10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

 [ X ]      Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended December 31, 2005

- or -

 [    ]      Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from                                     to                                    

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 incorporation or organization)	(I.R.S. Employer Identification No.)
677 Broadway, 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:
Title of each class	Name of each exchange on 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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ¨  No  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  Yes  ¨  No  þ

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 þ  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. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  ¨  Accelerated Filer  þ  Non-accelerated Filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨  No  þ

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 June 30, 2005 which was $5.96 was $76,848,699.

As of February 28, 2006, 16,269,525 shares, par value $0.01 per share, were outstanding.

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.

The Exhibit Index is included on page 74 through 78.  

The total number of pages in this document is 85.

 Business

First Albany Companies Inc. and its subsidiaries (the "Company") operate a full-service investment bank and institutional securities firm focused on the corporate middle market as well as government agencies and public institutions.  The Company offers financial advisory and capital raising to small and mid-cap companies and government agencies and provides trade execution in equity, high grade, high yield, mortgage-backed, convertible, tax-exempt and taxable municipal securities. The Company is traded on NASDAQ under the symbol FACT.

First Albany Capital Inc. (“First Albany Capital”), a subsidiary of First Albany Companies Inc., is a broker-dealer and investment banking firm serving the corporate middle market, as well as government agencies and public institutions.  Through its Equities and Fixed Income businesses, the firm offers a diverse range of products and advisory services in the areas of corporate and public finance and fixed income and equity sales and trading.  First Albany Capital was founded in 1953.

Descap Securities Inc. (“Descap”), a subsidiary of First Albany Companies Inc. is a specialized broker-dealer and boutique investment banking firm specializing in secondary trading of mortgage and asset-backed securities as well as the primary issuance of debt financing.  The Company acquired Descap in May of 2004.

FA Technology Ventures Corporation (“FATV”), a subsidiary of First Albany Companies Inc., manages FA Technology Ventures L.P. and certain other employee investment funds, providing management and guidance for portfolio companies, which are principally involved in the emerging growth sectors of information and energy technology.

FA Asset Management Inc. (“FA Asset Management” or “Noddings”), a subsidiary of First Albany Companies Inc.,  provides absolute return and enhanced indexing investment management strategies through the use of convertible arbitrage to institutional investors.  FA Asset Management is a SEC registered investment advisor.

Effective as of January 2006, First Albany Capital Limited (“FACL”), a subsidiary of First Albany Companies Inc., provides securities brokerage to institutional investors in the United Kingdom and Europe.

Through its subsidiaries, the Company is a member of the New York Stock Exchange, Inc. ("NYSE"), the National Association of Securities Dealers, Inc. ("NASD"), the American Stock Exchange, Inc. ("ASE"), the Boston Stock Exchange, Inc. ("BSE"), the National Futures Association (“NFA”) and various other exchanges and is registered as a broker-dealer with the Securities and Exchange Commission ("SEC").

On December 31, 2004 the Company ceased asset management operations in Sarasota, FL and on February 5, 2005 sold its asset management operations in Albany, NY, and these operating results are reported as discontinued operations.  FA Asset Management’s business is now operated out of its Oakbrook Terrace, IL location.

In August 2000 First Albany Capital divested its retail brokerage operation (“the Private Client Group”).  The operating results of the Private Client Group are reported as discontinued operations.

Additional information about First Albany Companies Inc. is available on our website at http://www.firstalbany.com.  We make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and our proxy statements.  Investors can find this information under the “Investor Relations” section of our website.  These reports are available through our website as soon as reasonably practicable after we electronically file the material with, or furnish it to, the SEC.  The information on our website is not incorporated by reference into this Report.

Also, the public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, at http://www.sec.gov.

Sources of Revenues

A breakdown of the amount and percentage of revenues from each principal source for the periods indicated follows (excludes discontinued operations):

For the years ended December 31,		2005			2004			2003
(In thousands of dollars)		Amount	Percent		Amount	Percent		Amount	Percent
Commissions	$	17,594	9.8%	$	19,992	10.9%	$	16,946	8.8%
Principal transactions		72,495	40.5%		93,511	51.2%		107,179	55.2%
Investment banking		47,745	26.7%		46,485	25.4%		36,156	18.6%
Investment gains (losses)		21,591	12.1%		10,070	5.5%		23,597	12.1%
Fees and others		4,178	2.3%		2,345	1.3%		3,785	1.9%
Total operating revenues		163,603	91.4%		172,403	94.3%		187,663	96.6%
Interest income		15,380	8.6%		10,395	5.7%		6,682	3.4%
Total revenues	$	178,983	100.0%	$	182,798	100.0%	$	194,345	100.0%

For information regarding the Company’s reportable segment information, refer to “Segment Analysis” note of the Consolidated Financial Statements.

Commissions

A portion of the Company’s revenues is derived from customer commissions on brokerage transactions for the Company’s institutional clients, such as investment advisors, mutual funds, hedge funds, and pension and profit sharing plans, for which the Company is not acting as a market marker.  The majority of the commission revenue is related to brokerage transactions in our listed equity trading group.

Principal Transactions

The Company specializes in trading and making markets in equity and debt securities.  In the ordinary course of business the Company maintains securities positions as a market maker to facilitate customer transactions and, to a lesser extent, for investment purposes.

The Equities Sales and Trading group makes markets in over 500 NASDAQ and over-the-counter stocks to facilitate customer transactions.  In addition to trading profits and losses, included in principal transactions are commission-equivalents charged on certain principal trades for NASDAQ and over-the-counter securities.  

The Company’s Fixed Income business segments maintain inventories of municipal debt (tax-exempt and taxable), corporate debt, mortgage-backed and asset-backed securities, convertible securities, and government and government agency securities.

The Company’s trading activities require the commitment of capital, and the majority of the Company’s inventory positions are for the purpose of generating sales credits by the institutional sales force.  As a result the Company exposes its own capital to the risk of fluctuations in market value.  All inventory positions are marked to their market or fair value price on at least a weekly basis.  The Company also hedges certain inventory positions with highly liquid future contracts and U.S. Government Securities.  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, less securities not readily marketable) for calendar 2005 by securities category where the Company acted in a principal capacity.

(In thousands of dollars)		Highest Inventory		Lowest Inventory		Average Inventory
State and municipal bonds	$	201,800	$	124,260	$	158,301
Corporate obligations		36,109		27,464		31,398
Corporate stocks		22,269		13,839		16,651
U.S. Government and federal agencies obligations		43,432		(2,212)		19,948
Options		189		-		78

Investment Banking

The Company manages, co-manages, and participates in corporate securities offerings through its Equities and Fixed Income businesses.  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 has committed to purchase at less than the agreed-upon purchase price.

For the periods indicated, the table below highlights the number and dollar amount of corporate stock and bond offerings managed or co-managed by the Company and underwriting syndicate participations, including those managed or co-managed by the Company.  

Corporate Stock and Bond Offerings
(In thousands of dollars)	Managed or Co-Managed			Syndicate Participations
Year Ended	Number of Issues		Amount of Offering	Number of Participations		Amount of Participation
December 2005	18	$	1,637,381	21	$	195,166
December 2004	27		2,497,273	36		297,952
December 2003	15		1,971,779	20		155,699

For the periods indicated, the table below highlights the number and dollar amount of municipal bond offerings managed or co-managed by the Company and underwriting participations, including those managed or co-managed by the Company.  

Municipal Bond Offerings
(In thousands of dollars)	Managed or Co-Managed			Syndicate Participations
Year Ended	Number of Issues		Dollar Amount	Number of Participations		Dollar Amount
December 2005	280	$	47,127,792	305	$	6,131,850
December 2004	266		61,845,138	293		11,308,895
December 2003	281		57,989,985	307		12,740,343

Investment gains (losses)

The Company’s investment portfolio includes interests in publicly and privately held companies. Investment gains (losses) are comprised of both unrealized and realized gains and losses from the Company’s investment portfolio (see “Investments” note of the Consolidated Financial Statements).

Fees and Others

Fees and Others relate primarily to investment advisory fees earned by FA Asset Management and investment management fees earned by FATV.

Other Business Information

Operations

The Company's operations activities include: execution of orders; processing of transactions; receipt, identification, and delivery of funds and securities; custody of customers' securities; internal control; and compliance with regulatory and legal requirements.  The Company clears the majority of its own securities transactions.

The volume of transactions handled by the operations staff fluctuates substantially.  The monthly numbers of purchase and sale transactions processed for the periods indicated were as follows:

	Number of Monthly Transactions
Year Ended	High	Low	Average
December 2005	648,768	309,614	462,898
December 2004	486,504	379,288	428,390
December 2003	401,354	212,984	302,450

The Company has established internal controls and safeguards to help prevent securities theft, including the use of depositories and periodic securities counts.  Operations, compliance, internal audit, and legal personnel monitor compliance with applicable laws, rules, and regulations.  As required by the NYSE and other regulatory authorities, the Company’s broker-dealer subsidiaries carry fidelity bonds covering loss or theft of securities as well as embezzlement and forgery.

Research

First Albany Capital maintains a professional staff of equity research analysts. Research is focused on several industry sectors, including healthcare, energy and technology.  First Albany Capital employs 16 senior analysts who support the Equities segment.

The Company’s research analysts review and analyze the economy, general market conditions, technology trends, industries and specific companies through fundamental and technical analyses; make recommendations of specific action with regard to industries and specific companies; and respond to inquiries from customers.

Employees

At February 28, 2006, the Company had 388 full-time employees, of which 130 were institutional salespeople and institutional traders, 33 were investment bankers, 16 were research analysts, 112 were in other revenue support positions, and 90 were in corporate support and overhead.  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.

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 Capital is currently registered as a broker-dealer in 50 states, the District of Columbia and Puerto Rico.

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.  Salespeople, traders, investment bankers and others are required to take examinations given by the NASD and approved by the NYSE and all principal exchanges as well as state securities authorities to both obtain and maintain their securities license registrations.  Registered employees are also required to participate annually in the firm’s continuing education program.

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

The Company’s subsidiaries, First Albany Capital and Descap, as broker-dealers, are 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 required minimum amount of net capital deemed necessary to meet a broker-dealer's continuing commitments to its customers.

Compliance with the Net Capital Rule may limit those operations which require the use of a firm’s capital for purposes, such as maintaining the inventory required for trading in securities, underwriting securities, and financing customer margin account balances.  Net capital, aggregate indebtedness and aggregate debit balances change from day to day, primarily based in part on a firm’s inventory positions, and the portion of the inventory value the Net Capital Rule requires the firm to exclude from its capital.

At December 31, 2005, the Company’s broker-dealer subsidiaries net capital and excess net capital were as follows:

(In thousands of dollars)		Net Capital		Excess Net Capital
First Albany Capital	$	24,915	$	23,915
Descap	$	3,710	$	3,603

Item 1A.  Risk Factors

This document includes statements that may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements often address our expected future business and financial performance, and often contain words such as "may", "will", "expect", "anticipate", "believe", "estimate", and "continue" or similar words.  You should consider all statements other than historical information or current facts to be forward-looking statements.  Our forward-looking statements may contain projections regarding our revenues, earnings, operations, and other financial projections, and may include statements of our future performance, strategies and objectives.  However, there may be events in the future which we are not able to accurately predict or control which may cause our actual results to differ, possib ly materially, from the expectations expressed in our forward-looking statements.  All forward-looking statements involve risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors.  Such factors include, among others, market risk, credit risk and operating risk.  These and other risks are set forth in greater detail below and elsewhere in this document.  We caution you not to place undue reliance on these forward-looking statements. We do not undertake to update any of our forward-looking statements.

You should carefully consider the risk factors described below in addition to the other information set forth or incorporated by reference in this 2005 Annual Report on Form 10-K. If any of the following risks actually occur, our financial condition or results of operations could be materially adversely affected. These risk factors are intended to highlight some factors that may affect our financial condition and results of operations and are not meant to be an exhaustive discussion. Like other companies, we are susceptible to macroeconomic downturns in the United States or abroad that may affect the general economic climate and our performance and the performance of our customers. Similarly, the price of our securities is subject to volatility due to fluctuations in general market conditions, differences in our results of operations from estimates and projections generated by the investment community, and other factors beyond ou r control. Additional risks and uncertainties that we do not presently know or that we currently believe to be immaterial may also adversely affect us.

Company Risks

We have incurred losses in recent periods and may incur losses in the future.  We have incurred losses in recent periods. We recorded a net loss of $10.2 million for the year ended December 31, 2005 and a net loss of $3.6 million for the year ended December 31, 2004.  We have experienced declines in revenues generated by several of our key segments, including equities sales and trading, equity investment banking and fixed income sales and trading.  We may incur losses and further declines in revenue in future periods. Historically, we have financed most of our losses through asset sales and the incurrence of debt.  If we continue to incur losses and we are unable to raise funds to finance those losses, they could have a significant effect on our liquidity as well as our ability to operate.

In addition, we may incur significant expenses if we expand our underwriting and trading businesses or engage in strategic acquisitions and investments. Accordingly, we will need to increase our revenues at a rate greater than our expenses to achieve and maintain profitability. If our revenues do not increase sufficiently, or we are unable to manage our expenses, we will not achieve and maintain profitability in future periods.

We have a significant amount of debt coming due within the next 90 days.  In March 2006, we entered into a loan agreement to borrow up to $11 million, of which we initially borrowed $8.7 million.  We used these funds, along with other available funds, to repay our $10 million Senior Notes dated June 13, 2003 (see “Short-Term Bank Loans and Notes Payable” note of the Consolidated Financial Statements for more details regarding the Senior Notes).  The maturity date for this new loan is June 15, 2006. We are also obligated to repay an additional $5 million of debt on or prior to June 15, 2006 related primarily to our $4.9 million Term Loan.  We will be unable to repay these amounts out of cash from our operations and therefore will need to refinance this debt or take other actions, such as selling assets.  We cannot be assured that any such financing would be available on acceptable terms or that asset sales could be ac complished in a manner acceptable to us.  In addition, upon expiration of a lock-up agreement to which we are a party (refer to “Investments” note in the Consolidated Financial Statements), this new loan will be collateralized by shares of common stock that we own of iRobot Corporation. If the daily market value of these shares decreases to a level that causes the outstanding loan amount to exceed 30% of the collateral value, we must pledge additional collateral to the bank, either in cash or other specified securities, which, if held by a broker-dealer subsidiary, may require regulatory approval.  Although we do not anticipate experiencing any difficulty in obtaining such approval, we cannot assure you that we will be able to do so.  If we are required to provide this additional collateral from our broker-dealer subsidiaries, this could adversely affect our ability to operate our businesses.

Our ability to retain our senior professionals and hire new senior management is critical to the success of our business.  In order to operate our business successfully, we rely heavily on our senior professionals. Their personal reputation, judgment, business generation capabilities and project execution skills are a critical element in obtaining and executing client engagements. We encounter intense competition for qualified employees from other companies in the investment banking industry as well as from businesses outside the investment banking industry, such as hedge funds, private equity funds and venture capital funds. In the past we have lost investment banking, brokerage, research and other professionals and could lose more in the future, which could impair our ability to secure or successfully complete engagements. If we lose a significant number of our key professionals, we may have to hire additional personnel. At that time, th ere could be a shortage of qualified and, in some cases, licensed personnel whom we could hire. This could hinder our ability to expand or cause a backlog in our ability to conduct our business, including the handling of investment banking transactions and the processing of brokerage orders.  These personnel challenges could harm our business, financial condition and operating results.

First Albany has committed to enter into various agreements to retain certain of its employees, including retention agreements in an amount aggregating $7.5 million, which are payable in July 2006 to the extent the employee is still employed by First Albany Capital and/or its affiliates. We cannot assure you that these employees will remain in the employ of First Albany Capital and/or its affiliates either as a result of these agreements or after they have received this payment.

In addition, in the past year we have had several changes in our senior management, including the departure of our chief financial officer and our general counsel. In addition, in August 2005 we announced our succession planning for the position of chief executive officer and our formal commencement of a search process to identify candidates for that position. We cannot assure you that we will be able to successfully hire individuals to fill these positions who will work together effectively to successfully develop and implement our business strategies and operations.

We will incur charges if we move our New York City offices into recently leased space.  In 2005, we entered into a lease for new office space in New York City.  The leases for our current office spaces in New York City expire in October 2008 and May 2009.  As part of our effort to reduce expenses, we have entered into discussions with a third party to take over the lease for the new space. If these discussions are unsuccessful, we will move our New York City operations into the new office space.  If we do move our New York City offices, our ongoing lease expenses will increase and we will incur additional charges (net of anticipated sublease rental income) arising out of our vacating our current office spaces.  (See “Commitments and Contingencies” note of the Consolidated Financial Statements for more details regarding our leases).

Limitations on our access to capital could impair our liquidity and our ability to conduct our businesses.  Liquidity, or ready access to funds, is essential to financial services firms. Failures of financial institutions have often been attributable in large part to insufficient liquidity. Liquidity is of particular importance to our trading business and perceived liquidity issues may affect our clients and counterparties’ willingness to engage in brokerage transactions with us. Our liquidity could be impaired due to circumstances that we may be unable to control, such as a general market disruption or an operational problem that affects our trading clients, third parties or us. Further, our ability to sell assets may be impaired if other market participants are seeking to sell similar assets at the same time.

Our private equity business and investment portfolio may also create liquidity risk due to increased levels of investments in high-risk, illiquid assets. We have made substantial principal investments in our private equity funds and may make additional investments in future funds, which are typically made in securities that are not publicly traded. There is a significant risk that we may be unable to realize our investment objectives by sale or other disposition at attractive prices or may otherwise be unable to complete any exit strategy. In particular, these risks could arise from changes in the financial condition or prospects of the portfolio companies in which investments are made, changes in national or international economic conditions or changes in laws, regulations, fiscal policies or political conditions of countries in which investments are made. It takes a substantial period of time to identify attractive investment opportuni ties and then to realize the cash value of our investments through resale. Even if a private equity investment proves to be profitable, it may be several years or longer before any profits can be realized in cash.

First Albany Capital and Descap, our broker-dealer subsidiaries, are subject to the net capital requirements of the SEC and various self-regulatory organizations of which they are members. These requirements typically specify the minimum level of net capital a broker-dealer must maintain and also mandate that a significant part of its assets be kept in relatively liquid form. Any failure to comply with these net capital requirements could impair our ability to conduct our core business as a brokerage firm. Furthermore, First Albany Capital and Descap are subject to laws that authorize regulatory bodies to block or reduce the flow of funds from it to First Albany Companies Inc. As a holding company, First Albany Companies Inc. depends on dividends and other payments from its subsidiaries to support the funding of dividend payments and debt obligations. As a result, regulatory actions could impede First Albany Companies Inc.’s access to funds.  In ad dition, because First Albany Companies Inc. holds equity interests in the firm’s subsidiaries, its rights may be subordinated to the claims of the creditors of these subsidiaries.

We focus principally on specific sectors of the economy, and a deterioration in the business environment in these sectors generally or decline in the market for securities of companies within these sectors could materially adversely affect our businesses.  For example, our equity business focuses principally on the healthcare, energy and technology sectors of the economy. Therefore, volatility in the business environment in these sectors generally, or in the market for securities of companies within these sectors particularly, could substantially affect our financial results and the market value of our common stock. The market for securities in each of our target sectors may also be subject to industry-specific risks. Underwriting transactions, strategic advisory engagements and related trading activities in our target sectors represent a significant portion of our businesses. This concentration exposes us to the risk of substantial declines in r evenues in the event of downturns in these sectors of the economy and any future downturns in our target sectors could materially adversely affect our business and results of operations.

Increase in capital commitments in our trading, underwriting and other businesses increases the potential for significant losses.  The trend in capital markets is toward larger and more frequent commitments of capital by financial services firms in many of their activities. For example, in order to win business, investment banks are increasingly committing to purchase large blocks of stock from publicly-traded issuers or their significant shareholders, instead of the more traditional marketed underwriting process, in which marketing was typically completed before an investment bank committed to purchase securities for resale. As a result, we may be subject to increased risk as we commit greater amounts of capital to facilitate primarily client-driven business. Furthermore, we may suffer losses even when economic and market conditions are generally favorable for others in the industry.

We may enter into large transactions in which we commit our own capital as part of our trading business. The number and size of these large transactions may materially affect our results of operations in a given period. We may also incur significant losses from our trading activities due to market fluctuations and volatility from quarter to quarter. We maintain trading positions in the fixed income and equity markets to facilitate client trading activities. To the extent that we own security positions, in any of those markets, a downturn in the value of those securities or in those markets could result in losses from a decline in value. Conversely, to the extent that we have sold securities we do not own in any of those markets, an upturn in those markets could expose us to potentially unlimited losses as we attempt to acquire the securities in a rising market.

Our principal trading and investments expose us to risk of loss.  A significant portion of our revenues is derived from trading in which we act as principal. Although the majority of our principal trading is “riskless principal” in nature, we may incur trading losses relating to the purchase, sale or short sale of municipal, corporate, asset-backed and equity securities for our own account and from other principal trading. In any period, we may experience losses as a result of price declines, lack of trading volume, and illiquidity. From time to time, we may engage in a large block trade in a single security or maintain large position concentrations in a single security, securities of a single issuer, or securities of issuers engaged in a specific industry. In general, because our inventory is marked to market on a weekly basis, any downward price movement in these securities could result in a reduction of our reven ues and profits.

In addition, we may engage in hedging transactions and strategies that may not properly mitigate losses in our principal positions.  If the transactions and strategies are not successful, we could suffer significant losses.

Our financial results may fluctuate substantially from period to period, which may impact our stock price.  We have experienced, and expect to experience in the future, significant periodic variations in our revenues and results of operations. These variations may be attributed in part to fluctuations in the value of our investment portfolio and the fact that our investment banking revenues are typically earned upon the successful completion of a transaction, the timing of which is uncertain and beyond our control. In most cases we receive little or no payment for investment banking engagements that do not result in the successful completion of a transaction. As a result, our business is highly dependent on market conditions as well as the decisions and actions of our clients and interested third parties. If the parties fail to complete a transaction on which we are advising or an offering in which we are participating, we will earn little or no revenue from the transaction. This risk may be intensified by our focus on growth companies in the healthcare, energy and technology sectors, as the market for securities of these companies has experienced significant variations in the number and size of equity offerings as well as the after-market trading volume and prices of newly issued securities. Recently, more companies initiating the process of an initial public offering are simultaneously exploring merger and acquisition exit opportunities. If we are not engaged as a strategic advisor in any such dual-tracked process, our investment banking revenues would be adversely affected in the event that an initial public offering is not consummated. In addition, our investments in our private equity funds are adjusted for accounting purposes to fair value at the end of each quarter and our allocable share of these gains or losses will affect our revenues even when these market fluctuations have no cash impact, which could increase the volatility of our quarte rly earnings.

As a result, we are unlikely to achieve steady and predictable earnings on a quarterly basis, which could in turn adversely affect our stock price. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Pricing and other competitive pressures may impair the revenues and profitability of our brokerage business.  In recent years we have experienced significant pricing pressures on trading margins and commissions in debt and equity trading. In the fixed income market, regulatory requirements have resulted in greater price transparency, leading to increased price competition and decreased trading margins. In the equity market, we have experienced increased pricing pressure from institutional clients to reduce commissions, and this pressure has been augmented by the increased use of electronic and direct market access trading, which has created additional competitive downward pressure on trading margins. The trend toward using alternative trading systems is continuing to grow, which may result in decreased commission and trading revenue, reduce our participation in the trading markets and our ability to access market information, and lead to the creation of new and stronger competitors. Institutional clients also have pressured financial services firms to alter “soft dollar” practices under which brokerage firms bundle the cost of trade execution with research products and services, and the SEC is considering additional rulemaking in the soft dollar area. Some institutions are entering into arrangements that separate (or “unbundle”) payments for research products or services from sales commissions. These arrangements have increased the competitive pressures on sales commissions and have affected the value our clients place on high-quality research. Additional pressure on sales and trading revenue may impair the profitability of our brokerage business. Moreover, our inability to reach agreement regarding the terms of unbundling arrangements with institutional clients who are actively seeking such arrangements could result in the loss of those clients, which would likely reduce our institutional commissions. We bel ieve that price competition and pricing pressures in these and other areas will continue as institutional investors continue to reduce the amounts they are willing to pay, including by reducing the number of brokerage firms they use, and some of our competitors seek to obtain market share by reducing fees, commissions or margins.

Difficult market conditions could adversely affect our business in many ways.  Difficult market and economic conditions and geopolitical uncertainties have in the past adversely affected and may in the future adversely affect our business and profitability in many ways. Weakness in equity markets and diminished trading volume of securities could adversely impact our brokerage business. Industry-wide declines in the size and number of underwritings and mergers and acquisitions also would likely have an adverse effect on our revenues. In addition, reductions in the trading prices for equity securities also tend to reduce the deal value of investment banking transactions, such as underwriting and mergers and acquisitions transactions, which in turn may reduce the fees we earn from these transactions. As we may be unable to reduce expenses correspondingly, our profits and profit margins may decline.

We face strong competition from larger firms.  The brokerage and investment banking industries are intensely competitive and we expect them to remain so. We compete on the basis of a number of factors, including client relationships, reputation, the abilities of our professionals, market focus and the relative quality and price of our services and products. We have experienced intense price competition in some of our businesses, in particular discounts in large block trades and trading commissions and spreads. In addition, pricing and other competitive pressures in investment banking, including the trends toward multiple book runners, co-managers and multiple financial advisors handling transactions, have continued and could adversely affect our revenues, even as the volume and number of investment banking transactions have started to increase. We believe we may experience competitive pressures in these and other areas in the future as some of ou r competitors seek to obtain market share by competing on the basis of price.

We are a small investment bank with 388 employees and net revenues of $166.1 million in 2005. Many of our competitors in the brokerage and investment banking industries have a broader range of products and services, greater financial and marketing resources, larger customer bases, greater name recognition, more professionals to serve their clients’ needs, greater global reach and more established relationships with clients than we have. These larger and better capitalized competitors may be better able to respond to changes in the brokerage and investment banking industries, to compete for skilled professionals, to finance acquisitions, to fund internal growth and to compete for market share generally.

The scale of our competitors has increased in recent years as a result of substantial consolidation among companies in the brokerage and investment banking industries. In addition, a number of large commercial banks, insurance companies and other broad-based financial services firms have established or acquired underwriting or financial advisory practices and broker-dealers or have merged with other financial institutions. These firms have the ability to offer a wider range of products than we do, which may enhance their competitive position. They also have the ability to support investment banking with commercial banking, insurance and other financial services in an effort to gain market share, which has resulted, and could further result, in pricing pressure in our businesses. In particular, the ability to provide financing has become an important advantage for some of our larger competitors and, because we do not provide such financing, we may be unable t o compete as effectively for clients in a significant part of the brokerage and investment banking market.

If we are unable to compete effectively with our competitors, our business, financial condition and results of operations will be adversely affected.

Our risk management policies and procedures may leave us exposed to unidentified or unanticipated risk.  Our risk management strategies and techniques may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk.

We are exposed to the risk that third parties that owe us money, securities or other assets will not perform their obligations. These parties may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure, breach of contract or other reasons. We are also subject to the risk that our rights against third parties may not be enforceable in all circumstances. As a self-clearing firm, we finance our customer positions and could be held responsible for the defaults or misconduct of our customers. Although we regularly review credit exposures to specific clients and counterparties and to specific industries and regions that we believe may present credit concerns, default risk may arise from events or circumstances that are difficult to detect or foresee. In addition, concerns about, or a default by, one institution could lead to significant liquidity problems, losses or defaults by other institutions, which in turn could adversely affect us. If any of the variety of instruments, processes and strategies we utilize to manage our exposure to various types of risk are not effective, we may incur losses.

Our operations and infrastructure may malfunction or fail.  Our businesses are highly dependent on our ability to process, on a daily basis, a large number of transactions across diverse markets, and the transactions we process have become increasingly complex. Our financial, accounting or other data processing systems may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, including a disruption of electrical or communications services or our inability to occupy one or more of our buildings. The inability of our systems to accommodate an increasing volume of transactions could also constrain our ability to expand our businesses. If any of these systems do not operate properly or are disabled or if there are other shortcomings or failures in our internal processes, people or systems, we could suffer an impairment to our liquidity, financial loss, a disruption of our businesses, liabil ity to clients, regulatory intervention or reputational damage.

We also face the risk of operational failure or termination of any of the clearing agents, exchanges, clearing houses or other financial intermediaries we use to facilitate our securities transactions. Any such failure or termination could adversely affect our ability to effect transactions and to manage our exposure to risk.

In addition, our ability to conduct business may be adversely impacted by a disruption in the infrastructure that supports our businesses and the communities in which we are located. This may include a disruption involving electrical, communications, transportation or other services used by us or third parties with which we conduct business, whether due to fire, other natural disaster, power or communications failure, act of terrorism or war or otherwise. Nearly all of our employees in our primary locations, including New York, Albany, San Francisco and Boston, work in close proximity to each other. If a disruption occurs in one location and our employees in that location are unable to communicate with or travel to other locations, our ability to service and interact with our clients may suffer and we may not be able to implement successfully contingency plans that depend on communication or travel.

Our operations also rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code and other events that could have a security impact. If one or more of such events occur, this potentially could jeopardize our or our clients’ or counterparties’ confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, our clients’, our counterparties’ or third parties’ operations. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us.

We face numerous risks and uncertainties as we expand our business.  We expect the growth of our business to come primarily from internal expansion and through acquisitions and strategic partnering. As we expand our business, there can be no assurance that our financial controls, the level and knowledge of our personnel, our operational abilities, our legal and compliance controls and our other corporate support systems will be adequate to manage our business and our growth. The ineffectiveness of any of these controls or systems could adversely affect our business and prospects. In addition, as we acquire new businesses, we face numerous risks and uncertainties integrating their controls and systems into ours, including financial controls, accounting and data processing systems, management controls and other operations. A failure to integrate these systems and controls, and even an inefficient integration of these systems and controls, could adv ersely affect our business and prospects.

 Risks Related to Our Industry

Financial services firms have been subject to increased scrutiny over the last several years, increasing the risk of financial liability and reputational harm resulting from adverse regulatory actions.  Firms in the financial services industry have been operating in a difficult regulatory environment. The industry has experienced increased scrutiny from a variety of regulators, including the SEC, the NYSE, the NASD and state attorneys general. Penalties and fines sought by regulatory authorities have increased substantially over the last several years. This regulatory and enforcement environment has created uncertainty with respect to a number of transactions that had historically been entered into by financial services firms and that were generally believed to be permissible and appropriate. We may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulator y organizations. We also may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, other United States or foreign governmental regulatory authorities or self-regulatory organizations that supervise the financial markets. Among other things, we could be fined, prohibited from engaging in some of our business activities or subject to limitations or conditions on our business activities. Substantial legal liability or significant regulatory action against us could have material adverse financial effects or cause significant reputational harm to us, which could seriously harm our business prospects.

In addition, financial services firms are subject to numerous conflicts of interests or perceived conflicts. The SEC and other federal and state regulators have increased their scrutiny of potential conflicts of interest. We have adopted various policies, controls and procedures to address or limit actual or perceived conflicts and regularly seek to review and update our policies, controls and procedures. However, appropriately dealing with conflicts of interest is complex and difficult and our reputation could be damaged if we fail, or appear to fail, to deal appropriately with conflicts of interest. Our policies and procedures to address or limit actual or perceived conflicts may also result in increased costs, additional operational personnel and increased regulatory risk. Failure to adhere to these policies and procedures may result in regulatory sanctions or client litigation.

Risks associated with regulatory impact on capital markets.  Highly-publicized financial scandals in recent years have led to investor concerns over the integrity of the U.S. financial markets, and have prompted Congress, the SEC, the NYSE and Nasdaq to significantly expand corporate governance and public disclosure requirements. To the extent that private companies, in order to avoid becoming subject to these new requirements, decide to forgo initial public offerings, our equity underwriting business may be adversely affected. In addition, provisions of the Sarbanes-Oxley Act of 2002 and the corporate governance rules imposed by self-regulatory organizations have diverted many companies’ attention away from capital market transactions, including securities offerings and acquisition and disposition transactions. In particular, companies that are or are planning to be public are incurring significant expenses in complying with the SEC an d accounting standards relating to internal control over financial reporting, and companies that disclose material weaknesses in such controls under the new standards may have greater difficulty accessing the capital markets. These factors, in addition to adopted or proposed accounting and disclosure changes, may have an adverse effect on our business.

Our business is subject to significant credit risk.  In the normal course of our businesses, we are involved in the execution, settlement and financing of various customer and principal securities and commodities transactions. These activities are transacted on a cash, margin or delivery-versus-payment basis and are subject to the risk of counterparty or customer nonperformance. Although transactions are generally collateralized by the underlying security or other securities, we still face the risks associated with changes in the market value of the collateral through settlement date or during the time when margin is extended. We may also incur credit risk in our derivative transactions to the extent such transactions result in uncollateralized credit exposure to our counterparties. We seek to control the risk associated with these transactions by establishing and monitoring credit limits and by monitoring collateral and transaction levels daily. We may require counterparties to deposit additional collateral or return collateral pledged. In the case of aged securities failed to receive, we may, under industry regulations, purchase the underlying securities in the market and seek reimbursement for any losses from the counterparty.

Our exposure to legal liability is significant, and damages that we may be required to pay and the reputational harm that could result from legal action against us could materially adversely affect our businesses.  We face significant legal risks in our businesses and, in recent years, the volume of claims and amount of damages sought in litigation and regulatory proceedings against financial institutions have been increasing. These risks include potential liability under securities or other laws for materially false or misleading statements made in connection with securities offerings and other transactions, potential liability for “fairness opinions” and other advice we provide to participants in strategic transactions and disputes over the terms and conditions of complex trading arrangements. We are also subject to claims arising from disputes with employees for alleged discrimination or harassment, among other things.  These ri sks often may be difficult to assess or quantify and their existence and magnitude often remain unknown for substantial periods of time.

As a brokerage and investment banking firm, we depend to a large extent on our reputation for integrity and high-caliber professional services to attract and retain clients. As a result, if a client is not satisfied with our services, it may be more damaging in our business than in other businesses. Moreover, our role as advisor to our clients on important underwriting or mergers and acquisitions transactions involves complex analysis and the exercise of professional judgment, including rendering “fairness opinions” in connection with mergers and other transactions. Therefore, our activities may subject us to the risk of significant legal liabilities to our clients and aggrieved third parties, including shareholders of our clients who could bring securities class actions against us. Our investment banking engagements typically include broad indemnities from our clients and provisions to limit our exposure to legal claims relating to our services, b ut these provisions may not protect us or may not be enforceable in all cases. As a result, we may incur significant legal and other expenses in defending against litigation and may be required to pay substantial damages for settlements and adverse judgments. Substantial legal liability or significant regulatory action against us could have a material adverse effect on our results of operations or cause significant reputational harm to us, which could seriously harm our business and prospects.

Employee misconduct could harm us and is difficult to detect and deter.  There have been a number of highly publicized cases involving fraud or other misconduct by employees in the financial services industry in recent years, and we run the risk that employee misconduct could occur at our Company. For example, misconduct by employees could involve the improper use or disclosure of confidential information, which could result in regulatory sanctions and serious reputational or financial harm. It is not always possible to deter employee misconduct and the precautions we take to detect and prevent this activity may not be effective in all cases, and we may suffer significant reputational harm for any misconduct by our employees.

Item 1B.  Unresolved Staff Comments.

None.

Item 2.  Properties

The Company currently leases all of its office space.  The Company’s lease for its executive offices and brokerage operations in Albany, New York expires in 2014.  

A list of office locations as of December 31, 2005 by segment is as follows:

Equities, Fixed Income & Other	Albany, NY
	Boston, MA
	New York, NY
Equities & Fixed Income	Chicago, IL
	Houston, TX
	San Francisco, CA
Equities	London, UK
	Minneapolis, MN
Fixed Income	Chadds Ford, PA
	Dallas, TX
	Greenwich, CT
	Hartford, CT
	Los Angeles, CA
	Naples, FL
	Richmond (Glen Allen), VA
	Wellesley, MA
Other	Oakbrooke Terrace, IL

For information regarding the Company’s reportable segment information, refer to “Segment Analysis” note of the Consolidated Financial Statements.

Item 3.  Legal Proceedings

In 1998, the Company was named in lawsuits by Lawrence Group, Inc. and certain related entities (the "Lawrence Parties") in connection with a private sale of Mechanical Technology Incorporated stock from the Lawrence Parties that was previously approved by the United States Bankruptcy Court for the Northern District of New York (the "Bankruptcy Court").  The Company acted as placement agent in that sale, and a number of employees and officers of the Company, who have also been named as defendants, purchased shares in the sale.  The complaints alleged that the defendants did not disclose certain information to the sellers and that the price approved by the court was therefore not proper. The cases were initially filed in the Bankruptcy Court and the United States District Court for the Northern District of New York (the "District Court"), and were subsequently consolidated in the District Court. &nbs p;The District Court dismissed the cases, and that decision was subsequently vacated by the United States Court of Appeals for the Second Circuit, which remanded the cases for consideration of the plaintiffs' claims as motions to modify the Bankruptcy Court sale order.  The plaintiffs' claims have now been referred back to the Bankruptcy Court for such consideration.  Discovery is currently underway.  The Company believes that it has strong defenses to and intends to vigorously defend itself against the plaintiffs' claims, and believes that the claims lack merit.

In connection with the termination of Arthur Murphy’s employment by First Albany Capital as Executive Managing Director, Mr. Murphy filed an arbitration claim against First Albany Capital, Alan Goldberg, President and Chief Executive Officer, and George McNamee, Chairman of First Albany Companies Inc. with the National Association of Securities Dealers on June 24, 2005.  Mr. Murphy is a director of the Company.  The claim alleges damages in the amount of $8 million based on his assertions that he was fraudulently induced to remain in the employ of First Albany Capital. A hearing in the matter is scheduled to commence during the second quarter of 2006.  The Company believes the claim to be wholly without merit and intends to vigorously defend itself against such claim.

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 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 most likely to have an adverse disposition.  Although further losses are possible, the opinion of management, based upon the advice of its attorneys, 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.

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 and Issuer Purchases of Equity Securities.

The Company's common stock trades on the NASDAQ National Market System under the symbol "FACT".  As of March 6, 2006, there were approximately 3,243 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 during each quarter for the fiscal years ended:

	Quarter Ended
		Mar 31		Jun 30		Sep 30		Dec 31
2005
Stock Price Range
High	$	9.90	$	9.24	$	6.80	$	7.49
Low		8.90		4.84		5.57		5.99
Cash Dividend Per Share		0.05		-		-		-
2004
Stock Price Range
High	$	15.85	$	15.95	$	10.21	$	9.94
Low		12.58		8.91		8.20		8.30
Cash Dividend Per Share		0.05		0.05		0.05		0.05

For information regarding the Company’s securities authorized for issuance under equity compensation plans, refer to “Benefit Plans” note of the Consolidated Financial Statements.

In February 2005, the Board of Directors declared a quarterly cash dividend of $0.05 per share payable on March 10, 2005, to shareholders of record on February 24, 2005.  In May 2005, the Board of directors suspended the $0.05 per share dividend.  At this time the Company does not anticipate issuing dividends.  See “Short-Term Bank Loans and Notes Payable” note to Consolidated Financial Statements for restrictive covenants that could impact the Company’s ability to pay dividends.

ISSUANCE OF UNREGISTERED SHARES

On May 14, 2004, the Company acquired Descap Securities, Inc.  Pursuant to the “Earnout Payment” in the agreement for the acquisition of Descap Securities, Inc. (see “Commitments and Contingencies” note to the Consolidated Financial Statements), the Company issued, in December 2005, pursuant to Section 4(2) of the Securities Act of 1933, 304,439 unregistered shares of common stock to the Sellers of Descap Securities, Inc., with an approximate value of $1.6 million, as part of the consideration provided.

ISSUER PURCHASES OF EQUITY SECURITIES

In December 2003, the Board of Directors authorized a stock repurchase program which expired June 9, 2005.  At December 31, 2005, the Company had repurchased 20,300 shares pursuant to this program on the open market.

Period	Total Number of Shares Purchased	Weighted Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2)
3/01/05-3/31/05	15,300	$9.16	15,300	484,700
4/01/05-4/30/05	5,000	$9.14	5,000	479,700
5/01/05-5/31/05	-	-	-	479,700
6/01/05-6/30/05	-	-	-	-

(1)  These shares were purchased pursuant to the stock repurchase program authorized by the Company’s Board of Directors in December 2003.

(2)  The stock repurchase program expired June 9, 2005.  The Company purchased 20,300 of the 500,000 shares authorized by its Board of Directors.

Item 6.  Selected Financial Data

The following selected financial data have been derived from the Consolidated Financial Statements of the Company.  This information should be read in conjunction with the Consolidated Financial Statements and related notes thereto included elsewhere herein.  

For the years ended December 31:		2005		2004		2003		2002		2001
Operating results
Operating revenues	$	163,603	$	172,403	$	187,663	$	161,606	$	134,117
Interest income		15,380		10,395		6,682		17,252		25,998
Total revenues		178,983		182,798		194,345		178,858		160,115
Interest expense		12,834		6,163		3,328		12,057		22,269
Net revenues		166,149		176,635		191,017		166,801		137,846
Expenses (excluding interest)		167,097		185,385		171,501		164,460		143,501
Operating income (loss)		(948)		(8,750)		19,516		2,341		(5,655)
Equity in (loss) income of affiliate		-		-		-		(5,723)		1,271
Gains on sale of equity holdings		-		-		-		7,170		-
Income (loss) before income taxes, discontinued operations and cumulative effect of change in accounting principles		(948)		(8,750)		19,516		3,788		(4,384)
Income tax expense (benefit)		8,467		(6,866)		7,833		902		(2,547)
Income (loss) from continuing operations		(9,415)		(1,884)		11,683		2,886		(1,837)
Income (loss) from discontinued operations, net of taxes		(802)		(1,703)		(1,122)		351		(1,155)
Income (loss) before cumulative effect of change in accounting principles		(10,217)		(3,587)		10,561		3,237		(2,992)
Cumulative effect of accounting change, net of taxes		-		-		-		(2,655)		-
Net income (loss)	$	(10,217)	$	(3,587)	$	10,561	$	582	$	(2,992)

Per common share:
Income (loss) from continuing operations:
Basic	$	(0.68)	$	(0.15)	$	1.11	$	0.30	$	(0.20)
Dilutive		(0.68)		(0.15)		0.99		0.30		(0.20)
Cash dividend		0.05		0.20		0.20		0.20		0.20
Book value		6.28		6.45		7.64		6.62		6.69
As of December 31:		2005		2004		2003		2002		2001
Financial condition:
Total assets	$	443,541	$	410,113	$	393,142	$	440,172	$	1,109,084
Short-term bank loans		150,075		139,875		138,500		215,100		238,650
Notes payable		30,027		32,228		14,422		8,298		12,028
Obligations under capitalized leases		5,564		3,110		3,183		2,708		2,958
Temporary capital		3,374		3,374		-		-		-
Subordinated debt		5,307		3,695		3,721		1,760		6,000
Stockholders’ equity		87,722		86,085		83,434		66,641		62,875

Reclassification:

Certain amounts in operating results for 2001 through 2004 have been reclassified to conform with the 2005 presentation.  Refer to the “Reclassification” section of Note 1 to the Consolidated Financial Statements for more information regarding reclassification of transaction-related fees.  These fees totaled $1.0 million in 2004, $1.1 million in 2003, $0.5 million in 2002 and $0.3 million in 2001.

Cumulative Effect of Accounting Change:

In 2002, the Company changed its accounting method related to the Company’s investment in Mechanical Technology Incorporated (“MKTY”) common stock after an exchange of some of its shares of MKTY for shares of Plug Power, Inc. (“PLUG”) owned by MKTY.  The Company had previously accounted for its investment in MKTY under the equity method of accounting through December 31, 2002 and as of December 31, 2002 accounted for its investment in MKTY at fair value.  Under the equity method of accounting the Company had consistently reported its proportionate share of MKTY’s financial results on a quarter lag.  As a result of the transaction and the new accounting treatment, the Company reflected the final equity adjustment representing its proportionate share of MKTY’s financial results for the quarter ended December 31, 2002 in the Company’s financial statements for the year ended December 31, 2002 rather than on a quarter lag.  The effect of this change was to record a $2.7 million expense to recognize the cumulative effect of having previously recorded the equity losses of MKTY on a quarter lag.

Effective in 2003, investment gains/losses relating to MKTY and PLUG are included in operating revenues.  During 2003, the Company recognized approximately $23.6 million in investment gains of which $18.9 million related to MKTY and PLUG.

FIRST ALBANY COMPANIES INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

There are included or incorporated by reference in this document statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These forward-looking statements are usually preceded by words such as “may”, “will”, “expect”, “anticipate”, “believe”, “estimate”, and “continue” or similar words. All statements other than historical information or current facts should be considered forward-looking statements.  Forward-looking statements may contain projections regarding revenues, earnings, operations, and other financial projections, and may include statements of future performance, strategies and objectives.  However, there may be events in the future which the Company is not able to accurately pre dict or control which may cause actual results to differ, possibly materially, from the expectations set forth in the Company’s forward-looking statements.  All forward-looking statements involve risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors.  Such factors include, among others, market risk, credit risk and operating risk.  These and other risks are set forth in greater detail throughout this document.  The Company does not intend or assume any obligation to update any forward-looking information it makes.

Overview

The Company is a full-service investment bank and institutional securities firm.  The Company operates through three primary businesses:  Equities, Fixed Income and Other.  

The Company’s Equities segment is comprised of equity sales and trading and equities investment banking services.  Equities sales and trading provides equity trade execution to institutional investors and generates revenues primarily through commissions and sales credits earned on executing equity transactions.  Equities investment banking generates revenues by providing financial advisory, capital raising, mergers and acquisitions, and restructuring services to small and mid-cap companies.

Included in the Fixed Income business are the following segments: Taxable Fixed Income, Descap, Municipal Capital Markets, and Fixed Income-Other.  The Company’s Fixed Income business consists of fixed income sales and trading and fixed income investment banking.  Fixed Income sales and trading provides trade execution to institutional investors and generates revenues primarily through commissions and sales credits earned on executing fixed income transactions in the following products:

•

High Grade (Investment Grade and Government Bonds)

•

High Yield (Below Investment Grade)

•

Mortgage-Backed and Asset-Backed Securities

•

Municipal Bonds (Tax-exempt and Taxable Municipal Securities)

These products can be sold through any of the Company’s Fixed Income segments.  Fixed Income investment banking generates revenues by providing financial advisory and capital raising services to municipalities, government agencies and other public institutions.

