the meeting to hear each other at the same time, and participation in a
meeting by such means shall constitute presence in person at such meeting.
Section 2.12. Compensation. Directors shall receive such fixed
------------ -------------
sums and expenses of attendance for attendance at each meeting of the Board
of Directors or of any committee and such salary as may be determined from
time to time by the Board of Directors; provided that nothing herein
contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 2.13(a)Committees. The Board of Directors, by resolution
------------ -----------
adopted by a majority of the entire Board of Directors, may designate from
among its members an Executive Committee and other committees, each
consisting of three or more directors, and each of which, to the extent
provided in the resolution, shall have all the authority of the Board of
Directors, except that no such committee shall have authority as to the
following matters:
(a) The submission to shareholders of any action that needs
shareholders' approval under the Business Corporation Law
(b) The filling of vacancies in the Board of Directors or in any
committee.
(c) The fixing of compensation of the directors for serving on
the Board of Directors or on any committee.
(d) The amendment or repeal of the Bylaws, or the adoption of
new Bylaws.
(e) The amendment or repeal of any resolution of the Board of
Directors which by its terms shall not be so amenable or
repealable.
The Board of Directors may designate one or more directors as
alternate members of any such committee, who may replace any absent member
or members at any meeting of such committee. Each such committee shall
serve at the pleasure of the Board of Directors.
Regular meetings of any such committee shall be held at such times
and places as shall from time to time be fixed by such committee and no
notice thereof shall be necessary. Special meetings may be called at any
time by any officer of the Corporation or any member of such committee.
Notice of each special meeting of each such committee shall be given (or
waived) in the same manner as notice of a special meeting of the Board of
Directors. A majority of the members of any such committee shall
constitute a quorum for the transaction of business and the act of a
majority of the members present at the time of the vote, if a quorum is
present at such time, shall be the act of the committee.
Section 2.13(b). Audit Committee. There shall be an Audit
---------------- ----------------
Committee of the Board of Directors which shall serve at the pleasure of
the Board of Directors and be subject to its control. The Committee shall
have at least three members, two of whom shall be independent outside
directors. Members shall be appointed by the Chairman, subject to approval
of the Board. The committee shall recommend to the Board of Directors the
appointment or discharge of the corporation's independent auditors, shall
review and approve the scope and plan of the annual audit, shall review the
results of such audit, and shall perform such other duties as may be
lawfully delegated to it from time to time by the Board of Directors.
Section 2.13(c). Executive Compensation Committee.
---------------- ---------------------------------
There shall be an Executive Compensation Committee of the Board of
Directors which will serve at the pleasure of the Board of Directors and be
subject to its control. The Committee shall have at least three members,
all of whom shall be independent outside directors appointed by the
Chairman, subject to the approval of the Board of Directors. The Committee
shall approve the compensation of the executive officers of the company,
and shall have such other duties as may be lawfully delegated to it from
time to time by the Board of Directors.
Section 2.14. Interested Directors. No contract or other
------------- ----------------------
transaction between the Corporation and one or more of its directors, or
between the Corporation and any other corporation, firm, association or
other entity in which one or more of the Corporation's directors are
directors or officers, or have a substantial financial interest, shall be
either void or voidable for this reason alone or by reason alone that such
director or directors are present at the meeting of the Board of Directors,
or of a committee thereof, which approves such contract or transaction, or
that his or their votes are counted for such purpose.
(1) If the material facts as to such director's interest in such
contract or transaction and as to any such common
directorship, officership or financial interest are
disclosed in good faith or known to the Board of Directors
or committee, and the Board of Directors or committee
approves such contract or transaction by a vote sufficient
for such purpose without counting the vote of such
interested director or, if the votes of the disinterested
directors are insufficient to constitute an act of the Board
of Directors as defined in Section 708 of the Business
Corporation Law, by unanimous vote of the disinterested
directors; or
(2) If the material facts as to such director's interest in such
contract or transaction and as to any such common
directorship, officership or financial interest are
disclosed in good faith or known to the shareholders
entitled to vote thereon, and such contract or transaction
is approved by vote of such shareholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a
committee which approves such contract or transaction.
ARTICLE III
Officers
Section 3.01 Election or Appointment; Number. The officers of
------------ ---------------------------------
the Corporation shall be elected or appointed by the Board of Directors.
The officers shall be a President, a Secretary, a Treasurer, and such
number of Vice Presidents, Assistant Secretaries and Assistant Treasurers,
and such other officers, as the Board of Directors may from time to time
determine. Any person may hold two or more offices at the same time,
except the offices of President and Secretary. Any officer may, but no
officer need, be chosen from among the Board of Directors.
Section 3.02. Term. Subject to the provisions of Section 3.03
------------ -----
hereof, all officers shall be elected or appointed to hold office for the
term for which he is elected or appointed or until his death and until his
successor has been elected or appointed and qualified.
The Board of Directors may require any officer to give security
for the faithful performance of his duties.
Section 3.03. Removal. Any officer elected or appointed by the
------------- --------
Board of Directors may be removed by the Board of Directors with or without
cause.
The removal of an officer without cause shall be without prejudice
to his contract rights, if any. The election or appointment of an officer
shall not of itself create contract rights.
Regular meetings of any such committee shall be held at such times<PAGE>
and places as shall from time to time be fixed by such committee and no
notice thereof shall be necessary. Special meetings may be called at any
time by any officer of the Corporation or any member of such committee.
Notice of each special meeting of each such committee shall be given (or
waived) in the same manner as notice of a special meeting of the Board of
Directors. A majority of the members of any such committee shall
constitute a quorum for the transaction of business and the act of a
majority of the members present at the time of the vote, if a quorum is
present at such time, shall be the act of the committee.
Section 2.14. Interested Directors. No contract or other
------------- ----------------------
transaction between the Corporation and one or more of its directors, or
between the Corporation and any other corporation firm, association or
other entity in which one or more of the Corporation's directors are
directors or officers, or have a substantial financial interest, shall be
either void or voidable for this reason alone or by reason alone that such
director or directors are present at the meeting of the Board of Directors,
or of a committee thereof, which approves such contract or transaction, or
that his or their votes are counted for such purpose.
Section 3.04. Authority. The President shall be the chief
-------------
executive officer of the. Corporation and shall direct the policy of the
Corporation on behalf of the Board of Directors. The other officers shall
have the authority, perform the duties and exercise the powers in the
management of the Corporation usually incident to the offices held by them,
respectively, and/or such other authority, duties and powers as may be
assigned to them from time to time by the Board of Directors or the
President.
ARTICLE IV
----------
Capital Stock
-------------
Section 4.01. Certificates of Stock. Certificates representing
------------- -----------------------
shares of the stock of the Corporation shall be in such form as shall be
approved by the Board of Directors. Every certificate shall be signed by
the President and the Secretary or an Assistant Secretary, or the Treasurer
or an Assistant Treasurer and sealed with the seal of the Corporation.
Such seal may be a facsimile engraved or printed. There shall be entered
upon the stock books of the Corporation the number of each certificate
issued, the name of the person owning the shares represented thereby, the
number of shares, and the date of issuance thereof.
Section 4.02. Transfer of Stock. A stock book shall be kept at
------------- ------------------
the principal office of the Corporation containing the names,
alphabetically arranged, of all persons who are stockholders of the
Corporation showing their places of residence, the number of shares of
stock held by them respectively, the time when they respectively became
owners thereof, and the amount paid thereon. Transfers of shares of the
stock of the corporation shall be made only on the books of the Corporation
by the holder of record thereof, or by his attorney thereunto duly
authorized by a power of attorney executed in writing and filed with the
Secretary, and upon the surrender of the certificate or certificates for
such shares properly endorsed and accompanied by all necessary Federal and
State stock transfer tax stamps. No stockholder, however, shall be
entitled to any transfer of his stock in violation of any restrictions
lawfully applicable thereto.
Section 4.03. Registered Holders. The Corporation shall be
------------------------------------
entitled to treat and shall be protected in treating the persons in whose
names shares or any warrants, rights or options stand on the record of
shareholders, warrant holders, rights holders or option holders, as the
case may be, as the owners thereof for all purposes and shall not be bound<PAGE>
to recognize any equitable or other claim to, or interest in, any such
share, warrant, right or option on the part of any other person, whether or
not the Corporation shall have notice thereof, except as expressly provided
otherwise by the statutes of the State of New York.
Section 4.04. New Certificates. The Corporation may issue a new
------------- -----------------
certificate for shares in the place of any certificate theretofore issued
by it, alleged to have been lost or destroyed, and the Board of Directors
may, in its discretion, require the owner of the lost or destroyed
certificate, or his legal representatives, to give the Corporation a bond
sufficient (in the judgment of the directors) to indemnify the Corporation
against any claim that may be made against it on account of the alleged
loss or destruction of any such certificate or the issuance of such new
certificate. A new certificate may be issued without requiring any bond
when, in the judgment of the directors, it is proper so to do.
ARTICLE V
Financial Notices to Shareholders
Section 5.01. Dividends. When any dividend is paid or any other
------------- ----------
distribution is made, in whole or in part, from sources other than earned
surplus, it shall be accompanied by a written notice (a) disclosing the
amounts by which such dividend or distribution affects stated capital,
capital surplus and earned surplus, or (b) if such amounts are not
determinable at the time of such notice, disclosing the approximate effect
of such dividend or distribution upon stated capital, capital surplus and
earned surplus and stating that such amounts are not yet determinable.