The Company’s Other segment includes the results from the Company’s investment portfolio, venture capital and asset management businesses, and costs related to corporate overhead and support.  The Company’s investment portfolio generates revenue from unrealized gains and losses as a result of changes in value of the firm’s investments and realized gains and losses as a result of sales of equity holdings.  The Company’s venture capital business generates revenue through the management of a private equity fund.  This segment also includes results related to the Company’s investment in these private equity funds and any gains or losses that might result from those investments.  The Company’s asset management business generates revenue through managing institutional investors’ assets through its convertible arbitrage group.

The Company believes it has an opportunity to become one of the premier investment banking boutiques serving the middle market, which the Company believes is largely an under-served market.  The Company has focused on growing its middle market position by broadening its product line through acquisition and investments in key personnel and shedding non-core businesses.  

Business Environment

After a positive showing in 2004, the equities markets experienced mixed results in 2005 with the NYSE daily trading volume increasing 10.0 percent and the NASDAQ composite daily trading volume down 1.3  percent.  On the NYSE, program trading continued to capture growing market share, accounting for 56.9 percent of daily volume compared to 50.4 percent in 2004.  Public offering activity was down in 2005 and initial public offering activity remained well below historical levels.

In the fixed income markets, increasing short-term rates, coupled with a flattening yield curve resulted in a decline in secondary market activity across all products.  In addition, price transparency in the secondary corporate bond market and price and coupon compression in the mortgage-backed market continue to negatively impact spreads.  Municipal underwriting activity improved in 2005.  Negotiated underwriting volume increased 11.4 percent, while competitive bid volume increased 10.5 percent.

RESULTS OF OPERATIONS

		Years ended December 31
(In thousands of dollars)		2005		2004		2003
Revenues
Commissions	$	17,594	$	19,992	$	16,946
Principal transactions		72,495		93,511		107,179
Investment banking		47,745		46,485		36,156
Investment gains (losses)		21,591		10,070		23,597
Interest income		15,380		10,395		6,682
Fees and others		4,178		2,345		3,785
Total revenues		178,983		182,798		194,345
Interest expense		12,834		6,163		3,328
Net revenues		166,149		176,635		191,017
Expenses (excluding interest)
Compensation and benefits		118,120		131,421		126,547
Clearing, settlement and brokerage costs		9,038		6,648		6,164
Communications and data processing		14,078		14,797		14,147
Occupancy and depreciation		12,505		9,597		9,072
Selling		6,860		7,739		7,261
Impairment loss		-		1,375		-
Restructuring		-		1,275		-
Other		6,496		12,533		8,310
Total expenses (excluding interest)		167,097		185,385		171,501
Income (loss) before income taxes and discontinued operations		(948)		(8,750)		19,516
Income tax expense (benefit)		8,467		(6,866)		7,833
Income (loss) from continuing operations		(9,415)		(1,884)		11,683
Income (loss) from discontinued operations, net of taxes		(802)		(1,703)		(1,122)
Net income (loss)	$	(10,217)	$	(3,587)	$	10,561
Net interest income
Interest income	$	15,380	$	10,395	$	6,682
Interest expense		12,834		6,163		3,328
Net interest income	$	2,546	$	4,232	$	3,354

2005 Financial Overview

For the fiscal year ended December 31, 2005, net revenues from continuing operations were $166.1 million, compared to $176.6 million in 2004.  A record performance in Public Finance and an increase in investment income were overshadowed by a decline in net revenues in both Equities and Fixed Income sales and trading.  Results were negatively impacted by $9.7 million in expense related to a deferred tax valuation allowance, $1.9 million in expenses, net of taxes, related to severance costs in connection with staffing reductions and $1.2 million in expenses, net of taxes, incurred as part of the Company’s effort to consolidate offices. Including these charges, the Company reported a net loss from continuing operations of $9.4 million 2005 compared to a net loss from continuing operations of $1.9 million for the same period in 2004.  Earnings per diluted share from continuing operations for the year ended December 31, 200 5 was a net loss of $0.68 compared to a net loss of $0.15 per diluted share for the same period in 2004.  The Company reported a consolidated net loss of $10.2 million for the year ended December 31, 2005, compared to a consolidated net loss of $3.6 million for the same period in 2004. Consolidated diluted earnings per share for the year ended December 31, 2005, was a net loss of $0.74 compared to a net loss of $0.29 for the same period of 2004.

Net Revenue

Net revenue fell $10.5 million, or 5.9 percent, in 2005 to $166.1 million.   Strong revenue growth in fixed income investment banking and a $11.5 million increase in investment gains were offset by lower revenues in equity sales and corporate bond sales and trading and equities investment banking.   A decrease in equity listed commission revenue resulted in a 12.0 percent decrease in commission revenue. The decline in corporate bond net revenue and softness in municipal bond product revenue helped drive principal transaction revenue down 22.5 percent compared to 2004.  Fees and other revenue increased 78.1 percent primarily as a result of a $1.5 million gain on the sale of the Company’s NYSE seat.  Net interest income of $2.5 million represented a 40.0 percent decrease compared to 2004 as a result of a decline in interest rate spreads.  

Non-Interest Expense  

Non-interest expense decreased $18.3 million, or 9.9 percent, to $167.1 million in 2005.  

Compensation and benefits expense decreased 10.1 percent to $118.1 million. Incentive compensation expense was down $15.6 million primarily as a result of lower net revenues in equities and sales commission expense declined $3.9 million as a result of lower principal transactions in the corporate bond group.  These declines were offset by a $6.3 million increase in compensation expense at Descap.  The increased compensation expense was the result of higher net revenues.

Clearing, settlement, and brokerage costs of $9.0 million represented an increase of 36.0 percent compared to the prior year.  An increase in electronic communications network (“ECN”) expense in Equities as a result of an increase in NASDAQ trading activity drove the variance.

Communications and data processing costs decreased $0.7 million or 4.9 percent.  A $1.6 million decline in data processing expense was offset by a $0.8 million increase in market data services expense.  Data processing expense was down across all groups as a result of more favorable pricing from the Company’s back-office vendor. An increase in trading communications costs in Equities and market data costs in Descap accounted for the increase in market data services.  

Occupancy and depreciation expense increased 30.3 percent or $2.9 million.  Costs associated with implementing the company’s real estate strategy in New York City and San Francisco accounted for $2.1 million of the increase.

Selling expense was down 11.4 percent, or $0.9 million, in 2005 as a result of a decrease in travel and entertainment expense and dues, fees and assessment costs.  

Other expense decreased $6.0 million, or 48.2 percent, in 2005.  The decrease was driven by $3.2 million decline in legal expenses and a $1.1 million decrease in professional fees relating to documenting compliance with Section 404 of the Sarbanes-Oxley Act.

In 2005, the Company recorded an expense of $9.7 million for a valuation allowance related to its deferred tax asset. The valuation allowance was established as a result of weighing all positive and negative evidence, including the Company’s history of cumulative losses over the past two years and the difficulty of forecasting future taxable income.  Refer to the “Income Tax” note of the Consolidated Financial Statements for more detail.

2004 Financial Overview

For the fiscal year ended December 31, 2004, consolidated net revenues from continuing operations for the Company were $176.6 million, compared to $191.0 million for 2003.  The Company reported a loss from continuing operations of $1.9 million for 2004 compared to income from continuing operations of $11.7 million for 2003.  Results were negatively impacted by a drop of $7.9 million in investment gains net of taxes, and $4.5 million in unusual expenses, net of taxes, including litigation expenses, restructuring charges, an asset impairment, and costs related to documenting compliance with Section 404 of Sarbanes-Oxley.  Consolidated earnings from continuing operations for the year ended December 31, 2004 were a net loss of $0.15 per diluted share compared to net income of $0.99 per diluted share for 2003.  The Company reported a consolidated net loss of $3.6 million for the year ended December 31, 2004, compared to consolidated net income of $10.6 million for 2003. Consolidated earnings per share for the year ended December 31, 2004, were a net loss of $0.29 per diluted share compared with net income of $0.89 per diluted share for 2003.

Net Revenue

Net revenue fell $14.4 million, or 7.5 percent, in 2004 to $176.6 million.   Strong revenue growth in investment banking and equities sales and trading in addition to a 104.5 percent increase in mortgage-backed revenue primarily as a result of the Company’s acquisition of Descap were offset by continued weakness in high grade corporate bond revenue and a $13.5 million in decline investment gains. An increase in equity listed commission revenue resulted in an 18.0 percent increase in commission revenue. The decline in high grade net revenue and softness in municipal bond product revenue helped drive principal transaction revenue down 12.7 percent compared to 2003.  Fees and other revenue declined 38.0 percent on lower incentive fees at FA Asset Management.  Net interest income of $4.2 million represented a 26.2 percent increase compared to 2003 related primarily to Descap.

Non-Interest Expense  

Non-interest expense increased $13.9 million, or 8.1 percent, to $185.4 million in 2004.  

Compensation and benefits expense increased 3.9 percent to $131.4 million, primarily as a result of an increase in restricted stock amortization expense related to the Company’s incentive compensation program.

Clearing, settlement, and brokerage costs of $6.6 million represented an increase of 7.8 percent compared to the prior year.  An increase in electronic communications network (“ECN”) expense in Equities as a result of an increase in NASDAQ trading activity and additional clearing costs in Fixed Income related to Descap drove the variance.

Communications and data processing costs increased $0.7 million or 4.6 percent.  Market data services expense increased $1.5 million while data processing expense declined $0.7 million.  An increase in trading communications costs in Equities and market data costs in Descap accounted for the increase in market data services.  Data processing expense was down across all groups as a result of more favorable pricing from the Company’s back-office vendor.

Occupancy and depreciation expense increased 5.8 percent to $9.6 million.  The increase was primarily the result of additional occupancy expense in Fixed Income related to Descap.

Selling expense was up 6.6 percent, or $0.5 million, in 2004 as a result of an increase in promotional expense and dues and fees.  Costs related to the Company’s annual equity growth conference accounted for the year-over-year increase in promotional expense.

In 2004 the Company realized $1.4 million in impairment expense related to its decision to abandon a software development project.  The expense includes project costs that had been capitalized as well as costs to terminate the project.

The Company incurred $1.3 million in restructuring expense as a result of a company-wide initiative to reduce headcount in the third and fourth quarters of 2004.

Other expense increased $4.2 million, or 50.8 percent, in 2004.  The increase was driven by $3.7 million in legal expenses and accrued costs related to resolved or pending litigation.  In addition the Company incurred $1.1 million in costs related to documenting compliance with Section 404 of the Sarbanes-Oxley Act.

Income tax expense (benefit) in 2004 represented 78.5 percent of the operating loss versus 40.1 percent of operating income in 2003.  The increase was primarily the result of favorable tax treatment related to the Company’s distribution of its shares in Plug Power to shareholders in May of 2004.  Refer to “Investments” note of the Consolidated Financial Statements for more detail.

Business Highlights

For presentation purposes, net revenue within each of the businesses is classified as sales and trading, investment banking, investment gains (losses), or net interest / other.  Sales and trading net revenue includes commissions and principal transactions.  Investment banking includes revenue related to underwritings and other investment banking transactions.  Investment gains (losses) reflects gains and losses on the Company’s investment portfolio.  Net interest / other includes interest income, interest expense, fees and other revenue.   Net revenue presented within each category may differ from that presented in the financial statements as a result of differences in categorizing revenue within each of the revenue line items listed below for purposes of reviewing key business performance.  

Equities

(In thousands of dollars)		2005		2004		2003
Net revenue
Sales and Trading	$	41,883	$	50,801	$	42,132
Investment Banking		18,099		25,948		10,799
Net Interest / Other		65		251		420
Total Net Revenue	$	60,047	$	77,000	$	53,351
Operating Income (Loss)	$	(4,712)	$	4,234	$	(590)

2005 vs. 2004

Net revenues in Equities dropped $17.0 million, or 22.0 percent, to $60.0 million in 2005. In 2005 Equities represented 36.1 percent of consolidated net revenue compared to 43.6 percent in 2004. Equity sales and trading revenue decreased across all products with net revenue down 17.6 percent compared to 2004.  Compared to 2004, NASDAQ net revenue was down 19.9 percent to $27.3 million and listed net revenue of $14.5 million represented a 12.9 percent decrease relative to the prior year.  Investment banking net revenues declined 30.2 percent versus the prior year.  The group experienced revenue declines across all product groups with public offering revenue down more than $1.4 million to $11.4 million and advisory and private placement revenue decreasing $4.9 million to $8.4 million.  In terms of volume, investment banking completed 35 transactions in 2005 compared to 45 in 2004.

2004 vs. 2003

Net revenues in Equities rose $23.6 million, or 44.3 percent, to $77.0 million in 2004. In 2004 Equities represented 43.6 percent of consolidated net revenue compared to 27.9 percent in 2003. Operating income of $4.2 million represented a $4.8 million improvement compared to the prior year.  Equity sales and trading revenue continued to show improvement across all product lines with net revenue up 20.6 percent compared to 2003.  Compared to 2003, NASDAQ net revenue increased 19.8 percent to $34.1 million and listed net revenue of $16.7 million represented a 22.2 percent increase relative to the prior year.  Led by healthcare and energy, investment banking continued its impressive growth with net revenue up 140.3 percent versus the prior year.  The group experienced strong revenue growth across all product groups with public offering revenue up more than $7.7 million to $13.7 million and advisory and private placement revenue increasing $6 .7 million to $12.4 million.  In terms of volume, Investment banking completed 45 transactions in 2004 compared to 27 in 2003.

Fixed Income

(In thousands of dollars)		2005		2004		2003
Net revenue
Sales and Trading	$	47,588	$	63,912	$	82,483
Investment Banking		29,489		19,265		24,632
Net Interest / Other		1,430		2,825		2,019
Total Net Revenue	$	78,507	$	86,002	$	109,134
Operating Income	$	6,458	$	13,948	$	25,926

2005 vs. 2004

Fixed Income net revenue declined 8.7 percent in 2005.  Fixed Income sales and trading revenue was down 25.5 percent compared to the prior year, while Fixed Income Investment Banking net revenue of $29.5 million represented a 53.1 percent increase compared to the prior year.  Contributing to the decline in sales and trading revenue was High grade net revenue down 65.4 percent to $6.6 million in 2005 and high yield net revenue of $4.7 million, which was down 13.8 percent compared to 2004.  Municipal net revenue of $13.4 million was down 18.8 percent in 2005.  Mortgage and asset-backed net revenue increased 26.5 percent to $17.9 million.  Contributing to the increase in investment banking net revenue was a 60.1 percent, or $8.0 million, increase in underwriting related revenue offset by a 8.8 percent, or $3.8 million, decline in public finance advisory fees.  Operating income in 2005 was negatively impacted by the continued deteri oration in corporate bond product revenue.

2004 vs. 2003

Fixed Income net revenue declined 21.2 percent in 2004.  Fixed Income sales and trading revenue was down 22.5 percent compared to the prior year.  High grade net revenue was down 49.3 percent to $19.0 million in 2004.  Municipal net revenue of $16.5 million was down 12.1 percent in 2004.  Mortgage and asset-backed net revenue increased 104.5 percent to $14.1 million.  High yield net revenue of $5.4 million was unchanged compared to 2003.  In the third quarter of 2004 the Company augmented its high yield capabilities with the addition of a high yield team in Greenwich, CT.  As a result high yield net revenue in the fourth quarter of 2004 increased 85.6 percent compared to the third quarter of 2004.  Fixed Income Investment Banking net revenue of $19.3 million represented a 21.8 percent decline compared to the prior year.  Contributing to the decline was a 20.1 percent, or $1.1 million, decline in public finance adv isory fees and a 22.6 percent, or $4.0 million, decline in underwriting related revenue.  Operating income in 2004 was negatively impacted by $1.7 million in legal expenses, continued deterioration in high grade product revenue and a decline in fee related revenue in public finance.

Other

(In thousands of dollars)		2005		2004		2003
Net revenue
Investment Gain (Losses)	$	21,591	$	10,070	$	23,597
Net Interest / Other		6,004		3,563		4,935
Total Net Revenue	$	27,595	$	13,633	$	28,532
Operating Income	$	(2,694)	$	(26,932)	$	(5,820)

2005 vs. 2004

Net revenue was up $14.0 million compared to 2004 as a result of a $11.5 million increase in investment gains and losses related to the Company’s investment portfolio.  Net Interest/Other were up due to a $1.5 million gain on the sale of the company’s NYSE seat and a $0.4 million increase in fee revenues at the convertible arbitrage group.  Operating Income was positively impacted by increased revenues and the results of the Company’s effort to reduce expenses through the reduction in support head count and professional fees.

2004 vs. 2003

Net revenue was down $14.9 million compared to 2003 as a result of a $13.5 million decline in investment gains and losses related to the Company’s investment portfolio.  Net Interest/Other were down due to a $1.1 million decrease in fee revenues at the convertible arbitrage group as a result of lower incentive fees.  For the twelve months ended December 31, 2004, Noddings reported a pre-tax loss of $1.6 million versus a pre-tax loss of $0.5 million in 2003. Also included in the results for 2004 are costs related to an asset impairment charge, restructuring charges related to headcount reductions in corporate support groups, and professional fees for documentation of compliance with Section 404 of Sarbanes-Oxley.

LIQUIDITY AND CAPITAL RESOURCES

A substantial portion of the Company's assets, similar to other brokerage and investment banking firms, are liquid, consisting of cash and assets readily convertible into cash.  These assets are financed primarily by the Company's payables to brokers and dealers, bank lines of credit and customer payables.  The level of assets and liabilities 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 and Notes Payable

Short-term bank loans are made under a variety of bank lines of credit totaling $250 million of which approximately $150 million is outstanding at December 31, 2005.  These bank lines of credits consist of credit lines that the Company has been advised are available but for which no contractual lending obligation exist and are repayable on demand.  These loans are collateralized by eligible securities, including Company-owned securities, subject to certain regulatory formulas.  These loans bear interest at variable rates based primarily on the Federal Funds interest rate.  The weighted average interest rates on these loans were 4.68% and 2.42% at December 31, 2005 and 2004 respectively.  At December 31, 2005, short-term bank loans were collateralized by Company-owned securities, which are classified as securities owned and receivables from brokers, dealers and clearing agencies, of $183.8 million.

Notes payable also include Senior Notes dated June 13, 2003 for $10 million, which we repaid in full in March 2006.  The Senior Notes had a fixed interest rate of 8.5% payable semiannually and maturing on June 30, 2010.  The Senior Notes contain various covenants, as defined in the agreements, including restrictions on the incurrence of debt and an adjusted cash flow coverage rate for First Albany Capital Inc. (a wholly owned subsidiary) of not less than 1.2 to 1 at the end of each fiscal quarter based on the most recently concluded period of four consecutive quarters (at the end of the December 31, 2005 quarter, the Company’s adjusted cash flow coverage rate was -35.3 to 1). As of December 31, 2005, the Company was not in compliance with the financial covenants contained in the note agreement.  On January 10, 2006, the purchasers of these notes agreed to waive the Company’s non-compliance effective December 31, 2005.  The Company may, at its option, prepay at any time all, or from time to time any part of the note including a “Make-Whole” amount, as defined in the agreement, related to the discounted value of the remaining payments.  These notes were paid in full subsequent to year-end.  Refer to “Short-Term Bank Loans and Notes Payable” note in the Consolidated Financial Statements.

Subsequent to year-end, the Company entered into an $11 million Term Loan for the purpose of repaying the Senior Notes, of which the Company initially borrowed $8.7 million.  Interest on the term loan is 1% over the prime rate (7.5% at December 31, 2005).  Interest is payable monthly with principal repayment on June 15, 2006.  The term loan contains various covenants consistent with the Company’s $15.6 Term Loan.  In addition, the Company has agreed to repay $5.0 million of outstanding debt by June 15, 2006 related primarily to the $4.9 million Term Loan.  Upon expiration of a lock-up agreement to which we are a party (refer to “Investments” note in the Consolidated Financial Statements), the $11 million Term Loan will be collateralized by shares of iRobot Corporation common stock owned by the Company.  If the daily market value of the iRobot common stock decreases to a level that causes the outstanding loan to exceed 30% of the collateral value, the Company must pledge additional collateral, either in cash or other specified securities.

The Company’s notes payable also include a $15.6 million Term Loan to finance the acquisition of Descap Securities, Inc.  Interest rate is 2.4% over the 30-day London InterBank Offered Rate (“LIBOR”) (4.34% at December 31, 2005).  Interest only was payable for first six months, and thereafter monthly payments of $238 thousand in principal and interest over the life of loan which matures on May 14, 2011.  The Term Loan agreement contains various covenants, as defined in the agreement.  As of March 31, 2005 and June 30, 2005, the Company was not in compliance with certain covenants contained in the Term Loan.  On April 22, 2005 the lender agreed to waive the financial covenants contained in the term loan agreement for the quarter ended March 31, 2005.  On August 9, 2005, the lender agreed to amend the loan document, effective June 30, 2005.  The lender agreed to eliminate the EBITDAR requirement of $22.5 millio n, amend the definition for operating cash flow, fixed charges, EBITDAR and modified indebtedness.  The lender also agreed to increase the maximum allowable modified total funded indebtedness to EBITDAR ratio from 1.75 to 2.00 through March 31, 2006.  Thereafter the modified debt requirement will not exceed 1.75 to 1.  The financial covenants require operating cash flow to total fixed charge ratio (as defined) of not less than 1.15 to 1 (for the twelve month period ending December 31, 2005, the operating cash flow to total fixed charge ratio 1.19 to 1) and modified total funded debt to EBITDAR ratio of less than 2.00 to 1 (for the twelve month period ending December 31, 2005, modified total funded debt to EBITDAR ratio was 1.82 to 1).  EBITDAR is defined as earnings before interest, taxes, depreciation, amortization and lease expense plus pro forma adjustments as defined in the modified term loan agreement and referred to as “EBITDAR.” As of December 31, 2005, the Company was in compliance with all covenants contained in the Term Loan.  The definition of operating cash flow includes the payment of cash dividends; therefore, the Company’s ability to pay cash dividends in the future may be impacted by the covenant.  

Notes payable include a $4.9 million Term Loan with a current interest rate of 3.25% over the 30-day London Interbank Offered Rate (“LIBOR”) (4.34% at December 31, 2005), the proceeds of which were used to fund the consolidation of the Company’s offices in New York City.  The interest rate may fluctuate based upon the Borrower’s leverage ratio.  Interest only is payable for the first four months; thereafter monthly payments of principal and interest over the life of the loan, which originally matured on April 30, 2011, but has been modified to mature on June 15, 2006. The term loan agreement contains various covenants consistent with the Company’s $15.6 million Term Loan.  One covenant limits the Company’s ability to incur additional indebtedness in excess of $5 million in each calendar year.  This limitation, however, does not apply to short-term bank loans collateralized by Company-owned securities, refinan cing of existing debt and certain other indebtedness.

Regulatory

As of December 31, 2005, First Albany Capital and Descap were in compliance with the net capital requirements of the Securities and Exchange Commission. The net capital rules restrict the amount of a broker-dealer’s net assets that may be distributed. Also, a significant operating loss or extraordinary charge against net capital may adversely affect the ability of the Company’s broker-dealer subsidiaries to expand or even maintain their present levels of business and the ability to support the obligations or requirements of the Company. As of December 31, 2005, First Albany Capital had net capital of $24.9 million, which exceeded minimum net capital requirements by $23.9 million, while Descap had net capital of $3.7 million, which exceeded minimum net capital requirements by $3.6 million.

The Company enters into underwriting commitments to purchase securities as part of its investment banking business. Also, the Company may purchase and sell securities on a when-issued basis. As of December 31, 2005, the Company had no outstanding underwriting commitments and had purchased or sold no securities on a when-issued basis.

Investments and Commitments

In February of 2005, the Company was informed that the general partner of Ardent Research Partners LP, an investment fund in which Company is a limited partner, was the subject of an SEC investigation.  The complaint by the SEC alleges the general partner, Northshore Asset Management LLC, misappropriated fund assets in making illiquid, and potentially improper, investments.  During the fourth quarter of 2005, the Company recognized a reduction in the carrying value of this investment of approximately $0.4 million as an estimate of what the future loss, if any, might be.  As of December 31, 2005 the value of the Company’s investment in the limited partnership is $0.2 million and is classified as securities owned on the Consolidated Statements of Financial Condition.  

As of December 31, 2005, the Company had a commitment to invest up to $7.6 million in FA Technology Ventures, L.P. (the “Partnership”).  This commitment extends initially to the end of the Partnership’s Commitment Period, which expires in July 2006; however, the General Partner may continue to make capital calls up through July 2011 for additional investments in portfolio companies and for the payment of management fees.  The Company intends to fund this commitment from the sale of other investments and operating cash flow. The Partnership’s primary purpose is to provide investment returns consistent with risks of investing in venture capital. In addition to the Company, certain other limited partners of the Partnership are officers or directors of the Company. The majority of the commitments to the Partnership are from non-affiliates of the Company.

The General Partner for the Partnership is FATV GP LLC. The General Partner is responsible for the management of the Partnership, including among other things, making investments for the Partnership. The members of the General Partnership are George McNamee, Chairman of the Company, First Albany Enterprise Funding, Inc., a wholly owned subsidiary of the Company, and other employees of the Company or its subsidiaries. Mr. McNamee is required under the Partnership agreement to devote a majority of his business time to the conduct of the affairs of the Partnership and any parallel funds. Subject to the terms of the Partnership Agreement, under certain conditions, the General Partnership is entitled to share in the gains received by the Partnership in respect of its investment in a portfolio company. The General Partner will receive a carried interest on customary terms. The General Partner has contracted with FA Technology Ventures Corporation (FATV), a wholly owned subsidiary of the Company, to act as an investment advisor to the General Partner.

On November 30, 2005, the Company sold its limited liability company interests (the “LLC Interests”) in First Albany Private Fund, 2004, LLC (the “Fund”) to Auda Secondary Fund L.P., a Delaware limited partnership and Auda Secondary Fund C (Cayman) L.P., a Cayman Island exempted limited partnership (together, the “Purchasers”). The Company entered into a Purchase, Sale and Assignment Agreement (the “Agreement”) by and among the Company and the Purchasers.  Pursuant to the Agreement (i) the Company has sold, assigned and transferred all of its right, title and interest in, to and under its LLC Interests in the Fund to the Purchasers for an aggregate purchase price of $2.4 million and (ii) the Purchasers have agreed to assume and perform all of the liabilities and obligations of the Company under the Fund’s Amended and Restated Operating Agreement, dated as of November 30, 2005.  The C ompany’s carrying value of its LLC Interests in the Fund was $2.8 million.  In addition, the Purchasers assumed $5.9 million of unfunded capital commitments to the Fund from the Company.

As of December 31, 2005, the Company had an additional commitment to invest up to $0.4 million in funds that invest in parallel with the Partnership; this parallel commitment may be satisfied by investments from the Company’s Employee Investment Funds (EIF). This commitment extends initially to the end of the Partnership’s Commitment Period, which expires in July 2006; however, the General Partner may continue to make capital calls up through July 2011 for additional investments in portfolio companies and for the payment of management fees.  EIF are limited liability companies, established by the Company for the purpose of allowing select employees to invest their own funds in private equity placements. The EIF are managed by FAC Management Corp., a wholly owned subsidiary, which has contracted with FATV to act as an investment advisor with respect to funds invested in parallel with the Partnership. The Company anticipates that the portion of the commitment that is not funded by employees through the EIF will be funded by the Company through the sale of other investments and operating cash flow.

Publicly held investments include 1,116,040 shares of Mechanical Technology Incorporated (“MKTY”).  As of December 31, 2005, the MKTY shares have a market value of $3.1 million.  For the twelve months ending December 31, 2005, the Company sold 1,800,000 shares of MKTY, receiving $5.9 million in total proceeds from the sales.  Shares of MKTY may be sold without restriction pursuant to Rule 144(k) of the Securities Act of 1933.  Subsequent to year-end, the Company sold its remaining shares in MKTY and received $3.3 million in proceeds.

As of December 31, 2005, the Company owned approximately 1.1 million shares of iRobot (“IRBT”) worth approximately $37.2 million.  In the context of IRBT’s initial public offering (“IPO”), the Company and other certain stockholders of IRBT entered into a lock-up agreement with the managing underwriters of the IPO in which it agreed not to sell IRBT for a period ending May 8, 2006.  The lock-up is subject to extension through June 10, 2006 in specified circumstances generally related to IRBT’s corporate announcements.  The Company sold 112,238 shares of IRBT for approximately $2.5 million as a Selling Stockholder in the IRBT initial public offering.

During the twelve months ending December 31, 2005, the Company sold 321,088 share of Plug Power Inc. (“PLUG”), representing all its holdings in PLUG, receiving $2.2 million in total proceeds from the sales.

Contingent Consideration

On May 14, 2004, the Company acquired 100 percent of the outstanding common shares of Descap, a New York-based broker-dealer and investment bank.  Per the acquisition agreement, the Sellers can receive future contingent consideration (“Earnout Payment”) based on the following:  for each of the years ending May 31, 2005 through May 31, 2007, if Descap’s Pre-Tax Net Income (as defined) (i) is greater than $10 million, the Company shall pay to the Sellers an aggregate amount equal to fifty percent (50%) of Descap’s Pre-Tax Net Income for such period, or (ii) is equal to or less than $10 million, the Company shall pay to the Sellers an aggregate amount equal to forty percent (40%) of Descap’s Pre-Tax Net Income for such period.  Each Earnout Payment shall be paid in cash, provided that Buyer shall have the right to pay up to seventy-five percent (75%) of each Earnout Payment in the form of shares of Company Stock.  Th e amount of any Earnout Payment that the Company elects to pay in the form of Company Stock shall not exceed $3.0 million for any Earnout Period and in no event shall such amounts exceed $6.0 million in the aggregate for all Earnout Payments.

Based upon Descap’s Pre-Tax Net Income from June 1, 2004 through May 31, 2005, a total of $2.2 million of additional consideration earned.  The Sellers received $0.6 million in cash and 304,439 shares of the Company’s common stock valued at $1.6 million.

Also, based upon Descap’s Pre-Tax Net Income from June 1, 2005 through December 31, 2005, $0.3 million of contingent consideration would be payable to the Sellers.  The contingent consideration will not be accrued in the Company’s financial statement until the contingency is resolved and the consideration is distributable.

Contingent Consideration

Subsequent to year-end, the Company has committed to entering into retention agreements with certain of its employees in an amount aggregating $7.5 million.  These amounts are payable to the extent the employee continues to work for the Company, subject to certain exceptions as defined.  These retention amounts will be paid in July 2006.

Letters of Credit

The Company is contingently liable under bank stand-by letter of credit agreements, executed in connection with office lease activities in New York City, totaling $2.1 million at December 31, 2005.  The letter of credit agreements were collateralized by firm securities with a market value of $2.3 million at December 31, 2005.

Tax Valuation Allowance

The Company has deferred tax assets of $24.5 million and deferred tax liabilities of $15.3 million as of December 31, 2005.  The Company has recorded a valuation allowance as a result of uncertainties related to the realization of its net deferred tax asset, at December 31, 2005, of approximately $9.2 million. The valuation allowance was established as a result of weighing all positive and negative evidence, including the Company’s history of cumulative losses over the past two years and the difficulty of forecasting future taxable income.  The Company did not record a valuation allowance for deferred tax assets at December 31, 2004 since it determined that it was more likely than not that deferred tax assets would be fully realized through future taxable income.  The Company does not anticipate that the payment of future taxes will have a significant negative impact on its liquidity and capital resources.

CONTRACTUAL OBLIGATIONS

First Albany Companies Inc. has contractual obligations to make future payments in connection with our short-term debt, long-term debt, capital leases, and operating leases. See Notes to Consolidated Financial Statements for additional disclosures related to our commitments.

The following table sets forth these contractual obligations as of December 31, 2005 (maturities adjusted for subsequent financings).  See “Subsequent Event” note to the Consolidated Financial Statements.

(In thousands of dollars)		2006		2007		2008		2009		2010	Thereafter			Total
Short-term bank loans	$	150,075	$	-	$	-	$	-	$	-	$	-	$	150,075
Debt (1)		13,000		2,857		2,857		2,857		2,857		1,239		25,667
Term Loans (1)		4,857		-		-		-		-		-		4,857
Purchase obligations		-		-		-		-		-		-		-
Capital lease obligations (including interest)		2,043		1,659		1,083		804		581		232		6,402
Operating leases (net of sublease rental income)		8,262		8,235		7,748		5,237		4,806		10,340		44,628
Subordinated debt (2)		1,288		1,462		1,299		141		266		851		5,307
Total	$	179,525	$	14,213	$	12,987	$	9,039	$	8,510	$	12,662	$	236,936

(1)

The Company has several notes payable and term loan which have principal payments associated with each.  See Notes to the Condensed Consolidated Financial Statements.

 (2)

A select group of management and highly compensated employees are eligible to participate in the First Albany Companies Inc. Deferred Compensation Plan for Key Employees (the “Plan”).  The employees enter into subordinate loans with the Company to provide for the deferral of compensation and employer allocations under the Plan.  The accounts of the participants of the Plan are credited with earnings and/or losses based on the performance of various investment benchmarks selected by the participants.  Maturities of the subordinated debt are based on the distribution election made by each participant, which may be deferred to a later date by the participant.

RESTRUCTURING

During 2004, the Company undertook an internal review of its operations in an effort to reduce costs.  One of the results of this review was the streamlining of certain functions and a reduction in personnel.  The reduction in personnel was initiated during the period ended September 30, 2004 and was completed by December 31, 2004.  The Company incurred restructuring expenses of approximately $1.3 million related to this effort, which were accrued and expensed and substantially paid in 2004.  The natures of these costs are compensation and benefits and the amount expensed through 2004 relates to employees who were terminated by December 31, 2004.  Restructuring costs were allocated 85% to the Company’s Other segment, with the remainder allocated among the other business units for segment reporting purposes.

CRITICAL ACCOUNTING POLICIES

The following is a summary of the Company’s critical accounting policies.  For a full description of these and other accounting policies, see “Significant Accounting Policies” note of the Consolidated Financial Statements.  The Company believes that of its significant accounting policies, those described below involve a high degree of judgment and complexity.  These critical accounting policies require estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in the consolidated financial statements.  Due to their nature, estimates involve judgment based upon available information.  Actual results or amounts could differ from estimates and the difference could have a material impact on the consolidated financial statements.  Therefore, understanding these policies is important in understanding the reported results of operations and the financial p osition of the Company.

Valuation of Securities and Other Assets

Substantially all financial instruments are reflected in the consolidated financial statements at fair value or amounts that approximate fair value, including cash, securities purchased under agreements to resell, securities owned, investments and securities sold but not yet purchased.  Unrealized gains and losses related to these financial instruments are reflected in net earnings.  Where available, the Company uses prices from independent sources such as listed market prices, or broker or dealer price quotations.  Where the value of a security is derived from an independent market price or broker or dealer quote, certain assumptions may be required to determine the fair value.  For example, the Company generally assumes that the size of positions in securities that the Company holds would not be large enough to affect the quoted price of the securities if the Company were to sell them, and that any such sale would happen in an orderly m anner.  However, these assumptions may be incorrect and the actual value realized upon disposition could be different from the current carrying value.  For investments in illiquid and privately held securities that do not have readily determinable fair values, the Company’s estimate of fair value is generally reflected as our original cost basis unless the investee has raised additional debt or equity capital, and we believe that such a transaction, taking into consideration differences in the terms of securities, is a better indicator of fair value; or we believe the fair value is less than our original cost basis.  All of our investments are evaluated quarterly for changes in fair value.  Factors that have an impact on our analysis include subjective assessments about a fair market valuation of the investee, including but not limited to assumptions regarding expected future financial the performance of the investee and our assessment of the future prospects of the investee’s b usiness model.  Securities owned and investments include, at December 31, 2005 and 2004, $10.0 million and $20.3 million, respectively, of private equity securities.

Intangible Assets

Intangible assets consist predominantly of customer related assets and goodwill related to the acquisitions of Noddings and Descap.  These intangible assets, totaling $26.0 million, were allocated to the reporting units within the Descap segment and the Other segment in regards to Noddings Investments pursuant to SFAS No. 142, “Goodwill and Other Intangible Assets.”  Goodwill represents the excess cost of a business acquisition over the fair value of the net assets acquired.  In accordance with SFAS No. 142, indefinite-life intangible assets and goodwill are not amortized.

The Company reviews its goodwill in order to determine whether its value is impaired on at least an annual basis.  Goodwill is impaired when the carrying amount of the reporting unit exceeds the implied fair value of the reporting unit.  When available, the Company uses recent, comparable transactions to estimate the fair value of the respective reporting units.  The Company calculates an estimated fair value based on multiples of revenues, earnings and book value of comparable transactions.  However, when such comparable transactions are not available or have become outdated, the Company uses discounted cash flow scenarios to estimate the fair value of the reporting units.  As of December 31, 2005, $1.0 million of goodwill has been allocated to the Other segment and $23.8 million of goodwill has been allocated to Descap.  As of the most recent impairment test, the Company determined that the carrying value of the goodwill for e ach reporting unit had not been impaired.  However, changes in current circumstances or business conditions could result in an impairment of goodwill.  As required the Company will continue to perform impairment testing on an annual basis or when an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Contingent Liabilities

The Company is subject to contingent liabilities, including judicial, regulatory and arbitration proceedings, tax and other claims.  The Company records reserves related to legal and other claims in “accrued expenses.”  The determination of these reserve amounts requires significant judgment on the part of management.  Management considers many factors including, but not limited to: the amount of the claim; the amount of the loss, if any incurred by the other party, the basis and validity of the claim; the possibility of wrongdoing on the part of the Company; likely insurance coverage; previous results in similar cases; and legal precedents and case law.  Each legal proceeding is reviewed with counsel in each accounting period and the reserve is adjusted as deemed appropriate by management.  Any change in the reserve amount is recorded in the consolidated financial statements and is recognized as a char ge/credit to earnings in that period.  The assumptions of management in determining the estimates of reserves may prove to be incorrect, which could materially affect results in the period the expenses are ultimately determined.

Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” for contingent liability related to acquisition of Descap.  

Risk and Uncertainties

The Company also records reserves or allowances for doubtful accounts related to receivables.  Receivables at the broker/dealers are generally collateralized by securities owned by the brokerage clients.  Therefore, when a receivable is considered to be impaired, the amount of the impairment is generally measured based on the fair value of the securities acting as collateral, which is measured based on current prices from independent sources such as listed market prices or broker/dealer price quotations.

The Company also makes loans or pays advances to employees for recruiting and retention purposes.  The Company provides for a specific reserve on these receivables if the employee is no longer associated with the Company and it is determined that it is probable the amount will not be collected.  At December 31, 2005, the receivable from employees for recruiting and retention purposes was $0.5 million.

Income Taxes

Income tax expense is recorded using the asset and liability method.  Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between amounts reported for income tax purposes and financial statement purposes, using current tax rates.  A valuation allowance is recognized if it is anticipated that some or all of a deferred tax asset will not be realized.

The Company must assess the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent that the Company believes that recovery is not likely, it must establish a valuation allowance.  Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.  The Company has recorded a valuation allowance as a result of uncertainties related to the realization of its net deferred tax asset, at December 31, 2005, of approximately $9.2 million. The valuation allowance was established as a result of weighing all positive and negative evidence, including the Company’s history of cumulative losses over the past two years and the difficulty of forecasting future taxable income. The valuation allowance reflects the conclusion of management that it is more li kely than not that the benefit of the deferred tax assets will not be realized.  

In the event actual results differ from these estimates or we adjust these estimates in future periods, we may need to adjust our valuation allowance which could materially impact our financial position and results of operations.

Stock Options

The Company has stock option plans under which incentive and nonqualified stock options may be granted periodically to certain employees.  The options are granted at an exercise price equal to the fair value of the underlying shares at the date of grant, they generally vest over one to three years following the date of grant, and they have a term of ten years.

The Company adopted the recognition provisions of FAS 123 effective January 1, 2003 using the prospective method of transition described in FAS 148, “Accounting for Stock-Based Compensation-Transition and Disclosure.”  Under the fair value recognition provisions of FAS 123 and FAS 148, stock-based compensation cost is measured at the grant date based on the Black-Scholes value of the award and is recognized as expense over the vesting period for awards granted after December 31, 2002.  For options granted prior to December 31, 2002, the fair value of options granted was not required to be recognized as an expense in the consolidated financial statements.  

The Black-Scholes option pricing model is used to determine the fair value of stock options.  This option pricing model has certain limitations, such as not factoring in the non-transferability of employee options, and is generally used to value options with terms shorter than the contractual ten-year life of our awards.  Because of these limitations, and the use of highly subjective assumptions in the model, this and other option pricing models do not necessarily provide a reliable single measure of the fair value of the Company’s stock options.  The more significant assumptions used in estimating the fair value of stock options include the risk-free interest rate, the dividend yield, the weighted average expected life of the stock options and the expected price volatility of the Company’s common stock.  The risk-free interest rate is based on U.S. Treasury securities with a term equal to the expected life of the stock options.  The dividend yield is based on the Company’s expected dividend payout level.  The expected life is based on historical experience adjusted for changes in terms and the amount of awards granted.  The expected volatility, which is the assumption where the most judgment is used, is based on historical volatility, adjusted to reflect factors such as significant changes that have occurred in the Company that lead to a different expectation of future volatility.

Using this model, the grant date fair value of options awarded in 2005 was $2.19 per share.  The assumptions used in determining the fair value of these options included a risk-free interest rate of 3.8 percent, a dividend yield of 2.97 percent, a weighted average expected life of 5.34 years and a volatility of 41 percent.  Each increase or decrease of one percent in the expected volatility assumption would change the fair value of an option by approximately 2.0 percent.  Additional information related to stock options is presented in the “Benefit Plans” note in the Consolidated Financial Statements.

NEW ACCOUNTING STANDARDS

In December 2004, the FASB issued SFAS No. 123-Revised, “Share-Based Payment.”  SFAS 123R is a revision of SFAS No. 123 “Accounting for Stock-Based Compensation,” and will become effective for the interim reporting periods ending March 31, 2006.  SFAS 123R will impact the measurement and reporting of stock-based compensation.

The Company has two primary stock-based compensation awards – stock options and restricted stock awards.  Based on the number of options granted by the Company in the recent past, it is anticipated that FAS 123R will have no material effect on its results of operations.  In 2005, 15,000 options were granted, and the total unamortized expense for all options that were unvested on December 31, 2005 was $0.2 million.  Since the Company is uncertain as to how many restricted stock awards will be granted in the future, the impact of 123R cannot be assessed.  Restricted stock awards vest based on the participants’ service with the Company.  The fair market value of the awards will be amortized over the period in which the restrictions are outstanding, which is approximately three years.  For some of the awards issued in the past, it is possible, under certain circumstances, that there would be an accele ration in the recognizing of expenses related to those awards.  During 2005 and 2004, $9.9 million and $7.3 million were expensed to the Company related to restricted stock awards for the Company’s employees.  At December 31, 2005, the Company had recorded $13.9 million in unearned compensation related to restricted stock issuances.

Item 7a.  Quantitative and Qualitative Disclosures about Market Risk

MARKET RISK

Market risk generally represents the risk of loss that may result from the potential change in the value of a financial instrument as a result of fluctuations in interest rates and equity prices, changes in the implied volatility of interest rates and equity prices and also changes in the credit ratings of either the issuer or its related country of origin.  Market risk is inherent to both derivative and non-derivative financial instruments, and accordingly, the scope of the Company's market risk management procedures extends beyond derivatives to include all market-risk-sensitive financial instruments.  The Company's exposure to market risk is directly related to its role as a financial intermediary in customer-related transactions and to its proprietary trading.

The Company trades tax exempt 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.  The Company is also an active market maker in the NASDAQ equity markets.  In connection with these activities, the Company may be required to maintain inventories in order to ensure availability and to facilitate customer transactions.  In connection with some of these activities, the Company attempts to mitigate its exposure to such market risk by entering into hedging transactions, which may include highly liquid futures contracts, options and U.S. Government and federal agency securities.

The following table categorizes the Company’s market risk sensitive financial instruments by type of security and maturity date.  The amounts shown are net of long and short positions.

(In thousands of dollars)		2006		2007		2008		2009		2010	Thereafter			Total
Fair value of securities
Corporate bonds	$	426	$	444	$	2,084	$	1,511	$	842	$	35,887	$	41,194
State and municipal bonds		10		5,193		5,113		3,479		2,628		107,837		124,260
US Government and federal            agency obligations		112		(3,918)		(8,428)		(763)		(722)		49,988		36,269
Subtotal		548		1,719		(1,231)		4,227		2,748		193,712		201,723
Equity securities		11,626												11,626
Investments		52,497												52,497
Fair value of securities	$	64,671	$	1,719	$	(1,231)	$	4,227	$	2,748	$	193,712	$	265,846

Following is a discussion of the Company's primary market risk exposures as of December 31, 2005, including a discussion of how those exposures are currently managed.

Interest Rate Risk

Interest rate risk is a consequence of maintaining inventory positions and trading in interest-rate-sensitive financial instruments.  In connection with trading activities, the Company exposes itself to interest rate risk, arising from changes in the level or volatility of interest rates or the shape and slope of the yield curve. The Company's fixed income activities also expose it to the risk of loss related to changes in credit spreads.  The Company attempts to hedge its exposure to interest rate risk primarily through the use of U.S. Government securities, highly liquid futures and options designed to reduce the Company's risk profile.

A sensitivity analysis has been prepared to estimate the Company's exposure to interest rate risk of its net inventory positions.  The fair market value of these securities included in the Company's inventory at December 31, 2005 was $183 million and $111.2 million at December 31, 2004 (net of municipal futures positions).  Interest rate risk is estimated as the potential loss in fair value resulting from a hypothetical one-half percent change in interest rates.  At year-end 2005, the potential change in fair value using a yield to maturity calculation and assuming this hypothetical change, was $6.8 million and at year-end 2004 it was $4.5 million.  The actual risks and results of such adverse effects may differ substantially.

Equity Price Risk

The Company is exposed to equity price risk as a consequence of making markets in equity securities.  Equity price risk results from changes in the level or volatility of equity prices, which affect the value of equity securities or instruments that derive their value from a particular stock.  The Company attempts to reduce the risk of loss inherent in its inventory of equity securities by monitoring those security positions throughout each day.

Marketable equity securities included in the Company's inventory, which were recorded at a fair value of $11.6 million in securities owned at December 31, 2005 and $11.9 million in securities owned at December 31, 2004, have exposure to equity price risk.  This risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in prices quoted by stock exchanges and amounts to $1.2 million at year-end 2005 and $1.2 million at year-end 2004.  The Company's investment portfolio excluding the consolidation of Employee Investment Fund (see “Investments” note to the Consolidated Financial Statement) at December 31, 2005 and 2004, had a fair market value of $49.9 million and $39.4 million, respectively.  This equity price risk is also estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in equity security prices or valuations and amounts to $5.0 million at year-e nd 2005 and $3.9 million at year-end 2004.  The actual risks and results of such adverse effects may differ substantially.

CREDIT RISK

The Company is engaged in various trading and brokerage activities whose counter parties primarily include broker-dealers, banks, and other financial institutions.  In the event counter parties do not fulfill their obligations, the Company may be exposed to risk.  The risk of default depends on the credit worthiness of the counter party or issuer of the instrument.  The Company seeks to control credit risk by following an established credit approval process, monitoring credit limits, and requiring collateral where it deems 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 size of the position sold.  The Company attempts to reduce its exposure to changes in municipal securities valuations with the use as hedges of highly liquid municipal bond index futures contracts.

OPERATING RISK

Operating risk is the potential for loss arising from limitations in the Company's financial systems and controls, deficiencies in legal documentation and the execution of legal and fiduciary responsibilities, deficiencies in technology and the risk of loss attributable to operational problems.  These risks are less direct than credit and market risk, but managing them is critical, particularly in a rapidly changing environment with increasing transaction volumes.  In order to reduce or mitigate these risks, the Company has established and maintains an internal control environment that incorporates various control mechanisms at different levels throughout the organization and within such departments as Finance, Accounting, Operations, Legal, Compliance and Internal Audit.  These control mechanisms attempt to ensure that operational policies and procedures are being followed and that the Company's various businesses are operating within establi shed corporate policies and limits.

OTHER RISKS

Other risks encountered by the Company include political, regulatory and tax risks.  These risks reflect the potential impact that changes in local laws, regulatory requirements or tax statutes have on the economics and viability of current or future transactions.  In an effort to mitigate these risks, the Company seeks to review new and pending regulations and legislation and their potential impact on its business.  Refer to Item 1A for other risk factors.

Item 8.  Financial Statements and Supplementary Data

Index to Financial Statements and Supplementary Data	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		38-39
FINANCIAL STATEMENTS:
Consolidated Statements of Operations for the Years Ended December 31, 2005, 2004 and 2003		40
Consolidated Statements of Financial Condition as of December 31, 2005 and 2004		41
Consolidated Statements of Changes in Stockholders’ Equity and Temporary Capital for the Years Ended December 31, 2005, 2004, and 2003		42
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003		43-44
Notes to Consolidated Financial Statements		45-69
SUPPLEMENTARY DATA:
Selected Quarterly Financial Data (Unaudited)		70-71

Report of Independent Registered Public Accounting Firm

Tothe Board of Directors and Stockholders of

First Albany Companies Inc.:

We have completed integrated audits of First Albany Companies Inc.'s December 31, 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005, and an audit of its December 31, 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedules

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of First Albany Companies Inc.and its subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion, the financial statement schedule listed in the accompanying index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidatedfinancial statements.  These financial statements and financial statement schedules are the responsibility of the Company’s management.  Our responsibility is to exp ress an opinion on these financial statements and financial statement schedulebased on our audits.  We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).  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 of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2005based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control - Integrated Framework issued by the COSO.  The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.  Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinio ns.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

Albany, New York

March 14, 2006

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of dollars, except per share amounts)

		Years ended December 31,
		2005		2004		2003
Revenues
Commissions	$	17,594	$	19,992	$	16,946
Principal transactions		72,495		93,511		107,179
Investment banking		47,745		46,485		36,156
Investment gains (losses)		21,591		10,070		23,597
Interest income		15,380		10,395		6,682
Fees and others		4,178		2,345		3,785
Total revenues		178,983		182,798		194,345
Interest expense		12,834		6,163		3,328
Net revenues		166,149		176,635		191,017
Expenses (excluding interest)
Compensation and benefits		118,120		131,421		126,547
Clearing, settlement and brokerage costs		9,038		6,648		6,164
Communications and data processing		14,078		14,797		14,147
Occupancy and depreciation		12,505		9,597		9,072
Selling		6,860		7,739		7,261
Impairment loss		-		1,375		-
Restructuring		-		1,275		-
Other		6,496		12,533		8,310
Total expenses (excluding interest)		167,097		185,385		171,501
Income (loss) before income taxes		(948)		(8,750)		19,516
Income tax expense (benefit)		8,467		(6,866)		7,833
Income (loss) from continuing operations		(9,415)		(1,884)		11,683
Income (loss) from discontinued operations, net of taxes		(802)		(1,703)		(1,122)
Net income (loss)	$	(10,217)	$	(3,587)	$	10,561
Basic earnings per share:
Continuing operations	$	(0.68)	$	(0.15)	$	1.11
Discontinued operations		(0.06)		(0.14)		(0.11)
Net income (loss) per share	$	(0.74)	$	(0.29)	$	1.00
Diluted earnings per share:
Continuing operations	$	(0.68)	$	(0.15)	$	0.99
Discontinued operations		(0.06)		(0.14)		(0.10)
Net income (loss) per share	$	(0.74)	$	(0.29)	$	0.89

The accompanying notes are an integral part

of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands of dollars)

		December 31		December 31
As of		2005		2004
Assets
Cash	$	1,926	$	1,285
Cash and securities segregated under federal regulations		7,100		-
Securities purchased under agreement to resell		27,824		35,028
Receivables from:
Brokers, dealers and clearing agencies		36,221		46,229
Customers, net		5,346		3,311
Others		7,015		7,013
Securities owned		265,794		228,737
Investments		52,497		44,545
Office equipment and leasehold improvements, net		10,304		7,008
Intangible assets		25,990		23,920
Deferred tax asset, net		-		8,510
Other assets		3,524		4,527
Total Assets	$	443,541	$	410,113
Liabilities and Stockholders’ Equity
Liabilities
Short-term bank loans	$	150,075	$	139,875
Payables to:
Brokers, dealers and clearing agencies		50,595		16,735
Customers		3,263		1,603
Others		14,099		5,931
Securities sold, but not yet purchased		52,445		66,475
Accounts payable		6,696		5,109
Accrued compensation		25,414		37,582
Accrued expenses		8,960		8,311
Notes payable		30,027		32,228
Obligations under capitalized leases		5,564		3,110
Total Liabilities		347,138		316,959
Commitments and Contingencies
Temporary capital		3,374		3,374
Subordinated debt		5,307		3,695
Stockholders’ Equity
Preferred stock; $1.00 par value; authorized 500,000 shares; none issued
Common stock; $.01 par value; authorized 50,000,000 shares; issued 17,129,649 and 15,467,181 respectively		171		155
Additional paid-in capital		158,470		147,059
Unearned compensation		(13,882)		(15,061)
Deferred compensation		3,448		3,704
Retained (deficit)		(56,624)		(45,575)
Treasury stock, at cost		(3,861)		(4,197)
Total Stockholders’ Equity		87,722		86,085
Total Liabilities and Stockholders’ Equity	$	443,541	$	410,113

The accompanying notes are an integral part

of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND TEMPORARY CAPITAL

For the Years Ended December 31, 2005, 2004 and 2003

(In thousands of dollars except for number of shares)

								Accumulated
		Additional					Retained	Other
	Temporary	Common Stock		Paid-In	Unearned	Deferred	Earnings	Comprehensive	Treasury Stock
	Capital	Shares	Amount	Capital	Compensation	Compensation	(Deficit)	Income, Net	Shares	Amount
Balance December 31, 2002	$          -	10,923,001	$109	$100,134	$   (3,454)	$ 1,748	$ (28,384)	$         -	(498,457)	$(3,512)
Amortization of unearned compensation	-	-	-	-	2,151	-	-	-	-	-
Issuance of restricted stock, net of forfeitures	-	419,138	4	4,121	(3,926)	-	-	-	7,764	(112)
Cash dividends paid	-	-	-	-	-	-	(2,240)	-	-	-
Options exercised	-	294,712	3	2,820	-	-	-	-	154,460	562
Issuance of warrants	-	-	-	1,006	-	-	-	-	-	-
Options expense recognized	-	-	-	132	-	-	-	-	-	-
Stock issued to treasury	-	200,000	2	-	-	-	-	-	(200,000)	(2)
Treasury stock purchased	-	-	-	-	-	-	-	-	(52,200)	(667)
Employee stock trust	-	3,559	-	276	-	951	(73)	-	10,092	(73)
Employee benefit plans	-	154,837	2	1,042	-	-	(24)	-	36,474	277
Net income	-	-	-	-	-	-	10,561	-	-	-
Balance December 31, 2003	-	11,995,247	120	109,531	(5,229)	2,699	(20,160)	-	(541,867)	(3,527)
Amortization of unearned compensation	-	-	-	-	7,315	-	-	-	-	-
Issuance of restricted stock, net of forfeitures	-	1,380,400	14	18,967	(17,147)	-	-	-	(175,460)	(706)
Cash dividends paid	-	-	-	-	-	-	(2,982)	-	-	-
Options exercised	-	546,797	5	5,245	-	-	-	-	162,095	736
Options expense recognized	-	-	-	466	-	-	-	-	-	-
Employee stock trust	-	99,221	1	956	-	1,005	-	-	(77,669)	(764)
Employee benefit plans	-	-	-	243	-	-	-	-	13,018	64
Private placement	-	896,040	9	9,318	-	-	-	-	-	-
Issuance of shares, Descap acquisition	3,374	549,476	6	2,333	-	-	-	-	-	-
Special dividend – distribution of PLUG	-	-	-	-	-	-	(18,846)	-	-	-
Net loss	-	-	-	-	-	-	(3,587)	-	-	-
Balance December 31, 2004	3,374	15,467,181	155	147,059	(15,061)	3,704	(45,575)	-	(619,883)	(4,197)
Amortization of unearned compensation	-	-	-	-	9,894	-	-	-	-	-
Issuance of restricted stock, net of forfeitures	-	1,289,592	13	9,039	(8,715)	-	-	-	(274,640)	66
Cash dividends paid	-	-	-	-	-	-	(832)	-	-	-
Options exercised	-	33,988	-	213	-	-	-	-	57,103	122
Options expense recognized	-	-	-	263	-	-	-	-	-	-
Treasury stock purchased	-	-	-	-	-	-	-	-	(20,300)	(186)
Employee stock trust	-	34,449	-	283	-	(256)	-	-	48,900	334
Issuance of shares, Descap acquisition	-	304,439	3	1,613	-	-	-	-	-	-
Net income	-	-	-	-	-	-	(10,217)	-	-	-
Balance December 31, 2005	$        3,374	17,129,649	$171	$158,470	$   (13,882)	$ 3,448	$ (56,624)	$         -	(808,820)	$(3,861)

The accompanying notes are an integral part
of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of dollars)

For the years ended		December 31
		2005		2004		2003
Cash flows from operating activities:
Net income (loss)	$	(10,217)	$	(3,587)	$	10,561
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		3,666		2,806		2,823
Amortization of warrants		199		199		104
Deferred compensation		(256)		1,005		1,080
Deferred income taxes		8,510		(10,530)		8,698
Unrealized investment (gains)/loss		(15,924)		6,367		(23,607)
Realized (gains) losses on sale of investments		(5,667)		(16,437)		10
(Gain) loss on fixed assets		(70)		-		(11)
Impairment loss		-		823		-
Services provided in exchange for common stock		10,989		10,673		3,131
Changes in operating assets and liabilities, net of effects from purchase of Descap Securities, Inc.:
Cash and securities segregated for regulatory purposes		(7,100)		-		9,900
Securities purchased under agreement to resell		7,204		21,233		(3,587)
Net receivable from customers		(375)		(3,426)		238
Securities owned, net		(51,087)		57,951		41,987
Other assets		1,003		1,618		(2,109)
Net payable to brokers, dealers, and clearing agencies		43,868		(65,443)		41,722
Net payable to others		1,840		1,247		357
Accounts payable and accrued expenses		(10,131)		(11,450)		(3,202)
Income taxes payable, net		-		-		(3,068)
Net cash provided by (used in) operating activities		(23,548)		(6,951)		85,027
Cash flows from investing activities:
Purchases of office equipment and leasehold improvements		(1,216)		(1,667)		(1,171)
Sales of furniture, equipment and leaseholds		118		-		-
Payment for purchase of Descap Securities, Inc., net of cash acquired		(538)		(21,536)		-
Payment for purchase of Noddings, net of cash acquired		(125)		(583)		(42)
Purchases of investments		(4,478)		(7,200)		(3,430)
Proceeds from sale of investments		16,199		10,994		68
Net cash used in investing activities		9,960		(19,992)		(4,575)
Cash flows from financing activities:
Proceeds (payments) of short-term bank loans, net		10,200		1,375		(76,600)
Proceeds of notes payable		5,164		20,000		8,995
Proceeds from issuance of warrants		-		-		1,006
Payments of notes payable		(7,564)		(2,393)		(2,980)
Payments of obligations under capitalized leases		(1,509)		(2,050)		(1,765)
Proceeds from obligations under capitalized leases		219		-		-
Payments for purchases of common stock		(186)		-		(667)
Payments on subordinated debt		-		(26)		-
Proceeds from issuance of  common stock under stock option plans		522		4,721		3,923
Proceeds from issuance of private placement		-		9,327		-
Net increase (decrease) in drafts payable		8,215		99		(10,357)
Dividends paid		(832)		(2,982)		(2,240)
Net cash provided by (used in) financing activities	$	14,229	$	28,071	$	(80,685)

The accompanying notes are an integral part

of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of dollars)

(continued)

For the years ended		December 31
		2005		2004		2003
(Decrease) increase in cash	$	641	$	1,128	$	(233)
Cash at beginning of the period		1,285		157		390
Cash at the end of the period	$	1,926	$	1,285	$	157
SUPPLEMENTAL CASH FLOW DISCLOSURES Income tax payments	$	950	$	861	$	2,647
Interest payments	$	12,491	$	5,975	$	3,614

NON CASH INVESTING and FINANCING ACTIVITIES

In 2005, 2004 and 2003, the Company entered into capital leases for office and computer equipment totaling approximately $4.0 million, $2.0 million and $2.2 million respectively.

Refer to “Business Combination” note for assets and liabilities acquired related to the purchase of Descap Securities, Inc.

Refer to “Benefit Plans” note for non-cash financing activities related to restricted stock.

During the years ended December 31, 2005, December 31, 2004 and December 31, 2003, the Company converted $1.6 million, $0 and $2.0 million, respectively, of accrued compensation to subordinated debt.

During the year ended December 31, 2005, Intangible assets increased $2.2 million due to additional consideration paid to the sellers of Descap Securities, Inc.  $1.6 million of this additional consideration was satisfied by the issuance of 304,439 shares of Company stock.

As of December 31, 2005 and December 31, 2004, the Company acquired $3.1 million and $1.2 million in office equipment and leasehold improvements where the obligation related to this acquisition is included in accounts payable.

The accompanying notes are an integral part
of these consolidated financial statements.

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., its wholly owned subsidiaries (the "Company"), and Employee Investment Funds (see “Investments” note).  First Albany Capital Inc. (”First Albany Capital") is the Company's principal subsidiary and a registered broker-dealer.  First Albany Capital is registered with the Securities and Exchange Commission ("SEC") and is a member of various exchanges and the National Association of Securities Dealers, Inc.  Descap Securities, Inc. (“Descap”), which was acquired by the Company in 2004, is a broker-dealer registered under the SEC and is a member of the National Association of Securities Dealers, Inc.  The Company's primary business is investment banking and securities brokerage for institutional customers.  The Company also provides investment-banking services to corporate and public clients, and eng ages in market making and trading of corporate, government and municipal securities.  Another of the Company's subsidiaries is FA Asset Management Inc., which is a SEC registered investment advisor and provides absolute return and enhanced indexing through the use of convertible arbitrage to institutional investors under management agreements.  FA Technology Ventures Corporation (“FATV”) is also a subsidiary of the Company, which manages private equity funds, providing venture financing to emerging growth companies.  All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported 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

Commission income from customers’ securities transactions and related clearing and compensation expenses are reported on a trade date basis.  Profit and loss arising from securities transactions entered into for the account of the Company are recorded on trade date and are included as revenues from principal transactions.  Unrealized gains and losses resulting from valuing securities owned and sold, but not yet purchased at market value or fair value as determined by management are also included as revenues from principal transactions.  Open equity in futures is recorded at market value daily and the resultant gains and losses are included as revenues from principal transactions.  Unrealized gains and losses resulting from valuing investments at market value or fair value as determined by management are also included as revenues from investment gains (losses).

Investment Banking

Investment banking revenues include gains, losses and fees, net of transaction related expenses, arising from securities offerings in which the Company acts as an underwriter.  Investment banking management fees are recorded on offering date, sales concessions on trade date, and underwriting fees at the time the income is reasonably determinable. Investment banking revenues also include fees earned from providing merger, acquisition and financial advisory services and are recognized as services are earned.

Resale and Repurchase Agreements

Transactions involving purchases of securities under agreements to resell or sales of securities under agreements to repurchase are accounted for 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 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 counter parties to deposit additional collateral or return collateral pledged when appropriate.

At December 31, 2005, the Company had entered into a number of resale agreements with Mizuho Securities USA and First Tennessee valued at $27.8 million.  The collateral held by the Company consists of Government Bonds and was equal to the approximate principal amount loaned to Mizuho Securities USA and First Tennessee. These resale agreements may be cancelled or renewed on a daily basis by either the Company or the counter party.

Securities-Lending Activities

Securities borrowed and securities loaned transactions are generally reported as collateralized financings and 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 transactions, 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.  

Collateral

The Company receives collateral in connection with resale agreements and securities borrowed transactions.  Under many agreements, the Company is permitted to sell or repledge these securities held as collateral and use the securities to secure repurchase agreements, enter into securities lending transactions or deliver to counter parties to cover short positions.  The Company continues to report assets it has pledged as collateral in secured borrowing transactions and other arrangements when the secured party cannot sell or repledge the assets and does not report assets received as collateral in secured lending transactions and other arrangements because the debtor typically has the right to redeem the collateral on short notice.

Intangible Assets

The Company amortizes customer related intangible assets over their estimated useful life, which is the period over which the assets are expected to contribute directly or indirectly to the future cash flows of the Company.  Goodwill is not amortized; however, all intangible assets are evaluated annually for impairment.

Drafts Payable

Drafts payable represent amounts drawn by the Company against a bank and sight overdrafts under a sweep agreement with a bank.  Drafts payable are included in payables to others on the Consolidated Statements of Financial Condition.

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.

Derivative Financial Instruments

The Company does not engage in the proprietary trading of derivative securities with the exception of highly liquid treasury and municipal index futures contracts and options.  These index futures contracts and options are used primarily to hedge securities positions in the Company’s securities owned.  Futures contracts are executed on an exchange, and cash settlement is made on a daily basis for market movements.  Gains and losses on these financial instruments are included as revenues from principal transactions.  

Fair Value of Financial Instruments

The financial instruments of the Company are reported at market or fair value or at carrying amounts that approximate fair values, because of the short maturity of the instruments except notes payable as disclosed in the “Short-Term Bank Loans and Notes Payable” note to the Consolidated Financial Statements.

Office Equipment and Leasehold Improvements

Office equipment and leasehold improvements are stated at cost less accumulated depreciation of $24.8 million at December 31, 2005 and $21.4 million at December 31, 2004.  Depreciation is provided on a straight-line basis over the shorter of the estimated useful life of the asset (2 to 5 years) or the initial term of the lease.  Depreciation expense for the years ended December 31, 2005, 2004 and 2003 was $3.6 million, $2.6 million and $2.7 million, respectively.

Securities Issued for Services

The Company adopted the recognition provisions of FAS 123 effective January 1, 2003 using the prospective method of transition described in FAS 148, “Accounting for Stock-Based Compensation-Transition and Disclosure.”  Under the fair value recognition provisions of FAS 123 and FAS 148, stock-based compensation cost as it relates to options is measured at the grant date based on the Black-Scholes value of the award and is recognized as expense over the vesting period for awards granted after December 31, 2002.  For options granted prior to December 31, 2002, the fair value of options granted was not required to be recognized as an expense in the Consolidated Financial Statements.  Compensation expense for restricted stock awards is recorded for the fair market value of the stock issued.  In the event that recipients are required to render future services to obtain full rights in the securities received, the compensation expense i s deferred and amortized as a charge to income over the period that such rights vest to the recipient.  (see “New Accounting Standards” note).

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 basis and tax basis of existing assets and liabilities.

Reclassification

Certain 2004 and 2003 amounts on the Consolidated Statements of Operations have been reclassified to conform to the 2005 presentation.  The reclassifications include $1.4 million for both 2004 and 2003 in fees received for remarketing municipal bonds being reclassified to Investment banking from Principal transactions, and $1.0 million and $1.1 million for 2004 and 2003, respectively, in transaction related fees that previously had been netted were grossed-up to increase Principal transactions revenue and increase Clearance, settlement and brokerage costs.

Earnings per Common Share

Basic earnings per share are computed based upon weighted-average shares outstanding.  Dilutive earnings per share is computed consistently with basic while giving effect to all dilutive potential common shares that were outstanding

during the period.  The weighted-average shares outstanding were calculated as follows at December 31:

(In thousands of shares)	2005	2004	2003
Weighted average shares for basic earnings per share	13,824	12,528	10,548
Effect of dilutive common equivalent shares	-	-	1,309
Weighted average shares and dilutive common equivalent shares for dilutive earnings per share	13,824	12,528	11,857

The Company excluded approximately 855,379 and 1,093,230 common equivalent shares in 2005 and 2004, respectively, in its computation of dilutive earnings per share because they were anti-dilutive.  

  NOTE 2.       Cash and Securities Segregated for Regulatory Purposes

At December 31, 2005 and 2004, the Company segregated cash of $7,100,000 and $-0- respectively, in a special reserve bank account for the benefit of customers under Rule 15c3-3 of the Securities and Exchange Commission.

  NOTE 3.       Receivables From and Payables To Brokers, Dealers, and Clearing Agencies

Amounts receivable from and payable to brokers, dealers and clearing agencies consists of the following at December 31:

(In thousands of dollars)		2005		2004
Adjustment to record securities owned on a trade date basis, net	$	23,190	$	16,009
Securities borrowed		179		462
Commissions receivable		2,928		3,072
Securities failed to deliver		4,086		22,452
Good faith deposits		1,337		355
Receivable from clearing organizations		4,501		3,879
Total receivables	$	36,221	$	46,229
Payable to clearing organizations	$	45,959	$	14,685
Securities failed to receive		4,636		2,050
Total payables	$	50,595	$	16,735

Proprietary securities transactions are recorded on a trade date, as if they had settled.  The related amounts receivable and payable for unsettled securities transactions are recorded net in receivables or payables to brokers, dealers and clearing agencies on the Statements of Financial Condition.

  NOTE 4.       Receivables From and Payables To Customers

At December 31, 2005, receivables from customers are mainly comprised of the purchase of securities by institutional clients. Delivery of these securities is made only when the Company is in receipt of the funds from the institutional clients.

The majority of the Company’s non-institutional customers securities transactions, including those of officers, directors, employees and related individuals, are cleared through a third party under a clearing agreement.  Under this agreement, the clearing agent executes and settles customer securities transactions, collects margin receivables related to these transactions, monitors the credit standing and required margin levels related to these customers and, pursuant to margin guidelines, requires the customer to deposit additional collateral with them or to reduce positions, if necessary.  In the event the customer is unable to fulfill its contractual obligations, the clearing agent may purchase or sell the financial instrument underlying the contract, and as a result may incur a loss.

If the clearing agent incurs a loss, it has the right to pass the loss through to the Company which exposes the Company to off-balance-sheet risk.  The Company has retained the right to pursue collection or performance from customers who do not perform under their contractual obligations and monitors customer balances on a daily basis along with the credit standing of the clearing agent.  As the potential amount of losses during the term of this contract has no maximum, the Company believes there is no maximum amount assignable to this indemnification.  At December 31, 2005, substantially all customer obligations were fully collateralized and the Company has not recorded a liability related to the clearing agent’s right to pass losses through to the Company.

  NOTE 5.       Securities Owned and Sold, but Not Yet Purchased

Securities owned and sold, but not yet purchased consisted of the following at December 31:

		2005				2004
(In thousands of dollars)		Owned		Sold, but not yet Purchased		Owned		Sold, but not yet Purchased
Marketable Securities
U.S. Government and federal agency obligations	$	84,983	$	50,729	$	65,364	$	60,642
State and municipal bonds		124,388		128		115,819		4,501
Corporate obligations		41,954		760		32,273		726
Corporate stocks		11,542		828		10,669		606
Options		-		-		56		-
Not Readily Marketable Securities
Investment securities with no publicly quoted market		909		-		1,732		-
Investment securities subject to restrictions		2,018		-		2,824		-
Total	$	265,794	$	52,445	$	228,737	$	66,475

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.

  NOTE 6.       Investments

The Company’s investment portfolio includes interests in publicly and privately held companies. Information regarding these investments has been aggregated and is presented below as of and for the years ended December 31:

(In thousands of dollars)		2005		2004		2003
Carrying Value
Public	$	40,375	$	19,970	$	41,505
Private		9,492		19,405		11,511
Consolidation of Employee Investment Funds, net of Company’s ownership interest, classified as Private Investment		2,630		5,170		2,848
Total carrying value	$	52,497	$	44,545	$	55,864

Investment gains and losses were comprised of the following:

(In thousands of dollars)		2005		2004		2003
Public (realized and unrealized gains and losses)	$	22,424	$	8,240	$	22,501
Private (realized gains and losses)		(830)		66		(10)
Private (unrealized gains and losses)		(3)		1,764		1,106
Investment gains (losses)	$	21,591	$	10,070	$	23,597

iRobot (“IRBT”) and Mechanical Technology Incorporated (“MKTY”) account for the majority of public investments owned by the Company.    As of December 31, 2005, the Company owned approximately 1.1 million shares of IRBT worth approximately $37.2 million.  In the context of IRBT’s initial public offering (“IPO”), the Company and other certain stockholders of IRBT entered into a lock-up agreement with the managing underwriters of the IPO in which it agreed not to sell IRBT for a period ending May 8, 2006.  The lock-up is subject to extension through June 10, 2006 in specified circumstances generally related to IRBT’s corporate announcements.  Please refer to “Short-Term Bank Loans and Notes Payable” note to the Consolidated Financial Statements.  During the fourth quarter of 2005, the Company recognized an unrealized gain of approximately $28.8 million and a realized gain of a pproximately $2.2 million related to a public offering.  At December 31, 2004, IRBT was classified as a private investment and was valued at $8.6 million.  As of December 31, 2005, the Company owned approximately 1.1 million shares of MKTY with a market value of $3.1 million, which may be sold without restriction pursuant to Rule 144(k) of the Securities Act of 1933.

Privately held investments include an investment of $8.5 million in FA Technology Ventures L.P. (the “Partnership”), which represented  the Company’s maximum exposure to loss in the Partnership at December 31, 2005.  The Partnership’s primary purpose is to provide investment returns consistent with the risk of investing in venture capital.  At December 31, 2005 total Partnership capital for all investors in the Partnership equaled $33.2 million.  The Partnership is considered a variable interest entity.   The Company is not the primary beneficiary, due to other investors’ level of investment in the Partnership.  Accordingly, the Company has not consolidated the Partnership in these financial statements but has only recorded the value of its investment.  FA Technology Ventures Inc, (“FATV”) is the investment advisor for the Partnership.  Revenues derived fro m the management of this investment and the Employee Investment Fund for the calendar year ended December 31, 2005 were $1.6 million in consolidation.

The Company has consolidated its Employee Investment Funds (EIF). The EIF are a limited liability companies, established by the Company for the purpose of having select employees invest in private equity placements. The EIF is managed by FAC Management Corp., which has contracted with FATV to act as an investment advisor with respect to funds invested.  The Company’s carrying value of this EIF is $0.5 million excluding the effects of consolidation.  The Company has loaned $1.3 million to the EIF and is also committed to loan an additional $0.3 million to the EIF.  The effect of consolidation was to increase Investments by $2.6 million, decrease Receivable from Others by $1.2 million and increased Payable to Others by $1.4 million.  The amounts in Payable to Others relates to the value of the EIF owned by employees.

  NOTE 7.       Intangible Assets

(In thousands of dollars)	December 31 2005		December 31 2004
Intangible assets
Customer related (amortizable):
Descap Securities, Inc. - Acquisition	$	641	$	641
Institutional convertible bond arbitrage group - Acquisition		1,017		1,017
Accumulated amortization		(395)		(280)
		1,263		1,378
Goodwill (unamortizable):
Descap Securities, Inc. - Acquisition		23,763		21,578
Institutional convertible bond arbitrage group - Acquisition		964		964
		24,727		22,542
Total Intangible Assets	$	25,990	$	23,920

The carrying amount of goodwill for the Descap Securities, Inc. - Acquisition increased by $2.2 million during the year ended December 31, 2005, related primarily to additional consideration pursuant to the acquisition agreement (see “Commitments and Contingencies” note).

Customer related intangible assets are being amortized over 10 to 12 years.  Amortization expense for the years ended December 31, 2005, 2004, and 2003 was $115 thousand, $178 thousand, and $102 thousand, respectively.  Future amortization expense is estimated as follows:

Estimated Amortization Expense (year ended December 31)
2006	$	155
2007		155
2008		155
2009		155
2010		155
Thereafter		488
Total	$	1,263

  NOTE 8.      Short-Term Bank Loans and Notes Payables

Short-term bank loans are made under a variety of bank lines of credit totaling $250 million of which approximately $150 million is outstanding at December 31, 2005.  These bank lines of credits consist of credit lines that the Company has been advised are available but for which no contractual lending obligation exist and are repayable on demand.  These loans are collateralized by eligible securities, including Company-owned securities, subject to certain regulatory formulas.  These loans bear interest at variable rates based primarily on the Federal Funds interest rate.  The weighted average interest rates on these loans were 4.68% and 2.42% at December 31, 2005 and 2004 respectively.  At December 31, 2005, short-term bank loans were collateralized by Company-owned securities, which are classified as securities owned and receivables from brokers, dealers and clearing agencies, of $183.8 million.

Notes payable also include Senior Notes dated June 13, 2003 for $10 million, which were repaid in full in March 2006.  The Senior Notes had a fixed interest rate of 8.5% payable semiannually and were to mature on June 30, 2010.  The Senior Notes contain various covenants, as defined in the agreements, including restrictions on the incurrence of debt and an adjusted cash flow coverage rate for First Albany Capital Inc. (a wholly owned subsidiary) of not less than 1.2 to 1 at the end of each fiscal quarter based on the most recently concluded period of four consecutive quarters (at the end of the December 31, 2005 quarter, the Company’s adjusted cash flow coverage rate was -35.3 to 1). As of December 31, 2005, the Company was not in compliance with the financial covenants contained in the note agreement.  On January 10, 2006, the purchasers of these notes agreed to waive the Company’s non-compliance effective Dec ember 31, 2005.  The Company may, at its option, prepay at any time all, or from time to time any part of the note including a “Make-Whole” amount, as defined in the agreement, related to the discounted value of the remaining payments.  At December 31, 2005, based on current estimated interest rate, the fair value of the Senior Notes approximated $9.7 million.

There were 437,000 warrants issued to the purchasers of the Senior Notes, which are exercisable between $10.08 and $11.54 per share through June 13, 2010.  The value assigned to the warrants was $1 million.  The value of the Senior Notes was discounted by the value of the warrants and is being amortized over the term of the notes.

Subsequent to year-end, the Company entered into an $11 million Term Loan for the purpose of repaying the Senior Notes, of which the Company initially borrowed $8.7 million.  Interest on the term loan is 1% over the prime rate (7.5% at December 31, 2005).  Interest is payable monthly with principal repayment on June 15, 2006.  The term loan contains various covenants consistent with the Company’s $15.6 Term Loan.  In addition, the Company has agreed to repay $5.0 million of outstanding debt by June 15, 2006 related primarily to the $4.9 million Term Loan.  Upon expiration of a lock-up agreement to which we are a party (refer to “Investments” note in the Consolidated Financial Statements), the $11 million Term Loan will be collateralized by shares of iRobot Corporation common stock owned by the Company.  If the daily market value of the iRobot common stock decreases to a level that causes the outstanding loan to exceed 30% of the collateral value, the Company must pledge additional collateral, either in cash or other specified securities.

The Company’s notes payable also include a $15.6 million Term Loan to finance the acquisition of Descap Securities, Inc.  Interest rate is 2.4% over the 30-day London InterBank Offered Rate (“LIBOR”) (4.34% at December 31, 2005).  Interest only was payable for first six months, and thereafter monthly payments of $238 thousand in principal and interest over the life of loan which matures on May 14, 2011.  The Term Loan agreement contains various covenants, as defined in the agreement.  As of March 31, 2005 and June 30, 2005, the Company was not in compliance with certain covenants contained in the Term Loan.  On April 22, 2005 the lender agreed to waive the financial covenants contained in the term loan agreement for the quarter ended March 31, 2005.  On August 9, 2005, the lender agreed to amend the loan document, effective June 30, 2005.  The lender agreed to eliminate the EBITDAR requirement of $22.5 millio n, amend the definition for operating cash flow, fixed charges, EBITDAR and modified indebtedness.  The lender also agreed to increase the maximum allowable modified total funded indebtedness to EBITDAR ratio from 1.75 to 2.00 through March 31, 2006.  Thereafter the modified debt requirement will not exceed 1.75 to 1.  The financial covenants require operating cash flow to total fixed charge ratio (as defined) of not less than 1.15 to 1 (for the twelve month period ending December 31, 2005, the operating cash flow to total fixed charge ratio 1.19 to 1) and modified total funded debt to EBITDAR ratio of less than 2.00 to 1 (for the twelve month period ending December 31, 2005, modified total funded debt to EBITDAR ratio was 1.82 to 1).  EBITDAR is defined as earnings before interest, taxes, depreciation, amortization and lease expense plus pro forma adjustments as defined in the modified term loan agreement and referred to as “EBITDAR.” The definition of operating cash flow inclu des the payment of cash dividends; therefore, the Company’s ability to pay cash dividends in the future may be impacted by the covenant.  

Notes payable include a $4.9 million Term Loan with a current interest rate of 3.25% over the 30-day London Interbank Offered Rate (“LIBOR”) (4.34% at December 31, 2005).  The interest rate may fluctuate based upon the Borrower’s leverage ratio.  Interest only is payable for the first four months; thereafter monthly payments of principal and interest are payable over the life of the loan, which originally matured on April 30, 2011, but has been modified to mature on June 15, 2006.  The term loan agreement contains various covenants consistent with the Company’s $15.6 million Term Loan.  One additional covenant limits the Company’s ability to incur additional indebtedness in excess of $5 million in each calendar year.  This limitation does not apply to short-term bank loans collateralized by Company-owned securities, refinancing of existing debt and certain other indebtedness.

Principal payments for all notes, which include $0.5 million discounted on the senior notes, are due as follows (modified to reflect maturities adjusted for subsequent financings):

(In thousands of dollars)
2006	$	17,857
2007		2,857
2008		2,857
2009		2,857
2010		2,857
Thereafter		1,239
Total principal payments		30,524
Less: remaining amortization of value of warrants		497
Total principal payments remaining	$	30,027

  NOTE 9.       Obligations Under Capitalized Leases

The following is a schedule of future minimum lease payments under capital leases for office equipment together with the present value of the net minimum lease payments at December 31, 2005:

(In thousands of dollars)
2006	$	2,043
2007		1,659
2008		1,083
2009		804
2010		581
Thereafter		232
Total minimum lease payments		6,402
Less:  amount representing interest		838
Present value of minimum lease payments	$	5,564

  NOTE 10.       Payables To Others

Amounts payable to others consisted of the following at December 31:

(In thousands of dollars)		2005		2004
Draft payables	$	9,963	$	1,748
Others		2,765		1,648
Net Payable to Employees for the Employee Investment Fund (see “Investments” note)		1,371		2,535
Total	$	14,099	$	5,931

Drafts payable represent amounts drawn by the Company against a bank and sight overdrafts under a sweep agreement with a bank.

  NOTE 11.       Subordinated Debt

A select group of management and highly compensated employees are eligible to participate in the First Albany Companies Inc. Deferred Compensation Plan for Key Employees (the “Plan”).  The employees enter into subordinate loans with the Company to provide for the deferral of compensation and employer allocations under the Plan.  The New York Stock Exchange has approved the Company’s subordinated debt agreements related to the Plan.  Pursuant to these approvals, these amounts are allowable in the Company’s computation of net capital.  The accounts of the participants of the Plan are credited with earnings and/or losses based on the performance of various investment benchmarks selected by the participants.  Maturities of the subordinated debt are based on the distribution election made by each participant, which may be deferred to a later date by the participant.  Principal debt repayment requirement as of Dece mber 31, 2005, are as follows:

(In thousands of dollars)
2006	$	1,288
2007		1,462
2008		1,299
2009		141
2010		266
2011 to 2015		851
Total	$	5,307

  NOTE 12.       Commitments and Contingencies

Commitments:  As of December 31, 2005, the Company had a commitment to invest up to $7.6 million in FA Technology Ventures, LP (the “Partnership”). This commitment extends initially to the end of the Partnership’s Commitment Period, which expires in July 2006; however, the General Partner may continue to make capital calls up through July 2011 for additional investments in portfolio companies and for the payment of management fees.  The Company intends to fund this commitment from the sale of other investments and operating cash flow. The Partnership’s primary purpose is to provide investment returns consistent with risks of investing in venture capital. In addition to the Company, certain other limited partners of the Partnership are officers or directors of the Company. The majority of the commitments to the Partnership are from non-affiliates of the Company.

The General Partner for the Partnership is FATV GP LLC. The General Partner is responsible for the management of the Partnership, including among other things, making investments for the Partnership. The members of the General Partnership are George McNamee, Chairman of the Company, First Albany Enterprise Funding, Inc., a wholly owned subsidiary of the Company, and other employees of the Company or its subsidiaries. Mr. McNamee is required under the Partnership agreement to devote a majority of his business time to the conduct of the affairs of the Partnership and any parallel funds. Subject to the terms of the Partnership agreement, under certain conditions, the General Partnership is entitled to share in the gains received by the Partnership in respect of its investment in a portfolio company. The General Partner will receive a carried interest on customary terms. The General Partner has contracted with FATV to act as investment advisor to the General Par tner.

As of December 31, 2005, the Company had an additional commitment to invest up to $0.4 million in funds that invest in parallel with the Partnership, which it intends to fund, at least in part, through current and future Employee Investment Funds (EIF). This commitment extends initially to the end of the Partnership’s Commitment Period, which expires in July 2006; however, the General Partner may continue to make capital calls up through July 2011 for additional investments in portfolio companies and for the payment of management fees.  EIF are limited liability companies, established by the Company for the purpose of allowing select employees to invest their own funds in private equity placements.  The EIF are managed by FAC Management Corp., a wholly owned subsidiary, which has contracted with FATV to act as an investment advisor with respect to funds invested in parallel with the Partnership. The Company anticipates that the portion of the commitment that is not funded by employees through the EIF will be funded by the Company through the sale of other investments and operating cash flow.

Contingent Consideration:  On May 14, 2004, the Company acquired 100 percent of the outstanding common shares of Descap, a New York-based broker-dealer and investment bank.  Per the acquisition agreement, the Sellers can receive future contingent consideration (“Earnout Payment”) based on the following:  for each of the years ending May 31, 2005 through May 31, 2007, if Descap’s Pre-Tax Net Income (as defined) (i) is greater than $10 million, the Company shall pay to the Sellers an aggregate amount equal to fifty percent (50%) of Descap’s Pre-Tax Net Income for such period, or (ii) is equal to or less than $10 million, the Company shall pay to the Sellers an aggregate amount equal to forty percent (40%) of Descap’s Pre-Tax Net Income for such period.  Each Earnout Payment shall be paid in cash, provided that Buyer shall have the right to pay up to seventy-five percent (75%) of each Earnout Payment in the fo rm of shares of Company Stock.  The amount of any Earnout Payment that the Company elects to pay in the form of Company Stock shall not exceed $3.0 million for any Earnout Period and in no event shall such amounts exceed $6.0 million in the aggregate for all Earnout Payments.

Based upon Descap’s Pre-Tax Net Income from June 1, 2004 through May 31, 2005, a total of $2.2 million of additional consideration was paid to the Sellers on December 30, 2005.  The Sellers received $0.6 million in cash and 304,439 shares of the Company’s common stock valued at $1.6 million.

Also, based upon Descap’s Pre-Tax Net Income from June 1, 2005 through December 31, 2005, $0.3 million of contingent consideration would be payable to the Sellers.  The contingent consideration will not be accrued in the Company’s financial statement until the contingency is resolved and the consideration is distributable.

Subsequent to year-end, the Company has committed to entering into retention agreements with certain of its employees in an amount aggregating $7.5 million.  These amounts are payable to the extent the employee continues to work for the Company, subject to certain exceptions as defined.  These retention amounts will be paid in July 2006.

Leases:  The Company's headquarters and sales offices, and certain office and communication equipment, are leased under non-cancelable operating leases, certain of which contain renewal options and escalation clauses, and which expire at various times through 2014. To the extent the Company is provided tenant improvement allowances funded by the lessor, they are amortized over the initial lease period and serve to reduce rent expense.  To the extent the Company is provided free rent periods, the Company recognizes the rent expense over the entire lease term on a straightline basis.   Future minimum annual lease payments, and sublease rental income, are as follows:

(In thousands of dollars)		Future Minimum Lease Payments		Sublease Rental Income		Net Lease Payments
2006	$	9,674	$	1,412	$	8,262
2007		9,174		939		8,235
2008		8,452		704		7,748
2009		5,237		-		5,237
2010		4,806		-		4,806
Thereafter		10,340		-		10,340
Total	$	47,683	$	3,055	$	44,628

Annual rental expense, net of sublease rental income, for the years ended December 31, 2005, 2004 and 2003 approximated $7.2 million, $5.6 million, and $5.6 million, respectively.

During the quarter ending June 30, 2005, the Company executed a lease for new office space in New York City.  The Company’s leases for its current office spaces in New York City expire in October 2008 and May 2009.  Based upon current market conditions, the Company has estimated it will incur a charge of approximately $3.0 million, net of anticipated sublease rental income when it ceases to use its current office spaces.

Litigation:  In 1998 the Company was named in lawsuits by Lawrence Group, Inc. and certain related entities (the “Lawrence Parties”) in connection with a private sale of Mechanical Technology Inc. stock from the Lawrence Parties that was previously approved by the United States Bankruptcy Court for the Northern District of New York (the “Bankruptcy Court”).  The Company acted as placement agent in that sale, and a number of employees and officers of the Company, who have also been named as defendants, purchased shares in the sale.  The complaints alleged that the defendants did not disclose certain information to the sellers and that the price approved by the court was therefore not proper. The cases were initially filed in the Bankruptcy Court and the United States District Court for the Northern District of New York (the “District Court”), and were subsequently consolidated in the District Court.  Th e District Court dismissed the cases, and that decision was subsequently vacated by the United States Court of Appeals for the Second Circuit, which remanded the cases for consideration of the plaintiffs' claims as motions to modify the Bankruptcy Court sale order.  The plaintiffs' claims have now been referred back to the Bankruptcy Court for such consideration.  Discovery is currently underway.  The Company believes that it has strong defenses to and intends to vigorously defend itself against the plaintiffs' claims, and believes that the claims lack merit.

In connection with the termination of Arthur Murphy’s employment by First Albany Capital as Executive Managing Director, Mr. Murphy filed an arbitration claim against First Albany Capital, Alan Goldberg, President and Chief Executive Officer, and George McNamee, Chairman of First Albany Companies Inc. with the National Association of Securities Dealers on June 24, 2005.  Mr. Murphy is a director of the Company.  The claim alleges damages in the amount of $8 million based on his assertions that he was fraudulently induced to remain in the employ of First Albany Capital.  A hearing in the matter is scheduled to commence during the second quarter of 2006.  The Company believes the claim to be wholly without merit and intends to vigorously defend against such claim.

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 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 most likely of adverse dispositions.  Although further losses are possible, the opinion of management, based upon the advice of its attorneys, is that such litigation will not, in the aggregate, have a material adverse effect on the Company's liquidity, financial position or cash flow, although it could have a material effect on quarterly or annual operating results in the period in which it is resolved.

Collateral:

The fair value of securities received as collateral, where the Company is permitted to sell or repledge the securities consisted of the following as of December 31:

(In thousands of dollars)		2005		2004
Securities purchased under agreements to resell	$	27,804	$	35,080
Securities borrowed		177		446
Total	$	27,981	$	35,526

Letters of Credit:  The Company is contingently liable under bank stand-by letter of credit agreements, executed in connection with office leases, totaling $2.1 million at December 31, 2005.  The letter of credit agreements were collateralized by Company securities with a market value of $2.3 million at December 31, 2005.

Other:  In February of 2005, the Company was informed that the general partner of Ardent Research Partners LP (“Ardent”), an investment fund in which Company is a limited partner, was the subject of an SEC investigation.  The complaint by the SEC alleges the general partner, Northshore Asset Management LLC, misappropriated fund assets in making illiquid, and potentially improper, investments.  During the fourth quarter of 2005, the Company recognized a reduction in the carrying value of this investment of $0.4 million as an estimate of what the future loss, if any, might be. As of December 31, 2005 the value of the Company’s investment in Ardent is $0.2 million and is classified as securities owned on the Statements of Financial Condition.