Section 5.02. Share Distribution and Changes. Every distribution
------------- -------------------------------
to shareholders of shares, whether certificated or uncertificated, or a
change of shares which affects stated capital, capital surplus or earned
surplus shall be accompanied by a written notice (a) disclosing the amounts
by which such distribution or change affects stated capital, capital<PAGE>
surplus and earned surplus, or (b) if such amounts are not determinable at
the time of such notice, disclosing the approximate effect of such
distribution or change upon stated capital, capital surplus and earned
surplus and stating that such amounts are not yet determinable.
When issued shares are changed in any manner which affects stated
capital, capital surplus or earned surplus, and no distribution to
shareholders of any shares, whether certificated or uncertificated,
resulting from such change is made, disclosure of the effect of such change
upon the stated capital, capital surplus and earned surplus shall be made
in the next financial statement covering the period in which such change is
made that is furnished by the Corporation to holders of shares of the class
or series so changed or, if practicable, in the first notice of dividend or
share distribution or change that is furnished to such shareholders between
the date of the change of shares and the next such financial statement, and
in any event within six months of the date of such change.
Section 5.03. Cancellation of Reacquired Shares.
------------- ----------------------------------
When reacquired shares other than converted shares are cancelled,
the stated capital of the Corporation is thereby reduced by the amount of
stated capital then represented by such shares plus any stated capital not
theretofore allocated to any designated class or series which is thereupon
allocated to the shares cancelled. The amount by which stated capital has
been reduced by cancellation of reacquired shares during a stated period of
time shall be disclosed in the next financial statement covering such
period that is furnished by the Corporation to all its shareholders or, if
practicable, in the first notice of dividend or share distribution that is
furnished to the holders of each class or series of its shares between the
end of the period and the next such financial
statement, and in any event to all its shareholders within six months of
the date of the reduction of capital.
Section 5.04. Reduction of Stated Capital. When a reduction of
------------- ----------------------------
stated capital has been effected under Section 516 of the Business
Corporation Law, the amount of such reduction shall be disclosed in the
next financial statement covering the period in which such reduction is
made that is furnished by the Corporation to all its shareholders or, if
practicable, in the first notice of dividend or share distribution that is
furnished to the holders of each class or series of its shares between the
date of such reduction and the next such financial statement, and in any
event to all its shareholders within six months of the date of such
reduction.
Section 5.05. Application of Capital Surplus to Elimination of a
------------- --------------------------------------------------
Deficit. The Corporation may apply any part or all of its capital surplus
- --------
to the elimination of any deficit in the earned surplus account, upon
approval by vote of the shareholders. The application of capital surplus
to the elimination of a deficit in the earned surplus account shall be
disclosed in the next financial statement covering the period in which such
elimination is made that is furnished by the Corporation to all its
shareholders or, if practicable, in the first notice of dividend or share
distribution that is furnished to holders of each class or series of its
shares between the date of such elimination and the next such financial
statement, and in any event to all its shareholders within six months of
the date of such action.
Section 5.06. Conversion of Shares. Should the Corporation
------------- ----------------------
issue any convertible shares, then, when shares have been converted, they
shall be cancelled and disclosure of the conversion of shares during a
stated period of time and its effect, if any, upon stated capital shall be
made in the next financial statement covering such period that is furnished
by the Corporation to all its shareholders or, if practicable, in the first
notice of dividend or share distribution that is furnished to the holders
of each class or series of its shares between the end of such period and
the next such financial statement, and in any event to all its shareholders
within six months of the date of the conversion of shares.
ARTICLE VI
Miscellaneous
Section 6.01. Offices. The principal office of the Corporation
------------- --------
shall be in The City of Albany, County of Albany, State of New York. The
Corporation may also have offices at other places, within and/or without
the State of New York.
Section 6.02. Seal. The corporate seal shall have inscribed
------------- -----
thereon the name of the Corporation, the year of its incorporation and the
words "Corporate Seal New York" provided, that the form of such seal shall
be subject to alteration from time to time by the Board of Directors.
Section 6.03. Checks. All checks or demands for money shall be
------------- -------
signed by such person or persons as the Board of Directors may from time to
time determine.
Section 6.04. Fiscal Year. The fiscal year of the Corporation
------------- -------------
shall be the calendar year ending on each December 31.
Section 6.05. Books and Records. The Corporation shall keep
------------- -------------------
correct and complete books and records of account and shall keep minutes of
the proceedings of its shareholders, Board of Directors and each committee
thereof, if any, and shall keep at the office of the Corporation in the
State of New York or at the office of its transfer agent or registrar in
the State of New York, a record containing the names and addresses of all
shareholders, the number and class of shares held by each and the dates
when they respectively became the owners of record thereof. Any of the
foregoing books, minutes or records may be in written form or in any other
form capable of being converted into written form within a reasonable time.
Section 6.06. Duty of Directors. A director shall perform his
------------- -------------------
duties as a director, including his duties as a member of any committee of<PAGE>
the Board of Directors upon which he may serve, in good faith and with that
degree of care which an ordinarily prudent person in a like position would
use under similar circumstances. In performing his duties, a director
shall be entitled to rely on information, opinions, reports, or statements
including financial statements and other financial data, in each case
prepared or presented by:
(a) one or more officers or employees of the Corporation or of
any other corporation of which at least fifty percentage of the outstanding
shares of stock entitling the holders thereof to vote for the election of
directors is owned directly or indirectly by the Corporation, whom the
director believes to be reliable and competent in the matters presented,
(b) counsel, public accountants or other persons as to matters
which the director believes to be within such person's professional or
expert competence, or
(c) a committee of the Board of Directors upon which he does not
serve, duly designated in accordance with a provision of the Certificate of
Incorporation or these Bylaws, as to matters within its designated
authority, which committee the director believes to merit confidence, so
long as in so relying he shall be acting in good faith and with such degree
of care which an ordinarily prudent person in a like position would use
under similar circumstances, but he shall not be considered to be acting in
good faith if he has knowledge concerning the matter in question that would
cause such reliance to be unwarranted. A person who so performs his duties
shall have no liability by reason of being or having been a director of the
Corporation.
Section 6.07. Indemnification of Directors and Officers.
------------- ------------------------------------------
(a) The Corporation shall indemnify any person made, or
threatened to be made, a party to an action or proceeding
(other than one by or in the right of the Corporation to
procure a judgment in its favor), whether civil or criminal,
including an action by or in the right of any other
corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or
other enterprise, which any Director or Officer of the
Corporation served in any capacity at the request of the
Corporation, by reason of the fact that he, his testator or
intestate, was a Director of the Corporation ("Director"),
or Officer of the Corporation appointed or elected by the
Board of Directors ("Officer_), or served such other
corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable
expenses, including attorneys' fees actually and necessarily
incurred as a result of such action or proceeding, or any
appeal therein, to the maximum extent permitted and in the
manner prescribed by the Business Corporation Law.
(b) The Corporation shall indemnify any person made, or
threatened to be made, a party to an action by or in the
right of the Corporation to procure a judgment in its favor
by reason of the fact that he, his testator or intestate, is
or was a Director or Officer of the Corporation, or is or
was serving at the request of the Corporation as a Director
or Officer of any other corporation of any type or kind,
domestic or foreign, of any partnership, joint venture,
trust, employee benefit plan or other enterprise, against
amounts paid in settlement and reasonable expenses,
including attorneys' fees, actually and necessarily incurred
by him in connection with the defense or settlement of such
action, or in connection with an appeal therein, to the
maximum extent permitted and in the manner prescribed by the
Business Corporation Law.
(c) Expenses incurred by any party entitled to indemnification
under this Section 6.07 in defending a civil or criminal
action or proceeding shall be paid by the Corporation in
advance of the final disposition of such action or
proceeding to the maximum extent permitted and in the manner
prescribed by the Business Corporation Law.
(d) The Corporation shall pay the expenses (including attorney's
fees) of any person made a witness in a civil or criminal
action or proceeding, by reason of the fact that he is or
was a Director or Officer of the Corporation, or serves or
served any other corporation of any type or kind, domestic
or foreign, or any partnership, joint venture, trust,
employee benefit plan, or other enterprise in any capacity
at the request of the Corporation, subject to any
limitations required by the Business Corporation Law.
(e) The Corporation shall pay the expenses (including attorney's
fees) of any Director or Officer of the Corporation incurred
in prosecuting or defending an action or proceeding to
enforce any rights to indemnification or advancement of
expenses granted under these bylaws or otherwise, subject to
any limitations required by the Business Corporation Law.
(f) The foregoing provisions of this section shall be deemed to
be a contract between the Corporation and each Director and
Officer of the Corporation who serves in such capacity at
any time while this section and the relevant provisions of
the Business Corporation Law are in effect, and any repeal
or modification of this section or such provisions of the
Business Corporation Law shall not affect any rights or
obligations then existing with respect to any state of facts
then or theretofore existing as it relates to any action or
proceeding theretofore or thereafter brought or threatened
based in whole or in part upon any such state of facts;
provided, however, that the right of indemnification
provided in this section shall not be deemed exclusive of
any other rights to which any Director or Officer of the
Corporation may now be or hereafter become entitled apart
from this section, whether by a resolution of shareholders,
a resolution of Directors, or an agreement providing for
such indemnification. Subject to the foregoing, wherever
this section refers to the Business Corporation Law, it
shall mean the Business Corporation Law of the State of New
York, as the same exists or may hereafter be amended. The
rights of a Director or Officer hereunder shall continue
after such person has ceased to be a Director or Officer and
shall inure to the benefit of such person's heirs,
executors, administrators and personal representatives.