The Company enters into underwriting commitments to purchase securities as part of its investment banking business. Also, the Company may purchase and sell securities on a when-issued basis.  As of December 31, 2005, the Company had no outstanding underwriting commitments and had purchased or sold no securities on a when-issued basis.

  NOTE 13.       Temporary Capital

In connection with the Company’s acquisition of Descap Securities, Inc., the Company issued 549,476 shares of stock which provides the Sellers the right to require the Company to purchase back the shares issued, at a price of $6.14 per share.  Accordingly, the Company has recognized as temporary capital the amount that it may be required to pay under the agreement.  If the put is not exercised by the time it expires, the Company will reclassify the temporary capital to stockholders’ equity.  The Company also has the right to purchase back these shares from the Sellers at a price of $14.46.  The put and call rights expire on May 31, 2007.

  NOTE 14.       Stockholders’ Equity

Dividends:  In February 2005, the Board of Directors declared a quarterly cash dividend of $0.05 per share payable on March 10, 2005, to shareholders of record on February 24, 2005.  In May 2005, the Board of Directors suspended the $0.05 per share dividend.

Acquisition – Descap Securities, Inc.:  The shares issued to the sellers of Descap provide the sellers the right to require the Company to purchase back these shares at a price of $6.14 per share.  The Company also has the right to purchase back these shares from the sellers at a price of $14.46.  Both the put and call rights expire on May 31, 2007. The value assigned to the shares of common stock issued ($10.39 per share) approximated the market value of the stock on the date Descap was acquired ($10.30 per share).  The difference in the value assigned and the market value was due to the put and call features attached to the stock.

Rights Plan:  On March 27, 1998, the Board of Directors adopted a Shareholder Rights Plan.  The rights were distributed as a dividend of one right for each share of First Albany Companies Inc. common stock outstanding, with a record date of March 30, 1998.  The Shareholder Rights Plan is intended to deter coercive takeover tactics and strengthen the Company's ability to deal with an unsolicited takeover proposal.

The rights will expire on March 30, 2008.  Each right will entitle the holder to buy one one-hundredth of a newly issued share of preferred stock at an exercise price of $56.00.  The rights will become exercisable at such time as any person or group acquires more than 15% of the outstanding shares of common stock of the Company (subject to certain exceptions) or within 10 days following the commencement of a tender offer that will result in any person or group owning such percentage of the outstanding voting shares.

Upon any person or group acquiring 15% of the outstanding shares of voting stock, each right will entitle its holders to buy shares of First Albany Companies Inc. common stock (or of the stock of the acquiring company if it is the surviving entity in a business combination) having a market value equal to twice the exercise price of each right.  The rights will be redeemable at any time prior to their becoming exercisable.

Treasury Stock:  In December 2003, the Board of Directors authorized a stock repurchase program, which expired June 9, 2005.  At December 31, 2005, the Company had repurchased 20,300 shares pursuant to this program on the open market.

Deferred Compensation and Employee Stock Trust:  The Company has adopted or may hereafter adopt various nonqualified deferred compensation plans (the "Plans") for the benefit of a select group of highly compensated employees who contribute significantly to the continued growth and development and future business success of the Company.  Plan participants may elect under the Plans to have the value of their Plans Accounts track the performance of one or more investment benchmarks available under the Plans, including First Albany Companies Common Stock Investment Benchmark, which tracks the performance of First Albany Companies Inc. common stock ("Company Stock").  With respect to the First Albany Companies Common Stock Investment Benchmark, the Company contributes Company Stock to a rabbi trust (the "Trust") it has established in connection with meeting its related liability under the Plans.

Assets of the Trust have been consolidated with those of the Company.  The value of the Company's stock at the time contributed to the Trust has been classified in stockholders’ equity and generally accounted for in a manner similar to treasury stock.

The deferred compensation arrangement requires the related liability to be settled by delivery of a fixed number of shares of Company stock.  Accordingly, the related liability is classified in equity under deferred compensation and changes in the fair market value of the amount owed to the participant in the Plan is not recognized.

  NOTE 15.       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 basis 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 income tax provision was allocated as follows for the year ended December 31:

(In thousands of dollars)		2005		2004		2003
Income (loss) from continuing operation	$	8,467	$	(6,866)	$	7,833
Income (loss) from discontinued operations		(235)		(901)		(780)
Stockholders’ equity (additional paid-in capital)		(213)		(2,273)		(784)
Total income tax provision (benefit)	$	8,019	$	(10,040)	$	6,269

The components of income taxes attributable to income (loss) from continuing operations, net of valuation allowance, consisted of the following for the years ended December 31:

(In thousands of dollars)		2005		2004		2003
Federal
Current	$	41	$	(115)	$	(1,875)
Deferred (including tax benefit from operating loss carryforwards of $0, $1.5 million and $0)		6,496		(5,200)		7,267
State and local
Current		(127)		-		325
Deferred (including tax benefit from operating loss carryforwards of $0, $0.05 million and $0.1 million)		2,057		(1,551)		2,116
Total income tax expense (benefit)	$	8,467	$	(6,866)	$	7,833

The expected income tax expense (benefit) using the federal statutory rate differs from income tax expense pertaining to pretax income (loss) from continuing operations as a result of the following for the years ended December 31:

(In thousands of dollars)		2005		2004		2003
Income taxes at federal statutory rate @ 35%	$	(332)	$	(3,063)	$	6,828
Graduated tax rates		9		88		(196)
State and local income taxes, net of federal income taxes and state valuation allowance		1,274		(1,139)		1,612
Meals and entertainment		253		319		293
Tax-exempt interest income, net		(773)		(1,320)		(760)
PLUG stock distribution		-		(1,830)		-
Appreciated stock contribution		(123)		-		-
Other, including reserve adjustments		(83)		79		56
Change in federal and foreign valuation allowance		8,242		-		-
Total income tax expense (benefit)	$	8,467	$	(6,866)	$	7,833

In 2004, the Company distributed approximately 2 million shares of PLUG as a special dividend to the Company’s shareholders.  The Company realized an approximate $2.2 million tax benefit (federal tax benefit of $1.8 million and state tax benefit of $0.4 million) due to a difference in the accounting and tax treatments of this distribution.

The temporary differences that give rise to significant portions of deferred tax assets and liabilities consisted of the following at December 31:

(In thousands of dollars)		2005		2004
Securities held for investment	$	(15,134)	$	(10,607)
Fixed assets		152		366
Deferred compensation		10,736		10,083
Accrued liabilities		1,228		1,454
Net operating loss carryforwards		11,917		6,955
Other		334		259
Total net deferred tax asset before valuation allowance		9,233		8,510
Less valuation allowance		9,233		-
Total net deferred tax asset	$	-	$	8,510

In the fourth quarter of 2005, the Company recorded a valuation allowance of approximately $9.2 million as a result of uncertainties related to the realization of its net deferred tax asset at December 31, 2005.  The valuation allowance was established as a result of weighing all positive and negative evidence, including the Company’s history of cumulative losses over the past two years and the difficulty of forecasting future taxable income  Accordingly the valuation allowance reflects the conclusion of management that it is more likely than not that the benefit of the deferred tax assets will not be realized.  The Company did not record a valuation allowance for deferred tax assets at December 31, 2004 since it determined that it was more likely than not that deferred tax assets would be fully realized through future taxable income.

At December 31, 2005, the Company had federal net operating loss carryforwards of $29.4 million, which expire between 2023 and 2025.  At December 31, 2005, the Company had state operating loss carryforwards for tax purposes approximating $25.4 million, which expire between 2009 and 2025.

  NOTE 16.       Benefit Plans

First Albany Companies Inc. has established several stock incentive plans through which employees of the Company may be awarded stock options, stock appreciation rights and restricted common stock, which expire at various times through December 31, 2011.  The following is a recap of all plans as of December 31, 2005.  

Share awards authorized for issuance	10,106,015
Share awards used:
Stock options granted and outstanding	2,492,809
Restricted stock awards granted and unvested	2,234,325
Options exercised and restricted stock awards vested	4,306,990
Stock options expired and no longer available	190,327
Total share awards used	9,224,451
Share awards available for future awards	881,564

The equity compensation plan information presented in the following table is as of December 31, 2005:

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (c) (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	1,733,816	$9.29	569,411
Equity compensation plans not approved by security holders (2001 Long-Term Incentive Plan)	758,993	$6.38	312,153
Total	2,492,809	$8.40	881,564

The 2001 Long-Term Incentive Plan was approved by the Board of Directors on October 18, 2001 and provides for the granting of non-qualified stock options performance units, restricted shares and stock appreciation rights to the employees of the Company and its subsidiaries.

Options:  Options granted under the plans have been granted at not less than fair market value, vest over a maximum of five years, and expire ten years after grant date.  Option transactions for the three year period ended December 31, 2005, under the plans were as follows:

	Shares Subject to Option	Weighted Average Exercise Price
Balance at December 31, 2002	3,669,082	$   7.53
Options granted	464,500	8.15
Options exercised	(449,172)	6.41
Options terminated	(293,648)	8.89
Balance at December 31, 2003	3,390,762	7.65
Options granted	122,500	13.23
Options exercised	(708,891)	6.49
Options terminated	(90,019)	6.93
Balance at December 31, 2004	2,714,352	8.23
Options granted	15,000	6.73
Options exercised	(91,091)	5.75
Options terminated	(145,452)	6.66
Balance at December 31, 2005	2,492,809	$   8.40

The following table summarizes information about stock options outstanding under the plans at December 31, 2004:

		Outstanding					Exercisable
Exercise Price Range	Shares		Average Life (years)		Average Exercise Price	Shares			Average Exercise Price
$4.60   -   $6.44	602,555		5.65	$	5.69	590,142		$	5.69
$6.53   -   $9.14	1,467,706		5.40		7.96	1,396,375			7.97
$9.47   -  $13.26	100,326		5.81		11.42	76,660			10.95
$13.35  -  $18.70	322,222		5.65		14.55	266,494			14.56
	2,492,809		5.51	$	8.40	2,329,671		$	8.25

At December 31, 2004, 1,449,549 options with an average exercise price of $8.82 were exercisable; and at December 31, 2003, 1,558,420 options with an average exercise price of $8.34 were exercisable.

The Company adopted the recognition provisions of FAS 123 effective January 1, 2003 using the prospective method of transition described in FAS 148, “Accounting for Stock-Based Compensation-Transition and Disclosure.” Under the fair value recognition provisions of FAS 123 and FAS 148, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period for awards granted after December 31, 2002.  For options granted prior to December 31, 2002, the fair value of options granted was not required to be recognized as an expense in the consolidated financial statements.  

The following table reflects the effect on net income if the fair value based method had been applied to all outstanding and unvested stock options in each period.

(In thousands of dollars)		2005		2004		2003
Net income (loss), as reported	$	(10,217)	$	(3,587)	$	10,561
Add: Stock-based employee compensation expense included in reported net income, net of tax		194		318		95
Less: Total stock-based employee compensation expense determined under fair value based method for all stock options, net of tax		(703)		(1,583)		(1,243)
Pro forma net income	$	(10,726)	$	(4,852)	$	9,413
Earnings per share
As reported
Basic	$	(0.74)	$	(0.29)	$	1.00
Diluted	$	(0.74)	$	(0.29)	$	0.89
Pro forma
Basic	$	(0.78)	$	(0.39)	$	0.89
Diluted	$	(0.78)	$	(0.39)	$	0.79

The initial impact of FAS 123 on 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 FAS 123 compensation cost and fair value of options granted is estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:

	2005	2004	2003
Dividend yield Expected volatility Risk-free interest rate Expected lives (in years) Weighted average fair value of options granted	2.97% 41% 3.8% 5.34 $2.19	1.32% to 2.19% 30% to 33% 3.2% to 3.8% 5.48-6.17 $4.08	1.79% to 3.35% 25% 2.1% to 3.6% 6.01-6.98 $1.28

In December 2004, the FASB issued SFAS No. 123-Revised, “Share-Based Payment.”  SFAS 123R is a revision of SFAS No. 123 “Accounting for Stock-Based Compensation,” and will become effective for the interim reporting periods ending March 31, 2006.  SFAS 123R will impact the measurement and reporting of stock-based compensation (see “New Accounting Standards” note).

Restricted Stock:  During 2005, 2004, and 2003, 1,196,644, 1,432,172 and 500,668 shares of restricted stock were awarded under the plans at a weighted average grant date fair price of $9.22, $13.21 and $8.56 respectively.  The fair market value of the awards will be amortized over the period in which the restrictions are outstanding, which is approximately 3-4 years.  Expense related to restricted stock approximated $9.9 million in 2005, $7.3 million in 2004 and $2.1 million in 2003.  As of December 31, 2005 and 2004, the Company recorded $13.9 million and $15.1 million, respectively, in unearned compensation related to restricted stock issuances.

Other:  The Company also maintains a tax 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.  The Company expensed $0.2 million in 2005, $0.3 million in 2004, and $0.2 million in 2003.

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 up to five years.  Costs are amortized over the vesting period and approximated $2.5 million in 2005, $2 million in 2004, and $1 million in 2003.  The remaining amounts to be expensed are $0.9 million at December 31, 2005, to the extent they vest.

At December 31, 2005 and December 31, 2004, there was approximately $5.1 million and $7.1 million, respectively, of accrued compensation on the Statements of Financial Condition related to deferred compensation plans provided by the Company which will be paid out between 2006 and 2016.

  NOTE 17.       Net Capital Requirements

First Albany Capital is subject to the Securities and Exchange Commission’s Uniform Net Capital Rule, which requires the maintenance of a minimum net capital.  First Albany Capital has elected to use the alternative method permitted by the rule, which requires it to maintain a minimum net capital amount of 2% of aggregate debit balances arising from customer transactions as defined or $1 million, whichever is greater.  As of December 31, 2005, First Albany Capital had aggregate net capital, as defined, of $24.9 million, which equaled 394.74% of aggregate debit balances and $23.9 million in excess of required minimum net capital.

Descap is subject to the Securities and Exchange Commission Uniform Net Capital Rule, which requires the maintenance of minimum net capital and that the ratio of aggregate indebtedness to net capital, both as defined by the rule, shall not exceed 15:1.  The rule also provides that capital may not be withdrawn or cash dividends paid if the resulting net capital ratio would exceed 10:1.  As of December 31, 2005, Descap had net capital of $3.7 million, which was $3.6 million in excess of its required net capital.  Descap’s ratio of Aggregate Indebtedness to Net Capital was 0.43 to 1.

  NOTE 18.       Trading Activities

As part of its trading activities, the Company provides brokerage and underwriting services to institutional clients.  While trading activities are primarily generated by client order flow, the Company also takes proprietary positions based on expectations of future market movements and conditions and to facilitate institutional client transactions.  Interest revenue and expense are integral components of trading activities.  In assessing the profitability of trading activities, the Company views net interest and principal transactions revenues in the aggregate.  Certain trading activities expose the Company to market and credit risks.

Market Risk:  Market risk is the potential change in an instrument’s value caused by fluctuations in interest rates, equity prices, or other risks.  The level of market risk is influenced by the volatility and the liquidity in the markets in which financial instruments are traded.

As of December 31, 2005, the Company had approximately $6.6 million of securities owned which were considered non-investment grade. Non-investment grade securities are defined as debt and preferred equity securities rated as BB+ or lower or equivalent ratings by recognized credit rating agencies. These securities have different risks than investment grade rated investments because the companies are typically more highly leveraged and therefore more sensitive to adverse economic conditions and the securities may be more thinly traded or not traded at all.

The Company seeks to mitigate market risk associated with trading inventories by employing hedging strategies that correlate interest rate, price, and spread movements of trading inventories and hedging activities.  The Company uses a combination of cash instruments and derivatives to hedge its market exposure.  The following describes the types of market risk faced by the Company:

Interest Rate Risk: Interest rate risk arises from the possibility that changes in interest rates will affect the value of financial instruments. The decision to manage interest rate risk using futures or options as opposed to buying or selling short U.S. Treasury or other securities depends on current market conditions and funding considerations.

Equity Price Risk: Equity price risk arises from the possibility that equity security prices will fluctuate, affecting the value of equity securities.

The Company also has sold securities that it does not currently own and will therefore be obligated to purchase such securities at a future date. The Company has recorded these obligations in the financial statements at December 31, 2005 at market values of the related securities and will incur a loss if the market value of the securities increases subsequent to December 31, 2005.

Credit Risk:  The Company is exposed to risk of loss if an issuer or counter party fails to perform its obligations under contractual terms (“default risk”).  Both cash instruments and derivatives expose the Company to default risk.  The Company has established policies and procedures for mitigating credit risks on principal transactions, including reviewing and establishing limits for credit exposure, requiring collateral to be pledged, and assessing the creditworthiness of counter parties.

In the normal course of business, the Company executes, settles, and finances various customer securities transactions.  Execution of these transactions includes the purchase and sale of securities by the Company.  These activities may expose the Company to default risk arising from the potential that customers or counter parties may fail to satisfy their obligations.  In these situations, the Company may be required to purchase or sell financial instruments at unfavorable market prices to satisfy obligations to other customers or counter parties.  In addition, the Company seeks to control the risks associated with its customer margin activities by requiring customers to maintain collateral in compliance with regulatory and internal guidelines.

Liabilities to other brokers and dealers related to unsettled transactions (i.e., securities failed-to-receive) are recorded at the amount for which the securities were acquired, and are paid upon receipt of the securities from other brokers or dealers.  In the case of aged securities failed-to-receive, the Company may purchase the underlying security in the market and seek reimbursement for losses from the counter party.

Concentrations of Credit Risk:  The Company’s exposure to credit risk associated with its trading and other activities is measured on an individual counter party basis, as well as by groups of counter parties that share similar attributes. Concentrations of credit risk can be affected by changes in political, industry, or economic factors. The Company’s most significant industry credit concentration is with financial institutions. Financial institutions include other brokers and dealers, commercial banks, finance companies, insurance companies and investment companies. This concentration arises in the normal course of the Company’s brokerage, trading, financing, and underwriting activities. To reduce the potential for concentration of risk, credit limits are established and monitored in light of changing counter party and market conditions. The Company also purchases securities and may have significant po sitions in its inventory subject to market and credit risk. 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. In order to control these risks, securities positions are monitored on at least a daily basis along with hedging strategies that are employed by the Company.

  NOTE 19.       Derivative Financial Instruments

The Company does not engage in the proprietary trading of derivative securities with the exception of highly liquid treasury and municipal index futures contracts and options.  These index futures contracts and options are used primarily to hedge securities positions in the Company’s securities owned.  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 for the years ending December 31:

(In thousands of dollars)		2005		2004		2003
Trading profits—state and municipal bond	$	3,236	$	4,367	$	6,251
Index futures hedging		(1,621)		(2,646)		(2,510)
Net revenues	$	1,615	$	1,721	$	3,741

The contractual or notional amounts related to the index futures contracts were as follows at December 31:

(In thousands of dollars)		2005		2004
Average notional or contract market value	$	(49,983)	$	(37,974)
Year end notional or contract market value	$	(18,699)	$	(39,161)

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 in the amount of $1.0 million and $0.5 million at December 31, 2005 and 2004, respectively, are recorded as receivables from brokers, dealers and clearing agencies.  The market value of options contracts are recorded as securities owned.  The settlements of the aforementioned transactions are not expected to have a material adverse effect on the financial condition of the Company.

  NOTE 20.       Segment Analysis

The Company is organized around products and operates through the following segments: Equities; Fixed Income, which is comprised of Taxable Fixed Income, Descap Securities, Municipal Capital Markets and Fixed Income-Other; and Other.  The Company evaluates the performance of its segments and allocates resources to them based on various factors, including prospects for growth, return on investment, and return on revenue.

The Company’s Equities business is comprised of equity sales and trading and equities investment banking services.  Equities sales and trading provides equity trade execution to institutional investors and generates revenues primarily through commissions and sales credits earned on executing equity transactions. Equities investment banking generates revenues by providing financial advisory, capital raising, mergers and acquisitions, and restructuring services to small and mid-cap companies.  

Included in the Company’s Fixed Income business are the following segments: Taxable Fixed Income, Descap Securities, Municipal Capital Markets and Fixed Income-Other.  The Fixed Income business consists of fixed income sales and trading and fixed income investment banking.  Fixed Income sales and trading provides trade execution to institutional investors and generates revenues primarily through commissions and sales credits earned on executing fixed income transactions in the following products:

•

High Grade (Investment Grade and Government Bonds)

•

High Yield (Below Investment Grade)

•

Mortgage-Backed and Asset-Backed Securities

•

Municipal Bonds (Tax-exempt and Taxable Municipal Securities)

These products can be sold through any of the Company’s Fixed Income segments.  Fixed Income investment banking generates revenues by providing financial advisory and capital raising services to municipalities, government agencies and other public institutions.  

The Company’s Other segment includes the results from the Company’s investment portfolio, venture capital and asset management businesses, and costs related to corporate overhead and support.  The Company’s investment portfolio generates revenue from unrealized gains and losses as a result of changes in value of the firm’s investments, and realized gains and losses as a result of sales of equity holdings.  The Company’s venture capital business generates revenue through the management of a private equity fund.  This segment also includes results related to the Company’s investment in these private equity funds and any gains or losses that might result from those investments.  The Company’s asset management business generates revenue through managing institutional investors’ assets through its convertible arbitrage group.

For presentation purposes, net revenue within each of the businesses is classified as sales and trading, investment banking, or net interest / other.  Sales and trading net revenue includes commissions and principal transactions.  Investment banking includes revenue related to underwritings and other investment banking transactions. Net interest /other includes interest income, interest expense, fees and other revenue. Net revenue presented within each category may differ from that presented in the financial statements as a result of differences in categorizing revenue within each of the revenue line items listed below for purposes of reviewing key business performance. 

Intersegment revenue has been eliminated for purposes of presenting net revenue so that all net revenue presented is from external sources.  Interest revenue is allocated to the operating segments and is presented net of interest expense for purposes of assessing the performance of the segment.  Depreciation and amortization is allocated to each segment.  

Information concerning operations in these segments is as follows for the years ended December 31:

(In thousands of dollars)		2005		2004		2003
Net revenue (including net interest income)
Equities	$	60,047	$	77,000	$	53,351
Fixed Income
Taxable Fixed Income		14,029		28,344		50,791
Municipal Capital Markets		40,159		33,967		41,173
Fixed Income-Other		6,121		11,643		17,170
Descap		18,198		12,048		-
Total Fixed Income		78,507		86,002		109,134
Other		27,595		13,633		28,532
Total Net Revenue	$	166,149	$	176,635	$	191,017
Net interest income (included in total net revenue)
Equities	$	13	$	32	$	34
Fixed Income
Taxable Fixed Income		186		258		489
Municipal Capital Markets		(251)		1,239		1,159
Fixed Income-Other		(518)		167		277
Descap		1,972		1,068		-
Total Fixed Income		1,389		2,732		1,925
Other		1,144		1,468		1,395
Total Net Interest Income	$	2,546	$	4,232	$	3,354
Pre-tax Contribution (Income/(loss) before income taxes, discontinued operations and cumulative effect of change in accounting principle)
Equities	$	(4,712)	$	4,234	$	(590)
Fixed Income
Taxable Fixed Income		(6,002)		3,160		9,773
Municipal Capital Markets		9,291		3,365		7,898
Fixed Income-Other		2,286		5,196		8,255
Descap		883		2,227		-
Total Fixed Income		6,458		13,948		25,926
Other		(2,694)		(26,932)		(5,820)
Total Pre-tax Contribution	$	(948)	$	(8,750)	$	19,516
Depreciation and amortization expense (charged to each segment in measuring the Pre-tax Contribution)
Equities	$	973	$	1,046	$	1,098
Fixed Income
Taxable Fixed Income		242		264		283
Municipal Capital Markets		352		364		387
Fixed Income-Other		34		34		45
Descap		121		96		-
Total Fixed Income		749		758		715
Other		2,143		1,201		1,114
Total	$	3,865	$	3,005	$	2,927

For presentation purposes, net revenue within each of the businesses is classified as sales and trading, investment banking, or net interest / other.  Sales and trading net revenue includes commissions and principal transactions.  Investment banking includes revenue related to underwritings and other investment banking transactions. Investment gains (losses) reflects gains and losses on the Company’s investment portfolio.  Net interest /other includes interest income, interest expense, fees and other revenue. Net revenue presented within each category may differ from that presented in the financial statements as a result of differences in categorizing revenue within each of the revenue line items listed below for purposes of reviewing key business performance.   

The following table reflects revenues for the Company’s major products and services:

(In thousands of dollars)		2005		2004		2003
Net revenues:
Institutional Sales & Trading
Equities	$	41,883	$	50,801	$	42,132
Fixed Income		47,588		63,912		82,483
Total Institutional Sales & Trading		89,471		114,713		124,615
Investment Banking
Equities		18,099		25,948		10,799
Fixed Income		29,489		19,265		24,632
Total Investment Banking		47,588		45,213		35,431
Net Interest/Other		1,495		3,076		2,439
Total Net Revenues	$	138,554	$	163,002	$	162,485

The Company’s segments financial policies are the same as those described in the “Summary of Significant Accounting Policies” note.  Asset information by segment is not reported since the Company does not produce such information.  All assets are located in the United States of America.  Prior periods’ financial information has been reclassified to conform to the current presentation.

  NOTE 21.       New Accounting Standards

In December 2004, the FASB issued SFAS No. 123-Revised, “Share-Based Payment.”  SFAS 123R is a revision of SFAS No. 123 “Accounting for Stock-Based Compensation,” and will become effective for the interim reporting periods ending March 31, 2006.  SFAS 123R will impact the measurement and reporting of stock-based compensation.

The Company has two primary stock-based compensation awards – stock options and restricted stock awards.  In 2005, 15,000 options were granted, and the total unamortized expense for all options that were unvested on December 31, 2005 was $0.2 million.  Based on the number of options granted by the Company in the recent past, it is anticipated that FAS 123R will have no material effect on its results of operations. During 2005 and 2004, $9.9 million and $7.3 million were expensed to the Company related to restricted stock awards for the Company’s employees.  At December 31, 2005, the Company had recorded $13.9 million in unearned compensation related to restricted stock issuances. Since the Company is uncertain as to how many restricted stock awards will be granted in the future, the impact of 123R cannot be assessed.  Restricted stock awards vest based on the participants’ service with the Company. &n bsp;The fair market value of the awards will be amortized over the period in which the restrictions are outstanding, which is approximately three years.  For some of the awards issued in the past, it is possible, under certain circumstances, that there would be an acceleration in the recognizing of expenses related to those awards.

  NOTE 22.       Business Combination

Descap

On May 14, 2004, the Company acquired all of the outstanding common shares of Descap Securities, Inc. (“Descap”), a New York-based broker-dealer and investment bank.  Descap specializes in the primary issuance and secondary trading of mortgage-backed securities, asset-backed securities, collateralized mortgage obligations and derivatives, and commercial mortgage-backed securities.  Its investment banking group provides advisory and capital raising services, and specializes in structured finance and asset-backed securities and should serve to enhance the Company’s product offering.  Descap will continue to operate under its current name.

The value of the transaction was approximately $31.4 million, which approximated Descap’s revenue for its previous fiscal year.  The purchase price consisted of $25 million in cash and 549,476 shares of the Company’s common stock, plus future contingent consideration based on financial performance.  Approximately $9.2 million of the purchase price was to acquire the net assets of the business, which consisted of assets of $66.1 million and liabilities of $56.9 million.  The value of the transaction in excess of net assets ($22.2 million) was allocated $0.6 million to identified customers based upon estimated future cash flows and $21.6 to goodwill (see “Intangible Assets” note). The shares issued to the sellers of Descap provide the sellers the right to require the Company to purchase back the shares at a price of $6.14 per share.  The Company also has the right to purchase back these shares from the sellers at a price of $14.46.  Both the put and call rights expires on May 31, 2007. The value assigned to the shares of common stock issued ($10.39 per share) approximated the market value of the stock on the date Descap was acquired.  The difference in the value assigned and the market value was due to the put and call features attached to the stock.  The Company also issued 270,843 shares of restricted stock to employees of Descap, which vests over a three-year period.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:

(In thousands of dollars)
Cash and cash equivalents	$	3,868
Marketable securities at market value		60,336
Other assets		1,909
Total assets acquired		66,113
Marketable securities sold short		(22,599)
Short term borrowings		(32,411)
Other liabilities		(1,936)
Total liabilities assumed		(56,946)
Net assets acquired	$	9,167

Per the acquisition agreement, the sellers of Descap can receive future contingent consideration based on the following:  For each of the next three years ending June 1, 2007, if Descap’s Pre-Tax Net Income (as defined) (i) is greater than $10 million, the Company shall pay to the Sellers an aggregate amount equal to fifty percent (50%) of Descap’s Pre-Tax Net Income for such period, or (ii) is equal to or less than $10 million, the Company shall pay to the Sellers an aggregate amount equal to forty percent (40%) of Descap’s Pre-Tax Net Income for such period.

Based upon Descap’s Pre-Tax Net Income from June 1, 2004 through May 31, 2005, a total of $2.2 million of additional consideration was paid to the Sellers on December 30, 2005.  The Sellers received $0.6 million in cash and 304,439 shares of the Company’s common stock valued at $1.6 million.

Also, based upon Descap’s Pre-Tax Net Income from June 1, 2005 through December 31, 2005, $0.3 million of contingent consideration would be payable to the Sellers.  The contingent consideration will not be accrued in the Company’s financial statement until the contingency is resolved and the consideration is distributable.

The Company’s results of operations include those of Descap since the date acquired.  The following table presents pro forma information as if the acquisition of Descap had occurred on January 1, 2004 and 2003:

		Years ended December 31,
(In thousands of dollars except for per share amounts and shares outstanding)		2004		2003
Net revenues (including interest)	$	182,138	$	218,770
Total expenses (excluding interest)		190,351		187,827
(Loss) income from continuing operations		(8,213)		30,943
Income tax (benefit) expense		(6,646)		12,518
(Loss) income from continuing operations		(1,567)		18,425
(Loss) from discontinued operations, net of taxes		(1,703)		(1,122)
Net (loss) income	$	(3,270)	$	17,303
Per share data:
Basic earnings:
Continued operations	$	(0.12)	$	1.66
Discontinued operations		(0.14)		(0.11)
Net income	$	(0.26)	$	1.55
Diluted earnings:
Continued operations	$	(0.12)	$	1.48
Discontinued operations		(0.14)		(0.10)
Net income	$	(0.26)	$	1.38

  NOTE 23.       Discontinued Operations

In February 2005, the Company sold its asset management operations, other than its institutional convertible arbitrage group, and, in 2000 sold its Private Client Group.  The Company continues to report the receipt and settlement of pending contractual obligations related to both transactions as discontinued operations.

Amounts reflected in the Condensed Consolidated Statement of Operations are presented in the following table:

		12 Months Ended December 31
(In thousands of dollars)		2005		2004		2003
Net revenues
Asset Management Business	$	162	$	2,065	$	2,180
Private Client Group		49		458		298
Total net revenues		211		2,523		2,478
Expenses
Asset Management Business		499		5,205		4,380
Private Client Group		749		(78)		-
Total expenses		1,248		5,127		4,380
(Loss) before income taxes		(1,037)		(2,604)		(1,902)
Income tax (benefit)		(235)		(901)		(780)
(Loss) from discontinued operations, net of taxes	$	(802)	$	(1,703)	$	(1,122)

The revenue and expenses of the Asset Management Business for the periods presented above reflect the activity of that operation through February 2005 when it was sold. The Company had allocated interest expense to the asset management operation in the amounts of $190,138 and $41,559, in the years ended December 31, 2004 and 2003, respectively, based on debt identified as being specifically attributed to those operations.  The revenues and expenses of the Private Client Group for the periods presented above relate primarily to the recovery of retention amounts paid to employees of the Private Client Group at the time it was sold, adjustments to impairment accruals for office space based upon subsequent utilization of the space by others in the Company and the resolution of certain legal matters, all of which related to the operations prior to its disposal.

  NOTE 24.       Impairment

During 2004, the Company abandoned a software development project and recognized as an impairment expense the costs related to the project that had been capitalized as well as the costs incurred to terminate the project.  Impairment expense was allocated to the Company’s Other segment.

  NOTE 25.       Restructuring

During 2004, the Company undertook an internal review of its operations in an effort to reduce costs.  One of the results of this review was the streamlining of certain functions and a reduction in personnel.  The reduction in personnel was initiated during the period ended September 30, 2004 and was completed by December 31, 2004.  The Company incurred restructuring expenses of approximately $1.3 million related to this effort, which were accrued and expensed and substantially paid in 2004.  The natures of these costs are compensation and benefits and the amount expensed through 2004 relates to employees who were terminated by December 31, 2004.  Restructuring costs to date were allocated 85% to the Company’s Other segment, with the remainder allocated among the other business units for segment reporting purposes.

  NOTE 26.       Subsequent Events

On March 14, 2006, the Company entered into a new loan agreement and used the proceeds along with other available funds to repay the Senior Notes.  Please Refer to the “Short –Term Bank Loans and Notes Payable” note in the Consolidated Financial Statements.

First Albany Companies Inc.

SUPPLEMENTARY DATA

SELECTED QUARTERLY FINANCIAL DATA

(Unaudited)

(In thousands of dollars, except per share data)

	Quarters Ended
2005		Mar 31		Jun 30		Sep 30		Dec 31
Total revenues	$	30,997	$	39,723	$	40,617	$	67,644
Interest expense		2,385		3,155		3,458		3,834
Net revenues		28,612		36,568		37,159		63,810
Total expenses (excluding interest)		40,457		42,200		42,385		42,054
Income (loss) before income taxes		(11,845)		(5,632)		(5,226)		21,756
Income tax expense (benefit)		(5,106)		(2,411)		(2,274)		18,259
Income (loss) from continuing operations		(6,739)		(3,221)		(2,952)		3,497
Income (loss) from discontinued operations, net of taxes		(156)		(133)		41		(553)
Net income (loss)	$	(6,895)	$	(3,354)	$	(2,911)	$	2,944
Net income (loss) per common and common equivalent share
Basic
Continuing operations	$	(0.51)	$	(0.23)	$	(0.21)	$	0.25
Discontinued operations		(0.01)		(0.01)		(0.00)		(0.04)
Net income (loss)	$	(0.52)	$	(0.24)	$	(0.21)	$	0.21
Dilutive
Continuing operations	$	(0.51)	$	(0.23)	$	(0.21)	$	0.24
Discontinued operations		(0.01)		(0.01)		(0.00)		(0.04)
Net income (loss)	$	(0.52)	$	(0.24)	$	(0.21)	$	0.20

The sum of the quarter 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.

SELECTED QUARTERLY FINANCIAL DATA

(Unaudited)

(In thousands of dollars, except per share data)

	Quarters Ended
2004		Mar 31		Jun 30		Sep 30		Dec 31
Total revenues	$	43,408	$	41,987	$	38,873	$	58,530
Interest expense		982		1,330		1,809		2,043
Net revenues		42,426		40,657		37,064		56,487
Total expenses (excluding interest)		45,186		40,114		47,515		52,569
Income (loss) before income taxes		(2,760)		543		(10,451)		3,918
Income tax expense (benefit)		(1,516)		(2,214)		(4,458)		1,322
Income (loss) from continuing operations		(1,244)		2,757		(5,993)		2,596
Income (loss) from discontinued operations, net of taxes		(684)		(86)		(378)		(555)
Net income (loss)	$	(1,928)	$	2,671	$	(6,371)	$	2,041
Net income (loss) per common and common equivalent share
Basic
Continuing operations	$	(0.11)	$	0.22	$	(0.45)	$	0.19
Discontinued operations		(0.07)		(0.01)		(0.03)		(0.04)
Net income (loss)	$	(0.18)	$	0.21	$	(0.48)	$	0.15
Dilutive
Continuing operations	$	(0.11)	$	0.20	$	(0.45)	$	0.19
Discontinued operations		(0.07)		(0.01)		(0.03)		(0.04)
Net income (loss)	$	(0.18)	$	0.19	$	(0.48)	$	0.15

The sum of the quarter 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.

Item 9a.  Controls and Procedures

As of the end of the period covered by this Form 10K, the Company’s management, with the participation of the Chief Executive Officer and the Principal Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934).  Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Principal Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.  In addition, no changes in the Company’s internal control over financial reporting occurred during the fourth quarter of the Company’s fiscal year ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Management of First Albany Companies Inc. is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Pursuant to the rules and regulations of the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Management has evaluated the effectiveness of its internal control over financial reporting as of December 31, 2005 based on the control criteria established in a report entitled Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation we have concluded that First Albany Companies Inc.’s internal control over financial reporting was effective as of December 31, 2005.

PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited First Albany Companies Inc.’s consolidated financial statements included herein, has audited management’s assessment of the effectiveness of First Albany Companies Inc.’s internal control over financial reporting as of December 31, 2005, as stated in their report which is included herein.

Item 9b.  Other Information

None.

PART III

Item 10.  Directors and Executive Officers of the Registrant

The information required by this item with respect to our directors, our Audit Committee and Audit Committee financial expert, our compliance with Section 16(a) of the Securities Exchange Act of 1934 and our code of ethics for senior officers will be contained in the Company’s definitive proxy statement for the Annual Meeting of Stockholders to be held on or about May 16, 2006. Such information is incorporated herein by reference.

Item 11.  Executive Compensation

The information required by this item will be contained under the caption "Compensation of Executive Officers" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on or about May 16, 2006.  Such information is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item will be contained under the caption "Stock Ownership of Principal Owners and Management" and “Equity Compensation Plan Information” in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on or about May 16, 2006.  Such information is incorporated herein by reference.

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 16, 2006.  Such information is incorporated herein by reference.

Item 14.  Principal Accountant Fees and Services

Information with respect to fees and services related to the Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, and the disclosure of the Audit Committee’s pre-approved policies and procedures are contained in the definitive Proxy Statement for the Annual Meeting of Stockholders of First Albany Companies Inc. to be held on or about May 16, 2006, and are incorporated herein by reference.

Part IV

Item 15.  Exhibits, Financial Statement Schedules

(a) (1) The following financial statements are included in Part II, Item 8:
	Report of Independent Registered Public Accounting Firm
	Financial Statements:
	Consolidated Statements of Operations for the Years
		Ended December 31, 2005, 2004 and 2003
	Consolidated Statements of Financial Condition
			as of December 31, 2005 and 2004 and 2003
	Consolidated Statements of Changes in Stockholders’ Equity
				and Temporary Capital for the Years Ended December 31, 2005, 2004 and 2003
	Consolidated Statements of Cash Flows for the
				Years Ended December 31, 2005, 2004 and 2003
	Notes to Consolidated Financial Statements
(a) (2) The following financial statement schedule for the periods 2005, 2004 and 2003 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.

(a) (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).
3.1a	Amendment to Certificate of Incorporation of First Albany Companies Inc. (filed as Exhibit No. (3) (i) to Form 10-Q for the quarter ended June 26, 1998).
3.1b	Amendment to Certificate of Incorporation of First Albany Companies Inc. (Filed as Appendix B to Proxy Statement on Schedule 14A dated May 2, 2000).
3.2	By laws of First Albany Companies Inc., as amended (filed as Exhibit 3.2 to Form 10-K for the year ended December 31, 2002).
4	Specimen Certificate of Common Stock, par value $.01 per share (filed as Exhibit No. 4 to Registration Statement No. 33-1353).

Exhibit Number	Description
10.1	First Albany Corporation Employees' Retirement and Savings Plan (formerly the Deferred Profit Sharing Plan of First Albany Corporation) amended and effective January 1, 2000 (filed as Exhibit 10.6b to Form 10K for the year ended December 31, 2000).
10.1a	First Albany Capital Employees’ Retirement and Savings Plan (filed as Registration No. 333-114983 to Form S-8) dated April 29, 2004
10.2	First Albany Companies Inc. 1989 Stock Incentive Plan, as amended effective May 20, 1999 (filed as Registration Statement 333-78877 to Form S-8 dated May 20, 1999).
10.3	First Albany Companies Inc. Deferred Compensation Plan for Key Employees (filed as Registration Statement 333-115170 to Form S-8) dated May 5, 2004
10.3a	First Albany Companies Inc. Deferred Compensation Plan for Key Employees, as amended (filed as Exhibit 4.f to Form S-8, Registration Statement 333-115170) dated May 5, 2004
10.3b	First Albany Companies Inc. 2005 Deferred Compensation Plan for Key Employees, (filed as Form 8-K, along with Exhibit 10.01) dated January 5, 2005
10.5	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).
10.7	First Albany Companies Inc. 1999 Long Term Incentive Plan, as amended by (filed as Registration No. 333-97465 to Form S-8) dated July 31, 2002.
10.7a	First Albany Companies Inc. 1999 Long-Term Incentive Plan (filed as Registration No. 333-105771 to Form S-8) dated June 2, 2003.
10.7b	First Albany Companies Inc. 1999 Long-Term Incentive Plan, as amended (filed as Registration No. 333-115169 to Form S-8) dated May 5, 2004
10.7c	First Albany Companies Inc. 1999 Long-Term Incentive Plan, as amended (filed as Registration No. 333-124707 to Form S-8) dated May 6, 2005
10.8	Agreements to Sell First Albany Corporation's Retail Branch Network and Correspondent Clearing Business dated May 8, 2000 between First Albany Companies Inc., First Albany Corporation and First Union Securities, Inc. (filed as Exhibit 10.26 to form 10Q for quarter ended March 31, 2000).
10.9	First Albany Companies Inc. 2000 Employee Stock Purchase Plan (filed as Registration No. 333-60244 (Form S-8) dated May 4, 2001).
10.9a	First Albany Companies Inc. 2000 Employee Stock Purchase Plan, as amended (filed as Registration No. 333-60244 to Form S-8 POS) dated May 5, 2004.
10.10	First Albany Companies Inc. 2001 Long Term Incentive Plan (filed as Registration No. 333-97467 to form S-8) dated July 31, 2002.
10.12	First Albany Companies Inc. 2003 Non-Employee Directors Stock Plan (filed as Registration No. 333-105772 to Form S-8) dated June 2, 2003.
10.13	Employment Agreement dated February 18, 2003 (filed as Exhibit 10.18 to Form 10-Q for the quarter ended March 31, 2003).
10.14	Employment Agreement dated March 20, 2003 (filed as Exhibit 10.18 to Form 10-Q for the quarter ended March 31, 2003).