Section 6.08. When Notice or Lapse of Time Unnecessary; Notices
------------- --------------------------------------------------
Dispensed with when Delivery Is Prohibited. Whenever, under the Business
- --------------------------------------------
Corporation Law or the Certificate of Incorporation of the Corporation or
these Bylaws or by the terms of any agreement or instrument, the
Corporation or the Board of Directors or any committee thereof is
authorized to take any action after notice to any person or persons or
after the lapse of a prescribed period of time, such addition may be taken
without notice and without the lapse of such period of time, if at any time
before or after such action is completed the person or persons entitled to
such notice or entitled to participate in the action to be taken or, in the
case of a shareholder, by his attorney-in-fact, submit a signed waiver of
notice of such requirements.
Whenever any notice or communication is required to be given to
any person by the Business Corporation Law, the Certificate of
Incorporation of the Corporation or these Bylaws, or by the terms of any
agreement or instrument, or as a condition precedent to taking any
corporate action and communication with such person is then unlawful under
any statute of the State of New York or of the United States or any
regulation, proclamation or order issued under said statutes, then the
giving of such notice or communication to such person shall not be required
and there shall be no duty to apply for license or other permission to do
so. Any affidavit, certificate or other instrument which is required to be
made or filed as proof of the giving of any notice or communication
required under the Business Corporation Law shall, if such notice or
communication to any person is dispensed with under this paragraph, include
a statement that such notice or communication was not given to any person
with whom communication is unlawful. Such affidavit, certificate or other
instrument shall be as effective for all purposes as though such notice or
communication had been personally given to such person.
Whenever any notice or communication is required or permitted to
be given by mail, it shall, except as otherwise expressly provided in the
Business Corporation Law, be mailed to the person to whom it is directed at
the address designated by him for that purpose or, if none is designated,
at his last known address. Such notice or communication is given when
deposited, with postage thereon prepaid, in a post office or official
depository under the exclusive care and custody of the United States post
office department. Such mailing shall be by first class mail except where
otherwise required by the Business Corporation Law.
Section 6.09. Entire Board of Directors. As used in these
------------- ----------------------------
Bylaws, the term entire "Board of Directors" means the total number of
directors which the Corporation would have if there were no vacancies.
Section 6.10. Amendment of Bylaws. These Bylaws may be amended
-------------- --------------------
or repealed and new Bylaws adopted by the Board of Directors or by vote of
the holders of the shares at the time entitled to vote in the election of
any directors, except that any amendment by the Board changing the number
of directors shall require the vote of a majority of the entire Board of
Directors and except that any Bylaw adopted by the Board of Directors may
be amended or repealed by the shareholders entitled to vote thereon as
provided in the Business Corporation Law.
If any Bylaw regulating an impending election of directors is
adopted, amended or repealed by the Board of Directors, there shall be set
forth in the notice of the next meeting of shareholders for the election of
directors the Bylaw so adopted, amended or repealed, together with a
concise statement of the changes made.
Section 6.11. Section Headings and Statutory References. The
------------- --------------------------------------------
headings of the Articles and Sections of these Bylaws have been inserted
for convenience of reference only and shall not be deemed to be a part of
these Bylaws.
UNANIMOUS CONSENT OF
BOARD OF DIRECTORS OF
FIRST ALBANY COMPANIES INC.
The undersigned, constituting the entire Board of Directors of First Albany
Companies Inc., a New York Corporation (the "Company"), in accordance with
the provisions of Section 708(b) of the Business Corporation Law of the
State of New York, do hereby consent to and adopt the following resolution
with the same force and effect as if presented to and adopted at a meeting
of the Board of Directors of the Company:
RESOLVED, that the Bylaws of the Company are hereby
amended by deleting the word "eight" contained in the
second line of Section 2.02 of Article II and inserting
in lieu thereof the word "nine".
WHEREAS, there being a vacant seat on the Board of Directors of Company and
Mr. Peter Barton has been nominated to fill such seat; now therefore it is
RESOLVED, that Peter Barton is hereby elected as a
director of the Company to serve until the next annual
meeting of shareholders or until his successor is
elected and qualified.
IN WITNESS WHEREOF, the Board of Directors has executed this Unanimous
Consent as of July 31, 1997.
/s/GEORGE C. McNAMEE /s/ALAN P. GOLDBERG
- ------------------------- --------------------------
George C. McNamee Alan P. Goldberg
/s/J. ANTHONY BOECKH /s/WALTER M. FIEDEROWICZ
- ------------------------- -------------------------
J. Anthony Boeckh Walter M. Fiederowicz
/s/DANIEL McNAMEE, III /s/BENAREE P. WILEY
- --------------------------- --------------------------
Daniel McNamee, III Benaree P. Wiley
/s/CHARLES L. SCHWAGER /s/HUGH A. JOHNSON, JR.
- ------------------------- --------------------------
Charles L. Schwager Hugh A. Johnson, Jr.
EXHIBIT 10.20A
AMENDMENT NO.1 TO SUBORDINATED LOAN AGREEMENT
Amendment No. 1, dated as of December 23, 1997 ("Amendment"), to the
Subordinated Loan Agreement, dated as of September 16, 1996 (the Subordinated
Loan Agreement"), between First Albany Corporation, a New York corporation (the
"Company"), and Sharon M. Duker (the "Lender").
WHEREAS, in order to extend the maturity on the Note dated September 16,
1996 from the Company to the Lender and issued pursuant to the Subordinated Loan
Agreement (the "Original Note"), the Original Note has been cancelled as of the
date hereof and replaced with a note, dated the date hereof, and in
substantially the form attached hereto as Exhibit A;
and
WHEREAS, the parties hereto wish to make certain amendments to the
Subordinated Loan Agreement;
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the parties
hereby agree as follows:
1.All capitalized terms shall have the respective meaning ascribed to
them in the Subordinated Loan Agreement unless otherwise defined
herein.
2.Section 6(E)(ii) of the Subordinated Loan Agreement is hereby
amended by deleting the number "3.5" in the first line thereof and
inserting the number "3.0" in lieu thereof.
3.Section 3(A) of the Subordinated Loan Agreement is hereby amended
by deleting the words "July 31, 2001" in the last sentence thereof
and inserting the words "December 31, 2002" in lieu thereof.
4.This Amendment may be executed in two or more counterparts each of
which shall be deemed an original but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, this Amendment has been executed and delivered as
of the date first written above.
FIRST ALBANY CORPORATION
By: /s/ ALAN GOLDBERG
-------------------------
Name:
Title:
LENDER
By: /s/ SHARON M. DUKER
--------------------------
Sharon M. Duker
</PAGE>
<PAGE>
NOTE
$5,000,000.00* * * Albany, New York
December 23 1997
FOR VALUE RECEIVED, the undersigned FIRST ALBANY CORPORATION, a New
York corporation with offices at 30 South Pearl Street, Albany, New York
12207, promises to pay to the order of Sharon M. Duker, (herein called the
"Lender"), at the office of the Lender in Albany, New York or at such other
place as may be designated from time to time by the Lender, the sum of Five
Million ($5,000,000.00) Dollars and to pay interest on the disbursed,
unpaid principal, from the date hereof, at the rate of nine and one-quarter
(9.25%) percent per annum.
The undersigned promises to pay the principal and interest as follows:
a)Accrued interest to be paid on the 31st day of December, 1997, and
on the last business day of each succeeding month thereafter during
the term thereof .
b)The entire unpaid balance of principal together with accrued
interest to be paid to the Lender on the 31st day of December,
2002.
All amounts paid pursuant to this paragraph shall be applied first to
the payment of accrued interest to the date of payment and then to the
reduction of principal.
The undersigned agrees to pay accrued interest and/or principal when
due.
This Note is subject to the terms, covenants and conditions set forth
in a Subordinated Loan Agreement by and between the undersigned and the
Lender dated as of September 16, 1996, as amended (the "Loan Agreement"),
and all such terms, covenants and conditions of such Loan Agreement are all
hereby incorporated in this Note, with the same force and effect as though
said terms, covenants and conditions were fully set forth herein. This Note
is issued as a replacement for the note issued pursuant to the Loan
Agreement and dated September 16, 1996. The prepayment of any portion of
the principal or interest due under this Note shall be allowed in
accordance with the terms of the Loan Agreement.
DEFAULT. Upon the occurrence of certain Events of Default, specified
in the Loan Agreement, the principal of and interest on this Note may be
declared due and payable either immediately or as set forth therein. The
payment of principal of the Note may be suspended upon the occurrence of
certain events specified in the Loan Agreement, and such suspension will
not constitute a default hereunder.
The undersigned agrees to pay all costs and expenses incurred by the
holder hereof in enforcing this Note, including, without limitation,
reasonable attorneys' fees and legal expenses.
(CORPORATE SEAL) FIRST ALBANY CORPORATION
ATTEST By: /s/ ALAN P. GOLDBERG
---------------------------
/s/ STEPHEN P. WINK Alan P. Goldberg, President
- --------------------------
Stephen P. Wink, Secretary
</PAGE>
<PAGE>
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND HAS BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A
VIEW TO THE DISTRIBUTION THEREOF, AND THIS OPTION MAY NOT BE SOLD OR
TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT COVERING IT
OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE<PAGE>
COMPANY) FROM THE TRANSFEROR REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT.
OPTION TO PURCHASE COMMON STOCK
OF
FIRST ALBANY COMPANIES INC.
1.a. This certifies that, subject to the terms set forth below,
in consideration of Sharon M. Duker, (the "Holder") making a loan of Five
Million and 00/100 Dollars ($5,000,000) (the Indebtedness") to a wholly-
owned subsidiary, First Albany Corporation, of FIRST ALBANY COMPANIES INC.