Exhibit Number	Description
10.15	First Albany Companies Inc. 8.5% Senior Notes, due 2010 Note Purchase Agreement, dated June 13, 2003 (filed as Exhibit 10.15 to Form 10-K for year ended December 31, 2003).
10.16	Stock Purchase Agreement by and among the Shareholders of Descap Securities, Inc. and First Albany Companies Inc., dated February 18, 2004 (filed as Exhibit 10.16 to Form 10-Q for quarter ended March 31, 2004)
10.17	Loan Agreement dated February 18, 2004 between First Albany Companies Inc. and KeyBank National Association (filed as Exhibit 10.17 to Form 10-Q for quarter ended March 31, 2004)
10.17a	First Amendment to Loan Agreement dated May 14, 2004 between First Albany Companies Inc. and Key Bank National Association (filed as Exhibit 10.22 to Form 10-Q for quarter ended September 30, 2004)
10.17b	Second Amendment to Loan Agreement dated November 2, 2004 between First Albany Companies Inc. and Key Bank National Association  (filed as Exhibit 10.23 to Form 10-Q for quarter ended September 30, 2004
10.17c	Third Amendment to Loan Agreement dated June 30, 2005 between First Albany Companies Inc. and Key Bank National Association (filed as an Exhibit 10.31 to Form 10-Q for the quarter ended June 30, 2005)
10.18	Stock Purchase Agreement by and among First Albany Companies Inc. and certain purchasers in a private placement, dated February 29, 2004 (filed as Exhibit 10.18 to Form 10-Q for quarter ended March 31, 2004)
10.19	Employment Agreement with an executive officer of the Company, dated May 14, 2004 (filed as Exhibit 10.19 to Form 10-Q for quarter ended June 30, 2004)
10.20	Form of Restricted Stock Agreement pursuant to the First Albany Companies Inc. 1999 Long-Term Incentive Plan (cliff vesting) (filed as Exhibit 10.20 to Form 10-Q for quarter ended September 30, 2004)
10.21	Form of Restricted Stock Agreement pursuant to the First Albany Companies Inc. 1999 Long-Term Incentive Plan (three-year vesting) (filed as Exhibit 10.21 to Form 10-Q for quarter ended September 30, 2004)
10.23	Purchase, Sale and Assignment Agreement dated November 30, 2005, between First Albany Companies Inc. and Auda Secondary Fund L.P. (filed as exhibit herewith)
10.24	Consulting Agreement with an executive officer of the Company (filed as exhibit 10.24 to Form 10-K for the year ended December 31, 2004) dated February 1, 2005
10.25	677 Broadway Sublease Agreement dated August 14, 2003, between Columbia 677 L.L.C. and First Albany Companies Inc. (filed as Exhibit 10.25 to Form 10-K for the year ended December 31, 2004)
10.25a	677 Broadway Sublease Agreement, as amended, between Columbia 677 L.L.C. and First Albany Companies Inc., dated October 11, 2004  (filed as Exhibit 10.25a to Form 10-K for the year ended December 31, 2004)
10.26	First Albany Companies Inc. 2005 Deferred Compensation Plan for Key Employees (filed as Registration No. 333-121927 to Form S-8) dated January 10, 2005

Exhibit Number	Description
10.26a	First Albany Companies Inc. 2005 Deferred Compensation Plan for Key Employees, as amended (filed as Registration No. 333-124705 to Form S-8) dated May 6, 2005
10.27	First Albany Companies Inc. 2005 Deferred Compensation Plan for Professional and Other Highly Compensated Employees (filed as Registration No. 333-121928 to Form S-8) dated January 10, 2005
10.27a	First Albany Companies Inc. 2005 Deferred Compensation Plan for Professional and Other Highly Compensated Employees, as amended (filed as Registration No. 333-124706 to Form S-8) dated May 6, 2005
10.28	One Montgomery Tower Lease Agreement between Post-Montgomery Associated and First Albany Companies Inc., dated April 4, 2005 (filed as Exhibit 10.1 to Form 8-K dated April 8, 2005)
10.29	First Albany Companies Inc. Restricted Stock Inducement Plan for Descap Employees (filed as Registration No. 333-124648 to Form S-8) dated May 5, 2005
10.30	1301 Avenue of the Americas lease agreement between Deutsche Bank AG and First Albany Capital Inc., dated April 6, 2005 (filed as Exhibit 10.1 to Form 8-K) dated May 23, 2005
10.30a	1301 Avenue of the Americas lease agreement between Deutsche Bank AG and First Albany Capital Inc., as amended (filed as Exhibit 10.2 to Form 8-K) dated May 23, 2005
10.31	Separation and consulting Agreement with an executive officer of the Company (filed as an exhibit herewith) dated November 3, 2005
10.32	Loan Agreement dated December 30, 2005, between First Albany Companies Inc. and KeyBank National Association (filed as an exhibit herewith)
10.33	Promissory Note dated December 30, 2005, between First Albany Companies Inc. and KeyBank National Association (filed as an exhibit herewith)
10.34	Loan Agreement dated March 14, 2006 between First Albany Companies Inc. and KeyBank National Association (filed as an exhibit herewith)
10.35	Promissory Note dated March 14, 2006 between First Albany Companies Inc. and KeyBank National Association (filed as an exhibit herewith)
10.36	Acceptable Securities Pledge and Security Agreement, dated March 14, 2006 between First Albany Companies Inc. and KeyBank National Association (filed as an exhibit herewith)
10.37	Negative Pledge Agreement dated March 14, 2006 between First Albany Companies Inc. and KeyBank National Association (filed as an exhibit herewith)
10.38	Pledge Agreement-Deposit Account Agreement dated March 14, 2006 between First Albany Companies Inc. and KeyBank National Association (filed as an exhibit herewith)
10.39	Springing Pledge and Security Agreement dated March 14, 2006 between First Albany Companies Inc. and KeyBank National Association (filed as an exhibit herewith)
21	List of Subsidiaries of First Albany Companies Inc. (filed as an exhibit herewith)
23	Consent of PricewaterhouseCoopers LLP (filed as an exhibit herewith)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer, furnished herewith
Exhibit Number	Description
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer, furnished herewith
32	Section 1350 Certifications, furnished herewith

FIRST ALBANY COMPANIES INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

PERIODS ENDED DECEMBER 31, 2005, DECEMBER 31, 2004

AND DECEMBER 31, 2003

COL. A	COL. B		COL. C		COL. D		COL. E
Description	Balance at Beginning of Period		Additions		Deductions		Balance at End of Period
Allowance for doubtful accounts – deducted from receivables from customers
Calendar Year 2005	$	-	$	11,000	$	-	$	11,000
Calendar Year 2004	$	36,000	$	-	$	36,000	$	-
Calendar Year 2003	$	86,000	$	35,000	$	85,000	$	36,000
Net deferred tax asset valuation allowance
Calendar Year 2005	$	-	$	9,233,000	$	-	$	9,233,000
Calendar Year 2004	$	-	$	-	$	-	$	-
Calendar Year 2003	$	-	$	-	$	-	$	-

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:
	Alan P. Goldberg
	President and Chief Executive Officer
	Date: March 16, 2006

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	March 16, 2006
GEORGE C. MCNAMEE
/s/Alan P. Goldberg	President and Chief Executive Officer	March 16, 2006
ALAN P. GOLDBERG
	Chief Financial Officer
/s/Paul W. Kutey	(Principal Accounting Officer	March 16, 2006
PAUL W. KUTEY	and Principal Financial Officer)
/s/Hugh A. Johnson, Jr.	Director	March 16, 2006
HUGH A. JOHNSON, JR.
/s/Carl P. Carlucci	Director	March 16, 2006
CARL P. CARLUCCI, PhD
	Director
WALTER M. FIEDEROWICZ
/s/Nicholas A. Gravante, Jr.	Director	March 16, 2006
NICHOLAS A. GRAVANTE, JR
/s/Dale Kutnick	Director	March 16, 2006
DALE KUTNICK
	Director
ARTHUR T. MURPHY, JR
/s/Shannon P. O’Brien	Director	March 16, 2006
SHANNON P. O’BRIEN
/s/Arthur J. Roth	Director	March 16, 2006
ARTHUR J. ROTH

EXHIBIT 21

SUBSIDIARIES OF FIRST ALBANY COMPANIES INC.

COMPANY NAME	PLACE OF INCORPORATION
FIRST ALBANY CAPITAL INC.	NEW YORK
FA ASSET MANAGEMENT INC.	NEW YORK
FIRST ALBANY ENTERPRISE FUNDING, INC.	DELAWARE
FA TECHNOLOGY VENTURES CORPORATION	DELAWARE
FAC MANAGEMENT CORPORATION	NEW YORK
DESCAP SECURITIES, INC.	NEW YORK
FIRST ALBANY CAPITAL LIMITED	UNITED KINGDOM

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 014140) of First Albany Companies Inc. of our report dated March 14, 2006 relating to the financial statements, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appear in the Annual Report to Shareholders, which is incorporated in this Annual Report of Form 10-K. We also consent to the incorporation by reference of our report dated March 14, 2006 relating to the financial statement schedule, which appears in this Form 10-K.

/s/PRICEWATERHOUSECOOPERS LLP

Albany, New York

March 14, 2006

Certification on Form 10-K

EXHIBIT 31.1

I, Alan P. Goldberg, certify that:

1.	I have reviewed this annual report on Form 10-K of First Albany Companies Inc.;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:	March 16, 2006	/S/ALAN P. GOLDBERG
		Alan P. Goldberg
		Chief Executive Officer

Certification on Form 10-K

EXHIBIT 31.2

I, Paul W. Kutey, certify that:

1.	I have reviewed this annual report on Form 10-K of First Albany Companies Inc.;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:	March 16, 2006	/S/PAUL W. KUTEY
		Paul W. Kutey
		Chief Financial Officer

Exhibit 32

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Each of the undersigned officers of First Albany Companies Inc., a New York corporation (the “Company”), does hereby certify to such officer’s knowledge that:

The Annual Report on Form 10-K for the year ended December 31, 2005 (the “Form 10-K”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	March 16, 2006	/S/ALAN P. GOLDBERG
		Alan P. Goldberg
		Chief Executive Officer
Date:	March 16, 2006	/S/PAUL W. KUTEY
		Paul W. Kutey
		Chief Financial Officer

EX-10

Exhibit 10.23

PURCHASE, SALE AND ASSIGNMENT AGREEMENT, dated as of November 30, 2005 (this “Agreement”), by and among First Albany Companies Inc. (the “Seller”) and Auda Secondary Fund L.P., a Delaware limited partnership and Auda Secondary Fund C (Cayman) L.P., a Cayman Island exempted limited partnership (each, a “Purchaser” and collectively, the “Purchasers”).

Recitals

WHEREAS, the Seller is the sole member of First Albany Private Fund 2004, LLC (the “Fund”), and desires to sell, assign and transfer to the Purchasers its limited liability company interest in the Fund as set forth on Exhibit A (the “Seller LLC Interest”); and

WHEREAS, the Purchasers desire to purchase, and the Seller desires to sell to the Purchasers, all right, title and interest in, to and under the Seller LLC Interest on the terms and subject to the conditions set forth herein.

NOW, THEREFORE, the parties agree as follows:

ARTICLE I.

DEFINITIONS

Section 1.1  Definitions.  Except as otherwise expressly provided or unless the context otherwise requires, the terms defined in this Section 1.1 have the meanings assigned to them in this Section:

“Account Balance Date” shall mean October 24, 2005.

“Agreement” has the meaning set forth in the Preamble.

“Base Purchase Price” has the meaning set forth in Section 2.2(a).

“business day” means any day other than a Saturday or Sunday or a day on which banks located in The City of New York are authorized or required by statute to close.

“Capital Commitment” shall mean all obligations of the owner of the Seller LLC Interest to make capital contributions to the Fund.

“Capital Contributions” shall mean, with respect to the Seller LLC Interest, all payments made in respect of Capital Commitments by the Seller to the Fund.

“Closing” has the meaning set forth in Section 2.3.

“Closing Date” has the meaning set forth in Section 2.3.

“Code” shall mean the Internal Revenue Code of 1986, as amended.

“Distributions” shall mean all payments, deemed payments, dividends and other distributions paid or made to the Seller with respect to or in connection with the ownership of the Seller LLC Interest.  The value of all “in-kind” payments, dividends or other distributions received by the Seller from or on behalf of the Fund for purposes of this definition shall be the value assigned thereto as of the date of distribution by the Manager of the Fund pursuant to the terms of the Fund Agreement.  For purposes of this definition, the amount of Distributions shall be determined prior to the deduction of any withholding or other tax with respect thereto.

“Dollar” or “$” means the official currency of the United States of America.

 “Excluded Obligations” shall mean, with respect to the Seller LLC Interest, (i) any liabilities arising from the Seller’s breach of the representations or warranties made in this Agreement as of the Closing with respect to the Seller LLC Interest or made in the Fund Agreement or any of the Operative Documents, (ii) any liabilities arising prior to the Closing with respect to the Seller LLC Interest for taxes owed by the Seller, including any withholding taxes attributable to allocations made to the Seller pursuant to the Fund Agreement and (iii) any liabilities that Seller is required to pay pursuant to Section 4.8.

“Fund” has the meaning set forth in the Recitals.

“Fund Agreement” means the Amended and Restated Operating Agreement of First Albany Private Fund 2004, LLC.

“Governmental Authority” means any government, political subdivision, or governmental or regulatory authority, agency, board, bureau, commission, instrumentality or court or quasi-governmental authority (in each case, whether federal, state or local and whether foreign or domestic).

“Laws” means, collectively, all statutes, laws, codes and ordinances and any rules or regulations of any Governmental Authority (in each case, whether federal, state or local and whether foreign or domestic).

 “Manager Consent” means, with respect to the Fund, the consent of, and any other action required under the terms of the Fund Agreement by, its Manager to the transfer of the Seller LLC Interest in the Fund to the Purchasers and admission of the Purchasers as members in the Fund, as required under the terms of the Fund Agreement.

“Operative Documents” has the meaning set forth in Section 3.1(i).

“Orders” means, collectively, any applicable proclamations, judgments, decrees and orders of any Governmental Authority.

“Permitted Transferee” shall mean any controlled affiliate of a Purchaser or any entity under common control with a Purchaser.

“Purchase Price” has the meaning set forth in Section 2.2(a).

“Purchaser(s)” has the meaning set forth in the Preamble.

“Seller” has the meaning set forth in the Preamble.

“Seller LLC Interest” has the meaning set forth in the Recitals.

“Transfer Taxes” has the meaning set forth in Section 4.4(b).

ARTICLE II.

PURCHASE AND SALE OF SELLER LLC INTERESTS

Section 2.1  Purchase and Sale.  Subject to the terms and conditions of this Agreement, (i) the Purchasers agree to purchase from the Seller, and the Seller agrees to sell, assign and transfer to the Purchasers, at Closing, all of its right, title and interest in the Seller LLC Interest and (ii) the Seller agrees to assign all of its rights in the Fund Agreement and the Operative Documents relating to the Seller LLC Interest, and the Purchasers agree to assume and perform thereafter all liabilities and obligations of the Seller under the Fund Agreement and the Operative Documents of the Fund, other than Excluded Obligations.

Section 2.2  Purchase Price.  

(a)

The aggregate purchase price (such total, the “Purchase Price”) payable by the Purchasers for the Seller LLC Interest, as set forth on Exhibit A hereto, shall be equal to (i) $2,350,000 (the “Base Purchase Price”), plus (ii) the aggregate amount of any Capital Contributions made to the Fund and funded by the Seller after the Account Balance Date and prior to the Closing; and minus (iii) the aggregate amount of any Distributions made to the Seller by the Fund after the Account Balance Date and prior to the Closing.  The Seller agrees that if the foregoing adjustment results in a number that is less than zero, the Seller will pay such amount to the Purchasers at the Closing, notwithstanding the first clause of Section 2.4(a).  There shall not be any adjustment to the Base Purchase Price a s a result of changes to the valuation of any portfolio investment since the Account Balance Date.

(b)

The Purchase Price shall be paid at the Closing in Dollars by wire transfer of federal funds or other immediately available funds to such account as the Seller may direct by written notice to the Purchasers at least two (2) business days before the Closing Date.  

Section 2.3  Closing. The closing with respect to the Seller LLC Interest (the “Closing”) will take place at the offices of Proskauer Rose LLP, One International Place, Boston, MA 02110 on or before November 30, 2005 (or, if the conditions in Article V are not satisfied or waived at that time, the first business day after the satisfaction or waiver of those conditions), or at such other time or place as the parties may agree (the “Closing Date”).

Section 2.4  Deliveries at Closing.  At the Closing:

(a)

the Purchasers will pay the Purchase Price (in Dollars) to the Seller, by wire transfer of immediately available funds to an account previously designated by the Seller;

(b)

the Seller will deliver to the Purchasers, to the extent not previously delivered to the Purchasers, a copy of the Fund Agreement and all Operative Documents that represent or constitute the Seller LLC Interest; and

(c)

the Seller and the Purchasers will deliver the certificates referred to in Sections 5.2 and 5.3, respectively and such other documents, certificates and agreements as the parties shall deem reasonably necessary or desirable to effectuate the transactions contemplated by this Agreement.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

Section 3.1  Representations and Warranties of the Seller.  The Seller hereby represents and warrants to the Purchasers that:

(a)

Authority.   Seller has the requisite authority to enter into this Agreement and all of the other agreements executed and delivered by it pursuant to this Agreement and the Fund Agreement and to consummate the transactions contemplated hereby and thereby.

(b)

Authorization; Non-Contravention. The performance by the Seller of this Agreement and any other agreements delivered pursuant to this Agreement and the Fund Agreement does not and will not result in the breach or violation of any of the terms or provisions of, or constitute a default under, or accelerate the performance required by the terms of any material indenture, mortgage, deed of trust, loan agreement or any other agreement (including, without limitation, any agreement with any employee or former employee of Seller or any affiliate thereof) or instrument to which it is a party or by which it is bound, nor will any such action result in any violation of the provisions of any material statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over Seller or its property. The execution and delivery by the Seller o f this Agreement and the performance by the Seller of its obligations hereunder will not require any consent or approval of, or any filing or registration with, any creditor of the Seller, any governmental agency or court or other third party.

(c)

Binding Obligation.  This Agreement has been duly executed and delivered by the Seller and constitutes the legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles.  Any agreements executed and delivered pursuant to this Agreement or the Fund Agreement at the Closing will have been as of the Closing, duly executed and delivered by the Seller and each constitutes, or will constitute as of the Closing, a legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

(d)

Ownership.  Seller has record and beneficial ownership of and good and valid title to the Seller LLC Interest, and such ownership and title are free of all liens, pledges, charges, equities, claims and other encumbrances other than any restriction on transfer included in the Fund Agreement or the Operative Documents.  Exhibit A completely and accurately sets forth with respect to the Seller LLC Interest owned and being transferred by the Seller, the Seller’s total Capital Commitment to the Fund with respect to the Seller LLC Interest and the amount of unfunded Capital Commitments to the Fund by the Seller with respect to the Seller LLC Interest through the Account Balance Date.

(e)

Distributions and Capital Contributions.  The Seller has contributed to the capital of the Fund all amounts which it was required to contribute pursuant to the terms of the Fund Agreement prior to the Account Balance Date.  Except as set forth on Exhibit A hereto, it has not, since the Account Balance Date, received, or been notified it is entitled to receive, any Distributions with respect to the Seller LLC Interest, and the Seller has not made any Capital Contributions with respect to the Seller LLC Interest, or agreed to make any Capital Contributions with respect to the Seller LLC Interest, between the Account Balance Date and the Closing.  

(f)

Broker’s Fee.  No person or entity acting on behalf of the Seller or under the authority of the Seller shall be entitled to any broker’s, finder’s, or similar fee or commission in connection with the transactions contemplated by this Agreement.  The Seller has not offered, nor has it authorized any person acting on Seller’s behalf to offer, the Seller LLC Interest to the public or engaged in any public advertising with respect to the offer and sale of the Seller LLC Interest.

(g)

Litigation.  There is not pending or, to the Seller’s knowledge, threatened against the Seller any action, suit or proceeding at law or in equity before any court, tribunal, governmental body, agency or official or any arbitrator relating to the Seller LLC Interest or that might affect the legality, validity or enforceability against the Seller of this Agreement or the Seller’s ability to perform its obligations hereunder.  

(h)

No Default or Breach.  Seller is not in default and, to Seller’s knowledge, there is no basis for any claim of default or breach against the Seller, under the Fund Agreement or any Operative Document.  

(i)

Agreements and Commitments.  Exhibit B sets forth a list of all of the documents and agreements (other than the Fund Agreement) governing the rights and obligations of the Seller as a member in the Fund that relate to the Seller LLC Interest (the “Operative Documents”).  

(j)

 Return of Distributions.  The Seller has not received written notice of any outstanding obligation to return any of the Distributions or portions of Distributions made by the Fund, if any, previously received from the Fund, or to make a capital contribution to the Fund for the purpose of funding any indemnification obligation or other liability (except liabilities for ordinary operating expenses of the Fund).  The Seller has no knowledge of any legal action, suit, arbitration or other legal or administrative inquiry or proceeding pending or threatened against or affecting (i) the Fund or any of its properties or assets, or (ii) the Manager or any of its properties or assets.  

Section 3.2  Representations and Warranties of the Purchasers. Each Purchaser hereby severally represents and warrants to the Seller that:

(a)

Authority.  Such Purchaser has the requisite power and authority to enter into this Agreement and all of the other agreements executed and delivered by it pursuant to this Agreement and the Fund Agreement and to consummate the transactions contemplated hereby and thereby.

(b)

Authorization, Non-Contravention.  The execution and delivery of this Agreement and any other agreements delivered pursuant to this Agreement and the Fund Agreement by such Purchaser have been duly authorized by all necessary actions on the part of such Purchaser, and the performance by such Purchaser hereunder and thereunder does not and will not result in a breach of any of such Purchaser’s formation or operating documents or result in the breach or violation of any of the terms or provisions of, or constitute a default under, any material indenture, mortgage, deed of trust, loan agreement or any other agreement or instrument to which it is a party or by which it is bound, nor will any such action result in any violation of the provisions of any material statute or any order, rule or regulation of any court or governmental agency, or body having juri sdiction over it or its property.

(c)

Binding Obligation.  This Agreement has been duly executed and delivered by such Purchaser and constitutes the legal, valid and binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles.  Any agreements delivered pursuant to this Agreement or the Fund Agreement at the Closing will have been as of the Closing, duly executed and delivered by such Purchaser and each constitutes, or will constitute as of the Closing, the legal, valid and binding obligations of such Purchaser, enforceable against such Purchaser in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, re organization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

(d)

Broker’s Fee.  No person or entity acting on behalf of the Purchaser or under the authority of the Purchaser shall be entitled to any broker’s, finder’s, or similar fee or commission in connection with the transactions contemplated by this Agreement.  The Purchaser has not offered, nor has it authorized any person acting on Purchaser’s behalf to offer, the Seller LLC Interest to the public or engaged in any public advertising with respect to the offer and sale of the Seller LLC Interest.

(e)

Litigation.  There is not pending or, to the Purchaser’s knowledge, threatened against the Purchaser any action, suit or proceeding at law or in equity before any court, tribunal, governmental body, agency or official or any arbitrator that might affect the legality, validity or enforceability against the Purchaser of this Agreement or the Purchaser’s ability to perform its obligations hereunder.  

ARTICLE IV.

MUTUAL COVENANTS

Section 4.1  Manager Consents.  The Seller and the Purchasers agree to use their commercially reasonable efforts to take all necessary actions to obtain the Manager Consent required for the sale and the transfer of the Seller LLC Interest, and otherwise to consummate the transactions contemplated hereby.  The parties hereto shall cooperate fully with each other in furnishing any information or performing any action reasonably requested by any such other party, which information or action is necessary to the prompt and successful consummation of the transactions contemplated by this Agreement.  Subject to its further rights under this Agreement, each party hereto shall use its commercially reasonable efforts to cause the Closing to occur on or before December 15, 2005, or as soon as practicable thereafter.

Section 4.2  Assignments and Assumptions.  In addition, the Seller and the Purchasers agree to execute all such assignments and/or transfer agreements as may be reasonably required by the Manager of the Fund for the sale and the transfer of the Seller LLC Interest and the assumption by the Purchasers of all obligations relating thereto that it has agreed to assume.  

Section 4.3  Tax Matters.

(a)  The Seller and the Purchasers shall cooperate with one another in obtaining the agreement of the Manager of the Fund to allocate between the Purchasers and the Seller, in the manner mutually agreed upon by the Seller and the Purchasers in accordance with Section 706 of the Code and the Treasury Regulations promulgated thereunder, all items of income, gain, loss, deduction or credit attributable to the Seller LLC Interest for the tax year of the Fund in which the Closing Date occurs.  The Seller and the Purchasers shall request that, for tax reporting purposes, the Fund give effect to the transfer of the Seller LLC Interest as of the Closing Date or such other date as the Purchasers and the Seller mutually agree.  The Seller and the Purchasers agree that the Fund shall allocate all items of income, gain, loss, deduction or credit attributable to the S eller LLC Interest for the tax year of the Fund in which the Closing Date occurs between the Seller and the Purchasers based on an interim closing of the Fund’s books as of the Closing Date.

(b)  Each party shall be responsible for and bear its own stamp, transfer, documentary, sales and use, value added, registration and other such taxes and fees (including any penalties and interest) incurred in connection with the consummation of the transactions contemplated by this Agreement (collectively, the “Transfer Taxes”).  Any tax returns and other documentation that must be filed with respect to Transfer Taxes shall be prepared and filed when due by the party primarily or customarily responsible under the applicable local law for the filing of such tax returns or other documentation, and such party will use its commercially reasonable efforts to provide drafts of such tax returns and other documentation to the other party at least ten (10) business days prior to the due date for such tax returns and other documentation.

Section 4.4  Compliance with Operative Documents.  From the date hereof until the Closing, the Seller agrees that it will comply with the terms of the Fund Agreement and Operative Documents.  Except as consented to by Purchasers in writing, Seller shall not: (A) dispose, liquidate, mortgage, sell, assign, transfer, deliver or solicit any bids for, or enter into any discussions with prospective purchaser of, the Seller LLC Interest; (B) consent to, amend or modify, or waive any rights under, any of the Operative Documents; (C) fail in any manner to perform fully its obligations under any of the Operative Documents; (D) make any voluntary capital contributions or fail to make any required capital contributions to the Fund; (E) create or permit to exist any lien on the Seller LLC Interest; (F) take any action the effect of which would be to incur a pe nalty or other specified consequence under any of the Operative Documents; or (G) agree to do any of the foregoing.

Section 4.5  Inspection and Access to Information.  The Purchasers may, prior to the Closing, directly or through its representatives (including its counsel), review the properties, books and records in the possession of the Seller relating to the Seller LLC Interest to the extent such Purchaser reasonably believes necessary or advisable to familiarize itself with such properties and other matters.  The Seller and its affiliates shall permit each Purchaser and its representatives to have, after the date of execution of this Agreement, access to the books, records, accounts and documents in the possession of the Seller and its affiliates relating exclusively to the Seller LLC Interest and shall cause its counsel, accountants, consultants and other representatives to furnish such Purchaser, at reasonable times and to a reasonable extent, with such in vestment details, financial and operating data and other information with respect to the Seller LLC Interest as such Purchaser shall from time to time reasonably request.

Section 4.6  Notice and Return of Capital Contributions and Distributions.  The Seller shall use commercially reasonable efforts to give prompt notice to the Purchasers of all Capital Contributions and all Distributions made to or by the Fund with respect to the Seller LLC Interest. From and after the Closing, the Seller agrees to forward to the Purchasers any Capital Contributions returned to the Seller, or Distributions received by the Seller in error, with respect to the Seller LLC Interest as soon as commercially practicable but in any event within ten (10) business days after receipt thereof.  If either Purchaser acquires knowledge of any of the foregoing at any time, such Purchaser shall provide written notice thereof to the Seller as soon as commercially practicable but in any event within ten (10) business days.

Section 4.7  Notices; Financial Reports.  The Seller shall give notice to the Purchasers of the receipt by the Seller of (A) any notice or other communication relating to a default or event which, with notice or lapse of time or both, would become a default, under any of the Operative Documents or Fund Agreement, (B) any notice or other communication (including, without limitation, quarterly reports of the Fund or other financial statements or similar information) from or on behalf of the Fund in connection with the Seller LLC Interest, and (C) any notice or other communication relating to any contemplated or pending claim, action, suit, proceeding or investigation by any governmental department, commission, board, agency, instrumentality or authority involving or relating to the Seller LLC Interest, in each case within a reasonable time after receipt t hereof.  If either Purchaser acquires knowledge of any of the foregoing at any time, such Purchaser shall provide written notice thereof to the Seller as soon as commercially practicable but in any event within ten (10) business days and promptly furnish such Purchaser a copy thereof (including any related materials).

Section 4.8  Member Clawback.  To the extent Purchaser is required to return any distributions to the Fund pursuant to applicable law, then the Seller shall pay such amounts to the extent such amounts relate to distributions which were distributed to the Seller prior to the Account Balance Date.

Section 4.9  Section 743 Information.  The Seller shall provide reasonable cooperation to the Purchasers to assist the Purchasers in complying with Section 743(e)(2) of the Code.  Such cooperation shall include, without limitation, providing the Purchasers with information regarding the amount of loss, if any, recognized by the Seller for federal income tax purposes with respect to the sale of the Seller LLC Interest.  The Seller shall provide such information to the Purchasers promptly following the Purchasers’ request therefore or, if later, upon the receipt by the Seller of its Schedule K-1 for the taxable year in which the transfer of the Seller LLC Interest occurs.

ARTICLE V.

CONDITIONS TO CLOSING

Section 5.1  Mutual Conditions.  The respective obligations of the Seller and the Purchasers to effect the Closing are subject to the satisfaction or waiver of the following conditions:

(a)

The Manager Consent required to permit the consummation of the Closing shall have been obtained;

(b)

No provision of any applicable Law or Order shall prohibit the consummation of the Closing and no action, suit, litigation, arbitration, proceeding or investigation shall (i) have been formally instituted and be pending with regard to the transactions contemplated by this Agreement to occur in connection with the Closing or (ii) have been threatened in writing by any Governmental Authority with regard to the transactions contemplated by this Agreement to occur in connection with the Closing; and

(c)

Any applicable rights of first refusal or pre-emption rights or other similar rights with respect to the Seller LLC Interest have been complied with or waived.

Section 5.2  Conditions to the Obligation of the Purchasers.  The obligations of the Purchasers to effect the Closing is subject to the satisfaction or waiver of the following additional conditions on the Closing Date:

(a)

All representations and warranties of the Seller contained in this Agreement which are not qualified as to materiality shall be true and correct in all material respects, and all representations and warranties contained in this Agreement which are so qualified as to materiality shall be true and correct (in each case with the same force and effect as if such representations and warranties were made anew at and as of the Closing Date, except (i) to the extent that such representations and warranties are by their express provisions made as of the date of this Agreement or another specified date, and (ii) for the effect of any activities or transactions which may have taken place after the date of this Agreement which are contemplated by this Agreement);

(b)

The Purchasers shall have received a certificate of the Seller to the foregoing effect;

(c)

All agreements, covenants and obligations required by the terms of this Agreement to be performed and complied with by the Seller on or before the Closing Date shall have been so performed or complied with in all material respects;

(d)

The Purchasers shall have received copies of the Fund Agreement and the Operative Documents related to the Seller LLC Interest being sold at the Closing, and such other instruments of sale, transfer, conveyance and assignment as are necessary to effect the transfer of the Seller LLC Interest to be transferred at the Closing and the Purchasers shall, upon consummation of and subject to the Closing, have been granted the same or similar rights as the Fund Agreement and the Operative Documents provided the Seller with respect to the Seller LLC Interest; and

(e)

The Purchasers shall have received an updated Exhibit A attached hereto, updated to reflect all Distributions and Capital Contributions related to the Seller LLC Interest being sold at the Closing made during the period commencing on the Account Balance Date and ending on the Closing Date (including without limitation any such Distributions and Capital Contributions made after the date hereof and prior to the Closing), and all management fees and expenses paid prior to the Closing by the Seller related to the Seller LLC Interest being sold at the Closing, in advance prior to the Account Balance Date with respect to management services rendered or to be rendered after the Account Balance Date.

(f)

The Fund Agreement shall be amended and restated in its entirety as set forth on Exhibit C attached hereto.

Section 5.3  Conditions to the Obligation of the Seller.  The obligation of the Seller to sell and transfer the Seller LLC Interest to each Purchaser is subject to the satisfaction or waiver of the following additional conditions on the Closing Date:

(a)

All representations and warranties of such Purchaser contained in this Agreement which are not qualified by materiality shall be true and correct in all material respects, and all representations and warranties of such Purchaser contained in this Agreement which are qualified as to materiality shall be true and correct (in each case with the same force and effect as if such representations and warranties were made anew at and as of the Closing Date, except (i) to the extent that such representations and warranties are by their express provisions made as of the date of this Agreement or another specified date and (ii) for the effect of any activities or transactions which may have taken place after the date of this Agreement which are contemplated by this Agreement);

(b)

The Seller shall have received a certificate of such Purchaser signed on its behalf by a duly authorized officer to the foregoing effect;

(c)

All agreements, covenants and obligations required by the terms of this Agreement to be performed and complied with by such Purchaser on or before the Closing Date with respect to the Seller LLC Interest shall have been so performed or complied with in all material respects; and

(d)

The Seller shall have received the Purchase Price with respect to the Seller LLC Interest by wire transfer of immediately available funds.

ARTICLE VI.

TERMINATION

Section 6.1  Grounds for Termination.  This Agreement may be terminated at any time before the Closing:

(a)

by mutual agreement of the parties;

(b)

by either Purchaser if any of the representations of the Seller contained in this Agreement are inaccurate or untrue in any material respect and the inaccuracy has not been, or cannot be, cured within 30 days after notice of the inaccuracy or untruth has been given to the Seller; and

(c)

by the Seller if any of the representations of the Purchasers contained in this Agreement are inaccurate or untrue in any material respect and the inaccuracy has not been, or cannot be, cured within 30 days after notice of the inaccuracy or untruth has been given to the Purchasers.

The party terminating this Agreement pursuant to this Section 6.1 will give written notice of the termination to the other party.

Section 6.2  Effect of Termination with respect to the Seller LLC Interest.  If this Agreement is terminated with respect to the Seller LLC Interest as permitted by Section 6.1, no party to this Agreement will have any liability or further obligation to the other party pursuant to this Agreement; provided, however, that if termination results from the bad faith of a party, such party will remain liable for any and all costs, expenses or damages incurred or suffered by the other party as a direct result of such failure or breach, and provided further, however, that the agreement of the Seller and the Purchasers set forth in Sections 8.3 (Expenses) shall survive such termination.  

ARTICLE VII.

MANAGER CONSENT

Section 7.1  Manager Consent to Transfer.  The Old Manager (as defined in the Fund Agreement) and the Manager of the Fund hereby consent to the transfer of the Seller LLC Interest in the Fund to the Purchasers and admission of the Purchasers as members in the Fund pursuant to 9.01 of the Fund Agreement.

Section 7.2  Waiver of Opinion.  The Old Manager (as defined in the Fund Agreement) and the Manager of the Fund hereby waive the requirement pursuant to 9.01(c) of the Fund Agreement for a written opinion of counsel in connection with the transfer of the Seller LLC Interest.

ARTICLE VIII.

OTHER MATTERS

Section 8.1  Waiver, Amendment.  Any provision of this Agreement may be amended or waived, but only if the amendment or waiver is in writing and signed, in the case of the amendment, by each party to this Agreement or, in the case of a waiver, by the party or parties asserted to have made such waiver.

Section 8.2  Survival.  Each party’s representations, warranties and covenants set forth in Articles III and IV hereof shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.

Section 8.3  Expenses. Each party hereto will bear all expenses incurred by it in connection with this Agreement and the transactions contemplated by this Agreement.

Section 8.4  Notices.  All notices, requests and other communications under this Agreement to a party will be in writing and will be deemed given (a) on the business day sent, when delivered by hand or facsimile transmission (with confirmation) during normal business hours, (b) on the business day following the business day of sending, if delivered by nationally recognized overnight courier, or (c) on the third business day following the business day of sending, if mailed by registered or certified mail return receipt requested, in each case to such party at its address (or number) set forth below or such other address (or number) as the party may specify by notice to the other parties hereto.

If to the Seller:

Alan Goldberg

Chief Executive Officer

First Albany Capital

677 Broadway

Albany, NY 12207-2990

with a copy (which shall not constitute notice) to:

Cahill/Wink LLP

444 Broadway
Suite 300

Saratoga Springs, NY 12866

Attention: Stephen Wink, Esq.

Phone:  (518) 584-1991

Fax: (518) 584-1962

Email: steve.wink@cahillwink.com

If to the Purchasers:

Auda Private Equity LLC

c/o Richard Lichter, Managing Director

745 Fifth Avenue, 29th Floor

New York, NY  10151

Phone: (212) 863-2331

Fax: (212) 593-2974

Email: lichter@auda.net

with a copy (which shall not constitute notice) to:

Auda Private Equity LLC

c/o Lisa Rosas

745 Fifth Avenue, 29th Floor

New York, NY  10151

Phone: (212) 863-2336

Fax: (212) 593-2974

Email: audape@auda.net

With a copy (which shall not constitute notice) to:

Proskauer Rose LLP

One International Place

Boston, MA  02110

Attention: David W. Tegeler, Esq.

Phone:  (617) 526-9600

Fax:  (617) 526-9899

Section 8.5  Entire Understanding; No Third-Party Beneficiaries.  This Agreement constitutes the entire agreement among the parties hereto with respect to the transactions contemplated by this Agreement and supersedes all prior agreements, written or oral, among the parties with respect to the subject matter of this Agreement.  Nothing in this Agreement, expressed or implied, is intended to confer on any person, other than the parties hereto or their respective successors, any rights, remedies, obligations or liabilities.

Section 8.6  Assignment.  Neither this Agreement nor any of the rights, interests or obligations under it may be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties hereto and any purported assignment in violation of this Section 8.6 will be void.  Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties to this Agreement and their respective successors and permitted assigns.  Notwithstanding the foregoing, the Purchasers shall have the right to cause the transfer of the Seller LLC Interest or the right to purchase the Seller LLC Interest to any Permitted Transferee (with the assumption by such assignee of the relevant portion of the related liabilities and obligations), prov ided that no such assignment shall relieve the assigning party of its obligations hereunder if such assignee does not perform such obligations.  

Section 8.7  Counterparts.  This Agreement may be executed in two or more counterparts, each of which will constitute an original and all of which, when taken together, will constitute one Agreement.

Section 8.8  Severability.  If any term, provision, agreement, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, agreements, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party hereto.  Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a reasonably acceptable manner in order that the transactions contemplated hereby may be consummated as originally contemplated to the f ullest extent possible.

Section 8.9  Governing Law.  This Agreement and its enforcement will be governed by, and interpreted in accordance with, the laws of the State of New York applicable to agreements made and to be performed entirely within such State.  

Section 8.10  Submission to Jurisdiction.   Each party to this Agreement hereby submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in The City of New York for purposes of all legal proceedings arising out of or relating to this Agreement, or the transactions contemplated hereby.  Each party to this Agreement hereby irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such proceeding brought in such court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.  In any action which may be instituted against either party arising out of or relating to this Agreement, such party hereby consents to the servic e of process in connection with any action by the mailing thereof by registered or certified mail to such party’s address set forth in Section 8.4.

Section 8.11  WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION AS BETWEEN THE PARTIES DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR DISPUTES RELATING THERETO.  EACH PARTY HERETO (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTY HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.11.

Section 8.12  Interpretation.  (a) As used in this Agreement, references to:

(a)

the words “hereby”, “hereof”, “herein”, “hereunder” or words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement.

(b)

the Preamble or to the Recitals, Sections or Exhibits refers to the Preamble or a Recital, or an Exhibit or a Schedule to, this Agreement unless otherwise indicated.

(c)

this Agreement refers to this Agreement and the Exhibits to it.

(d)

Wherever this Agreement requires a party to take an action, the requirement constitutes an undertaking by the party to cause its subsidiaries, and to use its commercially reasonable efforts to cause its other affiliates, to take appropriate action in connection therewith.

(e)

Whenever the words “include”, “includes” or “including” are used is this Agreement, they will be deemed to be followed by the words “without limitation.”  Any singular term in this Agreement will be deemed to include the plural, and any plural term the singular. All pronouns and variations of pronouns will be deemed to refer to the feminine, masculine or neuter, singular or plural, as the identity of the person referred to may require.

(f)

The various captions and headings contained in this Agreement are for reference purposes only and do not limit or otherwise affect any of the provisions of this Agreement.

(g)

It is the intention of the parties hereto that this Agreement not be construed more strictly with regard to one party than with regard to the other parties hereto.

Section 8.13  Resolution of Conflicts.  In the event of any inconsistency or conflict between the terms of this Agreement and any other document executed by the Seller and/or the Purchasers in connection with this Agreement or the transactions contemplated hereby, the terms of this Agreement shall control as between the Seller and the Purchasers.

7116/11287-001  Current/7918510v5

IN WITNESS WHEREOF, the parties named below have caused this instrument to be duly executed, all as of the day and year first above written.

SELLER

FIRST ALBANY COMPANIES INC.

By: _/s/ Alan P. Goldberg

Alan P. Goldberg, President

PURCHASERS

AUDA SECONDARY FUND L.P.

AUDA SECONDARY FUND C

   (CAYMAN), L.P.

By: Auda Secondary Fund LLC

their general partner

By: Auda Private Equity LLC

       Member

By: _/s/ Stephen B. Wessen,/s/ RobertKirby
      Name: Stephen B. Wessen RobertKirby
      Title: Authorized Officer         CFO

Signature Page to Purchase Agreement

FATV GP LLC (For Purposes of Article VII only)

By: _____________________________

Gregory A. Hulecki, Manager

FAC MANAGEMENT CORP. (For Purposes of Article VII only)

By: /S/ Alan P. Goldberg

Alan P. Goldberg, President      

PURCHASE AND SALE AGREEMENT

EXHIBIT A

Auda Secondary Fund L.P.

Limited Liability Company Interest represented by a Capital Commitment of $6,783,245 Base Purchase Price $1,726,104

Auda Secondary Fund C (Cayman) L.P.

Limited Liability Company Interest represented by a Capital Commitment of $2,451,790 Base Purchase Price $623,896

Member	Seller Capital Commitment	Account Balance Date	Capital Account As of the Account Balance Date	Capital Contributions since the Account Balance Date1  The purchase price includes all Capital Contributions and Distributions through October 24, 2005.  Any Capital Contributions made after October 24, 2005 will be added to the Purchase Price; any Distributions received after October 24, 2005 will be subtracted from the Purchase Price.	Distributions since the Account Balance Date	Remaining Unfunded  Capital Commitment as of Closing Date
Auda Secondary Fund L.P.	$6,783,245	October 24, 2005	$2,061,627	$363,378	--	$3,999,624
Auda Secondary Fund C (Cayman) L.P.	$2,451,790	October 24, 2005	$745,170	$131,342	--	$1,445,656

7116/11287-001  Current/7918510v5

Footnotes

7116/11287-001  Current/7918510v5

EX-10

Exhibit 10.31

SEPARATION AND CONSULTING AGREEMENT

(“Agreement”)

First Albany Companies Inc., its direct and indirect subsidiaries and affiliates (collectively, the “Company”) and I, Steven R. Jenkins, agree as follows:

1.

Resignation of Employment, Offices, and Authorities.  I hereby resign my employment with the Company and from all offices and administrative positions I hold with the Company, including the offices set forth on Exhibit A to this Agreement, effective as of November 3, 2005 (the “Effective Date”).  I will sign the letter attached as Exhibit A to this Agreement confirming such resignations on the same date I sign this Agreement.  I will receive my base salary through the Effective Date.  I further agree and acknowledge that as of the Effective Date, I will no longer have any authority to make or enter into any agreements, commitments, or representations on behalf of the Company, and I will no longer have any signing or other authority on the Company’s accounts, trusts, books, or records.

2.

Separation Benefits.  In exchange for my execution of this Agreement and the promises I made herein (and without any other obligation to do so), and provided that I do not give the Company reason to stop or withhold such benefits under Section 15, below, the Company will:

a.

Pay me $475,000 on or about July 1, 2006.

b.

Pay me $475, 000 on or about February 28, 2007.

c.

Pay for my continued group health insurance coverage, pursuant to Section 4980B of the Internal Revenue Code (“COBRA”), if eligible, for a period ending on the earlier of (i) December 31, 2006 or (ii) the date upon which I accept full-time employment with another employer, after which date I may continue such coverage at my own expense for the remainder of the COBRA continuation period pursuant to applicable law.  I agree to notify the Company immediately upon your acceptance of full-time employment with another employer.  Payment for my COBRA premiums for January through June 2006, if owing under this paragraph, will be made to me in a lump sum on or about July 1, 2006.  Payment for COBRA premiums for months after June 2006, if owing under this paragraph, will be made to me on a monthly basis.

d.

Permit the continued vesting of any Restricted Shares granted to me under the terms of the 1999 Long-Term Incentive Plan (“1999 LTIP) or the 2001 Long-Term Incentive Plan (“2001 LTIP”) through February 28, 2006, on which date all unvested Restricted Shares held by me shall automatically become fully (i.e., 100%) vested.

Except as modified in this Agreement, my rights under the Company’s 1989 Stock Incentive Plan, the 1999 LTIP, the 2001 LTIP, 2005 Deferred Compensation Plan, or any other Company benefit or incentive plans will remain as stated under the terms and conditions of those plans.

3.

Release of Claims.  In exchange for the benefits provided to me under this Agreement, I irrevocably and unconditionally forever release and discharge the Company and its successors and assigns, and each of their current and former employees, officers, directors, owners, shareholders, representatives, administrators, fiduciaries, agents, insurers, and employee benefit programs (and the trustees, administrators, fiduciaries and insurers of any such programs) (collectively, the “Released Parties”) from all actual or potential, known or unknown claims that I presently may have, including but not limited to any arising out of my employment with, and separation from, the Company.  The claims that I am releasing include, for example and without limitation, claims under any federal, state or local common law, statute, regulation or law of any type, including claims of employment discrimination or for breach of contract; any claims arising under or otherwise related to any other written or oral agreement between me and the Company (including but not limited to my offer letter from the Company dated as of December 21, 1998, my Agreement with the Company dated as of February 2, 1999 with attached Promissory Note, and any amendments thereto); and claims for any other or further compensation, payments or benefits of any kind from any Released Party.  I have not filed or caused to be filed any lawsuit, complaint, charge, grievance or any other proceeding against the Company with any court, agency or other tribunal and to the extent permissible by law, I promise never to do so based on any claims released in this section.

4.

Indemnification and Conversion Rights.  The general release set forth in Section 3, above, is not intended to, and will not operate to, waive or limit any existing rights I may have (i) to indemnification as a former officer of the Company under any liability insurance policy maintained by the Company; under any charter, certificate of incorporation, by-law or resolution of the Company; or as otherwise required by law; (ii) to convert my coverage under the Company’s group life insurance policy to individual coverage, at my own expense; or (iii) to roll over my 401(k) assets under the terms of the Company’s 401(k) plan.

5.

Consulting Relationship.  In further exchange for the benefits provided to me under this Agreement, I agree to provide exclusive and full-time consulting services to the Company from the date of this Agreement through December 31, 2005 (“Consulting Period”), in accordance with this Section 5.  I agree that the benefits provided to me under this Agreement are adequate consideration for both my release of claims under Section 3 and my promises under this Section 5.  I understand and agree that this Section 5 does not constitute a hiring or employment agreement and that during the Consulting Period, except as otherwise provided for in this Agreement, I will not be eligible for, and I hereby waive any claim to, wages, compensation, or any benefits provided to employees of the Company.

a.

Consulting Services.  I shall render such financial and accounting-related consulting services, at such time(s) and place(s), as may reasonably be requested by the Board of Directors of First Albany Companies Inc. (the “Board”) or its designee.  During the Consulting Period, when I am not performing consulting services for the Company, I shall be prohibited from rendering services to persons or entities outside the Company.  I will not be required or expected to be on Company premises during the Consulting Period, except as may be requested by the Board or its designee from time to time.

b.

Nature of Consulting Services.  During the Consulting Period, I agree to continue to perform such duties and responsibilities as may be assigned to me by the Board or its designee, including to cooperate in the effort to effect an orderly, smooth, and efficient transition of my duties and responsibilities to such individual(s) as the Company may direct; to fully cooperate with and act consistent with the lawful directions of the Board and its designee; and to refrain from making disparaging remarks to any person or entity, internal or external, about the Company or its officers, or statements inconsistent with the best interests of the Company and its officers.

c.

Consulting Fee.  During the Consulting Period, the Company shall pay me a monthly fee equal to $25,000 (the “Consulting Fee”) for each full month I provide consulting services in accordance with this Section 5.  I agree that I will be solely responsible for any federal, state, or local employment, payroll, income, or other withholdings or taxes due or owing in connection with the Consulting Fee and that the Company will not withhold any such or other amounts from the fee.  I further agree that I will be solely responsible for payment on behalf of myself of any unemployment insurance, workers’ compensation insurance, and/or liability insurance during the Consulting Period.  

d.

Expenses.  The Company agrees to reimburse me for reasonable and necessary out-of-pocket business expenses incurred by me in connection with the performance of my duties hereunder, provided that all such expenses shall require prior written approval by the Board or its designee.

6.

No Further Benefits.  I understand and agree that the consideration provided to me under the terms of this Agreement is in addition to anything of value to which I am otherwise entitled.  I represent, warrant and acknowledge that the Company owes me no wages, compensation, or payments or form of remuneration of any kind or nature, including any salary, bonus or incentive compensation, other than as specifically provided for in this Agreement or in a subsequent written agreement between me and the Company, or as otherwise vested under the terms of any Company benefit plan.  

7.

Confidential Information.  Except as required by subpoena, court order, or other legal process, I agree to hold in strict confidence and that I will not (and have not) at any time after first receiving a copy of this Agreement disclose, nor use for my benefit or for the benefit of any other person or entity, any information received from the Company which is confidential or proprietary and (i) which has not been disclosed publicly by the Company, (ii) which is otherwise not a matter of public knowledge, or (iii) which is a matter of public knowledge but I know or have reason to know that such information became a matter of public knowledge through an unauthorized disclosure.  Proprietary or confidential information shall mean information that has been designated by the Company as such, that the disclosure of which could be harmful to the Company, or that the unauthor ized disclosure or use of which would reduce the value of such information to the Company.  Such information includes, without limitation, the Company’s client lists, its trade secrets, any confidential information about (or provided by) any client or prospective or former client of the Company, non-public information concerning the Company’s business or financial affairs, including its books and records, strategies, forecasts, commitments, procedures, plans and prospects, compensation practices, financial products developed by the Company that have not been publicly described or disclosed by the Company, securities positions, trading strategies, or current or prospective transactions or business of the Company and any material non-public information about the Company, its clients or investors.

8.

Confidentiality of Agreement, Separation.  I agree to keep every term of this Agreement confidential and will not (and have not) at any time after first receiving a copy of this Agreement disclose the existence of this Agreement, the fact that this agreement was being discussed or considered, or the substance or contents of this Agreement to any person or entity other than my attorneys, tax advisors and immediate family, or otherwise as required by subpoena, court order, or other legal process.  I further agree that I will not make any statement concerning my separation from the Company (or the circumstances surrounding or leading up to my separation) to any reporter, research analyst, or other member of the financial press or investment or financial services communities without the prior written approval of the Company as to both the fact and content of such stateme nt.

9.

Disclosure of Confidential Information.  Upon service to me, or anyone acting on my behalf, of any subpoena, court order, or other legal process requiring me to disclose information described in Sections 7 or 8, above, I shall immediately notify the Company of such service and of the content of any testimony or information to be disclosed and shall cooperate fully with the Company to lawfully resist disclosure of the information prior to actual compliance with the request.  Beginning with the date the Company publicly discloses the existence of this Agreement, it shall not be a violation of Sections 7 or 8, above, for me to acknowledge that this Agreement exists and to inform others of the existence and location of such public disclosure.

10.

Covenant Not to Solicit Company Employees or Clients.  I agree that during the Consulting Period and for one year after the expiration of the Consulting Period (together, the “Restricted Period”), without the prior written consent of the Company, I will not, directly or indirectly, whether for myself or for any other individual or entity (other than any entity related to the Company), (a) hire, solicit, or endeavor to hire away or solicit away from the Company, or otherwise induce or encourage to terminate their relationship with the Company, any person whom the Company employs or otherwise engages to perform services, or has employed or engaged to perform services within the 12-month period immediately prior to the Effective Date, including, but not limited to, any consultant or contractor, or (b) solicit, attempt to solicit, or assist others to solicit any customer, client or business partner of the Company with whom I had dealings or about whom I acquired proprietary information during my employment to invest in or do business with any person or entity other than the Company, or otherwise induce or encourage such customer, client or business partner to terminate their business relationship with the Company.

11.

Covenant Not To Interfere.  I agree that during the Restricted Period I will not (a) contact any employee of the Company with respect to any matter related to the business of the Company, except for contact with the Company’s Board or its designee in connection with the administration of this Agreement or the performance of my consulting duties hereunder, (b) visit the premises of the Company other than with the express prior written consent of the Company’s Board or its designee, or (c) otherwise interfere with business of the Company.  I further agree that I will not otherwise interfere with or disrupt the Company’s relationship with any of its employees, consultants or contractors.

12.

Covenant Not to Disparage.  Except as required by subpoena, court order, or other legal process (in which case I agree to notify the Company of such subpoena, court order, or other legal process as early as reasonably possible), I agree not to criticize, denigrate, or otherwise disparage the Company or any of its directors or executive officers.  The Company agrees that its Board (other than Art Murphy) and its Chief Executive Officer (“CEO”) will not publicly criticize, denigrate, or otherwise disparage me.  Nothing in this section is intended to prohibit me from responding to any disparaging remarks made by Art Murphy.

13.

Return of Company Property; No Affiliation.  Effective immediately, I will return to the Company all files, documents, records, and copies of the foregoing (whether in hard or electronic form), Company-provided computer and telephone equipment, PDAs, pagers, credit cards, keys, building passes, security passes, access or identification cards, and any other property of the Company in my possession or control.  I further agree that, following execution of this Agreement, I will not hold myself out publicly or otherwise (including as a member of any club or association) as affiliated with the Company and that I will take all reasonable and necessary steps to notify any clubs or associations of which I am a Company-affiliated member that I am no longer affiliated with the Company.

14.

Cooperation.  I agree that I will assist and cooperate with the Company in connection with the defense or prosecution of any claim that may be made against or by the Company, or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company, including any proceeding before any arbitral, administrative, judicial, legislative, or other body or agency, including testifying in any proceeding to the extent such claims, investigations or proceedings are related to services performed or required to be performed by me, knowledge possessed by me, or any act or omission by me.  I further agree to perform all acts and execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Section 14.  The Company agrees to reimburse me for any reasonable and necessary out-of-pocket expenses I may incur in complying with this Section 14 at the request of the Company, provided that such expenses are not incurred without the Company’s prior written approval.

15.

Violations.  I agree that (a) if I violate any provision of Sections 7 through 13 of this Agreement or (b) if at any time after the Effective Date the Board believes in good faith, following an investigation, that I have engaged in or ratified conduct with respect to  the assets, books, records and accounts, the internal accounting controls, or the financial statements of the Company or  its subsidiaries  that (i) is fraudulent, (ii) violates federal or state securities laws or regulations of self-regulatory organizations, (iii) departs from generally accepted accounting principles, or (iv) is otherwise unlawful, in addition to any other rights and remedies the Company might have (including monetary damages), (x) all payments and benefits under Section 2 of this Agreement will cease immediately and I will not be entitled to any further paymen ts or benefits of any kind from the Company, including under Section 2, (y) payment of the Consulting Fee under Section 5 will cease immediately and my consulting relationship with the Company will terminate immediately, and (z) the Company shall be entitled to obtain an injunction to be issued by any court of competent jurisdiction (notwithstanding any existing agreement or obligation to arbitrate between or on the part of the parties) restraining me from committing or continuing any such violation(s), without the need to post any bond or for any other undertaking or prove the inadequacy of money damages.  I agree and recognize that the covenants contained in Sections 7 through 13 are of the essence of this Agreement.  Nothing in this section (or this Agreement) is intended to limit the rights or obligations of either party under the rules of any self-regulatory organization to which they are otherwise bound, including with respect to the arbitration of claims.

16.

Letter of Reference.  The Company agrees to provide me with a letter of reference in a form mutually agreeable to me and the Company.

17.

No Admission of Guilt.  This Agreement is not an admission of guilt or wrongdoing by either me or the Company.

18.

Entire Agreement.  This Agreement constitutes the entire agreement between me and the Company with respect to the subject matter hereof.  I affirm that, in entering into this Agreement, I am not relying upon any oral or written promise or statement made by anyone at any time on behalf of the Company except as expressly set forth herein.

19.

Notice.  I agree to send all communications to the Company in writing, by certified or overnight mail, addressed as follows (or in any other manner the Company notifies me to use):

First Albany Companies Inc.

Attention:  Chief Executive Officer

677 Broadway
Albany, New York 12207

With a copy to:

Chair of the Audit Committee, Board of Directors

First Albany Companies Inc.

677 Broadway
Albany, New York 12207

The Company agrees to send all communications to me in writing, by certified or overnight mail, addressed to my most recent address in the Company’s records (or in any other manner I notify the Company to use).

20.

Modifications.  No provisions of this Agreement may be modified, waived, amended or discharged except by a written document signed by me and a duly authorized Company officer.

21.

Successors.  This Agreement binds my heirs, administrators, representatives, executors, successors, and assigns, and will inure to the benefit of the Company and the Released Parties and their respective heirs, administrators, representatives, executors, successors, and assigns.

22.

Validity and Waiver; Severability.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.  A waiver of any conditions or provisions of this Agreement in a given instance shall not be deemed a waiver of such conditions or provisions at any other time.  If any of the provisions, terms or clauses of this Agreement are declared illegal, unenforceable or ineffective in a legal forum, those provisions, terms and clauses shall be deemed severable, such that all other provisions, terms and clauses of this Agreement shall remain valid and binding upon both parties.

23.

Choice of Law and Venue.  The validity, interpretation, construction, and performance of this Agreement shall be governed by the internal laws of the State of New York (excluding any that mandate the use of another jurisdiction’s laws).

24.

Interpretation.  This Agreement shall be construed as a whole according to its fair meaning, and shall not be construed strictly for or against me or the Company.  Unless the context indicates otherwise, the singular or plural number shall be deemed to include the other.  Section headings are intended solely for convenience of reference only and shall not be a part of this Agreement for any other purpose.

25.

Tax Withholding.  Any compensation or benefits payable under this Agreement shall be subject to applicable federal, state and local withholding taxes and allowances, where appropriate.  I agree and acknowledge that (i) I shall bear sole responsibility for payment of any federal, state, or local income or other taxes or related penalties associated with my current or future receipt of any amounts pursuant to this Agreement, and (ii) the Company shall have no obligation to mitigate or hold me harmless from any such tax liabilities.

26.

Authority to Sign.  Each party represents that the individual signing this Agreement on its behalf has the authority to do so and to so legally bind the party.  The Company represents that the execution, delivery and performance of this Agreement by the Company has been fully and validly authorized by all necessary corporate action.

[AGREEMENT CONTINUES ON NEXT PAGE]

27.

Review of Agreement.  I have carefully read this Agreement, fully understand what it means, and am entering into it voluntarily.

Dated:

November 3, 2005

/S/STEVEN R. JENKINS

STEVEN R. JENKINS

Dated:

November 3, 2005

FIRST ALBANY COMPANIES INC.

/S/ ARTHUR J. ROTH

By:

Arthur J. Roth

Title:

Director and Chair, Audit Committee

November 3, 2005

Board of Directors

First Albany Companies Inc.

677 Broadway
Albany, New York 12207

To the Members of the Board of Directors:

I hereby resign from the following offices, and from any and all other offices I hold with First Albany Companies Inc., its subsidiaries and affiliates, as of the date hereof:

•

Vice President and Chief Financial Officer of First Albany Companies Inc.

•

Executive Managing Director, Chief Financial Officer, and Chief Operating Officer of First Albany Capital Inc.

•

Vice President of FA Asset Management Inc.

•

Chief Financial Officer of Descap Securities

•

Vice President and Treasurer of FAC Management Corp.

Very truly yours,

/S/ Steven R. Jenkins

Steven R. Jenkins

EX-10

Exhibit 10.32

LOAN AGREEMENT

RE: $4,857,000.00 TERM LOAN

THIS LOAN AGREEMENT made as of the 30th day of December, 2005 by and between FIRST ALBANY COMPANIES INC., a New York corporation, with its principal office and place of business as of the date hereof at 677 Broadway, Albany, New York 12207 (the "Borrower"), and KEYBANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, with an office for the transaction of business as of the date hereof at 66 South Pearl Street, Albany, New York, 12207 (the "Bank").

W I T N E S S E T H:

WHEREAS, the Borrower has applied to the Bank for extensions of credit, and

WHEREAS, the Bank upon the terms and conditions hereinafter set forth has agreed to make extensions of credit to the Borrower.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration exchanged between the parties hereto, the receipt and sufficiency of which is hereby acknowledged, it is hereby agreed as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

SECTION 1.01.  Defined Terms.  As used in this Loan Agreement, the following terms shall have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa):

“2004 Loan Agreement” means that certain Loan Agreement Re: $20,000,000.00 Term Loan by and between the Borrower and the Lender dated February 18, 2004, as the same has been and may be modified and amended.

“2004 Term Loan” means the Term Loan as defined in the 2004 Loan Agreement.

“Additional Costs” has the meaning set forth in Section 2.08 hereof.

“Advance” means an extension of credit under the Term Loan to the Borrower by the Bank.

“Advance Date(s)” means (i) the Closing Date, (ii) the first Business Day in each of the four calendar month(s) immediately following the Closing Date and (iii) April 30, 2006, each being a date upon which the Bank, subject to the terms and provision hereof, shall make an Advance to the Borrower in accordance with Article II.

“Advance Termination Date” means April 30, 2006, the final date upon which the Bank shall make an Advance to the Borrower.

“Adjusted Prime Rate” – means a rate per annum equal to the greater of (a) the Prime Rate and (b) one percent (1%) in excess of the Federal Funds Effective Rate.  Any change in the Adjusted Prime Rate shall be effective immediately from and after such change in the Adjusted Prime Rate.

“Adjustment Date” shall have that meaning ascribed to such term in Appendix D-LM.

“Affiliate” means, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person.  As used in this definition, “control” (including, with correlative meanings, “controlled by” and “under common control with” shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies of such Person (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise); provided, that no individual shall be deemed to be an Affiliate of a corporation solely by reason of his or her being an officer or director of such corporation, and no Consolidated Subsidiary of the Borrower shall be deemed to be an Affiliate of the Borrower (or of any of its Subsidiaries).

“Amortization Period” means the five (5) year period commencing on first day of the month immediately following the Advance Termination Date and terminating on the Maturity Date.

“Bank” means KeyBank National Association, a national banking association, its successors and/or assigns.

“Board” means the Board of Governors of the Federal Reserve System.

“Borrower” means First Albany Companies Inc., a New York business corporation, its successors and/or assigns.

“Business Day” means any day other than a Saturday, Sunday, or other day on which commercial banks in the State of New York are authorized or required to close under the laws of the State of New York and, if the Interest Rate relates to a LIBOR Rate, any day on which dealings in dollar deposits are also carried on in the London interbank market.

“Cash Dividends” means any cash payments to shareholders.

“Capital Lease” means any lease which has been or should be capitalized on the books of the lessee in accordance with GAAP.

“Chief Financial Officer of the Borrower” means the Borrower's Chief Financial Officer.

“Closing Date” means the date on which the first Advance under the Term Loan is made.

“Consolidate” or “Consolidated” means the consolidation of accounts of the Borrower and its Material Subsidiaries in accordance with GAAP.

“Debt” means (1) indebtedness or liability for borrowed money, or for the deferred purchase price of property or services (including trade obligations); (2) obligations as lessee under Capital Leases; (3) current liabilities in respect of unfunded vested benefits under any Plan; (4) obligations under letters of credit issued for the account of any Person; (5) all obligations arising under acceptance facilities; (6) all guarantees, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase, provide funds for payment, supply funds to invest in any Person, or otherwise to assure a creditor against loss; and (7) obligations secured by any Lien on property owned by the Person, whether or not the obligations have been assumed.

“Default” means any of the events specified in Section 6.01 hereof, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied.

“Default Interest Rate” means the rate of interest, as specified in Section 2.03 hereof, payable on overdue principal of the Term Loan.

“Dollars” and the sign "$" mean lawful money of the United States of America.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations and published interpretations thereof.

“ERISA Affiliate” means any trade or business (whether or not incorporated) which together with the Borrower would be treated as a single employer under Section 4001 of ERISA.

“Event of Default” means any of the events specified in Section 6.01 hereof, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied.

“Federal Funds Effective Rate” means for any day, the rate per annum (rounded upward to the nearest on one-hundredth of one percent (1/100 of 1%)) announced by the Federal Reserve Bank of Cleveland on such day as being the weighted average of the rates on overnight federal funds transactions arranged by federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the “Federal Funds Effective Rate.”

“Financial Contracts” means option contracts, options on futures contracts, futures contracts, forward foreign currency exchange contracts, options on foreign currencies, repurchase agreements, reverse repurchase agreements, securities lending agreements, short sale agreements, when-issued securities, swaps and any other similar arrangements entered into by the Borrower or any of its Subsidiaries in the ordinary course of business.

“Financial Covenants” means the financial covenants set forth in Section 5.04 hereof.

“Fiscal Quarter” means a period of three consecutive calendar months ending on the last day of March, June, September or December.

“Fiscal Year” means the fiscal year the Borrower uses for filing tax returns, which Fiscal Year as of the date hereof ends on December 31.

“Funded Indebtedness” means, as to any Person (i) all Indebtedness of such Person that matures more than one year from the date of its creation or matures within one year from such date but is renewable or extendible, at the option of such Person, to a date more than one year from such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year from such date, including all current maturities and current sinking fund payments in respect of such Indebtedness whether or not required to be paid within one year from the date of its creation, (ii) all Indebtedness of such Person subordinated in right of payment to the Term Loan or Indebtedness in respect thereof and (iii) in the case of the Borrower, Indebtedness in respect of the Term Loan.

“Funding Office” means the office of the Bank specified in section 2.05 or such other office as may be specified from time to time by the Bank as its funding office in accordance with section 2.05.

“GAAP” means generally accepted accounting principles in the United States.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.

“Indebtedness” means, for any Person, all indebtedness or other obligations of such Person for borrowed money or any Capital Lease.

“Interest Expense” means all interest paid related to a Debt excluding interest paid on Short Term Line Financing.

“Initial Interest Period” means that period commencing on the Closing Date and ending on the last day of the calendar month in which the Closing Date occurs.

“Interest Period” means, as applicable, (i) the Initial Interest Period and (ii) each calendar month thereafter.  Notwithstanding the foregoing, each Interest Period that would otherwise end on a day that is not a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day).

“Interest Rate” means the rate of interest set forth in Section 2.03 hereof.

“Lease” means, collectively, the New York Lease and the San Francisco Lease.

“Lease Expense” means, for any period, for the Borrower and its Subsidiaries (determined on a Consolidated basis without duplication in accordance with GAAP) the aggregate amount of fixed and contingent rentals (including (i) rental escalations arising from real estate tax increases, (ii) pass through by a lessor of its increased operating expenses as increased rent and (iii) increased  cost of utilities provided to or utilized at a given real property lease site for that lease site) payable with respect to operating leases of real and personal property (other than obligations under any Capital Lease).

“Leased Premises” means, collectively, the New York Leased Premises and the San Francisco Leased Premises.

“Leasehold Improvements” means any changes, additions, alterations or repairs to, all alterations, reconstructions, renewals, replacements or removals of and all substitutions or replacements for any portion thereof made to the Leased Premises by or on behalf of the Borrower at the cost and/or expense of and/or paid by the Borrower, all pursuant to the terms of the Lease.

“Leasehold Improvements Cost” means the sums remitted by the Borrower for the provision of and in payment of the Leasehold Improvements.

“Leverage Ratio” means the Modified Total Funded Debt to EBITDAR Ratio specified in Section 5.04(b) of this Agreement.

“LIBOR Rate” means the rate for deposits in Dollars for a period of one (1) month which appears on the Telerate Page 3750 as of 11:00 a.m. London time on the day that is two (2) Business Days prior to the commencement of the Interest Period relating thereto.  If such rate does not appear on the Telerate Page 3750 the rate for each reset day shall be the London interbank market offered rate for one (1) month as published in the “Money Rates Column” in the Wall Street Journal on the Business Day prior to the commencement of the Interest Period relating thereto.

“LIBOR Margin” means the basis points under the heading “The Applicable Margin Over the LIBOR Rate will be” determined in accordance with Appendix D-LM, attached hereto and incorporated by reference herein.

“Lien” means any mortgage, deed of trust, pledge, security interest, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or other security agreement or charge, or encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction to evidence any of the foregoing).

“Loan Agreement” means this loan agreement, as amended, supplemented, or modified from time to time.

“Loan Document(s)” means this Loan Agreement, the Note and all other instruments, documents, agreements, certifications, and/or certificates at any time given to or held by the Bank in connection with the Term Loan.

“Long Term Debt” means, at any time, all Indebtedness with a remaining maturity in excess of twelve (12) months.

“Margin Period” shall have that meaning ascribed to such term in Appendix D-LM.

“Material Adverse Effect” means (i) with respect to the Borrower and its Subsidiaries, any material adverse effect on the business, operations, condition (financial or otherwise), assets or prospects of the Borrower and its Subsidiaries taken as a whole, or (ii) any fact or circumstance as to which singly or in the aggregate Borrower has reason to believe there is a reasonable possibility of (a) a material adverse change described in clause (i) or (b) above the inability of the Borrower to perform in any material respect its obligations hereunder and under the other Loan Documents, or (iii) a material adverse effect on the validity or enforceability of the Loan Documents.

“Material Indebtedness” means Indebtedness owing by the Borrower or any Subsidiary of the Borrower (without duplication) to Persons other than the Bank if the outstanding amount of such Indebtedness, including currently due and payable interest, premiums and other charges, is at least $1,000,000.00.

“Material Subsidiary” means, at any time, a Subsidiary of the Borrower having (i) at least 10% of the total Consolidated assets of the Borrower and its Subsidiaries (determined as of the last day of the most recent fiscal quarter of the Borrower), or (ii) at least 10% of the Consolidated revenues of the Borrower and its Subsidiaries for the Fiscal Year of the Borrower then most recently ended.  

“Maturity Date” means April 30, 2011, or such earlier date the Bank exercises its right to accelerate the Term Loan as provided herein and in the other Loan Documents, that being the date on which the Term Loan matures and all unpaid principal, accrued and unpaid interest and all other charges due under the Loan Documents will be paid in full.

“Multiemployer Plan” means a Plan described in Section 4001(a)(3) of ERISA which covers employees of the Borrower or any ERISA Affiliate.

“New York Lease” means that certain lease agreement by and between the Borrower and Deutsche Bank AG, New York branch dated April 6, 2005 pursuant to the terms of which the Borrower has leased the New York Leased Premises.

“New York Leased Premises” means the leasehold located at 1301 Avenue of the Americas, New York, New York and leased by the Borrower pursuant to the New York Lease.

“Note” means the promissory note in the principal amount of up to $4,857,000.00 evidencing the Term Loan, as amended, supplemented or modified from time to time.

“Obligations” means all of the obligations of the Borrower and its Subsidiaries under this Loan Agreement, the Note and the other Loan Documents, whether for principal, interest, fees, costs, expenses, taxes, or otherwise and any and all other obligations of the Borrower and its Subsidiaries to the Bank of any nature whatsoever, whether now existing or hereafter arising.

“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

“Permitted Liens” means any of the following:

(a)

Liens existing on the date hereof and heretofore disclosed to the Bank;

(b)

Liens securing obligations under Financial Contracts;

(c)

Liens for taxes, assessments and governmental charges or levies which are not yet due or payable without penalty or of which the amount, applicability or validity is being contested by the Person whose property is subject thereto in good faith by appropriate proceedings as to which adequate reserves are being maintained;

(d)

Liens imposed by law, such as materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s Liens and other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested or defended in good faith by appropriate proceedings, or which are suspended or released by the filing of lien bonds, or deposits to obtain the release of such Liens;

(e)

Pledges, deposits and other Liens made in the ordinary course of business to secure obligations under worker’s compensation laws, unemployment insurance, social security legislation or similar legislation or to secure public or statutory obligations;

(f)

Liens to secure the performance of bids, tenders, contracts, leases or statutory obligations, or to secure surety, stay or appeal or other similar types of deposits, Liens or pledges;

(g)

Attachment or judgment Liens to the extent such Liens are being contested in good faith and by proper proceedings, as to which adequate reserves are being maintained or a bond has been posted;

(h)

Easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes;

(i)

Liens arising in connection with operating leases incurred in the ordinary course of business of the Borrower and its Subsidiaries;

(j)

Liens on assets acquired by the Borrower or any Subsidiary thereof, or on the assets of a Person that is acquired by the Borrower or any Subsidiary thereof, if such Liens existed at the time of such acquisition and were not created in contemplation of such acquisition;

(k)

Liens securing Short Term Line Financing;

(l)

Liens securing Indebtedness permitted under Section 5.02(f); and

(m)

Liens on any property of any Subsidiary of the Borrower (a “Debtor Subsidiary”) in favor of the Borrower and/or any Subsidiary of the Borrower (a “Creditor Subsidiary”) to secure Indebtedness owing by a Debtor Subsidiary to the Borrower and/or a Creditor Subsidiary.

“Person” means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority, or other entity of whatever nature.

“Plan” means any plan established, maintained, or to which contributions have been made by the Borrower or any ERISA Affiliate.

“Profitability” means for any given Fiscal Quarter the Borrower has positive Net Income in accordance with GAAP as evidenced by the Borrower’s 10-Q or 10-K, as applicable, for that Fiscal Quarter.

“Prohibited Transaction” means any transaction set forth in Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1954, as amended from time to time.

“Prime Rate” means that interest rate established from time to time by the Bank as the Bank’s Prime Rate, whether or not such rate is publicly announced; the Prime Rate may not be the lowest interest rate charged by the Bank for commercial or other extensions of credit.

“Qualified Equipment Lease” means any Capital Leases of equipment from a Qualified Equipment Lessor, as lessor, to the Borrower, as lessee.

“Qualified Equipment Lease Agreement” means the writing duly executed by the Borrower and the Qualified Equipment Lessor memorializing the terms and provision of a Qualified Equipment Lease.

“Qualified Equipment Lessor” means the Bank or an affiliate thereof.

“Regulation D” means Regulation D of the Board as amended or supplemented from time to time.

“Reportable Event” means any of the events set forth in Section 4043(b) of Title [1] of ERISA.

“Responsible Officer” means the chief executive officer, president or chief financial officer of the Borrower, but in any event, with respect to financial matters, the chief financial officer of the Borrower.

“San Francisco Lease” means that certain lease by and between the Borrower and Post Montgomery Associates dated March 31, 2005 pursuant to the terms of which the Borrower has leased the San Francisco Leased Premises.

“San Francisco Leased Premises” means the leasehold located at One Montgomery, San Francisco California and leased by the Borrower pursuant to the San Francisco Lease.

“Short Term Line Financing” means those demand lines of credit utilized by the Borrower or any of its Subsidiaries in the normal course of business and limited to financing securities eligible for collateralization, including Borrower-owned securities, Subsidiary-owned securities and certain customer-owned securities, purchased on margin, subject to certain regulatory formulas.

“Special Deposits” means special reserve bank accounts maintained for the benefit of customers pursuant to Rule 15c3-3 of the Securities Exchange Act of 1934, and described in the financial statements of the Borrower as cash and securities segregated for regulatory purposes.

“Subsidiary” means, as to the Borrower,  a corporation, to include a limited liability company, of which shares of stock or membership rights having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more Subsidiaries, or both, by the Borrower.

“Swap” means, with respect to any Person, any payment obligation with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency.

“Term Loan” means that certain term loan in the principal amount of up to $4,857,000.00 being made to the Borrower by the Bank pursuant to the provisions of Article II hereof.

“Term Loan Commitment” means, the Bank’s obligation to make Advances of the Term Loan pursuant to Article II.

“Term Loan Commitment Amount” means $4,857,000.00.

“Term Note” means the promissory note of the Borrower payable to the Bank, substantially in the form of Exhibit “A” hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the Indebtedness of the Borrower to the Bank resulting from Advances of the Term Loan, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof.

SECTION 1.02.  Accounting Terms.  All accounting terms used in this Loan Agreement that are not specifically defined herein shall be construed in accordance with GAAP.

ARTICLE II

AMOUNT AND TERMS OF TERM LOAN

SECTION 2.01.  Term Loan.  The Bank hereby agrees, on the terms and conditions set forth in this Loan Agreement, in up to six Advances (each of which shall occur on an Advance Date) , to make an Advance to the Borrower in the principal amount of up to $4,857,000.00, the proceeds of which are to be used for the purposes set forth herein, including Section 2.06 hereof; provided, however, that (i) the Bank shall not be permitted or required to, and the Borrower shall not request that the Bank make any Advance if, after giving effect thereto, the original principal amount of all Advances would exceed the Term Loan Commitment Amount and (ii) subject to compliance with the terms and provisions hereof, the Bank shall only be required to make an Advance if (a) before and after giving effect thereto, the representations and warranties set forth in each Loan Document are, in each case, true and correct with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties are true and correct in all material respects as of such earlier date) and (b) no Default or Event of Default has then occurred and be continuing.  No amounts paid or prepaid with respect to the Term Loan may be reborrowed.

The Borrower shall give the Bank irrevocable notice (which notice must be received by the Bank prior to 10:00 A.M. (local time at the Funding Office), three Business Days prior to the applicable Advance Date) requesting that the Bank make an Advance under the Term Loan on the immediately following Advance Date and such notice shall be accompanied by a certificate signed by the Borrower's chief financial officer stating that as of the applicable Advance Date no Default or Event of Default has occurred and the representations and warranties set forth in each Loan Document shall, in each case, be materially true and correct with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date).  Subject to the terms and provision hereof, not later than 12:00 Noon (local time at the Funding Office), on the applicable Advance Date the Bank shall transfer funds in a combined amount equal to the requested Advance to such account(s) as the Borrower shall request.

SECTION 2.02. Note. The Term Loan will be evidenced by a note in the principal amount of up to $4,857,000.00 in form of the note attached hereto as Exhibit “A” and made a part hereof (the “Note”), which Note shall be completed, executed and delivered to the Bank contemporaneously with the Borrower’s delivery of the initial irrevocable notice to the Bank pursuant to section 2.01, hereof.  The Note shall be held in escrow by the Bank until and shall be deemed delivered to the Bank concurrently with the Bank’s provision of the first Advance pursuant to section 2.01.  The terms and provisions of the Note are incorporated herein by reference and made a part hereof.  The Note provides that interest only at the Interest Rate on the outstanding principal balance shall be paid monthly on the last day of the Initial Interest Period and on the last day of each follow ing Interest Period to and including the earlier of (i) the last day of the fourth Interest Period following the last day of the Initial Interest Period and (ii) April 30, 2006, and that thereafter the Borrower shall pay to the Bank on the last day of each Interest Period to and including the Maturity Date consecutive monthly payments of principal and accrued interest in an amount sufficient to fully amortize the then outstanding principal balance over the number of months then remaining in the Amortization Period at the Interest Rate then in effect.  The Amortization Period has no effect on the Maturity Date, and on the Maturity Date the entire principal balance and all accrued interest and all other charges shall become due and payable in full.

SECTION 2.03  Interest Rate.   The Borrower shall pay interest to the Bank on the outstanding unpaid principal amount of the Term Loan at a variable rate equal to the LIBOR Rate for the applicable Interest Period plus the applicable LIBOR Margin based upon the Borrower’s Leverage Ratio as determined by the Bank based upon the financial statements provided to the Bank for the immediately preceding Fiscal Quarter.  Notwithstanding anything to the contrary set forth herein, the Tier I Pricing Level shall be in effect as of the Closing Date.  The Interest Rate shall be adjusted periodically on the first Business Day of each and every Interest Period and shall apply to the entirety of that Interest Period regardless of whether the first Business Day of such Interest Period is the first day of such Interest Period.  Interest shall continue to accrue until payment i s received.  The Applicable LIBOR Margin for any given Margin Period shall be reduced from the Applicable LIBOR Margin in effect for the immediately preceding Margin Period if any only if the Borrower has achieved Profitability for the Fiscal Quarter most recently ended and for the Fiscal Quarter immediately preceding the most recently ended Fiscal Quarter.  If as of an Adjustment Date the Borrower failed to achieve Profitability for the Fiscal Quarter most recently ended and for the Fiscal Quarter immediately preceding the most recently ended Fiscal Quarter, then the Applicable LIBOR Margin shall be the greater of (i) the LIBOR Margin in effect on the date immediately preceding the applicable Adjustment Date and (ii) the LIBOR Margin applicable to the Borrower based on the greater of (a) its Leverage Ratio for the most recently completed Fiscal Quarter and (b) the LIBOR Margin established pursuant to Appendix D-LM if the Borrower fails to deliver any financial statements referenced in that appendi x and within the time periods specified therein, if applicable.

The LIBOR Rate shall be set monthly as provided in (c) of Article II of the Note to reflect changes in the one (1) month LIBOR Rate.

Any principal amount not paid when due (whether at maturity, by acceleration, on demand or otherwise) shall bear interest thereafter until paid in full, at a rate per annum (the "Default Interest Rate") equal to the Interest Rate plus two percent (2%) per annum.

The Bank will make a good faith effort to promptly notify the Borrower of each change in the LIBOR Rate, but the Bank’s failure to do such shall not alter or affect Borrower’s obligation to make payments when due and otherwise comply with the terms and conditions of this Agreement and the other Loan Documents and the Bank shall incur no liability as a result of its failure to provide such notice or the timing thereof.

The Bank acknowledges that the Borrower shall have the option to obtain a fixed rate of interest on the outstanding unpaid principal amount of the Term Loan by entering into a swap agreement with the Bank.

SECTION 2.04  Prepayments.  The Borrower may, upon at least five (5) Business Days' notice to the Bank, prepay the Note in whole or in part with accrued interest to the date of such prepayment on the amount prepaid without penalty or premium (but subject to payment of break-funding costs, if any, of the Bank in the case of a prepayment on a day other than the last day of an Interest Period), provided, that each partial prepayment shall be in a principal amount of not less than Fifty Thousand Dollars ($50,000.00) and the Borrower pays to the Bank any and all other fees and charges then due hereunder and under the other Loan Documents in connection with such prepayment.  All partial prepayments shall be applied to principal in the inverse order of maturity.  Without limiting the foregoing, if the Note is prepaid on any day other than the last day of an Interest Period applicable the reto, the Borrower shall also pay to the Bank any loss or expense that the Bank may sustain or incur as a consequence of (i) a default by the Borrower in making any prepayment of the Note after the Borrower has given a notice thereof to the Bank in accordance with the provision of this Agreement or (ii) the making of any prepayment (irrespective of the timing of any notice) on a day that is not the last day of an Interest Period with respect thereto.  Any such loss and/or expense shall include any amount equal to the excess, if any, of (a) the amount of interest that would have accrued on the amount so prepaid for a period from the date of such prepayment to the last day of such Interest Period at the applicable rate of interest for such Note, excluding the applicable LIBOR Margin, over (b) the amount of interest (as reasonably determined by the Bank) that would have accrued to the Bank on such amount by placing such amount on deposit for a comparable period with leading banks in the London interbank ma rket.  A statement as to any amount payable pursuant to this Section 2.04 submitted to the Borrower by the Bank shall be conclusive in the absence of manifest error.  This provision shall survive the payment in full of the Note.

SECTION 2.05. Method of Payment.   Payments due under this Loan Agreement, the Note and all other Loan Documents are payable at 66 South Pearl Street, Albany, New York 12207, or at such other place as the Bank shall notify the Borrower of in writing.  The Bank reserves the right to require any payment to be wired, Federal funds or other immediately available funds, or be paid at a place other than the above address.

Whenever any payment to be made under this Loan Agreement or under the Note shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of the payment of interest.

SECTION 2.06.  Use of Proceeds.  The Borrower will use the proceeds from the Term Loan to fund the Leasehold Improvements Costs.  The Borrower will not, directly or indirectly, use any part of the Term Loan proceeds for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U of the Board or to extend credit to any Person for the purpose of purchasing or carrying any such margin stock.

SECTION 2.07.  Illegality.  Notwithstanding any other provision in this Loan Agreement, if the adoption, after the date hereof, of any applicable law, rule, or regulation, or any change therein, or any change, after the date hereof, in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank with any request or directive (whether or not having the force of law) of any such authority, central bank, or comparable agency shall make it unlawful or impossible for the Bank to maintain or fund the Term Loan then upon notice to the Borrower by the Bank the outstanding principal amount of the Term Loan, together with interest accrued thereon, and any other amounts payable to the Bank under this Loan Agreement shall be repaid immediately upon demand of the Bank if such change or compliance with such request, in the judgment of the Bank, requires immediate repayment.

SECTION 2.08.  Increased Cost.  The Borrower shall pay to the Bank from time to time such amounts as the Bank may determine to be necessary to compensate the Bank for any costs incurred by the Bank which the Bank determines are attributable to its making or maintaining the Term Loan hereunder, or any reduction in any amount receivable by the Bank under this Loan Agreement or the Note in respect of any such Loan or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any change after the date of this Loan Agreement in Federal, state, municipal, or foreign laws, rules or regulations (including Regulation D), or the adoption or making after such date of any interpretations, directives, or requirements applying to a class of banks including the Bank of or under any Federal, state, municipal, or foreign la ws, rules or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof ("Regulatory Change"), which: (1) changes the basis of taxation of any amounts payable to the Bank under this Loan Agreement or the Note in respect of the Term Loan (other than taxes imposed on or measured by the overall net income of the Bank for such Loan); or (2) imposes or modifies any reserve, special deposit, or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, the Bank; or (3) imposes any other condition affecting this Loan Agreement or the Note (or any of such extensions of credit or liabilities).  The Bank will notify the Borrower of any event occurring after the date of this Loan Agreement which will entitle the Bank to compensation pursuant to this Section as promptly as practicable after it obtains knowledge thereof and determines to req uest such compensation; provided that (i) if the Bank fails to give such notice within 90 days after it obtains knowledge of such an event (or, in the exercise of ordinary due diligence, should have obtained knowledge thereof), the Bank shall be entitled to payment under this Section 2.08 only for costs incurred from and after the date 90 days prior to the date that the Bank does give such notice, and (ii) the Bank will designate a different lending office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the reasonable judgment of the Bank be otherwise disadvantageous to the Bank.

Determinations by the Bank for purposes of this Section of the effect of any Regulatory Change on its costs of making or maintaining the Term Loan or on amounts receivable by it in respect of such Loan, and of the additional amounts required to compensate the Bank in respect of any Additional Costs, shall be conclusive, provided that such determinations are made on a reasonable basis.

If the Bank determines that it is entitled to Additional Costs and so notifies the Borrower, the Borrower shall have the right within twenty (20) Business Days of being so notified to prepay in full the Term Loan.

SECTION 2.09.  Commitment Fee.  As an inducement to the Bank entering into this Agreement, the Borrower shall pay to the Bank contemporaneously with the Borrower’s entry into this Agreement a non-refundable commitment fee in the amount of $75,000.00.

SECTION 2.10.  Alternative Rate Determination.  If the Bank determines (which determination shall be conclusive and binding upon the Borrower, absent manifest error) (i) that Dollar deposits in an amount approximately equal to the outstanding principal balance of the Term Loan is not generally available at such time in the London interbank market for deposits in Dollars, (ii) that the rate at which such deposits are being offered will not adequately and fairly reflect the cost to the Bank of maintaining a LIBOR Rate on such principal balance due to circumstances affecting the London interbank market generally, (iii) that reasonable means do not exist for ascertaining a LIBOR Rate, or (iv) that the Interest Rate would be in excess of the maximum interest rate which the Borrower may by law pay, then, in any such event, the Bank shall so notify the Borrower and the outstanding principal balanc e of the Term Loan shall, as of the date of such notification with respect to an event described in clause (ii) or (iv) above, or as of the expiration of the Interest Period with respect to an event described in clause (i) or (iii) above, bear interest at the Adjusted Prime Rate until such time as the situations described above are no longer in effect.

SECTION 2.11  Mandatory Prepayments.  On or before December 31, 2005 the Borrower shall make partial prepayments in the combined amount of $1,000,000 in accordance with the provisions hereof, including, but not limited to section 2.04, which partial prepayments, pursuant to the provisions of that section, are to be applied in reduction of the outstanding principal balance of the 2004 Term Loan.

ARTICLE III

CONDITIONS

SECTION 3.01. Conditions Precedent to the Term Loan.  The obligation of the Bank to execute and deliver this Loan Agreement and the effectiveness thereof, the agreement of the Bank to make the Term Loan shall be subject to the fulfillment and satisfaction, concurrently with the making of the first Advance under the Term Loan on the Closing Date, of each of the following conditions:

(a)  Note.  The Bank shall have received the Note duly executed and delivered by the Borrower.

(b)  Loan Agreement.  The Bank shall have received this Agreement, executed and delivered by the Borrower.

(c)  General Certificate.  The Bank shall have received a general certificate for the Borrower dated as of the Closing Date signed by a Responsible Officer of the Borrower in which the Responsible Officer and Borrower shall represent and warrant for the benefit of the Bank as of the Closing Date, that or to, among other things (i) the names of all officers and directors of the Borrower and the officers of the Borrower which are duly authorized and empowered, on behalf of the Borrower, to execute and deliver this Loan Agreement and all other Loan Documents to be executed and delivered by the Borrower; (ii) the Borrower is duly incorporated, that all necessary corporate action to authorize the Borrower’s execution and delivery of this Loan Agreement and all other Loan Documents to which the Borrower is a party or by which it is bound has been taken and remains in full force and ef fect and  (iii) attaching thereto resolutions of the Borrower’s Board of Directors then in full force and effect authorizing the execution, delivery and performance of each Loan Document to be executed by the Borrower and the transactions contemplated hereby and thereby, all in such form as the Bank shall reasonably approve, and. The general certificate shall have attached to it a currently dated good standing certificate showing the Borrower to be a corporation in good standing in the State of New York, a franchise tax search showing that no taxes or reports are owed, a copy of the Borrower’s certificate of incorporation and by-laws and all amendments thereto. All documents and agreements required to be appended to the Borrower’s general certificate shall be in form and substance reasonably satisfactory to the Bank and the Bank may conclusively rely upon the afore noted certificate until it shall have received a further certificate of a Responsible Officer canceling or amending the prior certificate of the Borrower.  

(d) Financial Statements.  The Bank shall have received (i)  audited  consolidated financial statements of  Borrower and all of its subsidiaries for the 2004 Fiscal Year and (ii) unaudited interim consolidated financial statements of the Borrower and all of its Subsidiaries for the fiscal quarters ended June 30, 2005 and September 30, 2005 for the Borrower and all of its Subsidiaries, and such financial statements shall not, in the reasonable judgment of the Bank, reflect or evidence a Material Adverse Effect in the consolidated financial condition of the Borrower and all of its Subsidiaries, as reflected in the financial statements or projections previously delivered by the Borrower to the Bank.

(e) Compliance Certificate.  The Bank shall have received, a compliance certificate on a pro forma basis as if the Term Loan had been made as of the fiscal quarter ended September 30, 2005 and as to such items therein, including, but not limited to, compliance with Financial Covenants as of such date and/or occurrence of an Event of Default as the Bank reasonably requests, dated the Closing Date, duly executed (and with all schedules thereto duly completed) and delivered by the Responsible Officer of the Borrower.

(f) Solvency, etc.  The Bank shall have received a certificate duly executed and delivered by the Responsible Officer of the Borrower, dated the Closing Date in such form and addressing such issues, including, but not limited to, a statement/certification that the Borrower is solvent and has not: (i) filed a petition seeking relief from any provision of any bankruptcy, reorganization, arrangement or dissolution law of any jurisdiction; (ii) made an assignment for the benefit of creditors; (iii) had a receiver, custodian, liquidator or trustee of its assets appointed by court order or otherwise; or (iv) failed to pay or admitted in writing its inability to pay debts generally as they become due, as the Bank shall reasonably request.

(g) Approvals.  All governmental and third party approvals, if any, necessary in connection with  the transactions contemplated and hereby shall have been obtained and be in full force and effect

(i) Effectiveness of Representations/Warranties, etc. Both before and after giving effect to the Term Loan, the following statements shall be true and correct:

(i)

the representations and warranties set forth in each Loan Document shall, in each case, be true and correct with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date); and

(ii)

no Default shall have then occurred and be continuing.

(j)  Opinion of Counsel for Borrower.  The Bank shall have received for its own account a favorable opinion by Milbank, Tweed, Hadley & McCloy LLP, legal counsel for the Borrower, and by other legal counsel for the Borrower, reasonably acceptable to the Bank, in form and substance satisfactory to the Bank dated as of the Closing Date.

Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement, as the Bank may reasonably request.

(k)   Casualty and Risk Insurance.  Proof that the Borrower has in full force and effect such casualty and risk insurance as required herein and in the other Loan Documents with respect to the Leased Premises,  with financially sound and reputable insurance companies or associations of the kinds usually carried by companies engaged in business similar to that of the Borrower, in an amount reasonably acceptable to the Bank on its present and future properties normally covered by insurance (less reasonable deductibles), against such casualties, risks and contingencies as are customarily insured.

(l)  Other Documentation/Satisfactory Legal Form.  The Bank and its counsel shall have received such other documents, instruments, agreements, approvals, consents, authorizations, certifications and financing statements, as the Bank, or its counsel, may reasonably request, including, but not limited to, documents, instruments, agreements, approvals, consents, authorizations, certifications and financing statements the Bank or its counsel shall request in order to verify and confirm that all of the representations and warranties made by the Borrower hereunder and under the other Loan Documents are true and correct and that the Borrower has complied with all conditions to be complied with by it in connection with the making of the Term Loan by the Bank to the Borrower.  All such documents , instruments, agreements, approvals, consents, authorizations and certifications executed or submitted pursuant hereto by or on behalf of the Borrower shall be reasonably satisfactory in form and substance to the Bank and its counsel.

(m) Fees, Expenses, etc.  The Bank shall have received all fees due and payable pursuant to Section 2.09 and all costs and expenses due and payable pursuant hereunder, including, without limitation, Section 7.04 (including the reasonable fees and expenses of legal counsel).

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

4.01

Representations and Warranties of the Borrower.  The Borrower, as a condition to the Bank making the Term Loan to the Borrower hereby, represents and warrants to the Bank as follows:

(a)  Corporate Existence.  The Borrower is a corporation duly authorized, validly existing and in good standing under the laws of the State of New York, has all requisite power and authority, corporate or otherwise, to own its assets and to transact business as presently conducted by it and to perform all of its obligations under this Loan Agreement and the other Loan Documents and that the Borrower is qualified as a foreign corporation in good standing under the laws of each jurisdiction in which such qualification is required.

(b)  Due Execution.  The execution, delivery, and performance by the Borrower of this Loan Agreement and the execution, delivery and performance of all other Loan Documents have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the stockholders of the Borrower; (ii) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination, or award presently in effect having applicability to the Borrower; (iii) violate any provision of its certificate of incorporation or by-laws; (iv) result in a breach of or constitute a default under any document, instrument or agreement to which the Borrower is a party or by which it is or its properties may be bound or effected; or (v) result in, or require, the creation or imposition of any Lien (other than as provided herein) upon or with resp ect to any of the properties now owned or hereafter acquired of the Borrower;

(c)  Non-Breach. The Borrower is not in breach of any and is in compliance with all  law(s), rule(s), regulation(s), order(s), writ(s), judgment(s), injunction(s), decree(s), determination(s) and/or indenture(s), agreement(s), lease(s) or instrument(s) to which it is a party or by which it is bound other than any such breach or non-compliance that could not reasonably be expected to have a Material Adverse Effect .