(the "Company"), the Company grants to Holder the option to purchase, at
any time during the Exercise Period (as defined below) 88,200 shares of its
common stock, par value $.01 per share, (the "Common Stock") at a purchase
price of $11.34 per share (the "Purchase Price"). The Purchase Price shall
be paid by the discharge of One Million and 00/100 Dollars ($1,000,000) of
the Indebtedness.
b. The Exercise Period shall begin on the date hereof and end
at 5:00 p.m., New York time on the earlier of (i) 5:00 p.m., New York time,
on the final scheduled maturity date of the Note (as defined in the
Subordinated Loan Agreement between the Holder and the Company dated
September 16, 1996 (the "Agreement")), (ii) the Change of Control Payment
Date (as defined in the Agreement); and (iii) the date of any Voluntary
Prepayment (as defined in the Agreement). Notwithstanding anything
contained herein to the contrary, any exercise of this option during the
period beginning six months prior to the final scheduled maturity date
shall not be effective until the final scheduled maturity date.
c. This Option may be exercised by surrender to the Company, at
its principal executive offices, of the subscription form attached hereto
duly executed and the simultaneous delivery to the Company of a document,
in form and substance acceptable to the Company, evidencing the discharge
of One Million and 00/100 Dollars ($1,000,000) of the Indebtedness.
d. The Company agrees to give the Holder thirty (30) days prior
written notice of any Voluntary Prepayment.
e. All notices sent to the Company and the Holder under this
Option shall be sent by certified mail, return receipt requested, or by
personal delivery addressed to the Company's General Counsel at its
principal executive offices, or addressed to the Holder at the address
provided in the Agreement or at such other address as the Holder may give
to the Company pursuant to the Agreement, respectively.
f. Certificates for shares of Common Stock purchased upon
exercise of this Option will be delivered by the Company to the Holder or
his designee within thirty (30) business days after the exercise of the
Option.
</PAGE>
<PAGE>
g. The Common Stock issuable upon the exercise of this Option
will be deemed to have been issued on the date (the "Exercise Date") the
Company receives satisfactory evidence of payment of the Purchase Price,
and the Holder will be deemed for all purposes to have become the record
holder of such Common Stock on the Exercise Date.
h. The issuance of certificates for shares of Common Stock upon
exercise of this Option shall be made subject to, and the Holder shall be
responsible for, any and all charges to the Holder for any issuance tax in
respect thereof or other cost incured by the Company in connection with
such exercise and the related issuance of shares of Common Stock. Each<PAGE>
share of Common Stock issuable upon exercise of this Option will, upon
payment of the Purchase Price thereof, be fully paid and nonassessable and
free from all liens and charges with respect to the issuance thereof.
i. After the date hereof and prior to the exercise of this
Option, the aggregate number of shares subject to this Option and the
exercise price shall be adjusted to reflect any stock splits or stock
dividends declared with respect to the Common Stock.
2. The Holder shall have no rights as a shareholder in respect
of shares covered by the Option prior to exercise of this Option with
respect thereto and until the Holder has made payment therefor as herein
provided, and the Holder shall have no rights with respect to such shares
not expressly conferred by this Option.
3. The Company shall at all times during the term of this
Option reserve and keep available such number of shares of its Common Stock
as will be sufficient to satisfy the requirements of this Option.
4. This Option shall be binding upon the Company's successors
and assigns. This Option shall not be transferred by the Holder without
the prior written consent of the Company; any such transfer without the
consent of the Company will render this Option void.
5. This Option shall be construed and enforced in accordance
with and governed by the laws of New York without regard to its principles
of conflicts of laws. Any action or proceeding brought by the Holder or
the Company against the other arising out of or related to the Option shall
be brought in a State or Federal Court of competent jurisdiction located in
Albany, New York and the Holder and the Company hereby submit to the
jurisdiction of such courts for the purposes of any such action or
proceeding.
6. The Holder agrees that he will comply with all applicable
laws, rules and regulations of all Federal and State securities regulators,
including but not limited to the Securities and Exchange Commission, the
New York Stock Exchange, the National Association of Securities Dealers and
applicable state securities regulators with respect to disclosure, filings
and any other requirements resulting in any way from the issuance of this
Option other than those required to be made by the Company in accordance
with applicable Federal and State securities laws and regulations.
</PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Option intending to
be legally bound hereto.
DATED: December 23, 1997 FIRST ALBANY COMPANIES INC.
/s/ ALAN P. GOLDBERG
----------------------------
President
HOLDER:
/s/ SHARON M. DUKER
----------------------------
Sharon M. Duker
</PAGE>
<PAGE>
SUBSCRIPTION FORM
(to the executed only upon exercise of Option)
The undersigned Holder of the Option granted pursuant to the Option
Agreement dated December 23, 1997 (the "Option Agreement"), irrevocably
exercises this Option to purchase all such shares of Common Stock of First
Albany Companies Inc. as are granted as of the date hereof pursuant to the
Option Agreement and herewith makes payment therefor, all at the price and
on the terms and conditions specified in this Option.
DATED:
Number of Shares: _______________________
__________________________________
(Signature of Holder)
__________________________________
(Name of Holder)
__________________________________
Street Address
__________________________________
(City) (State) (Zip)<PAGE>
EXHIBIT 10.23
NOTE
$2,500,000.00*** Albany, New York
December 23, 1997
FOR VALUE RECEIVED, the undersigned FIRST ALBANY CORPORATION, a New
York corporation with offices at 30 South Pearl Street, Albany, New York
12207, promises to pay to the order of Sharon M. Duker, (herein called the
"Lender"), at the office of the Lender in Albany, New York or at such other
place as may be designated from time to time by the Lender, the sum of Two
Million Five Hundred Thousand ($2,500,000.00) Dollars and to pay interest
on the disbursed, unpaid principal, from the date hereof, at the rate of
eight and three-quarters (8.75%) percent per annum.
The undersigned promises to pay the principal and interest as follows:
a)Accrued interest to be paid on the 31st day of December, 1997, and
on the last business day of each succeeding month thereafter during
the term hereof.
b)The entire unpaid balance of principal together with accrued
interest to be paid to the Lender on the 31st day of December,
2002.
All amounts paid pursuant to this paragraph applied first to the
payment of accrued interest to the date of payment and then to the
reduction of principal.
The undersigned agrees to pay accrued interest and/or principal when
due.
This Note is subject to the terms, covenants and conditions Set forth
in a Subordinated Loan Agreement by and between the undersigned and the
Lender, dated as of December 23, 1997 (the "Loan Agreement"), and all such
terms, covenants and conditions of such Loan Agreement are all hereby
incorporated in this Note, with the same force and effect as though said
terms, covenants and conditions were fully set forth herein. The prepayment
of any portion of the principal or interest due under this Note shall be
allowed in accordance with the terms of the Loan Agreement.
DEFAULT. Upon the occurrence of certain Events of Default, specified
in the Loan Agreement, the principal of and interest on this Note may be
declared due and payable either immediately or as set forth therein. The
payment of principal of the Note may be suspended upon the occurrence of
certain events specified in the Loan Agreement, and such suspension will
not constitute a default hereunder.
The undersigned agrees to pay all costs and expenses incurred by the
holder hereof in enforcing this Note, including, without limitation,
reasonable attorneys' fees and legal expenses.
(CORPORATE SEAL) FIRST ALBANY CORPORATION
ATTEST By: /s/ ALAN P. GOLDBERG
/s/ STEPHEN P. WINK Alan P. Goldberg, President
Stephen P. Wink, Secretary
</PAGE>
<PAGE>
SUBORDINATED LOAN AGREEMENT
---------------------------
Subordinated Loan Agreement dated as of December 23, 1997, between First
Albany Corporation, a New York corporation (the "Company"), and Sharon M.
Duker (the "Lender").
WITNESSETH:
-----------
1. CERTAIN DEFINITIONS. All terms not specifically defined in this
--------------------
Agreement shall be construed in accordance with the Act, the Rules
and Regulations promulgated thereunder, and the Constitution, Rules
and Regulations of the Exchange. As used in this Agreement:
"Act" means the Securities Exchange Act of 1934, as amended from
-----
time to time.
"Aggregate Debit Items" means aggregate debit items of the
------------------------
Company as defined in Exhibit A to Rule 15c3-3 as in effect as of
the date any determination is made thereunder.
"Aggregate Indebtedness" means aggregate indebtedness of the
------------------------
Company as defined in subparagraph (c) (1) of Rule 15c3-1 as in
effect as of the date any determination is made thereunder.
"CEA" means the Commodity Exchange Act.
-----
"CFTC" means the Commodities Futures Trading Commission.
-------
"Change of Control" has the meaning ascribed to it in Section 8
-------------------
hereof.
"Commission" means the Securities and Exchange Commission or any
------------
agency of the United States succeeding to its authority.
"FOCUS Report" means Form X-17A-5 promulgated under Section 17 of
--------------
the Act and Rule 17a-5.
"Effective Date" means the date an executed copy of this
-----------------
Agreement is approved by the Exchange.
"Event of Acceleration" means any event described in Section 7.B
-----------------------
of this Agreement.
"Event of Default" means any event described in Section 7.A of
------------------
this Agreement.
"Examining Authority" means the Exchange, provided, however,
---------------------
that, upon termination of the Company as a member firm of the
Exchange, the term Examining Authority shall refer to such
regulatory body having responsibility for inspecting or examining
the Company for compliance with financial responsibility
requirements under Section 13(c) of SIPA and Section 17(d) of the
Act.
"Exchange" means the New York Stock Exchange, Inc. and other
----------
exchanges.
"Net Capital" means net capital of the Company as defined in
-------------
subparagraph (c) (2) of Rule 15c3-1 as in effect as of the date
any determination is made thereunder.