(d)  Approval.  No authorization, consent, approval, license, exemption, filing or registration with any court or governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign (which has not been obtained) is necessary to the valid execution, delivery, or performance by the Borrower of this Loan Agreement or the other Loan Documents.

(e)  Legal Enforceability.  This Loan Agreement, the Note and all other Loan Documents constitute legal, valid, and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except as enforcement of the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting enforcing of creditors’ rights generally.

(f)  Subsidiaries.  Set forth in Exhibit "B" and made a part hereof is a complete and accurate list of all of the Subsidiaries of the Borrower as of the Closing Date, showing that as of the date hereof (as to each Subsidiary)  the jurisdiction of its incorporation, the number of shares of each class of capital stock authorized, and the number of shares of each class of common stock outstanding on the date hereof and the percentage of the outstanding shares of each such class owned (directly or indirectly) by the Borrower and the number of shares covered by all outstanding options, warrants, rights of conversion or purchase, and similar rights as of the date hereof.

(g)  Financial Statements.  The balance sheet of the Borrower dated as of September 30, 2005, and the related statement of income and retained earnings of the Borrower, presents fairly the consolidated financial condition of the Borrower at such date and the results of the operations of the Borrower for the period ended on such date, all in accordance with GAAP applied on a consistent basis, and since September 30, 2005 except as disclosed in writing to the Bank on or before the date hereof there has been no material adverse change in such condition or operations.  

(h)  Litigation.  Other than those actions, suits or proceedings listed in Exhibit “C” annexed hereto and made a part hereof, there are no actions, suits, or proceedings seeking damages (including, compensatory, consequential, special and punitive) in excess of $5,000,000.00 for any given action, suit or proceeding pending or, to the knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to the Borrower or the Subsidiary, would have a material adverse affect on the financial condition, properties or operations of the Borrower.

(i)  Federal Reserve Regulations.  The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Board), and no part of the proceeds of the Term Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock.

(j)  Labor Disputes and Acts of God.  Neither the business nor the properties of the Borrower are affected by any fire, explosion, accident, strike, lockout, or other labor dispute, drought, flood, storm, hail, earthquake, embargo, act of God or of public enemy or other casualty (whether or not covered by insurance), materially or adversely affecting such business or properties or the operations of the Borrower.

(k)  Taxes.   The Borrower has filed all Federal and state tax returns and, to the best of its knowledge, all local tax returns required to be filed and paid all taxes shown thereon to be due, including interest and penalties,  or if such taxes are being contested in good faith by appropriate proceedings, the Borrower has set aside on its books adequate reserves with respect to such claims so contested.

(l)  Accuracy of Information. To the best of the Borrower’s knowledge, no information, exhibit, or report furnished by the Borrower to the Bank in connection with the negotiation of this Loan Agreement contained any material misstatement of fact or misstate a material fact or any fact necessary to make the statements contained therein not misleading.

(m)  ERISA.  To the best of its knowledge, the Borrower is in compliance in all material respects with all applicable provisions of ERISA; neither a Reportable Event nor a Prohibited Transaction has occurred and is continuing with respect to any Plan; no notice of intent to terminate a Plan has been filed nor has any Plan been terminated; no circumstances exist which constitute grounds under Section 4042 of ERISA entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administrate, a Plan, nor has PBGC instituted any such proceedings; the Borrower has not completely or partially withdrawn under Section 4201 or 4204 of ERISA from a Multi-Employer Plan; the Borrower has met its minimum funding requirements under ERISA with respect to all of its Plans and the present market value of all planned assets exceeds the present value of all vested benefits under each Plan as determined on the most recent valuation date of the Plan and in accordance with the provisions of ERISA and the regulations thereunder for calculating the potential liability of the Borrower to PBGC or the Plan either until Title IV of ERISA; and the Borrower has not incurred any liability to PBGC under ERISA.

(n)   Licenses and Trademarks.  To the best of its knowledge, the Borrower possesses all licenses, franchises, affiliations, copyrights, trademarks, traderights, tradenames and patent and patent rights, which are required for the conduct of its business as presently conducted without conflict with the rights of others and within the states in which the Borrower is conducting business, except to the extent that failure to possess the same could not reasonably be expected to have a Material Adverse Effect.

(o)  Solvency.  The Borrower is solvent and has not: (i) filed a petition seeking relief from any provision of any bankruptcy, reorganization, arrangement or dissolution law of any jurisdiction; (ii) made an assignment for the benefit of creditors; (iii) had a receiver, custodian, liquidator or trustee of its assets appointed by court order or otherwise; or (iv) failed to pay or admitted in writing its inability to pay debts generally as they become due.

(p)  Indebtedness.  Exhibit "D" is a complete and correct list of all credit agreements, indentures, purchase agreements, guarantees, Capital Leases, and other agreements and arrangements presently in effect providing for or relating to extensions of credit in excess of $1,000,000.00 (including agreements and arrangements for the issuance of letters of credit or for acceptance financing) as of November 30, 2005 in respect of which the Borrower is in any manner directly or contingently obligated; and the maximum principal or face amounts of the credit in question, outstanding or to be outstanding are correctly stated, and all Liens of any nature given or agreed to be given as security therefore is correctly described or indicated in such Exhibit.

(q)  Fiscal Year.  The Borrower’s Fiscal Year end as of the date of this Loan Agreement is December 31.

(r)  Foreign Person.  The Borrower is not a foreign person under and as defined in Section 1455(f)(3) of the Internal Revenue Code, or any successor provision.

(s)  Regulatory Restriction.  The Borrower is not regulated by or otherwise subject to any applicable law, rule or regulation that directly, or indirectly, limits or otherwise restricts its ability to incur, continue or repay indebtedness.

(t)   Investment Company.  The Borrower is not an investment company as defined in the Investment Company Act of 1940, as amended.

ARTICLE V

COVENANTS

5.01  Affirmative Covenants of the Borrower Other Than Reporting Requirements.  Until the Term Loan is paid in full and the Borrower has fulfilled all of its obligations under, this Loan Agreement, the Note and all other instruments, documents, agreements, certifications, and/or certificates at any time given to or held by the Bank in connection with the Term Loan, the Borrower will, unless the Bank shall otherwise consent in writing:

(a)  Payment of Taxes, etc.  Pay and discharge all taxes, assessments, and governmental charges or levies imposed upon the Borrower or its income or profits, upon any properties belonging to the Borrower, prior to the date on which penalties attached thereto, and all lawful claims which, if unpaid, might become a lien or charge against any of the Borrower’s properties, provided that the Borrower shall be required to pay any such tax, assessment, charge, levy, or claim, which is being contested in good faith in appropriate proceedings and for which adequate reserves have been established.

(b)   Maintenance of Insurance.  Maintain insurance in form, substance and amounts (including deductibles) (i) adequate to insure all assets and properties of the Borrower, including, but not limited to all Leasehold Improvements, which assets and properties are of a character usually insured by Persons engaged in the same or similar business as Borrower, against loss or damage resulting from fire, flood, hurricane, and other risks included in an extended coverage policy, (ii) against public liability and other tort claims that may be incurred or asserted against the Borrower; all with financially sound and reputable insurance companies or associations providing coverage (A) of the types usually obtained  by companies engaged in business similar to that of the Borrower, (B) in an amount reasonably acceptable to the Bank on the Borrower’s present and future properties n ormally covered by insurance (less reasonable deductibles) and (C) against such casualties, risks and contingencies as are customarily insured, and/or (iii) as required pursuant to the terms of any Qualified Equipment Lease Agreement.

(c)  Preservation of Corporate Existence, etc.  Preserve and maintain (i) its corporate existence, and (ii) its rights, franchises and privileges in the jurisdiction of its incorporation, and qualify, and remain qualified, as a foreign corporation in each jurisdiction where such qualification is necessary or desirable in view of its business and operations or the ownership of its properties, except in the case of clause (ii), to the extent that failure to preserve and maintain the same could not reasonably be expected to have a Material Adverse Effect.

(d)  Preservation of Corporate Assets.   Maintain all of its assets and properties in good working order and condition (ordinary wear and tear excepted), making all necessary repairs thereto and renewals and replacements thereof, except to the extent that failure to maintain the same as aforesaid could not reasonably be expected to have a Material Adverse Effect.

(e)  Inspection of Records.  At any reasonable time and from time  to time, permit the Bank or any agents or representatives thereof, upon reasonable notice, subject to appropriate limitations to protect confidentiality, to examine and make copies of and abstracts from the records and books of account and visit the properties of the Borrower and to discuss the affairs, finances, and accounts of the Borrower with any of its officers or directors or with the Borrower’s accountant and/or financial advisor(s).

(f)  Keeping of Records and Books of Account.  Keep  accurate records and books of account in which complete entries will be made in accordance with GAAP consistently applied reflecting all financial transactions of the Borrower.

(g)  Payment.  Make full and timely payment of the principal, interest and premium, if any, on the Note and all other obligations of the Borrower to the Bank whether now existing or hereafter arising.

(h)  Compliance with Laws.  Comply in all material respects with all applicable laws, regulations, ordinances, rules, and orders, including Regulations U, T and X of the Board.

(i)  Compliance with ERISA.  Maintain compliance in all material respects with all applicable provisions of ERISA and the published interpretations thereunder.

(j)  Fiscal Year.  Not change its Fiscal Year end which is currently December 31, except upon a prior written notice to the Bank.

(k)  Accuracy of Information.  Not furnish any information, exhibit, or report to the Bank in writing in accordance with the terms hereof which contains any material misstatement of fact or misstates a material fact or any fact necessary to make the statements contained therein not misleading.

(l)  Use of Proceeds.  The proceeds of the Term Loan and each Advance will be used as set forth in Section 2.06.

5.02

Negative Covenants of the Borrower.  Until the Term Loan is paid in full and the Borrower has fulfilled all of its obligations under this Loan Agreement, the Note and all other instruments, documents, agreements, certifications, and/or certificates at any time given to or held by the Bank in connection with the Term Loan, the Borrower will not, directly or indirectly, without the prior written consent of the Bank:

(a)  Liens, etc.  Create, incur, assume, or suffer to exist (i) any Lien on the shares of stock of any Material Subsidiary now or hereafter owned by the Borrower or (ii) any Lien, other than Permitted Liens, on any of the properties and assets now or hereafter owned by the Borrower.

(b)  Mergers, etc.  Merge into, consolidate with, or sell, assign, or lease or otherwise dispose of (whether in one transaction or in a series of transactions) (1) all or substantially all of its properties or assets, including its account receivables (whether now owned or hereafter acquired) or (2) any portion of its properties or assets, including its account receivables (whether now owned or hereafter acquired) if the sale, assignment, lease or other disposition of any portion of such properties or assets would have a Material Adverse Effect , to any Person or dissolve, except that the Borrower may (i) merge with or consolidate with any Person so long as the Borrower is the surviving entity and that immediately thereafter and giving effect thereto, no event shall occur and be continuing which constitutes a Default or an Event of Default, (ii) sell, transfer, assign, lease or other wise dispose of its properties in the ordinary course of business for full and adequate consideration and  (iii) sell, transfer, discount, or otherwise dispose of notes, account receivables, or other rights to receive payment with or without recourse for collection in the ordinary course of its business.

(c)  Alteration of Business.  Materially alter the nature of the business of the Borrower;

(d)  Capital Structure.  Alter its capital structure except to: (i) acquire and hold treasury stocks; (ii) decrease its capital stock authorized as long as such decrease does not result in the reduction of its capital stock issued; (iii) at any time, increase but not decrease its capital stock issued; and (iv) issue preferred stock; provided that after taking any of the actions described in clauses (i) through (iv) above, the Borrower remains in compliance with the Financial Covenants.

(e)  Transactions With Affiliates and Material Subsidiaries.  Enter into any transaction, including, without limitation, the purchase, sale or exchange of property or the rendering of any service with any Affiliate, or permit any Subsidiary to enter into any transaction, including without limitation, the purchase, sale or exchange of property or the rendering of any service, with any Affiliate, except in the ordinary course of the Borrower's or such Subsidiary’s business and upon fair and reasonable terms, no less favorable to the Borrower, or such Subsidiary, as then would be obtained in a comparable arm's length transaction with a Person not an Affiliate.

(f)  Debt/Indebtedness.  Create, issue, incur, assume, become liable in respect of or suffer to exist any Indebtedness, except:

(i)

Indebtedness in respect of the Term Loan  and/or the 2004 Loan;

(ii)

Indebtedness existing as of the Closing Date which is identified in Exhibit “D”, and refinancing of such Indebtedness;

(iii)

Indebtedness incurred in connection with the Borrower’s or any of its Subsidiary’s deferred compensation plans;

(iv)

unsecured Indebtedness (not evidenced by a note or other instrument) of the Borrower owing to a Subsidiary;

(v)

Indebtedness under Financial Contracts;

(vi)

Indebtedness under Short Term Line Financing;

(vii)

other Indebtedness of the Borrower incurred in any given Fiscal Year in an aggregate amount not to exceed $5,000,000.00 per Fiscal Year;

(viii)

any extension, renewal or refunding of any Indebtedness permitted pursuant to clauses (i) through (viii) above, provided that the principal amount of such Indebtedness immediately prior to such extension, renewal or refunding is not increased;

provided, however, that no Indebtedness otherwise permitted by clause (ii) shall be assumed or otherwise incurred if a Default has occurred and is then continuing or would result therefrom.

(g)

INTENTIONALLY OMITTED.  

5.03  Reporting Requirements.  Until the Term Loan is paid in full and the Borrower has fulfilled all of its obligations under this Loan Agreement, the Note and all other instruments, documents, agreements, certifications, and/or certificates at any time given to or held by the Bank in connection with the Term Loan, the Borrower will, unless the Bank shall otherwise consent in writing, furnish to the Bank:

(a)  Occurrence of Event of Default.  As soon as possible, but in any event within five (5) days after (i) the occurrence of any Event of Default and/or (ii) the earlier of (a) the Borrower’s knowledge of any event resulting in or (b) the delivery or required delivery date, if earlier, of any statement pursuant to subsections 5.03 (b) and 5.03(c) evidencing, the failure of the Borrower to meet any of the Financial Covenants, a statement of the Chief Financial Officer of the Borrower, setting forth the details of such Event of Default and/or failure and the action which the Borrower proposes to take with respect thereto.

(b)  Quarterly Financial Statements.  As soon as available and in any event within (i) forty-five (45) days after the end of the Fiscal Quarters ending on March 31, June 30 and September 30 (i) a copy of the Borrower’s 10-Q report filed with the Securities and Exchange Commission and (ii) a certificate of the Chief Financial Officer of the Borrower showing the calculation of each Financial Covenant.

(c)  Annual Financial Statements.  As soon as available, and in any event within ninety (90) days after the end of each Fiscal Year of the Borrower (i) a copy of the annual audit report for such year of the Borrower, including therein the Consolidated balance sheets of the Borrower as at the end of such Fiscal Year and Consolidated statements of income and retained earnings and of Consolidated cash flows of the Borrower for such Fiscal Year and the report of the Accountant, as hereinafter defined, on such financial statements/annual audit report certified by Pricewaterhouse Coopers or other independent certified public accountants of recognized standing reasonably acceptable to the Bank (the “Accountant”) together with (ii) a certificate of the Chief Financial Officer of the Borrower, on such form as the Bank shall reasonably request, setting forth (a) the calculatio n of each Financial Covenant as of the end of the applicable period and (b) a statement that such officer has no knowledge and has not obtained any knowledge that a Default or an Event of Default has occurred and is continuing, or if, a Default or an Event of Default  has occurred and is continuing, a statement as to the nature thereof and the action which the Borrower proposes to take with respect thereto.

(d)  Management Letter.  A copy of any management letter received by the Borrower from its accountants, whether with respect to the Borrower and/or any Subsidiary of the Borrower;

(e)  Litigation.  Promptly after the commencement thereof, notice of all actions, suits and proceedings before any court or governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, against the Borrower or any Subsidiary of the Borrower of the type described in Section 4.01(h);

(f)  ERISA Default.  As soon as possible, and in any event within ten (10) days after any officer of the Borrower knows or has reason to know that any Reportable Event with respect to any Plan has occurred, a statement of the Chief Financial Officer of the Borrower, setting forth details as to such Reportable Event and the action with is proposed to be taken with respect thereto, together with a copy of the notice of such Reportable Event given to the PBGC and, promptly after receipt thereof, a copy of any notice the Borrower may have received from the PBGC relating to the intention of the PBGC to terminate any Plan or appoint a Trustee to administer any Plan;

(g)  Governmental Reports.  Within ten (10) days after a request therefor by the Bank, copies of any reports and forms filed with respect to all Plans under ERISA;

(h)  Other Information.  Within fifteen (15) Business Days following a request by the Bank, such other information respecting the business, properties, or the condition, financial or otherwise, of the Borrower or any Subsidiary, as the Bank from time to time may reasonably request.

SECTION 5.04.  Financial Covenants.  Until the Term Loan is paid in full and the Borrower has fulfilled all of its obligations under this Loan Agreement, the Note and all other instrument, documents, agreements, certifications, and/or certificates at any time given to or held by the Bank in connection with the Term Loan, the Borrower will, unless the Bank shall otherwise consent in advance in writing, do the following:

(a)  Operating Cash-Flow to Total Fixed Charge Ratio.  Maintain a ratio of operating cash flow to total fixed charges of not less than 1.15 to 1.00 as at the end of each fiscal quarter based on the preceding trailing twelve month period.  Operating Cash Flow is defined as (i) net income (ii) less investment gains (losses) (iii) plus proceeds from the sale of Investments consistent with GAAP, (iv) less any other non-recurring income, (v) plus interest expense (excluding interest expense in respect of Short Term Line Financing secured by marketable securities) (vi) plus depreciation (vii) plus amortization, (viii) plus Lease Expense, (ix) plus charges incurred in connection with Lease and Leasehold abandonments, (x) less Cash Dividends paid after March 31, 2005, (xi) less Income Tax Benefit , and (xii) plus income tax expense to the extent it d oes not result in a required tax payment (xiii) less results related to and charges taken by the Borrower against income for discontinued operations of the Borrower in the amount of $7,292,000.00 for the period ending June 30, 2005; $2,766,000.00 for the period ending September 30, 2005; $1,500,000.00 for the period ending December 31, 2005, and $1,500,000.00 for the period ending March 31, 2006.  Amortization is defined as (i) the amount of any expense(s) required to be recognized by the Borrower, in accordance with GAAP for any period and reflected in the Borrower’s financial statement for such period, for (a) the Borrower’s Intangible Assets, (b) the Borrower’s issuance of (1) any restricted stock, (2) notes, (3) warrants and/or (4) stock to match 401K contribution obligations, (c) cost incurred in the issuance of any options, (ii) less charges taken by the Borrower against income for a given period for discontinued operation of the Borrower.  Total fixed charges are defined as In terest Expense (excluding interest expense in respect of Short Term Line Financing secured by marketable securities), plus Lease Expense plus current maturities on Long Term Debt/current maturities on long term Capital Leases plus maintenance CAPEX.  Maintenance CAPEX is defined as CAPEX without a corresponding debt or lease financing commitment for the twelve month period under consideration.  

(b)  Modified Total Funded Debt to EBITDAR Ratio.  Maintain a modified total Funded Indebtedness to EBITDAR ratio of (i) less than 2.00 to 1.00 as of the end of each fiscal quarter based on the preceding trailing twelve month (12) period for the periods ending September 30, 2005 and December 31, 2005 and (iii) less than 1.75 to 1.00 as at the end of all other fiscal quarters based on the preceding trailing twelve (12) month periods.  Modified total Funded Indebtedness is defined as Funded Indebtedness less Short Term Line Financing secured by marketable securities. For purposes of this subsection 5.04(c), (i) EBITDAR is defined as (i) earnings before (a) interest,(b)  taxes (including, but not limited to, the provision for taxes related to discontinued operations), (c) depreciation, (d) amortization, (e) Lease Expense and (f) charges incurred in connection with Lease and Le asehold abandonment, (ii) less investment gains (losses) , (iii) plus realized gains, (iv) less realized losses (iv) plus (a) $7,292,000 for the period ending June 30, 2005, (b)  $2,766,000 for the period ending September 30, 2005, (c) $1,500,000.00 for the period ending December 31, 2005 and (d) $1,500,000 for the period ending March 31, 2006. For purposes of calculating realized gains or losses on the Borrower’s investments, realized gains and losses are defined as gross proceeds from the sale of the investment less the Borrower’s cash basis in the investment.    Amortization is defined as (a) the amount of any expense(s) required to be recognized by the Borrower, in accordance with GAAP for any period and reflected in the Borrower’s financial statement for such period, for (1) the Borrower’s Intangible Assets, (2) the Borrower’s issuance of (A) any restricted stock , (B) notes, (C) warrants and/or (D) stock to match 401K contribution obligations, (3) cost incur red in the issuance of any options, (b) less charges taken by the Borrower against income for a given period for discontinued operation of the Borrower.

Notwithstanding anything to the contrary contained herein, the Borrower’s failure to meet any of the above Financial Covenants shall constitute an Event of Default only if the Borrower fails to cause the covenant violated to be brought into compliance within forty-five (45) days of the date written notice of the Borrower’s failure to meet a Financial Covenant is given to the Borrower by the Bank.

ARTICLE VI

EVENTS OF DEFAULT

SECTION 6.01.  Events of Default.  The occurrence of any of the following events shall constitute an Event of Default hereunder and under the Note and all other Loan Documents:

(a)  Non-Payment.  The failure of the Borrower to make within ten (10) days of when due, whether by acceleration, demand or otherwise, any payment of interest, principal or any other sums payable hereunder, under the Note, under any other Loan Document or under any Qualified Equipment Lease Agreement;

(b)  Non-Performance.  The failure of the Borrower beyond any applicable cure period to otherwise fully, timely and substantially comply with the terms, covenants, conditions and provisions to be complied with by the Borrower hereunder, under the Note, under any other Loan Document or under any Qualified Equipment Lease Agreement (subject always with respect to Financial Covenants to the last sentence of Section 5.04);

(c)  Failure of Representation and Warranties.  Any representation or warranty made herein or in any other Loan Document or financial statement submitted to the Bank by the Borrower shall be determined to have been incorrect, false and/or misleading in any material respect when made or given;

(d)  Dissolution.  The dissolution or termination of the existence, for any reason, of the Borrower;

(e)   Default under the Loan Documents/Qualified Equipment Lease Agreements.  The occurrence of any Event of Default under the Note, the Loan Agreement, any other Loan Document or under any Qualified Equipment Lease Agreement;

(f)  Bankruptcy, Insolvency, Etc.  If the Borrower or any of the Material Subsidiaries should discontinue business, or if the Borrower or any of the Material Subsidiaries should (A)(i) make a general assignment for the benefit of creditors, or (ii) shall generally not, or shall be unable to, or shall admit in writing its inability to pay its debts as such debts become due, or (iii) apply for or consent to the appointment of a receiver, trustee or liquidator of all or any part of its assets, or (iv) be adjudicated bankrupt or insolvent, or (v) commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt dissolution or liquidation law or statute of any jurisdiction, whether or not now in effect, or (vi) have any such petition or application filed or any such proceeding commenced against it, or (vii) by act or omission indicate its consent to, approval of, or acquiescence in any such petition, application or proceeding, or order for relief, or the appointment of a custodian, receiver or trustee of all or substantially all of their properties, or (B) suffer or permit to continue unstayed and in effect for a period of  sixty (60) days (i) any judgment entered by any court or governmental agency against the Borrower or any one or more of the Material Subsidiaries for damages in the amount in excess of $5,000,000.00, in each instance, and/or (ii) all judgments entered by any court or governmental agency against the Borrower and/or any one or more of the Material Subsidiaries for damages in the combined amount for all such judgments in excess of $10,000,000.00;

(g)  Default with Respect to Other Indebtedness Due Bank.  The occurrence of an event of default under any other present or future Obligations due the Bank or any Qualified Equipment Lessor by the Borrower and/or any Subsidiary;

(h)  Invalidity of This Loan Agreement, Etc.  This Loan Agreement, the Note and/or any other Loan Document should at any time, after their respective execution and delivery, for any reason cease to be in full force and effect or shall be declared to be null and void or the validity or enforceability thereof shall be contested by the Borrower, or the Borrower shall deny that it has any further liability or obligation under this Loan Agreement, the Note or the other Loan Documents;

(i)  Default With Respect to Other Indebtedness/Material Indebtedness.  The Borrower shall fail to pay any Material Indebtedness when due and/or the Borrower shall fail to pay Indebtedness owing by the Borrower or any Subsidiary of the Borrower (without duplication) to Persons other than the Bank if the outstanding amount of such Indebtedness, including currently due and payable interest, premiums and other charges when due, whether such Indebtedness shall become due by scheduled maturity, by required prepayment, by acceleration, by demand or otherwise if the aggregate outstanding amount of all such Indebtedness is at least $1,000,000.00; or the Borrower shall fail to perform any term, covenant and agreement on its part to be performed under any agreement or instrument evidencing, securing or relating to any Material Indebtedness owed by the Borrower  to Persons other than the B ank when required to be performed, if the effect of such failure is to accelerate or permit the holder or holders of such Material Indebtedness or the trustee or trustees under any such agreement or instrument to accelerate the maturity of such Material Indebtedness (after giving affect to all applicable cure periods), unless such failure to perform shall be waived in writing by the holder or holders of such indebtedness, or such trustee or trustees and the Bank shall have received a copy of such waiver;

(j)   Default With Respect to ERISA.  A Reportable Event shall have occurred with respect to any Plan of the Borrower and (i) the Bank is notified by the Borrower, in writing, that the Borrower has determined that such Reportable Event constitutes a reasonable ground for termination of such Plan by the PBGC or the appointment of a receiver to administer the Plan by an appropriate U.S. District Court, or (ii) such proceedings are commenced or such appointment occurs.

SECTION 6.02.  Remedies Upon Default. Upon the occurrence of any Event of Default as aforesaid and the expiration of any applicable grace periods, then at any time thereafter the Bank, in its discretion, may take one or more of the following actions at the same or different times:

(a)  Declare the Note and all other Obligations due the Bank by the Borrower to be forthwith due and payable in full, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived;

(b)  Exercise all rights and remedies available to the Bank hereunder or any other Loan Document; and/or

(c)  Exercise any and all other rights and remedies available to the Bank, at law or in equity.

It is agreed that upon the occurrence of an Event of Default specified in Section 6.01(f)(A) hereof, the Note and all other Obligations of the Borrower to the Bank hereunder shall forthwith become due and payable automatically, all without notice, demand or protest, all of which are hereby waived.

ARTICLE VII

MISCELLANEOUS

SECTION  7.01.  No Waiver: Cumulative Remedies.  No failure or delay on the part of the Bank, or any other holder of the Note, in exercising any right, power, or remedy hereunder, under the Note or under any other Loan Document shall operate as a waiver thereof  nor shall any single or partial exercise of any such right, power, or remedy preclude any other or further exercise thereof or the exercise of any other right, power, or remedy hereunder under the Note or under any other Loan Document.  The remedies herein provided are cumulative and not exclusive of any other remedies provided by law or available in equity.

SECTION 7.02. Amendments.  No amendment, modification, termination, or waiver of any provision of this Loan Agreement, the Note, or any other Loan Document nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Bank and (except in case of a waiver) the Borrower and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.  No notice or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances.

SECTION 7.03. Notices, Etc.  All notices, requests, demands, and other communications provided for hereunder shall be in writing (including email, telegraphic and telefaxed communications) and shall be sufficiently given when received or three (3) days after mailing (whichever first occurs) and, if delivered by mail, shall be sent by registered or certified mail, return receipt requested, postage prepaid, addressed to the Borrower or the Bank, as the case may be, at the addresses listed below or such other address as a party may notify the other parties of in the manner as herein required, from time to time:

To the Borrower:

FIRST ALBANY COMPANIES INC.

677 Broadway

Albany, New York 12207

Attn:  Chief Financial Officer

With a Copy to:

MILBANK, TWEED, HADLEY & McCLOY LLP

1 Chase Manhattan Plaza

New York, New York 10005

Attn: Howard Kelberg

To the Bank:

KEYBANK NATIONAL ASSOCIATION

66 South Pearl Street

Albany, New York  12207

Attention: First Albany Companies

     Richard C. VanAuken, Senior V.P.

With a copy to:

Lemery Greisler, LLC

50 Beaver Street

Albany, New York 12207

Attention: Nicholas J. Greisler, Esq.

SECTION 7.04. Costs, Expenses, and Taxes.  The Borrower agrees to pay on demand all reasonable costs and expenses of the Bank in connection with the preparation, execution, delivery, and administration of this Loan Agreement, the Note, and the other Loan Documents, including the reasonable and out-of-pocket expenses of Lemery Greisler LLC, counsel for the Bank with respect thereto, and all costs and expenses, if any, in connection with the enforcement of this Loan Agreement, the Note, and the other Loan Documents whether or not a suit or proceeding should be initiated, including those incurred in any bankruptcy or insolvency proceeding.  In addition, the Borrower shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing or recording of this Loan Agreement, the Note, and the other Loan Documents, and agr ees to save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes or fees.

SECTION 7.05. Execution in Counterparts.  This Loan Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument.

SECTION 7.06. Binding Effect; Assignment.   This Loan Agreement shall be binding upon and inure to the benefit of the Borrower and the Bank, and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights and obligations hereunder, or under the Loan Documents, without the prior written consent of the Bank.

SECTION 7.07  Governing Law.  This Loan Agreement and the other Loan Documents shall, except as otherwise specifically provided, be governed by, construed and enforced in accordance with the law of the State of New York.

SECTION 7.08.  Severability of Provisions.   Any provision of this Loan Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting  the validity or enforceability of such provision in any other jurisdiction.

SECTION 7.09. Participation.  The Bank reserves the right to assign or obtain participants in the Term Loan without restrictions; provided, that any such assignment shall require the prior written consent of the Borrower (such consent not to be unreasonably withheld), and that in the case of any such participation the Bank shall retain the right to take the actions referred to in Section 7.02.  The Bank may furnish to participants and assignees (including prospective participants and assignees) any information concerning the Borrower received by the Bank from time to time pursuant to this Loan Agreement; provided that, each participant and assignee and each prospective participant and assignee shall evidence its agreement to preserve the confidentiality of Confidential Information as contemplated by Section 7.13, hereof, by executing and delivering an agreement to the r etain the confidentiality of such information in the form as then used by the Bank for the acknowledgement of the confidentiality of information by participant(s), assignee(s) or prospective participant(s) or assignee(s) in connection with a participation, assignment or prospective participation or assignment by the Bank of its credit extensions.

SECTION 7.10.  Survival of Loan Agreement, Etc. All covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by the Bank of the Term Loan and the execution and delivery to the Bank of the Note and the other Loan Documents and shall continue in full force and effect so long as the Term Loan is outstanding and unpaid.

SECTION 7.11.  Waiver of Trial by Jury, Etc. THE BANK AND THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING OR COUNTERCLAIM ARISING IN CONNECTION WITH, OUT OF OR OTHERWISE RELATING TO THIS LOAN AGREEMENT, THE NOTE OR ANY OTHER LOAN DOCUMENT.  FURTHER, THE BORROWER HEREBY IRREVOCABLY SUBMITS IN ANY LEGAL PROCEEDING RELATING TO THIS LOAN AGREEMENT, THE NOTES AND ANY OTHER LOAN DOCUMENTS TO THE NON-EXCLUSIVE, IN PERSONAM JURISDICTION OF ANY NEW YORK STATE OR UNITED STATES COURT OF COMPETENT JURISDICTION SITTING IN THE STATE OF NEW YORK, COUNTY OF ALBANY AND AGREES TO SUIT BEING BROUGHT IN ANY SUCH COURT.

SECTION 7.12  Right of Setoff.  Upon the occurrence or during the continuance of any Event of Default the Bank is hereby authorized at any time and from time to time, without notice to the Borrower (any such notice being expressly waived hereby by them) to set off and apply any and all deposits (time or demand, provisional or final, but excluding Special Deposits) at any time held by the Bank and other Indebtedness at any time owing by the Bank to or for the credit or account to the Borrower against any and all of the Obligations of the Borrower now or hereinafter existing under this Loan Agreement, the Note and all other Loan Documents, or otherwise, irrespective of whether or not the Bank shall have made any demand under this Loan Agreement, the Note or any other Loan Document and although such obligation may be unmatured.  The Bank agrees to notify the Borrower after any such setoff and application provided that the failure to give such notice shall not effect the validity of such setoff and the application thereof.  The rights of the Bank under this Section are in addition to all other rights and remedies (including, without limitation, other rights of setoff) which the Bank may otherwise have.

SECTION 7.13.  Confidentiality.  The Bank will not disclose any Confidential Information to any person other than (a) its officers, directors, employees, agents, counsel, auditors and other professional advisors, (b) a proposed assigned, a proposed participant or a proposed counter party and their officers, directors, employees, agents, counsel, auditors and professional advisors, (c) the parties to any swap, securitization or derivative transaction referencing or involving rights or obligations under this Agreement or any other Loan Documents, (d) as required by any law, rule, regulation or judicial process, (e) in connection with any litigation to which the Bank is a party, (f) in connection with the exercise of any right or remedy and under this Agreement or the other Loan Documents, (g) as required by any state, Federal, foreign authority or examiner regulating banks or banking or any a spect of the Bank’s activities, provided that in each case except subparagraphs (c) and (e) the Bank uses reasonable efforts to obtain reasonable assurances that confidential treatment will be accorded to Confidential Information disclosed.  As used herein, “Confidential Information” means information that the Borrower furnishes to the Bank on a confidential basis by informing the Bank that such information is confidential and marking such information as such, but does not include any such information that (i) is not disclosed as aforesaid, (ii) is or becomes generally available to the public, or (iii) is or becomes available to such Person or Persons from a source other than the Borrower.

SECTION 7.14  Headings.  Article, Section and Paragraph headings contained in this Loan Agreement are included herein for the convenience of reference only and shall not constitute a part of this Loan Agreement for any other purpose and shall not be deemed to control or affect the meaning or interpretation of any part of this Loan Agreement.

SECTION 7.15  Additional Credit Extensions.  Nothing contained in this Agreement is intended to be an offer or commitment by the Bank to provide any credit extensions and/or loans to the Borrower in addition to the Term Loan.  The Borrower and the Bank do hereby acknowledge that the extension of the Term Loan and each Advance thereunder is at all times subject to satisfaction of the terms and provisions set forth in this Agreement or referenced herein.  It is understood and acknowledged by the Borrower that any such offer or commitment to provide funds in addition to the Term Loan would be subject to, among other things, receipt by the Bank of internal credit approvals.

SIGNATURES ON IMMEDIATELY FOLLOWING PAGE

#

IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be executed by their respective officers as of the date first above written.

BANK:

KEYBANK NATIONAL ASSOCIATION

By:_/s/ Richard C. VanAuken

   Richard C. VanAuken, Senior Vice President

BORROWER:

FIRST ALBANY COMPANIES INC.

By: /s/ Paul Kutey - CFO

 Vice President

STATE OF NEW YORK

)

COUNTY OF ALBANY

)

ss.:

On this ____ day of ________, 2005, before me personally appeared Richard C. VanAuken personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

_/S/_____________________________

Notary Public, State of New York

STATE OF NEW YORK

)

COUNTY OF ALBANY

)

ss.:

On this ____ day of ________, 2005, before me personally appeared _____________________

personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

___/S/___________________________

Notary Public, State of New York

#

#

EX-10

Exhibit 10.33

PROMISSORY NOTE

(LIBOR RATE; UNSECURED)

$4,857,000.00

Albany, New York

December 30, 2005

FOR VALUE RECEIVED, FIRST ALBANY COMPANIES INC., a New York business corporation with its principal office and place of business at 30 South Pearl Street, Albany, New York 12207 (the "Borrower") promises to pay to the order of KEYBANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, with an office for the transaction of business at 66 South Pearl Street, Albany, New York 12207 ("KeyBank" or “Bank”) in lawful money of the United States of America the principal sum of Four Million Eight Hundred Fifty Seven Thousand and no/100s ($4,857,000.00) Dollars), or, the aggregate unpaid principal amount of all Advances made by the Bank to the Borrower pursuant to Article II of the Loan Agreement, as hereinafter defined, if less, with interest on the unpaid principal balance of such amount from t he date of this Note at the Interest Rate hereinafter defined.  This Note evidences that certain Term Loan  to be  made by KeyBank to the Borrower in a series of Advances on the Advance Dates (the “Loan”), under and pursuant to that certain loan Agreement between the Borrower and KeyBank dated December 30, 2005 (the “Loan Agreement”), the terms and provisions of which are incorporated herein by reference and made a part hereof.

The holder of this Note shall set forth on a schedule to this Note or maintained on a electronic information systems/electronic record/computer maintained record, the date and original principal amount of each Advance.  The outstanding principal set forth on any such schedule or any electronic record shall be presumptive prima facie evidence of the Outstanding Principal of this Note and of all Advances made pursuant to the Credit Agreement.  No failure by the Bank to make and no error by the Bank in making any annotation on any such schedule or electronic record shall affect the Borrower’s obligation to pay the principal and interest of each and every Advance of the Term Loan or any other obligation of the Borrower to the Bank pursuant to this Note.

I

DEFINITIONS

(a) “AMORTIZATION PERIOD” means the five (5) year period commencing on May 1, 2006 and terminating on the Maturity Date.

(b) “BUSINESS DAY” means any day other than a Saturday, Sunday or other holiday on which commercial banks in New York State are authorized or required to close pursuant to the laws of the State of New York and if the Interest Rate relates to a LIBOR Rate, any day on which dealings in dollar deposits are also carried on in the London interbank market.

(c) "DEFAULT INTEREST RATE" means the Interest Rate (hereinbelow defined) plus two (2%) percent per annum.

(d) “FISCAL QUARTER” means a period of three consecutive calendar months ending on the last day of March, June, September or December.

(e) “INITIAL INTEREST PERIOD” means that period commencing on the Closing Date and ending on the last day of the calendar month in which the Closing Date occurs.

(f) "INTEREST PERIOD" means, as applicable, (i) the Initial Interest Period and (ii) each Calendar Month thereafter.  Notwithstanding the foregoing, each Interest Period that would otherwise end on a day that is not a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day).

(g) “INTEREST RATE” means a variable rate of interest equal to the LIBOR Rate plus the Libor Margin.  The Interest Rate shall be adjusted monthly on the first Business Day of each and every Interest Period and shall hold for balance of that Interest Period.

(h)

“LIBOR RATE” means the rate for deposits in U.S. Dollars for a period of one (1) month which appears on the Telerate Page 3750 as of 11:00 a.m. London time on the day that is two (2) Business Days prior to the commencement of the Interest Period relating thereto.  If such rate does not appear on the Telerate Page 3750 the rate for each reset day shall be the London interbank market offered rate for one (1) month as published in the “Money Rates Column” in the Wall Street Journal on the Business Day prior to the commencement of the Interest Period relating thereto.

(i)

“LIBOR MARGIN” means the basis points under the heading “Applicable Margin Over the LIBOR Rate” determined in accordance with Appendix D-LM, attached hereto and incorporated by reference herein.

(j)

"LOAN DOCUMENTS" means this Note, the Loan Agreement and all other instruments, documents, agreements, certifications, and/or certificates at any time given to or held by the Bank in connection with this Note and the obligations hereunder .

(k)

"MATURITY DATE" means April 30, 2011, or such earlier date in the event KeyBank accelerates the Borrower’s obligations hereunder as provided herein and in the Loan Agreement.

All Capitalized Terms used herein and not defined herein shall have that meaning ascribed to such term in the Loan Agreement.

II

INTEREST

(a)

COMPUTATION OF INTEREST.  Interest on the outstanding principal balance of this Note shall be computed on the basis of a 360-day year for the actual number of days elapsed.  Interest shall accrue until payment is made.

(b)

IMPLEMENTATION OF DEFAULT INTEREST RATE.  Any principal amount not paid when due (whether by demand, acceleration or otherwise)  shall bear interest thereafter until paid in full, at the Default Interest Rate without notice to the Borrower or further action by KeyBank.

(c)

PERIODIC CHANGE IN COMPUTATION OF INTEREST RATE.  The Interest Rate as of the date of this Note shall be the applicable LIBOR Rate plus the LIBOR Margin for the Tier I Pricing Level.  The Interest Rate shall be reset (a) monthly as provided in Section 1(g) hereof to reflect changes in the one (1) month LIBOR Rate and (b) as of each Adjustment Date, as defined in Appendix D-LM, to reflect any change in the applicable LIBOR Margin.  Provided, however, that the Applicable LIBOR Margin for any given Margin Period, as defined in Appendix D-LM, shall only be reduced from the Applicable LIBOR Margin in effect for the immediately preceding Margin Period if any only if the Borrower has achieved Profitability for the Fiscal Quarter most recently ended and for the Fiscal Quarter immediately preceding the most recently ended Fiscal Quarter.  If as of an Adjustment Date the Borrower failed to achieve Profitability for the Fiscal Quarter most recently ended and for the Fiscal Quarter immediately preceding the most recently ended Fiscal Quarter, then the Applicable LIBOR Margin shall be the greater of (i) the LIBOR Margin in effect on the date immediately preceding the applicable Adjustment Date and (ii) the LIBOR Margin applicable to the Borrower based on the greater of (a) its Leverage Ratio for the most recently completed Fiscal Quarter or (b) the LIBOR Margin established pursuant to Appendix D-LM if the Borrower fails to deliver any financial statements referenced in that appendix and within the time periods specified therein.

III

PAYMENT OF INTEREST AND PRINCIPAL

(a)

INTEREST PAYMENTS.  The Borrower shall pay interest only at the Interest Rate on the unpaid principal balance due under this Note on the last day of each Interest Period commencing on the last day of the Initial Interest Period and the last day of the first Interest Period following the last day of the Initial Interest Period and continuing until the earlier of (i) the last day of the fourth (4th) Interest Period following the last day of the Initial Interest Period and (ii) April 30, 2006.

(b)

PERIODIC PAYMENTS OF PRINCIPAL AND INTEREST .  Beginning on the earlier of (i) the last day of the fifth (5^th) Interest Period following the last day of the Initial Interest Period and (ii) May 31, 2006, and on the last day of each and every Interest Period thereafter until the Maturity Date the Borrower shall make a series of consecutive monthly payments of principal and accrued interest, such payments to be adjusted from time to time by KeyBank to equal an amount of principal and interest necessary to fully amortize the then outstanding principal balance over the number of months then remaining in the Amortization Period at the Interest Rate then in effect.  The Amortization Period has no effect on the Maturity Date.  On the Maturity Date the entire principal balance, all accrued and unpaid interest and all other charges shall become immediately due and payable in full.

IV

DEFAULT

(a)

EVENTS OF DEFAULT.

The Borrower shall be considered in default under this Note and all other Loan Documents upon the occurrence of any one or more of the following events, herein sometimes referred to as events of default:

(i) The failure of the Borrower to pay within ten (10) days of when due, whether by acceleration, demand or otherwise, any principal, interest, or any other charge due hereunder, under any other Loan Document or under any Qualified Lease Agreement; or

(ii)  The occurrence of any event of default as set forth in the Loan Agreement or any other Loan Document.

(b)

CURE PERIOD WITH RESPECT TO FINANCIAL COVENANTS.  Notwithstanding anything to the contrary contained herein, the Borrower’s failure to meet any Financial Covenants contained in Section 5.04 of the Loan Agreement shall constitute an Event of Default only if the Borrower fails to cause the covenant violated to be brought into compliance within forty-five (45) days of the date written notice of the Borrower’s failure to meet the financial covenant is given to the Borrower by KeyBank.

(c)

RIGHTS ON DEFAULT.

Upon the occurrence of an Event of Default, KeyBank may in its discretion:

(i)

Declare this Note and all other obligations due KeyBank by the Borrower to be forthwith due and payable in full without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived;

(ii)

Exercise all rights and remedies to KeyBank hereunder, under the Loan Agreement and under all other Loan Documents; and/or

(iii)

Exercise any and all other rights and remedies available to KeyBank, at law or in equity.

It is agreed that upon an Event of Default as specified in Section 6.01(f) of the Loan Agreement, this Note and all other obligations of the Borrower to KeyBank shall forthwith become due and payable automatically, all without notice, demand or protest, all of which are hereby waived.

V

GENERAL CONDITIONS

(a)

METHOD OF PAYMENT.  All payments due under this Note are payable at 66 South Pearl Street, Albany, New York 12207, or at such other place as KeyBank shall notify Borrower in writing.  KeyBank reserves the right to require any payment on this Note, whether such payment is of a regular installment or represents a prepayment, to be by wired federal funds or other immediately available funds or to be paid at a place other than the above address. Whenever any payment to be made under this Note shall be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day, and any extension of time shall, in such case, be included in the computation of the payment of Interest.

(b)

APPLICATION OF PAYMENTS RECEIVED.  Except as may otherwise be provided in this Note, all payments received by KeyBank on this Note shall be applied by KeyBank to any unpaid Late Payment Charges (hereinbelow defined) and other charges due hereunder and under the other Loan Documents, accrued and unpaid interest then due and owing and the reduction of principal due on this Note, in such order and in such amounts as KeyBank may determine from time to time.

(c)

LATE PAYMENT CHARGES.  If Borrower fails to pay any amount of principal and/or interest on this Note for ten (10) days after such payment becomes due, whether by acceleration, demand or otherwise, KeyBank may, at its option, whether immediately or at the time of final payment of the amounts evidenced by this Note, impose a late payment charge (the "Late Payment Charge") computed by multiplying the amount of each past due payment by five (5%) percent.  Until any and all Late Payment Charges are paid in full, the amount thereof shall be added to the indebtedness secured by all of the Loan Documents.  The Late Payment Charge is not a penalty and is deemed to be liquidated damages for the purpose of compensating KeyBank for the difficulty in computing the actual amount of damages incurred by KeyBank as a result of the late payment by Borrower.