"Note" means the Note as defined in Section 3.A of this Agreement
------
in the amount of $2,500,000.00.
"Rule" means the respective rule promulgated pursuant to the Act
and any successor rule thereto.
"SIPA" means the Securities Investor Protection Act of 1970, as
amended from time to time.
"Subordinated Agreement" means subordinated loan agreements and
------------------------
secured demand note agreements as defined in subparagraph (a)(2)
of Appendix D to Rule 15c3-1.
"Tangible Net Worth" means the excess of total assets over total
liabilities, total assets and total liabilities each to be
determined in accordance with generally accepted accounting
principles consistent with those applied in the preparation of
the financial statements referred to in Section 2.C hereof,
excluding, however, from the determination of total assets all
assets which would be classified as intangible assets including,
without limitation, goodwill (whether representing the excess of
cost over equity or any premium paid in excess of assets acquired
or otherwise) and any write-up of the book value of assets
resulting from a revaluation thereof after the date of such
financial statements all as determined under generally accepted
accounting principles.
2. REPRESENTATIONS AND WARRANTIES. The Company represents, covenants
-------------------------------
and warrants that as of the closing date hereunder:
A. Corporate Existence and Power. The Company is a corporation duly
------------------------------
formed and validly existing under the laws of the State of New
York, and has the corporate power to make this Agreement and to
borrow and perform the obligations hereunder. The Company is
duly licensed or qualified in all states wherein the character of
the property owned or the nature of the business transacted by
it, in the opinion of management of the Company, makes licensing
or qualification necessary and is in good standing, and will
remain in good standing, as a member of the Exchange.
B. Corporate Authority. The making and performance by the Company
of this Agreement have been duly authorized by all necessary
action on the part of the Company and will not violate any
provision of federal, state or local law or its Articles of
Incorporation or Certificate of Incorporation or result in a
breach of, or constitute a default under, or require any consent
under, any material indenture or loan or credit or other
agreement to which the Company is a party or by which the Company
or its property may be bound or affected.
C. Financial Condition. The balance sheet of the Company as of
--------------------
December 31, 1996, the statements of profit and loss and surplus
of the Company for the audit year ending on that date, the FOCUS
Report of the Company dated September 30, 1997, heretofore
furnished to the Lender are complete and correct and fairly
present the financial condition of the Company as at the dates of
said balance sheet, FOCUS Report and the results of the Company's
operations for the audit year ended on the date of said balance
sheet. Such financial statements were prepared in accordance
with generally accepted principles and practices of accounting
consistently applied. To the best of the Company's knowledge and
belief, it has no contingent obligations, or unusual forward or
long term commitments not disclosed by or reserved against in
said balance sheet as of December 31, 1996, or in said FOCUS
Report dated September 30, 1997, and, to the best of the
Company's knowledge and belief, at the present time there are no
unrealized or anticipated losses from any unfavorable commitments
of the Company which have not been disclosed to the Lender.
Since December 31, 1996, there has been no material adverse change
in the financial condition of the Company from that set forth in
said balance sheet as of December 31, 1996, or in said FOCUS
Report dated September 30, 1997.
D. Titles; Liens. Other than as described in Schedule I hereto, the
--------------
Company has good and marketable title to all of the properties
and assets reflected in the latest financial statement (except
such as have been disposed of in the ordinary course of business
for a fair consideration), free and clear of all mortgages,
liens, encumbrances, except such minor irregularities in title
which will not interfere with the occupation, use and enjoyment
by the Company of such properties and assets in the normal course
of business of the Company.
E. Taxes. The Company has filed all tax returns required to be
------
filed and has paid all taxes shown thereon to be due, including
interest and penalties, if any, or has provided adequate reserves
for the payment thereof. The Company is not a party to any
material action or proceeding by any governmental authority for
the assessment or collection of taxes nor has any material claim
for assessment or collection of taxes been asserted against the
Company.
F. Licenses, etc. The Company possesses all licenses, permits and
--------------
approvals necessary for the conduct of its business as now
conducted and presently proposed to be conducted as, in the
opinion of the management of the Company, is required by law or
the rules of the Commission, the Exchange, the National
Association of Securities Dealers, Inc. and each other
association, corporation or governmental agency or body having
appropriate authority (except such licenses, permits or approvals
by authorities outside the United States the failure to possess
which will not, individually or in the aggregate, result in a
material liability on the part of the Company or materially
impair the right or ability of the Company to carry on its
business substantially as now conducted and proposed to be
conducted).
G. Governmental Consent. All consents, approvals or authorizations
---------------------
of, or filings, registrations or qualifications with, any
governmental authority (including, without limitation, any State
securities commission) required by any statute, rule of
regulation now in effect on the part of the Company as a
condition to the valid execution and delivery of this Agreement,
the valid offer of the Note to the Lender, the valid payment of
the Note in accordance with the terms thereof and of this
Agreement have been duly obtained and performed.
H. Stock Exchange Approvals. The Company has obtained all consents,
approvals or authorizations of the Exchange and of other
securities exchanges of which the Company is a member that are
required on the part of the Company in connection with the due
execution, delivery and performance of this Agreement, the offer,
issue and delivery of the Note and the consummation of the
transactions contemplated by such instruments.
I. Broker-Dealer Registration. The Company is registered as a
---------------------------
broker-dealer under the Act and is also registered where
necessary in the opinion of the management of the Company
as a broker-dealer with the proper authorities of every State
of the United States.
J. NASD and Exchange Memberships. The Company is a member
---------------------------------
organization in good standing of the National Association of
Securities Dealers, Inc. (_NASD_), and the following securities
exchanges: the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the Boston Stock Exchange.
K. SIPA Agreement. The Company is not in arrears with respect to
---------------
any assessment made upon the Company by the Securities Investor
Protection Corporation.
3. TERMS OF THE LOAN.
A. The Note. The obligation of the Company to repay the aggregate
---------
unpaid principal amount of the loan made to it pursuant hereto
shall be evidenced by a promissory note of the Company in
substantially the form of Exhibit A hereto. The Note shall bear
interest on the unpaid principal amount thereof, from the date
thereof at a rate of 8.75%. The entire unpaid balance of
principal together with accrued interest shall be due and payable
December 31, 2002.
B. Permissive Prepayment on Note. On or after December 31, 1998,
-------------------------------
with the prior written permission of the Exchange, the Company,
may, at its option, prepay to the Lender all or any portion of
the aggregate principal amount of the Note prior to the final
scheduled maturity date of the Note (a "Voluntary Prepayment").
No prepayment of the Note shall be made, however, if, after giving
effect thereto and to all other payments of principal of
outstanding subordinated loan agreements of the Company, including
the return of any secured demand note and the collateral therefor
held by the Company, the maturity or accelerated maturity of which
are scheduled to occur within 6 months after the date of such
Voluntary Prepayment or other prepayment, without reference to any
projected profit or loss of the Company:
i. in the event that the Company is not operating pursuant to the
alternative net capital requirement provided for in paragraph
(a) of the Rule (as defined in paragraph D(i) below), the
aggregate indebtedness of the Company would exceed 1,000
percentum of its net capital as those terms are defined in the
Rule or any successor rule as in effect at the time such
Voluntary Prepayment is to be made (or such other percentum as
may be made applicable at such time to the Company by the
Exchange or the Commission), or
ii. in the event that the Company is operating pursuant to such
alternative net capital requirement, the net capital of the
Company would be less than 5 percentum (or such other
percentum as may be applicable to the Company at the time of
such Voluntary Prepayment by the Exchange or the Commission)
of aggregate debit items computed in accordance with Exhibit A
to Rule 15c3-3 under the Act or any successor rule as in
effect at such time, or
iii. in the event that the Company is registered as a future
commission merchant under the CEA, the net capital of the
Company (as defined in the CEA or the regulations thereunder
less the market value of commodity options purchased by option
customers on or subject to the rules of a contract market,
provided, however, the deduction for each option customer
shall be limited to the amount of customer funds in such
option customer's account as in effect at the time of such
Voluntary Prepayment) would be less than 7 percentum (or such
other percentum as may be made applicable to the Company at
the time of such Voluntary Prepayment by the CFTC) of the
funds required to be segregated pursuant to the CEA and the
regulations thereunder, or
iv. the Company's net capital, as defined in the Rule or any
successor rule as in effect at the time of such Voluntary
Prepayment, would be less than 120 percentum (or such other
percentum as may be made applicable to the Company at the time
of such Voluntary Prepayment by the Exchange or the
Commission) of the minimum dollar amount required by the Rule
as in effect at such time (or such other dollar amount as may
be made applicable to the Company at the time of such
Voluntary Prepayment by the Exchange or the Commission), or
v. in the event that the Company is registered as a futures
commission merchant under the CEA, its net capital, as defined
in the CEA or the regulations thereunder as in effect at the
time of such Voluntary Prepayment would be less than 120
percentum (or such other percentum as may be made applicable
to the Company at the time of such Voluntary Prepayment by the
CFTC) of the minimum dollar amount required by the CEA or the
regulations thereunder as in effect at such time (or such
other dollar amount as may be made applicable to the Company
at the time of such Voluntary Prepayment by the CFTC), or
vi. in the event that the Company is subject to the provisions of
paragraph (a)(6)(v) or (a)(7)(iv) or (c) (2) (x) (b) (1) of
the Rule, the net capital of the Company would be less than
the amount required to satisfy the 100% test (or such other
percentum test as may be made applicable to the Company at the
time of such Voluntary Prepayment by the Exchange or the
Commission) stated in such applicable paragraph.
If any Voluntary Prepayment or other prepayment of aggregate
principal under the Note is made to the Lender prior to a scheduled
maturity date, and if the Company's Net Capital is less than the
amount required to permit such prepayment pursuant to this section
3.B, the Lender irrevocably agrees to repay the Company the sum so
paid to be held by the Company pursuant to the provisions of this
Agreement as if such prepayment had never been made; provided,
however, that any suit for the recovery of any such prepayment must
be commenced within two years of the date of such prepayment.
C. Payment. All payments of fees under this Agreement or of
--------
principal and interest on the Note shall be made in lawful money
of the United States of America and in immediately available
funds. Interest on the Note and any other charges to be made
hereunder shall be calculated on the basis of actual days elapsed
and a year of 360 days. If any principal of or interest on the
Note or other amount payable by the Company hereunder falls due
on a Saturday, Sunday or a legal holiday in the State of New
York, then such due date shall be extended to the next succeeding
full Business Day, and in the case of such an extension as to
principal, interest shall be payable in respect of such
extension.
D. Suspended Repayment. The Company's obligation to pay all or a
--------------------
portion of the principal amount of the loan hereunder on a
scheduled maturity date or any accelerated maturity date ("Amount
Due") shall be suspended, and the obligation shall not mature for
any period of time during which after giving effect to such
payment, together with the payment of any other obligation of the
Company under other subordinated loan agreements payable during
such period and the return of any secured demand note and the
collateral therefor held by the Company and returnable during
such period,
i. in the event that the Company is not operating pursuant to the
alternative net capital requirement provided for in paragraph
(a) of Rule 15c3-1 (the _Rule_) under the Securities Exchange
Act of 1934, as amended, the aggregate indebtedness of the
Company would exceed 1200 percentum of its net capital as
those terms are defined in the Rule or any successor rule as
in effect at the time payment is to be made (or such other
percentum as may be made applicable to the Company at the time
of such payment by the Exchange or the Commission), or
ii. in the event that the Company is operating pursuant to such
alternative net capital requirement, the net capital of the
Company would be less than 5 percentum (or such other
percentum as may be made applicable to the Company at the time
of such payment by the Exchange or the Commission) of
aggregated debit items computed in accordance with Exhibit A
to Rule 15c3-3 under the Act or any successor rule as in
effect at such time, or
iii. in the event that the Company is registered as a futures
commission merchant under the CEA, the net capital of the
Company (as defined in the CEA or the regulations thereunder
as in effect at the time of such payment) would be less than 6
percentum (or such other percentum as may be made applicable
to the Company at the time of such payment by the CFTC) of the
funds required to be segregated pursuant to the CEA and the
regulations thereunder, or
iv. the Company's net capital, as defined in the Rule or any
successor rule as in effect at the time of such payment, would
be less than 120 percentum (or such other percentum as may be
made applicable to the Company at the time of such payment by
the Exchange or the Commission) of the minimum dollar amount
required by the Rule as in effect at such time (or such other
dollar amount as may be made applicable to the Company at the
time of such Voluntary Prepayment by the Exchange or the
Commission), or
v. in the event that the Company is registered as a futures
commission merchant under the CEA, and if its net capital, as
defined in the CEA or the regulations thereunder as in effect
at the time of such payment, would be less than 120 percentum
(or such other percentum as may be made applicable to the
Company at the time of such payment by the CFTC) of the
minimum dollar amount required by the CEA or the regulations
thereunder as in effect at such time (or such other dollar
amount as may be made applicable to the Company at the time of
such payment by the CFTC), or
vi. in the event that the Company is subject to the provisions of
paragraph (a) (6) (v) or (a) (7) (iv) or (c) (2) (x) (B) (1)
of the Rule, the net capital of the Company would be less than
the amount required to satisfy the 1000% test (or such other
percentum test as may be made applicable to the Company at the
time of such payment by the Exchange or the Commission) stated
in such applicable paragraph (the net capital necessary to
enable the Company to avoid such suspension of its obligation
to pay the principal amount hereof being hereafter referred to
as the "Applicable Minimum Capital").
During any such suspension, the Company shall, as promptly as is
consistent with the protection of its customers, reduce its
business to a condition whereby the Amount Due, with accrued
interest thereon, together with any other obligation of the Company
under subordinated loan agreements payable at or prior to the
payment of the Amount Due can be repaid and any secured demand note
and the collateral therefore held by the Company and returnable at
or prior to the payment of the Amount Due can be returned, all
without Net Capital being below the Applicable Minimum Capital, at
which time the obligation to pay the Amount Due shall mature and
the Company shall repay the Amount Due, plus accrued interest, not
later than upon 5 days' prior written notice to the Exchange. Upon
any such suspension, the Company and the Lender recognize and agree
that the Company may be summarily suspended by the Exchange.
The Company agrees that, if its obligations to pay the Amount Due
is ever suspended for a period of six months, it will promptly take
whatever steps are necessary to effect a rapid and orderly complete
liquidation of its business. The date on which such liquidation
commences shall be deemed, for purposes of the Lender's claims
hereunder, to constitute the maturity date for each Subordination
Agreement of the Company then outstanding but the right of the
respective lenders to receive payment under this and such other
Subordination Agreements shall remain subordinated, and have
priority rank, in accordance with the terms hereof and thereof,
respectively.
If payment of aggregate principal under the Note is made to the
Lender on a scheduled maturity date and, immediately after any such
payment, Net Capital is less than the Applicable Minimum Capital,
the Lender irrevocably agrees to repay to the Company the sum so
paid, to be held by the Company pursuant to the provisions of this
Agreement as if such payment had never been made; provided,
however, that any suit for the recovery of any such payment must be
commenced within two years of the date of such payment.
E. Subordination of this Agreement. The Lender irrevocably agrees
--------------------------------
that the obligations of the Company with respect to the payment
of principal and interest on the Note are and shall be
subordinate in right of payment and subject to the prior payment
or provision for payment in full of (i) all claims of all other
present and future creditors of the Company whose claims are not
similarly subordinated (claims under the Note shall rank pari
passu with claims similarly subordinate) or are not junior in
right of payment to claims under such Note and (ii) claims which
are now or hereafter expressly stated in the instruments creating
such claims to be senior in right of payment to the claims of the
class of claims under the Note, arising out of any matter
occurring prior to the maturity date of the Note. In the event
of appointment of a receiver or trustee of the Company or in the
event of its insolvency or liquidation pursuant to SIPA or
otherwise, its bankruptcy, assignment for the benefit of
creditors, reorganization whether or not pursuant to bankruptcy
laws, or any other marshalling of the assets and liabilities of
the Company, the holder of the Note shall not be entitled to
participate or share, ratably or otherwise, in the distribution
of the assets of the Company until all claims of all other
present and future creditors of the Company, whose claims are
senior to the Note, have been fully satisfied, or provision has
been made therefor.
4. CONDITIONS OF LENDING. The obligation of the Lender to make the
-----------------------
loan hereunder is subject to the following conditions precedent:
A. Proof of Corporate Action. The Lender shall have received
----------------------------
certified copies of all corporate action taken by the Company to
authorize the execution and delivery of this Agreement and the
Note, and such other papers as the Lender or its counsel shall
reasonably require.
B. Delivery of the Note. As of the date of the initial borrowing
---------------------
the Lender shall have received from the Company a duly executed
Note.
5. AFFIRMATIVE COVENANTS. The Company agrees that until payment in
----------------------
full of the Note, unless the Lender shall otherwise consent in
writing it will:
A. Financial Statements, Reports, etc. Furnish the Lender:
-----------------------------------
i. within ninety (90) days after the end of each audit year of
the Company a balance sheet and statements of income, together
with supporting schedules, and the FOCUS Report of the Company
as at the end of such audit year, all audited and
unqualifiedly certified by independent certified public
accountants of recognized standing selected by the Company and
acceptable to the Lender showing the financial condition of
the Company at the close of such year and the results of
operations of the Company during such year, along with the
Company's computation of Net Capital and the Company's
computation of the ratio of Net Capital to Aggregate Debit
Items, which computations are to be as of the last day of the
audit year;
ii. within thirty (30) days after the end of each of the first
three audit quarters in each audit year, the FOCUS Report of
the Company, certified by a duly authorized officer of the
Company, along with the Company's computation of Net Capital
and the Company's computation of the ratio of Net Capital to
aggregate Debit Items, which computations are to be as of the
last day of the audit quarter;
iii. promptly as it may occur any amendment to its Articles of
Incorporation or Certificate of Incorporation;
iv. promptly, from time to time, such other information regarding
the operations, business, affairs and financial condition of
the Company as the Lender may reasonably request.
B. Taxes. Pay and discharge all taxes, assessments and governmental
------
charges or levies imposed on the Company or its income or profits
or any of its property prior to the date on which penalties
attached hereto, except any such tax, assessment, charge or levy
the payment of which may be or is being contested in good faith
and by proper proceedings and for which the Company is
maintaining adequate reserves.
C. Maintenance of Existence; Conduct of Business. Maintain its
--------------------------------------------------
existence as a Corporation and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its
business, and will conduct its business in an orderly, efficient
and regular manner.
D. Notices. Furnish the Lender, promptly after knowledge thereof
--------
shall have come to the attention of any executive officer of the
Company, written notice of (i) any threatened or pending
litigation or governmental or administrative proceeding against
the Company which would materially and adversely affect the
business and property of the Company, (ii) the occurrence of any
Event of Default hereunder or any event which with notice or the
passage of time or both would constitute such an Event of Default
and (iii) the occurrence of any default under any other material
agreement to which the Company is a party or any event which with
notice or the passage of time or both would constitute such a
default; and in the case of (i) , (ii) and (iii) except to the
extent such occurrence would not have a material adverse effect
on the financial condition of the Company.
6. NEGATIVE COVENANTS. The Company agrees that until payment in full
-------------------
of the Note, unless the Lender shall otherwise agree in writing, it
will not:
A. Limitation of Liens. Create or suffer to exist any security
---------------------
interest, mortgage, pledge, lien, charge, encumbrance, assignment
or transfer upon or of any of its property or assets now owned
and hereafter acquired, excluding, however, from the operation of
this covenant:
i. liens that exist on the date hereof;
ii. securities and commodities now owned or hereafter acquired by
the Company in the ordinary course of its business as a broker
and dealer in securities;
iii. deposits or pledges to secure payment of worker's
compensation, unemployment insurance, old age pensions or
other social security;
iv. deposits or pledges to secure performance of bids, tenders,
contracts (other than contracts for the payment of money), or
leases, public or statutory obligations, surety or appeal
bonds, or other deposits or pledges for purposes of like
general nature in the ordinary course of business;
v. liens for property taxes not delinquent and liens for taxes or
other governmental charges which in good faith are being
contested or litigated;
vi. mechanics', carriers', workmen's, repairmen's or other like
liens arising in the ordinary course of business securing
obligations which are not overdue for a period of sixty (60)
days, or which are in good faith being contested or litigated;
vii. liens in favor of the Company or any wholly-owned subsidiary
of the Company;
viii. purchase money liens on property or equipment; and
ix. liens for the sole purpose of extending, renewing or replacing
in whole or in part any of the foregoing.
B. Total Liabilities. Permit, at any time, the ratio of aggregate
------------------
indebtedness to Tangible Net Worth to exceed 20.0 to 1.0.
C. Sell, Lease, etc. Sell, lease, transfer or otherwise dispose of
-----------------
all or substantially all of its assets.
D. Dissolution, etc. Dissolve or liquidate.
-----------------
E. Net Capital Provision. Permit, at any time:
----------------------
i. Net Capital to be less than $7,500,000.00, which shall include
funds advanced pursuant to this Agreement; or
ii. Net Capital to be less than 3.0 times the amount of two
percent (2%) of total debits as determined per Exhibit A of
Rule 15c3-3, and
iii. Net Capital in excess of five percent (5%) of total debits as
determined per Exhibit A of Rule 15c3-3 to be less than 50% of
the amount of Net Capital attributable to the Note.
F. Total Capitalization. Permit, at any time, total capital as
---------------------
shown in the audited financial statements of the Company
(excluding therefrom, however, all indebtedness of the Company to
the Lender hereunder), to be less than $9,500,000.
7. A. Events of Default. Upon the occurrence of any one of the
----------------------
events described below in subparagraphs (i) through (v) the
Lender by written notice to the Company, with a copy to the
Exchange, may declare the unpaid principal amount of and all
accrued interest on the Note to be immediately due and payable
whereupon the same shall become due and payable without
presentment, demand, protest or further notice of any kind. The
Lender may rescind and annul any such declaration of
acceleration upon written notice to the Company and to the
Exchange, but no such rescission or annulment shall impair the
Lender's right to declare subsequent accelerations. If on the
date such Event of Default occurs, liquidation of the Company has
not already commenced, all unpaid principal and accrued
interest with respect to all other subordination agreements of the
Company then outstanding shall be due and payable, but the rights
of the respective lenders thereunder shall remain subordinate as
provided in Section 3 of the Subordinated Loan Agreement.
i. The making of an application by the Securities Investor
Protection Corporation for a decree adjudicating that
customers of the Company are in need of protection under SIPA
and the failure of the Company to obtain the dismissal of
such application within 30 days; or
ii. (a) If the Company is not operating pursuant to the
alternative net capital requirements provided for in
Paragraph (a) of Rule 15c3-1, Aggregate Indebtedness being in
excess of 1500 percentum of Net Capital, or (b) if the
Company is operating pursuant to such alternative net capital
requirements, Net Capital being less than that percentum of
Aggregate Debit Items which is required to be maintained by
the Company by said Paragraph (a) as from time to time in
effect or, if the Company is registered as a futures
commission merchant, 4% of the funds required to be
segregated under the Commodities Exchange Act and the
regulations promulgated thereunder, if greater, in either
case throughout a period of 15 consecutive Business Days
commencing on the day the Company first determines and
notifies the Exchange or the Company first received notice
from the Commission of such fact; or<PAGE>
iii. Revocation by the Commission of the broker-dealer
registration of the Company; or
iv. Suspension or revocation for at least ten (10) days by the
Exchange of the Company's status as a member organization of
the Exchange; or
v. Any receivership, insolvency, liquidation pursuant to SIPA or
otherwise, bankruptcy, assignment for benefit of creditors,
reorganization, whether or not pursuant to bankruptcy laws,
or any other marshaling of the assets and liabilities of the
Company.
B. Events of Acceleration. Upon the occurrence of any one of the
-----------------------
events described below in subparagraphs (i) through (v) and after
six months from the Effective Date, the Lender by written notice
to the Company, with a copy to the Exchange, may accelerate the
date on which the unpaid principal amount and all accrued
interest on the Note is scheduled to mature, to the last business
day of a calendar month which is not less than six months after
notice of acceleration is received by the Company and the
Exchange.
i. Failure to make payment of (a) interest on the Note when due,
or (b) principal of the Note when due, on a scheduled
maturity date, and any such failure continuing for more than
ten (10) business days after the giving of written notice to
the Company of such failure; or
ii. Any material representation or warranty of the Company set
forth in Section 2 of this Agreement is determined to have
been inaccurate in a material respect at the time made; or
iii. Default in the performance of any covenant set forth in
Section 5 of this Agreement, and such default continuing for
more than ten (10) business days after written notice
thereof; or
iv. Default in the compliance with any covenant set forth in
Section 6 of this Agreement, and such default continuing for
more than ten (10) business days after written notice
thereof; or
v. Action against the Company is taken by any governmental
regulatory authority which specifically affects the Company
and which, in the reasonable opinion of the Lender, will
materially and adversely affect the Company's ability to pay
the principal of, and interest on, the Note.
8. CHANGE OF CONTROL.
------------------
A. Upon the occurrence of a Change of Control (as defined below),
the Lender shall have the right to require the Company to
repurchase the Note, in whole but not in part, pursuant to the
offer described in paragraph (b) below (the "Change of Control
Offer") at a purchase price (the "Repurchase Price") in cash
equal to the aggregate principal amount thereof plus accrued and
unpaid interest thereon, if any, to the Change of Control Payment
Date (as defined below).
B. Within 30 calendar days subsequent to the date of any Change of
Control but no earlier than six months following the Effective
Date, the Company shall mail a notice to the Lender stating: (i)
that a Change of Control has occurred and that a Change of
Control Offer is being made pursuant to this Section 8; and (ii)
the Repurchase Price and the date by which the Note shall be
tendered for repurchase, which date shall be a date occurring no
earlier than six (6) months and no later than seven (7) months
subsequent to the date on which such notice is mailed (the
"Change of Control Payment Date");
C. On the Change of Control Payment Date the Lender shall surrender
the Note to the Company, the Company shall pay to the Lender the
Repurchase Price and the Note shall be canceled. If the Note is
not so tendered, then, the Note shall continue to accrue interest
and the principal will be due at maturity in the same manner as
if such Change of Control had not occurred.
D. A "Change of Control" means an event or series of events by which
(i) any "person" or "group" becomes the "beneficial owner" (each
as defined under Section 13d of the Act), directly or indirectly,
of 50% or more of the total voting power of all classes of voting
stock of the Company or First Albany Companies Inc. ("FACI") or
(ii) the Company or FACI consolidates with or merges into any
other entity, other than a wholly-owned subsidiary of the Company
or FACI, or any other entity merges into the Company or FACI or
conveys, transfers or leases all or substantially all of its
assets to any entity or group of entities as a result of which
the existing shareholders of the Company or FACI immediately
prior thereto hold less than 50% of the combined voting power of
the voting stock of the surviving entity.
9. MISCELLANEOUS.
--------------
A. No Waiver; Remedies Cumulative. No failure on the part of the
-------------------------------
Lender to exercise, and no delay in exercising, any right
hereunder shall preclude any other or further exercise thereof or
the exercise of any other right. The remedies herein provided
are cumulative and not exclusive of any remedies provided by law.
B. Survival of Representations. All representations and warranties
----------------------------
made herein shall survive the making of the loan hereunder and
delivery of the Note.
C. Construction. This Agreement and the Note shall be deemed to
-------------
have been made under the laws of the State of New York, without
regard to its principals of conflicts of law, and shall be
construed in accordance with the laws of said state.
D. Successors and Assigns. This Agreement shall be binding upon,
-----------------------
and shall inure to the benefit of, the Company, the Lender and
their respective successors and assigns.
E. Notices. Notices shall be given to the Lender and the Company by
--------
personal delivery or by registered or certified mail, return
receipt requested, addressed as follows:
If to the Company, to:
Chief Financial Officer
First Albany Corporation
30 South Pearl Street
Albany, New York 12207
If to the Lender, to:
Sharon M. Duker
6 Marion Avenue
Albany, New York 12203
with a copy to: Steve Fischer
Urbach Kahn & Werlin
66 State Street
Albany, NY 12207
If to the New York Stock Exchange, to:
Finance Coordinator
New York Stock Exchange
20 Broad Street
New York, New York 10005
F. Accredited Investor/Limitations on Transfer. The Lender
--------------------------------
acknowledges and represents that (i) it is an accredited
investor, as that term is defined in Rule 501 promulgated under
the Securities Act of 1933, as amended (the "Act") by virtue of
Lender having a net worth, either individually or with Lender's
spouse, of at least $1,000,000, (ii) it is acquiring the Note for
investment purposes only and not with a view to, or for sale in
connection with, any distribution of the Note, or with any
present intention of selling the Note, or any part thereof, and
(iii) it will not transfer the Note, or any part thereof, unless
such transfer complies with the registration requirements of the
Act or an exemption from such registration requirements is
applicable to such transfer.
G. Disclaimer. The Lender, by accepting the Note, irrevocably
-----------
agrees that its making of the loans evidenced by the Note is not
being made in reliance upon the standing of the Company as a
member organization of the Exchange or upon the Exchange's
surveillance of the Company's financial position or its
compliance with the constitution, rules and practices of the
Exchange. The Lender has made such investigation of the Company
and its Officers and employees as the Lender deems necessary and
appropriate under the circumstances. The Lender is not relying
upon the Exchange to provide any information concerning or
relating to the Company and agrees that the Exchange has no
responsibility to disclose to the Lender any information
concerning or relating to the Company which it may now or in the
future have. The Lender agrees that neither the Exchange, its
special trust fund, nor any director, officer, trustee or
employee of the Exchange, shall be liable to the Lender with
respect to this Agreement or the Note or the repayment thereof of
any interest thereon.
H. Assignment. The Note may not be transferred, sold, assigned,
-----------
pledged or otherwise encumbered or otherwise disposed of, and no
lien, charge or other encumbrance may be created or permitted to
be created hereon without the prior written consent of the
Exchange and the Company, except that the Company shall not
withhold its consent to such transfer to a member of Lender's
immediate family. Any transfer not permitted by the foregoing
shall be void.
I. Exchange Approval. This Agreement shall not be modified or
------------------
amended without the prior written approval of the Exchange.
J. Entire Agreement. This Agreement and the Note embody the entire
-----------------
agreement as to the subject matter hereof between the Company and
the Lender and no other evidence of such agreement has been or
will be executed without the prior written consent of the
Exchange.
K. Cancellation. Neither this Agreement nor the Note shall be
-------------
subject to cancellation by either party except as may be
permitted hereunder.
L. Notice to CFTC. So long as the Company is a futures commission
---------------
merchant as that term is defined in the Commodity Exchange Act,
the Company agrees, consistent with the requirements of Section
1.17(h) of the regulations of the CFTC, that:
i. whenever prior written notice by the Company to the Exchange
is required pursuant to the provisions of this Agreement, the
same prior written notice shall be given by the Company to (a)
the CFTC at its principal office in Washington, D.C.,
Attention: Chief Accountant of Division of Trading and
Markets, and/or (b) the commodity exchange of which the
Company is a member and which is then designated by the CFTC
as the Company's designated self-regulatory organization (the
("DSRO"), and
ii. whenever prior written consent, permission or approval of the
Exchange is required pursuant to the provisions of this
Agreement, the Company shall also obtain the prior written
consent, permission or approval of the CFTC and/or of the
DSRO, and
iii. whenever the Company receives written notice of acceleration
of maturity pursuant to the provisions of this Agreement, the
Company shall promptly give written notice thereof to the CFTC
at the address above stated and/or the DSRO.
iv. Status of Proceeds. The proceeds of the loan evidenced hereby
shall be dealt with in all respects as capital of the Company,
shall be subject to the risks of its business, and may be
deposited in an account or accounts in the Company's name in
any bank or trust company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day of the year first written above.
FIRST ALBANY CORPORATION LENDER:
By: /s/ ALAN P. GOLDBERG /s/ SHARON M. DUKER
- ------------------------- --------------------
Name: Sharon M. Duker
Title:
</PAGE>
<PAGE>
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND HAS BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A<PAGE>
VIEW TO THE DISTRIBUTION THEREOF, AND THIS OPTION MAY NOT BE SOLD OR
TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT COVERING IT
OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE
COMPANY) FROM THE TRANSFEROR REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT.
OPTION TO PURCHASE COMMON STOCK
OF
FIRST ALBANY COMPANIES INC.
1.a. This certifies that, subject to the terms set forth below,
in consideration of Sharon M. Duker, (the "Holder") making a loan of an
additional Two Million Five Hundred Thousand ($2,500,000) Dollars (the
Indebtedness") to a wholly-owned subsidiary, First Albany Corporation, of
FIRST ALBANY COMPANIES INC. (the "Company"), the Company grants to Holder
the option to purchase, at any time during the Exercise Period (as defined
below) 26,891 shares of its common stock, par value $.01 per share, (the
"Common Stock_) at a purchase price of $18.594 per share (the "Purchase
Price"). The Purchase Price shall be paid by the discharge of Five Hundred
Thousand ($500,000) Dollars of the Indebtedness.
b. The Exercise Period shall begin on the date hereof and end
at 5:00 p.m., New York time on the earlier of (i) 5:00 p.m., New York time,
on the final scheduled maturity date of the Note (as defined in the
Subordinated Loan Agreement between the Holder and the Company dated
December 23, 1997 (the "Agreement")), (ii) the Change of Control Payment
Date (as defined in the Agreement); and (iii) the date of any Voluntary
Prepayment (as defined in the Agreement). Notwithstanding anything
contained herein to the contrary, any exercise of this option during the
period beginning six months prior to the final scheduled maturity date
shall not be effective until the final scheduled maturity date.
c. This Option may be exercised by surrender to the Company, at
its principal executive offices, of the subscription form attached hereto
duly executed and the simultaneous delivery to the Company of a document,
in form and substance acceptable to the Company, evidencing the discharge
of Five Hundred Thousand ($500,000) Dollars of the Indebtedness.
d. The Company agrees to give the Holder thirty (30) days prior
written notice of any Voluntary Prepayment.
e. All notices sent to the Company and the Holder under this
Option shall be sent by certified mail, return receipt requested, or by
personal delivery addressed to the Company's General Counsel at its
principal executive offices, or addressed to the Holder at the address
provided in the Agreement or at such other address as the Holder may give
to the Company pursuant to the Agreement, respectively.
f. Certificates for shares of Common Stock purchased upon
exercise of this Option will be delivered by the Company to the Holder or
his designee within thirty (30) business days after the exercise of the
Option.
g. The Common Stock issuable upon the exercise of this Option
will be deemed to have been issued on the date (the "Exercise Date") the
Company receives satisfactory evidence of payment of the Purchase Price,
and the Holder will be deemed for all purposes to have become the record
holder of such Common Stock on the Exercise Date.
h. The issuance of certificates for shares of Common Stock upon
exercise of this Option shall be made subject to, and the Holder shall be<PAGE>
responsible for, any and all charges to the Holder for any issuance tax in
respect thereof or other cost incurred by the Company in connection with
such exercise and the related issuance of shares of Common Stock. Each
share of Common Stock issuable upon exercise of this Option will, upon
payment of the Purchase Price thereof, be fully paid and nonassessable and
free from all liens and charges with respect to the issuance thereof.
i. After the date hereof and prior to the exercise of this
Option, the aggregate number of shares subject to this Option and the
exercise price shall be adjusted to reflect any stock splits or stock
dividends declared with respect to the Common Stock.
2. The Holder shall have no rights as a shareholder in respect
of shares covered by the Option prior to exercise of this Option with
respect thereto and until the Holder has made payment therefor as herein
provided, and the Holder shall have no rights with respect to such shares
not expressly conferred by this Option.
3. The Company shall at all times during the term of this
Option reserve and keep available such number of shares of its Common Stock
as will be sufficient to satisfy the requirements of this Option.
4. This Option shall be binding upon the Company's successors
and assigns. This Option shall not be transferred by the Holder without
the prior written consent of the Company; any such transfer without the
consent of the Company will render this Option void.
5. This Option shall be construed and enforced in accordance
with and governed by the laws of New York without regard to its principles
of conflicts of laws. Any action or proceeding brought by the Holder or
the Company against the other arising out of or related to the Option shall
be brought in a State or Federal Court of competent jurisdiction located in
Albany, New York and the Holder and the Company hereby submit to the
jurisdiction of such courts for the purposes of any such action or
proceeding.
6. The Holder agrees that he will comply with all applicable
laws, rules and regulations of all Federal and State securities regulators,
including but not limited to the Securities and Exchange Commission, the
New York Stock Exchange, the National Association of Securities Dealers and
applicable state securities regulators with respect to disclosure, filings
and any other requirements resulting in any way from the issuance of this
Option other than those required to be made by the Company in accordance
with applicable Federal and State securities laws and regulations.<PAGE>
IN WITNESS WHEREOF, the parties have signed this Option intending to
be legally bound hereto.
DATED: December 23, 1997 FIRST ALBANY COMPANIES INC.
/s/ ALAN P. GOLDBERG
--------------------
President
HOLDER:
/s/ SHARON M. DUKER
---------------------
Sharon M. Duker
</PAGE>
<PAGE>
SUBSCRIPTION FORM
(to the executed only upon exercise of Option)
The undersigned Holder of the Option granted pursuant to the Option
Agreement dated December 23, 1997 the "Option Agreement"), irrevocably
exercises this Option to purchase all such shares of Common Stock of First
Albany Companies Inc. as are granted as of the date hereof pursuant to the
Option Agreement and herewith makes payment therefor, all at the price and
on the terms and conditions specified in this Option.
DATED:
Number of Shares: __________________
__________________________________
(Signature of Holder)
__________________________________
(Name of Holder)
__________________________________
Street Address
__________________________________
(City) (State) (Zip)<PAGE>