(d)

PREPAYMENT. The Borrower may, upon at least five (5) Business Days' notice to KeyBank, prepay this Note in whole or in part with accrued interest to the date of such prepayment on the amount prepaid without penalty or premium (but subject to payment of break-funding costs, if any, of KeyBank in the case of a prepayment on a day other than the last day of an Interest Period and other fees and expenses identified herein and in section 2.04 of the Loan Agreement), provided, that each partial prepayment shall be in a principal amount of not less than Fifty Thousand Dollars ($50,000.00) and the Borrower pays to KeyBank any and all other fees and charges then due hereunder and under the other Loan Documents in connection with such prepayment.  All partial prepayments shall be applied to principal in the inverse order of maturity.  Without limiting the foregoing, if this Note is prepaid on any day other than the last day of an Interest Period applicable thereto, the Borrower shall also pay to KeyBank any loss or expense that KeyBank may sustain or incur as a consequence of (i) a default by the Borrower in making any prepayment of the Note after the Borrower has given a notice thereof to KeyBank in accordance with the provision of the Loan Agreement or (ii) the making of any prepayment (irrespective of the timing of any notice) on a day that is not the last day of an Interest Period with respect thereto.  Any such loss and/or expense shall include an amount equal to the excess, if any, of (a) the amount of interest that would have accrued on the amount so prepaid for a period from the date of such prepayment to the last day of such Interest Period at the applicable Interest Rate, excluding the LIBOR Margin provided in the definition of Interest Rate herein, over (b) the amount of interest (as reasonably determined by KeyBank) that would have accrued to KeyBank on such amount by placing such amount on deposit for a co mparable period with leading banks in the London interbank market.  A statement as to any amount payable pursuant to this Section V(d) submitted to the Borrower by KeyBank shall be conclusive in the absence of manifest error.  This provision shall survive the payment in full of the Note.

(e)

COSTS AND EXPENSES.  If this Note, or any other Loan Document is placed with an attorney for collection or enforcement, the Borrower agrees that KeyBank shall be entitled to collect from and the Borrower shall pay all costs of collection or enforcement, including, but not limited to, reasonable attorneys' fees, incurred in connection with the protection or realization of collateral or in connection with any of KeyBank's collection or enforcement efforts, whether or not a suit or proceeding is commenced, and all such costs and expenses shall be payable on demand and until paid shall also be secured by the Loan Documents and by all other collateral held by KeyBank as security for Borrower's obligations to KeyBank hereunder and under the other Loan Documents.

(f)

NO WAIVER BY KEYBANK.  No failure by any guarantor of the Loan to make any payments shall be deemed a waiver or release of Borrower's obligations hereunder.  No failure on the part of KeyBank or other holder hereof to exercise any right or remedy hereunder, whether before or after the happening of a default, shall constitute a waiver thereof, and no waiver of any past default shall constitute waiver of any future default or of any other default.  No failure to accelerate the Loan evidenced hereby by reason of default hereunder, or acceptance of a past due installment, or indulgence granted from time to time shall be construed to be a waiver of the right to insist upon prompt payment thereafter, or shall be deemed to be a novation of this Note or as a reinstatement of the Loan evidenced hereby or as a waiver of such right of acceleration or any other right, or be construed so as to preclude the exercise of any right which KeyBank may have, whether by the laws of the state governing this Note, by agreement or otherwise; and Borrower and each endorser or guarantor hereby expressly waive the benefit of any statute or rule of law or equity which would produce a result contrary to or in conflict with the foregoing.  This Note may not be changed orally, but only by an agreement in writing signed by the party against whom such agreement is sought to be enforced.

(g)

WAIVER BY BORROWER.  Borrower and each endorser or guarantor of this Note hereby waives presentment, protest, demand, diligence, notice of dishonor and of nonpayment, and waives and renounces all rights to the benefits of any statute of limitations and any moratorium, appraisement, exemption and homestead now provided or which may hereafter be provided by any federal or state statute, including but not limited to exemptions provided by or allowed under the Bankruptcy Code of 1978, both as to itself personally and as to all of its or their property, whether real or personal, against the enforcement and collection of the obligations evidenced by this Note and any and all extensions, renewals and modifications hereof.

(h)

COMPLIANCE WITH USURY LAWS.  It is the intention of the parties to conform strictly to the usury laws, whether state or federal, that are applicable to this Note.  All agreements between Borrower and KeyBank, whether now existing or hereafter arising and whether oral or written, are hereby expressly limited so that in no contingency or event whatsoever, whether by acceleration of maturity hereof or otherwise, shall the amount paid or agreed to be paid to KeyBank or the holder hereof, or collected by KeyBank or such holder, for the use, forbearance or detention of the money to be loaned hereunder or otherwise, or for the payment or performance of any covenant or obligation contained herein, or in any of the Loan Documents, exceed the maximum amount permissible under applicable federal or state usury laws.  If under any circumstances whatsoever fulfillment of any provision hereof or of the Loan Documents, at the time performance of such provision shall be due, shall involve exceeding the limit of validity prescribed by law, then the obligation to be fulfilled shall be reduced to the limit of such validity; and if under any circumstances KeyBank or other holder hereof shall ever receive an amount deemed interest by applicable law, which would exceed the highest lawful rate, such amount that would be excessive interest under applicable usury laws shall be applied to the reduction of the principal amount owing hereunder or to other indebtedness secured by the Loan Documents and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal and such other indebtedness, the excess shall be deemed to have been a payment made by mistake and shall be refunded to Borrower or to any other person making such payment on Borrower's behalf.  All sums paid or agreed to be paid to the holder hereof for the use, forbearance or detention of the indebtedness of Borrower evidenced hereby , outstanding from time to time shall, to the extent permitted by applicable law, and to the extent necessary to preclude exceeding the limit of validity prescribed by law, be amortized, pro-rated, allocated and spread from the date of disbursement of the proceeds of this Note until payment in full of the Loan evidenced hereby and thereby so that the actual rate of interest on account of such indebtedness is uniform throughout the term hereof and thereof.  The terms and provisions of this paragraph shall control and supersede every other provision of all agreements between Borrower, any endorser or guarantor and KeyBank.

(i)

GOVERNING LAW; SUBMISSION TO JURISDICTION.  THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK.  BORROWER AND EACH ENDORSER OR GUARANTOR HEREBY SUBMITS TO PERSONAL JURISDICTION IN SAID STATE FOR THE ENFORCEMENT OF BORROWER'S OBLIGATIONS HEREUNDER OR UNDER ANY OTHER LOAN DOCUMENT AND WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAW OF ANY OTHER STATE TO OBJECT TO JURISDICTION WITHIN SUCH STATE FOR THE PURPOSES OF LITIGATION TO ENFORCE SUCH OBLIGATIONS OF BORROWER.

(j)

WAIVER OF JURY TRIAL.  KEYBANK AND THE BORROWER HEREBY WAIVE TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS NOTE, ANY OTHER LOAN DOCUMENT OR THE LOAN, OR ANY INSTRUMENT OR DOCUMENT DELIVERED IN CONNECTION WITH THE LOAN, OR THE VALIDITY, PERFECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING BETWEEN THE BORROWER AND KEYBANK.

(k)

NOTICES, Etc.  All notices, requests, demands, and other communications provided for hereunder shall be in writing (including email, telegraphic and telefaxed communications) and shall be sufficiently given when received or three (3) days after mailing (whichever first occurs) and, if delivered by mail, shall be sent by registered or certified mail, return receipt requested, postage prepaid, addressed to the Borrower or the Bank, as the case may be, at the addresses listed below or such other address as a party may notify the other parties of in the manner as herein required, from time to time:

To the Borrower:

FIRST ALBANY COMPANIES INC.

677 Broadway

Albany, New York 12207

Attn:  Chief Financial Officer

With a Copy to:

MILBANK, TWEED, HADLEY & McCLOY LLP

1 Chase Manhattan Plaza

New York, New York 10005

Attn: Howard Kelberg

To the Bank:

KEYBANK NATIONAL ASSOCIATION

66 South Pearl Street

Albany, New York  12207

Attention: First Albany Companies

     Richard C. VanAuken, Senior V.P.

With a copy to:

Lemery Greisler, LLC

50 Beaver Street

Albany, New York 12207

Attention: Nicholas J. Greisler, Esq.

(l)

LIABILITY IF MORE THAN ONE BORROWER.  If more than one person or entity executes this Note as a Borrower, all of said persons or entities are jointly and severally liable hereunder.  Further, if more than one person executes this Note or the word “Borrower” may be read as “Borrowers” where applicable.  Additionally, it is agreed that the term “Borrower” or “Borrowers” when used herein shall include the respective heirs, successors and permitted assigns of the Borrower or Borrowers, as the case may be.

(m)

ENTIRE AGREEMENT.  This Note and the other Loan Documents constitute the entire understanding between Borrower and KeyBank with respect to the Loan and to the extent that any writings not signed by KeyBank or oral statements or conversations at any time made or had shall be inconsistent with the provisions of this Note and the other Loan Documents, the same shall be null and void.

(n)  PARAGRAPH HEADINGS.  The paragraph headings contained herein are for convenience in reference only and shall not be deemed to control or affect the meaning or interpretation of any paragraph or provision of this Note.

(o)  ALTERNATIVE RATE DETERMINATION.  If the Bank determines (which determination shall be conclusive and binding upon the Borrower, absent manifest error) (i) that Dollar deposits in an amount approximately equal to the outstanding principal balance of the Term Loan is not generally available at such time in the London interbank market for deposits in Dollars, (ii) that the rate at which such deposits are being offered will not adequately and fairly reflect the cost to the Bank of maintaining a LIBOR Rate on such principal balance due to circumstances affecting the London interbank market generally, (iii) that reasonable means do not exist for ascertaining a LIBOR Rate, or (iv) that the Interest Rate would be in excess of the maximum interest rate which the Borrower may by law pay, then, in any such event, the Bank shall so notify the Borrower and the outstanding principal balance of the Term Loan shall, as of the date of such notification with respect to an event described in clause (ii) or (iv) above, or as of the expiration of the Interest Period with respect to an event described in clause (i) or (iii) above, bear interest at the Adjusted Prime Rate until such time as the situations described above are no longer in effect.

IN WITNESS WHEREOF, Borrower has executed this instrument the date first above written.

FIRST ALBANY COMPANIES INC.

By:      /S/ Paul Kutey                                                     

STATE OF NEW YORK  )

COUNTY OF ALBANY   )  ss.:

On this     day of _______, 2005, before me, the undersigned, personally appeared ________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

Notary Public-State of New York

/S/

#

#

EX-10

Exhibit 10.34

LOAN AGREEMENT

RE: $11,000,000.00  TERM LOAN

THIS LOAN AGREEMENT made as of the 14th day of March, 2006 by and between FIRST ALBANY COMPANIES INC., a New York corporation, with its principal office and place of business as of the date hereof at 677 Broadway, Albany, New York 12207 (the "Borrower"), and KEYBANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, with an office for the transaction of business as of the date hereof at 66 South Pearl Street, Albany, New York, 12207 (the "Bank").

W I T N E S S E T H:

WHEREAS, the Borrower has applied to the Bank for extensions of credit, and

WHEREAS, the Bank upon the terms and conditions hereinafter set forth has agreed to make extensions of credit to the Borrower.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration exchanged between the parties hereto, the receipt and sufficiency of which is hereby acknowledged, it is hereby agreed as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

SECTION 1.01.  Defined Terms.  As used in this Loan Agreement, the following terms shall have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa):

“2004 Loan Agreement” means that certain Loan Agreement Re: $20,000,000.00 Term Loan by and between the Borrower and the Lender dated February 18, 2004, as the same has been and may be modified and amended.

“2004 Term Loan” means the Term Loan as defined in the 2004 Loan Agreement.

“2005 Loan Agreement” means that certain Loan Agreement Re: $4,857,000.00 Term Loan by and between the Borrower and the Lender dated December 30, 2005, as the same may be modified and amended.

“2005Term Loan” means the Term Loan as defined in the 2005 Loan Agreement.

“2005/2004 Term Loan Mandatory Prepayment” means the prepayment in full of the 2005 Term Loan and prepayment on the 2004 Term Loan all in accordance with section 2.10 hereof.

“2006 Term Loan” means that certain 2006 Term loan in the principal amount of up to $11,000,000.00 being made to the Borrower by the Bank pursuant to the provisions of Article II hereof.

“2006 Term Loan Commitment” means, the Bank’s obligation to make Advances of the 2006 Term Loan pursuant to Article II.

“2006 Term Loan Commitment Amount” means as of any Determination Date the lesser of (a) $11,000,000.00 and (b) thirty percent (30%) of the Restricted Shares Current Market Value.

“2006 Term Note” means the promissory note of the Borrower payable to the Bank, substantially in the form of Exhibit “A” hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the Indebtedness of the Borrower to the Bank resulting from Advances of the 2006 Term Loan, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof.

“Acceptable Securities” means (a) U.S. Treasury Bonds; (b) U.S. Treasury Notes; (c) U.S. Agency Bonds; (d) Traded Corporate Bonds and (e) State or Municipal Bonds, which securities otherwise in compliance with the requirements of items (a) – (e) are acceptable to the Bank.

“Acceptable Securities Pledge Agreement” means that certain Acceptable Securities Pledge and Security Agreement pursuant to the terms of which the Borrower shall grant the Bank a security interest in the Pledged Acceptable Securities to secure the Obligations, in the form attached hereto as Exhibit “F”.

 “Additional Costs” has the meaning set forth in Section 2.08 hereof.

“Adjusted Prime Rate” – means a rate per annum equal to one percent (1%) in excess of the Prime Rate.  Any change in the Adjusted Prime Rate shall be effective immediately from and after such change in the Prime Rate.

“Advance” means an extension of credit under the 2006 Term Loan to the Borrower by the Bank.

“Advance Date(s)” means (i) the Closing Date, (ii) the first Business Day in each of the two calendar month(s) immediately following the Closing Date and (iii) May 8, 2006; provided such Advance Date occurs prior to the Maturity Date, each being a date upon which the Bank, subject to the terms and provision hereof, shall make an Advance to the Borrower in accordance with Article II.

“Advance Rate” means for each type of Acceptable Security (i.e. U.S. Treasury Bonds, U.S. Treasury Notes, U.S. Agency Bonds, Traded Corporate Bonds and State or Municipal Bonds) the percentage Advance Rate set forth opposite such type of Acceptable Security on Exhibit “E”

“Advance Request Date” means the day upon which the Bank shall receive an Advance Request Notice.

“Advance Request Notice” means the irrevocable notice from the Borrower to the Bank in accordance with section 2.01 hereof requesting that the Bank make an Advance under the 2006 Term Loan.

“Advance Termination Date” means May 8, 2006, the final date upon which the Bank shall make an Advance to the Borrower.

“Affiliate” means, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person.  As used in this definition, “control” (including, with correlative meanings, “controlled by” and “under common control with” shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies of such Person (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise); provided, that no individual shall be deemed to be an Affiliate of a corporation solely by reason of his or her being an officer or director of such corporation, and no Consolidated Subsidiary of the Borrower shall be deemed to be an Affiliate of the Borrower (or of any of its Subsidiaries).

“Bank” means KeyBank National Association, a national banking association, its successors and/or assigns.

“Board” means the Board of Governors of the Federal Reserve System.

“Borrower” means First Albany Companies Inc., a New York business corporation, its successors and/or assigns.

“Business Day” means any day other than a Saturday, Sunday, or other day on which commercial banks in the State of New York are authorized or required to close under the laws of the State of New York and, if the Interest Rate relates to a LIBOR Rate, any day on which dealings in dollar deposits are also carried on in the London interbank market.

“Cash Collateral” means the sum of immediately available funds on deposit in the Cash Collateral Account.

“Cash Collateral Account” means the deposit account maintained with the Bank pursuant to the Pledge Agreement Deposit Account.

“Cash Collateralize” means, with respect to a Collateral Deficiency Occurrence, the deposit of immediately available funds into the Cash Collateral Account, which deposit shall be in an amount equal to the amount of the Collateral Deficiency then existing.

“Cash Dividends” means any cash payments to shareholders.

“Capital Lease” means any lease which has been or should be capitalized on the books of the lessee in accordance with GAAP.

“Chief Financial Officer of the Borrower” means the Borrower's Chief Financial Officer.

“Closing Date” means the date on which the first Advance under the 2006 Term Loan is made.

“Closing Price” means the last sale price on the trading date immediately preceding the Determination Date or, if no such sale takes place on such date, the average of the closing bid and asked prices on such date, in each case as officially reported on the principal national securities exchange or national market system on which the shares of Common Stock are then listed, admitted to trading or traded.

“Common Stock” means common stock, $.01 par value per share of iRobot Corporation, a Delaware corporation.

“Collateral Amount” means for each type of Pledged Acceptable Security (i.e. U.S. Treasury Bonds, U.S. Treasury Notes, U.S. Agency Bonds, Traded Corporate Bonds and State or Municipal Bonds) the product resulting from multiplying the aggregate Current Value of all Pledged Acceptable Securities of that type of Pledged Acceptable Security by the Advance Rate for that type of Acceptable Security.

“Collateral Deficiency” means as of any given Business Day the amount by which the outstanding amount of the 2006 Term Loan exceeds (i) thirty percent (30%) of the Restricted Shares Current Market Value plus (ii) the sum of (a) the Pledged Acceptable Securities Collateral Amount plus (b) the Cash Collateral, both determined as of the close of the Business Day immediately preceding such Business Day.

“Collateral Deficiency Deposit” means as to any given Collateral Deficiency Occurrence (i) the deposit of immediately available funds into the Cash Collateral Account in an amount equal to or greater than the amount of the then existing Collateral Deficiency and/or (ii) the Effective Pledge of Acceptable Securities having a Pledged Acceptable Securities Collateral Amount equal to or greater than the then existing Collateral Deficiency.

“Collateral Deficiency Mandatory Prepayment” means the mandatory prepayment due by the Borrower to the Bank pursuant to and in accordance with section 2.04(b)(i) of this Loan Agreement in lieu of a Collateral Deficiency Deposit.

“Collateral Deficiency Makeup Date” means a Business Day upon which either (i) a Collateral Deficiency Mandatory Prepayment is paid by the Borrower to the Bank or (ii) the Borrower makes a Collateral Deficiency Deposit.

“Collateral Deficiency Occurrence” means each instance  a Collateral Deficiency shall occur.

“Consolidate” or “Consolidated” means the consolidation of accounts of the Borrower and its Material Subsidiaries in accordance with GAAP.

“Control Agreement” means a writing, in a form reasonably acceptable to the Bank, pursuant to the terms of which a Securities Intermediary shall (1) with respect to a Securities Entitlement for any of the Restricted Shares, agree to comply with the entitlement orders originated by (i) the Bank at any time or (ii) by the Borrower at any time prior to the Bank’s delivery of a Notice of Exclusive Control” to the Securities Intermediary.

“Current Value” means, at any time, as to each unit of a given type or kind of Acceptable Securities (i.e. U.S. Treasury Bonds, U.S. Treasury Notes, U.S. Agency Bonds, Traded Corporate Bonds and State or Municipal Bonds) having the same maturity date, issuance date and denomination and issued by a given issuer, the lesser of (a) Par Value and (b) Market Value, for each unit of such type or kind of Acceptable Security.

“Debt” means (1) indebtedness or liability for borrowed money, or for the deferred purchase price of property or services (including trade obligations); (2) obligations as lessee under Capital Leases; (3) current liabilities in respect of unfunded vested benefits under any Plan; (4) obligations under letters of credit issued for the account of any Person; (5) all obligations arising under acceptance facilities; (6) all guarantees, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase, provide funds for payment, supply funds to invest in any Person, or otherwise to assure a creditor against loss; and (7) obligations secured by any Lien on property owned by the Person, whether or not the obligations have been assumed.

“Default” means any of the events specified in Section 6.01 hereof, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied.

“Default Interest Rate” means the rate of interest, as specified in Section 2.03 hereof, payable on overdue principal of the 2006 Term Loan.

“Determination Date” means that day upon which or as of which an assessment or valuation is to be made pursuant to the terms of this Loan Agreement.

“Disposition” means, with respect to any property, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition thereof.  The terms “Dispose” and “Disposed of” shall have correlative meanings.

“Dollars” and the sign "$" mean lawful money of the United States of America.

“Effective Pledge” means (i) as to the Cash Collateral Account (a) the pledge and grant to the Bank of a perfected first priority security interest in Cash Collateral Account and (b) the taking of all action necessary to create a perfected first priority security interest in favor of the Bank in the Cash Collateral Account and (ii) as to the Restricted Shares or any Pledged Acceptable Securities (a) the pledge and grant to the Bank of a perfected first priority security interest in the Restricted Shares and/or Pledged Acceptable Securities, (b) the taking  of all action necessary to create a perfected security interest in favor of the Bank in the Restricted Shares and Pledged Acceptable Securities, including, either, (1) the delivery to the Bank of Security Certificates for the Restricted Shares and Pledged Acceptable Securities, as applicable or(2) as to the Restricted Shares as Uncer tificated Securities the effectuation of one or more Control Agreements pursuant to which the Bank shall obtain control of the Restricted Shares and be authorized without notice to and/or the consent of the Borrower to effectuate the Disposition thereof or (3) as to the Pledged Acceptable Securities which are Uncertificated Securities the effective establishment of the Bank as the Entitlement Holder of such Pledged Acceptable Securities and (iv) the issuance of all such powers, including the execution and delivery of blank stock powers with all signature thereto being appropriately guaranteed, and the execution of all documents and/or instruments of a type, kind and number and in a form reasonably acceptable to the Bank.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations and published interpretations thereof.

“ET” means Eastern Standard Time or Eastern Daylight Savings Time, as in effect on or for the date in question.

“ERISA Affiliate” means any trade or business (whether or not incorporated) which together with the Borrower would be treated as a single employer under Section 4001 of ERISA.

“Event of Default” means any of the events specified in Section 6.01 hereof, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied.

“Excess Collateral Amount” means the positive difference resulting from subtracting (i) 333.33% of the outstanding 2006 Term Loan at 5:00pm ET on a given Business Day from (ii) the sum  of (a) Cash Collateral, (b) the Pledged Acceptable Securities Collateral Amount and (c) the Restricted Shares Current Market Value at 5:00pm ET on that same Business Day.

“Excess Collateral Amount Event” means the existence of an Excess Collateral Amount.

“Excess Collateral Amount Redemption Date” means the first Business Day immediately following a Business Day upon which occurs an Excess Collateral Amount Event.

“Financial Contracts” means option contracts, options on futures contracts, futures contracts, forward foreign currency exchange contracts, options on foreign currencies, repurchase agreements, reverse repurchase agreements, securities lending agreements, short sale agreements, when-issued securities, swaps and any other similar arrangements entered into by the Borrower or any of its Subsidiaries in the ordinary course of business.

“Financial Covenants” means the financial covenants set forth in Section 5.04 hereof.

“Fiscal Quarter” means a period of three consecutive calendar months ending on the last day of March, June, September or December.

“Fiscal Year” means the fiscal year the Borrower uses for filing tax returns, which Fiscal Year as of the date hereof ends on December 31.

“Funded Indebtedness” means, as to any Person (i) all Indebtedness of such Person that matures more than one year from the date of its creation or matures within one year from such date but is renewable or extendible, at the option of such Person, to a date more than one year from such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year from such date, including all current maturities and current sinking fund payments in respect of such Indebtedness whether or not required to be paid within one year from the date of its creation, (ii) all Indebtedness of such Person subordinated in right of payment to (a) the 2004 Term Loan, (b) the 2005 Term Loan, (c) the 2006 Term Loan or (d) Indebtedness in respect of (a) – (c) and (iii) in the case of the Borrower, Indebtedness in respect of the 200 4 Term Loan, the 2005 Term Loan or the 2006 Term Loan.

“Funding Office” means the office of the Bank specified in section 2.05 or such other office as may be specified from time to time by the Bank as its funding office in accordance with section 2.05.

“GAAP” means generally accepted accounting principles in the United States.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.

“Indebtedness” means, for any Person, all indebtedness or other obligations of such Person for borrowed money or any Capital Lease.

“Institution” means the Securities Intermediary with respect to any Uncertificated Securities.

“Interest Expense” means all interest paid related to a Debt excluding interest paid on Short Term Line Financing.

“Initial Interest Period” means that period commencing on the Closing Date and ending on the last day of the calendar month in which the Closing Date occurs.

“Interest Period” means, as applicable, (i) the Initial Interest Period and (ii) each calendar month thereafter.

“Interest Rate” means the rate of interest set forth in Section 2.03 hereof.

“Lease Expense” means, for any period, for the Borrower and its Subsidiaries (determined on a Consolidated basis without duplication in accordance with GAAP) the aggregate amount of fixed and contingent rentals (including (i) rental escalations arising from real estate tax increases, (ii) pass through by a lessor of its increased operating expenses as increased rent and (iii) increased  cost of utilities provided to or utilized at a given real property lease site for that lease site) payable with respect to operating leases of real and personal property (other than obligations under any Capital Lease).

“Legend” means the provision located on the back of each Security Certificate for the Restricted Shares stating that:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN AGREEMENT BY THE REGISTERED HOLDER HEREOF WITH MORGAN STANLEY & CO, INCORPORATED AND J.P. MORGAN SECURITIES INC. NOT TO SELL SUCH SHARES (THE “LOCK-UP AGREEMENT”) FOR A PERIOD OF 180 DAYS, SUBJECT TO EXTENSION AS PROVIDED IN THE LOCK-UP AGREEMENT, FOLLOWING THE EFFECTIVENESS OF THE REGISTRATION STATEMENT FILED BY IROBOT CORPORATION WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 27, 2005, AS AMENDED (THE”REGISTRATION STATEMENT”)

“Leverage Ratio” means the Modified Total Funded Debt to EBITDAR Ratio specified in Section 5.04(b) of this Agreement.

“Lien” means any mortgage, deed of trust, pledge, security interest, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or other security agreement or charge, or encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction to evidence any of the foregoing).

“Loan Agreement” means this loan agreement, as amended, supplemented, or modified from time to time.

“Loan Document(s)” means this Loan Agreement, the Note, the Springing Pledge Agreement, the Negative Pledge Agreement, the Pledge Agreement Deposit Account, the Acceptable Securities Pledge Agreement and all other instruments, documents, agreements, certifications, and/or certificates at any time given to or held by the Bank in connection with the 2006 Term Loan.

“Lockup Letter” means that certain letter from the Borrower and executed by Alan Goldberg, on its behalf, to Morgan Stanley & Co. Incorporated and J.P. Morgan Securities Inc. to induce the Underwriters, as defined therein, to continue their efforts in connection with the Public Offering, as defined therein.

“Lockup Letter Restricted Period Expiration Date” means the first Business Day the Borrower’s sale and/or pledge of any of the Restricted Shares shall not be restricted by the Lockup Letter which date, pursuant to the terms of the Lockup Letter, shall occur on or before June 11, 2006.

“Long Term Debt” means, at any time, all Indebtedness with a remaining maturity in excess of twelve (12) months.

“Market Value” means, at any time, as to a given type or kind  of Pledged Acceptable Securities (debt obligations having the same maturity date, issuance date and denomination issued by a given issuer are of the same type and kind) the closing market price for such Acceptable Security on the Business Day immediately preceding the Determination Date for each traded unit of that type.

“Material Adverse Effect” means (i) with respect to the Borrower and its Subsidiaries, any material adverse effect on the business, operations, condition (financial or otherwise), assets or prospects of the Borrower and its Subsidiaries taken as a whole, or (ii) any fact or circumstance as to which singly or in the aggregate Borrower has reason to believe there is a reasonable possibility of (a) a material adverse change described in clause (i) or (b) above the inability of the Borrower to perform in any material respect its obligations hereunder and under the other Loan Documents, or (iii) a material adverse effect on the validity or enforceability of the Loan Documents.

“Material Indebtedness” means Indebtedness owing by the Borrower or any Subsidiary of the Borrower (without duplication) to Persons other than the Bank if the outstanding amount of such Indebtedness, including currently due and payable interest, premiums and other charges, is at least $1,000,000.00.

“Material Subsidiary” means, at any time, a Subsidiary of the Borrower having (i) at least 10% of the total Consolidated assets of the Borrower and its Subsidiaries (determined as of the last day of the most recent fiscal quarter of the Borrower), or (ii) at least 10% of the Consolidated revenues of the Borrower and its Subsidiaries for the Fiscal Year of the Borrower then most recently ended.  

“Maturity Date” means the Stated Maturity Date, or such earlier date the Bank exercises its right to accelerate the 2006 Term Loan as provided herein and in the other Loan Documents, that being the date on which the 2006 Term Loan matures and all unpaid principal, accrued and unpaid interest and all other charges due under the Loan Documents will be paid in full.

“Multiemployer Plan” means a Plan described in Section 4001(a)(3) of ERISA which covers employees of the Borrower or any ERISA Affiliate.

“Negative Pledge Agreement” means that certain Negative Pledge Agreement by and between the Borrower and the Bank in the form attached hereto as Exhibit “G”.

“Net Proceeds” means in connection with a Restricted Share Sale the sum remaining after deducting all cost and expenses of such sale from the Proceeds generated by such sale.

“Note” means the 2006 Term Note, as amended, supplemented or modified from time to time.

“Notice of Exclusive Control” means a writing delivered to the Securities Intermediary under any Control Agreement notifying that Securities Intermediary that the Bank shall for the period established in such writing be the sole and exclusive Person authorized to deliver Entitlement Orders with respect to the applicable Securities Account and/or the securities entitlement credited thereto.

“Obligations” means all of the obligations of the Borrower and its Subsidiaries under this Loan Agreement, the Note and the other Loan Documents, whether for principal, interest, fees, costs, expenses, taxes, or otherwise and any and all other obligations of the Borrower and its Subsidiaries to the Bank of any nature whatsoever, whether now existing or hereafter arising.

“Par Value” means the amount paid to the owner of a unit of the Acceptable Security when such unit matures.

“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

“Permitted Liens” means any of the following:

(a)

Liens existing on the date hereof and heretofore disclosed to the Bank;

(b)

Liens securing obligations under Financial Contracts;

(c)

Liens for taxes, assessments and governmental charges or levies which are not yet due or payable without penalty or of which the amount, applicability or validity is being contested by the Person whose property is subject thereto in good faith by appropriate proceedings as to which adequate reserves are being maintained;

(d)

Liens imposed by law, such as materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s Liens and other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested or defended in good faith by appropriate proceedings, or which are suspended or released by the filing of lien bonds, or deposits to obtain the release of such Liens;

(e)

Pledges, deposits and other Liens made in the ordinary course of business to secure obligations under worker’s compensation laws, unemployment insurance, social security legislation or similar legislation or to secure public or statutory obligations;

(f)

Liens to secure the performance of bids, tenders, contracts, leases or statutory obligations, or to secure surety, stay or appeal or other similar types of deposits, Liens or pledges;

(g)

Attachment or judgment Liens to the extent such Liens are being contested in good faith and by proper proceedings, as to which adequate reserves are being maintained or a bond has been posted;

(h)

Easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes;

(i)

Liens arising in connection with operating leases incurred in the ordinary course of business of the Borrower and its Subsidiaries;

(j)

Liens on assets acquired by the Borrower or any Subsidiary thereof, or on the assets of a Person that is acquired by the Borrower or any Subsidiary thereof, if such Liens existed at the time of such acquisition and were not created in contemplation of such acquisition;

(k)

Liens securing Short Term Line Financing;

(l)

Liens securing Indebtedness permitted under Section 5.02(f);

(m)

Liens on any property of any Subsidiary of the Borrower (a “Debtor Subsidiary”) in favor of the Borrower and/or any Subsidiary of the Borrower (a “Creditor Subsidiary”) to secure Indebtedness owing by a Debtor Subsidiary to the Borrower and/or a Creditor Subsidiary; and

(n)

Liens on any property of the Borrower or any Subsidiary of the Borrower in favor of the Bank to secure Indebtedness owing by the Borrower to the Bank, including, but not limited to, the Indebtedness evidenced by the Note.

“Person” means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority, or other entity of whatever nature.

“Plan” means any plan established, maintained, or to which contributions have been made by the Borrower or any ERISA Affiliate.

“Pledge Agreement Deposit Account” means that certain Pledge Agreement Deposit Account pursuant to the terms of which the Borrower shall grant the Bank a first priority security interest in and control of the Cash Collateral Account, as required by section 2.04(b)(i), hereof, in the form attached hereto as Exhibit “H”.

“Pledged Acceptable Securities” means all Acceptable Securities pledged to the Bank pursuant to an Effective Pledge.

“Pledged Acceptable Securities Collateral Amount” means as of a Determination Date the sum of the Collateral Amount for each type of Pledged Acceptable Security (i.e. U.S. Treasury Bonds, U.S. Treasury Notes, U.S. Agency Bonds, Traded Corporate Bonds and State or Municipal Bonds).  An example of a computation of the Pledged Acceptable Securities Collateral Amount is included on Exhibit E.

“Prohibited Transaction” means any transaction set forth in Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1954, as amended from time to time.

“Proceeds” means in connection with any Restricted Share Sale, the proceeds thereof in the form of cash and cash equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Restricted Share Sale

“Prime Rate” means that interest rate established from time to time by the Bank as the Bank’s Prime Rate, whether or not such rate is publicly announced; the Prime Rate may not be the lowest interest rate charged by the Bank for commercial or other extensions of credit.

“Regulation D” means Regulation D of the Board as amended or supplemented from time to time.

“Reportable Event” means any of the events set forth in Section 4043(b) of Title [1] of ERISA.

“Responsible Officer” means the chief executive officer, president or chief financial officer of the Borrower, but in any event, with respect to financial matters, the chief financial officer of the Borrower.

“Restricted Share Sale” means any Disposition of any Restricted Shares prior to the Maturity Date in a sale on or utilizing the principal national securities exchange or national market system on which the shares of Common Stock are then listed.

“Restricted Share Sale Notice” means that written notice from the Borrower to the Institution, as defined in the Control Agreement, if the Restricted Shares are Securities Entitlements held by a Securities Intermediary pursuant to a Control Agreement, or to the Bank, if the Restricted Shares are Certificated Securities held by the Bank pursuant to the Springing Pledge Agreement, pursuant to the terms of which the Borrower shall request that the Institution or Bank, as applicable, sell a specified number of Restricted Shares.

“Restricted Shares” means until the first Restricted Share Sale 1,116,290 shares of Common Stock owned by Borrower and after the first Restricted Share Sale shall mean 1,116,290 less all Restricted Shares sold in accordance with the Loan Documents prior to that date.

“Restricted Shares Current Market Value” means the Current Market Value, on a per share basis, of the Common Stock on the Business Day immediately preceding the applicable Determination Date multiplied by the applicable number of Restricted Shares.

“Securities Collateralize” means the Effective Pledge of Acceptable Securities by or on behalf of the Borrower, which Acceptable Securities shall have a Collateral Amount equal to or greater than the Collateral Deficiency (after giving effect to any contemporaneous Collateral Deficiency Deposit of Cash Collateral) existing immediately prior to the consummation of the Effective Pledge thereof.

“Security Documents” mean the Springing Pledge Agreement, the Negative Pledge Agreement, the Pledge Agreement Deposit Account, the Acceptable Securities Pledge Agreement and any other of the Loan Documents pursuant to which the Bank is granted a security interest in or lien upon any property or asset to secure the Obligations.

“Short Term Line Financing” means those demand lines of credit utilized by the Borrower or any of its Subsidiaries in the normal course of business and limited to financing securities eligible for collateralization, including Borrower-owned securities, Subsidiary-owned securities and certain customer-owned securities, purchased on margin, subject to certain regulatory formulas.

“Special Deposits” means special reserve bank accounts maintained for the benefit of customers pursuant to Rule 15c3-3 of the Securities Exchange Act of 1934, and described in the financial statements of the Borrower as cash and securities segregated for regulatory purposes.

“Springing Pledge Agreement” means that certain Pledge Agreement pursuant to the terms of which the Borrower shall grant the Bank a security interest in the Restricted Shares effective as of the Lockup Letter Restricted Period Expiration Date to secure the Obligations, in the form(s) attached hereto as Exhibit “I”.

“State or Municipal Bond” means marketable direct obligations with maturities of one year or less from the date of acquisition issued by or fully guaranteed by any state or commonwealth of the United States, by any political subdivision or taxing authority of any such state or commonwealth, the securities of which state, commonwealth, political subdivision or taxing authority (as the case may be) are rated at least A by S&P or A by Moody’s

“Stated Maturity Date” means June 15, 2006.

“Subsidiary” means, as to the Borrower,  a corporation, to include a limited liability company, of which shares of stock or membership rights having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more Subsidiaries, or both, by the Borrower.

“Swap” means, with respect to any Person, any payment obligation with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency.

“Traded Corporate Bond” means marketable commercial paper of an issuer rated at least A-1 by Standard & Poor’s Ratings Services (“S&P”) or P-1 by Moody’s Investors Service, Inc. (“Moody’s”), carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within six months from the date of acquisition and listed on the New York Stock Exchange.

“U.S. Agency Bond” means (1) debt securities directly issued or guaranteed by departments of the United States government, and (2) debt securities issued by entities chartered by the United States Congress for the purpose of fulfilling a specific mission for a public purpose, including but not limited to Federal National Mortgage Corporation (FNMA), Federal Home Loan Mortgage Corporation (FHLMC), Student Loan Marketing Association (SLMA) and Federal Farm Credit System (FFCB).

“U.S. Treasury Bond” means debt securities issued by the Bureau of Public Debt, an agency of the U.S. Department of the Treasury, having maturities of greater than ten years from their issuance.

“U.S. Treasury Note” means debt securities issued by the Bureau of Public Debt, an agency of the U.S. Department of the Treasury, having maturities ranging from two to ten years from their issuance.

SECTION 1.02.  Accounting/Statutorily Defined Terms.  All accounting terms used in this Loan Agreement that are not specifically defined herein shall be construed in accordance with GAAP.  All terms used in this Loan Agreement that are not specifically defined herein and are defined in Article 8 or Article 9 of the Uniform Commercial Code in effect in the State of New York on the date hereof, shall be construed in accordance with such code.

ARTICLE II

AMOUNT AND TERMS OF 2006 TERM LOAN

SECTION 2.01.  2006 Term Loan.  The Bank hereby agrees, on the terms and conditions set forth in this Loan Agreement, in up to four Advances (each of which shall occur on an Advance Date) , to make an Advance to the Borrower in the principal amount of up to $11,000,000.00, the proceeds of which are to be used for the purposes set forth herein, including Section 2.06 hereof; provided, however, that (i) the Bank shall not be permitted or required to, and the Borrower shall not request that the Bank make any Advance if, after giving effect thereto, the original principal amount of all Advances would exceed the 2006 Term Loan Commitment Amount, determined as to portion (b) thereof as of the Business Day immediately preceding the applicable Advance Date and (ii) subject to compliance with the terms and provisions hereof, the Bank shall only be required to make an Adva nce if (a) before and after giving effect thereto, the representations and warranties set forth in each Loan Document are, in each case, true and correct with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties are true and correct in all material respects as of such earlier date), (b) no Default or Event of Default has then occurred and be continuing and (c) the Maturity Date has not occurred.  No amounts paid or prepaid with respect to the 2006 Term Loan may be reborrowed.

The Borrower shall give the Bank irrevocable notice (which notice must be received by the Bank prior to 10:00 A.M. (local time at the Funding Office), three Business Days prior to the applicable Advance Date) requesting that the Bank make an Advance under the 2006 Term Loan on the immediately following Advance Date and such notice shall be accompanied by a certificate signed by the Borrower's chief financial officer stating that (a) as of the applicable Advance Date (i) no Default or Event of Default has occurred and (ii) the representations and warranties set forth in each Loan Document shall, in each case, be materially true and correct with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date) and (b) as of the Business Day immediately preceding the A dvance Request Date with respect to the most recent Advance Request Notice, the original principal amount of all Advances, after giving effect to the Advance requested in that Advance Request Notice, does not exceed thirty percent (30%) of the Restricted Shares Current Market Value.  Subject to the terms and provision hereof, not later than 12:00 Noon (local time at the Funding Office), on the applicable Advance Date the Bank shall transfer funds in an amount equal to the requested Advance to such account(s) as the Borrower shall request.

SECTION 2.02. Note. The 2006 Term Loan will be evidenced by a note in the principal amount of up to $11,000,000.00 in form of the note attached hereto as Exhibit “A” and made a part hereof (the “Note”), which Note shall be completed, executed and delivered to the Bank contemporaneously with the Borrower’s delivery of the initial irrevocable notice to the Bank pursuant to section 2.01, hereof.  The Note shall be held in escrow by the Bank until and shall be deemed delivered to the Bank concurrently with the Bank’s provision of the first Advance pursuant to section 2.01.  The terms and provisions of the Note are incorporated herein by reference and made a part hereof.  The Note provides that interest only at the Interest Rate on the outstanding principal balance shall be paid monthly on the first day  of each Interest Period following the Initial Intere st Period to and including the Maturity Date.  On the Maturity Date the entire principal balance and all accrued interest and all other charges shall become due and payable in full.

SECTION 2.03  Interest Rate.   The Borrower shall pay interest to the Bank on the outstanding unpaid principal amount of the 2006 Term Loan at a variable rate equal to the Adjusted Prime Rate .  The Interest Rate shall adjust automatically based upon any change in the Prime Rate

Any principal amount not paid when due (whether at maturity, by acceleration, on 2006 Term or otherwise) shall bear interest thereafter until paid in full, at a rate per annum (the "Default Interest Rate") equal to the Adjusted Prime Rate plus two percent (2%) per annum.

SECTION 2.04  Prepayments.

(a)

Optional Prepayments.  (a) The Borrower may at any time and from time to time prepay the Note, in whole or in part with accrued interest to the date of such prepayment on the amount prepaid without premium or penalty, provided that each partial prepayment shall be in a principal amount of not less than Fifty Thousand Dollars ($50,000.00) and the Borrower pays to the Bank any and all other fee and charges then due hereunder and under the other Loan Documents in connection with such prepayment, if any, upon irrevocable notice delivered to the Bank at least five Business Days prior thereto, which notice shall specify the date and amount of prepayment.  If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to such date on the amount prepaid.

(b)

Mandatory Prepayments.  Without limiting or affecting any other provision of the Loan Documents, the Borrower shall make payments and prepayments of the 2006 Term Loan or Collateral Deficiency Deposit(s) as set forth in this Section 2.04(b).

(i)

Collateral Deficiency.  If on or before 11:00 am (ET) on any given Business Day (after giving effect to any other payments by such time on such date) the aggregate outstanding amount of the 2006 Term Loan exceeds (i) thirty percent (30%) of the Restricted Shares Current Market Value plus (ii) the sum of (x) the Cash Collateral and (y) the Pledged Acceptable Securities Collateral Amount,  the Borrower shall either (a) make a mandatory prepayment of the 2006 Term Loan on such date in an amount equal to such excess or (b) on such date (1) Cash Collateralize and/or (2) Securities Collateralize the 2006 Term Loan by making a Collateral Deficiency Deposit in a combined amount equal to such excess.  Notice from the Bank to the Borrower of the occurrence of a Collateral Deficiency, absent manifest error, shall constitute conclusive evidence of a Collateral Deficiency.

(ii)

Restricted Shares Sales.  If after the Lockup Letter Restricted Period Expiration Date and prior to the delivery of the Notice of Exclusive Control , Borrower or any Subsidiary shall desire to effectuate a Restricted Share Sale, the Borrower shall deliver a Restricted Share Sale Notice to the Institution and provide a copy thereof to the Bank.  Prior to the Maturity Date and as long as no Event of Default has occurred and is continuing, (i) the Borrower may initiate a sale of that number of Restricted Shares designated in the Restricted Share Sale Notice and (ii) the Bank shall (a) not issue a “Notice of Exclusive Control”, (b) consent to such sale, (c) apply fifty percent (50%) of the Net Proceeds of that sale in payment of the Obligations with respect to the 2006 Term Loan or pursuant to the Loan Documents, in such manner as the Bank shall determine, and after discha rge of all such Obligations with respect to the 2006 Term Loan, then in payment of the 2005/2004 Term Loan Mandatory Prepayment and (d) remit to the Borrower fifty percent (50%) of the Net Proceeds from the Restricted Share Sale for Borrower’s working capital purposes.  Nothing contained in this section shall adversely affect the Bank’s rights on or after the occurrence of an Event of Default to dispose of the Restricted Shares and the Acceptable Securities in accordance with the Loan Documents and use the proceeds thereof and apply the Cash Collateral in payment of the 2006 Term Loan, the 2005/2004 Term Loan Mandatory Prepayment or the other Secured Obligations as defined in the Springing Pledge Agreement.  Nothing contained in this section 2.04(b)(ii) or otherwise, shall affect or limit the Borrower’s obligation prior to the Maturity Date and the discharge of its Obligations under the 2006 Term Loan and the 2005/2004 Term Loan Mandatory Prepayment, to maintain Restricted Shares, ha ving a Restricted Shares Current Market Value, in a combined amount equal to 333.33% of (a) the outstanding 2006 Term Loan less (b) the sum of (i) the Cash Collateral plus (ii) the Pledged Acceptable Securities Collateral Amount, if any.

(iii)

Acceleration.  Immediately upon the Maturity Date, the Borrower shall repay the 2006 Term Loan and make the 2005-2004 Term Loan Mandatory Prepayment.

Each prepayment of any Loans made pursuant to this Section shall be without premium or penalty.  Each partial prepayment pursuant to subsection 2.04(a) shall be in a principal amount of not less than Fifty Thousand Dollars ($50,000.00) and upon each prepayment pursuant to section 2.04, the Borrower shall pay to the Bank any and all fees, sums due and charges then due hereunder and under the other Loan Documents.  A statement as to any amount payable pursuant to this Section 2.04 submitted to the Borrower by the Bank shall be conclusive in the absence of manifest error.  This provision shall survive the payment in full of the Note.

SECTION 2.05. Method of Payment.   Payments due under this Loan Agreement, the Note and all other Loan Documents are payable at 66 South Pearl Street, Albany, New York 12207, or at such other place as the Bank shall notify the Borrower of in writing.  The Bank reserves the right to require any payment to be wired, Federal funds or other immediately available funds, or be paid at a place other than the above address.

Whenever any payment to be made under this Loan Agreement or under the Note shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of the payment of interest.

SECTION 2.06.  Use of Proceeds.  The Borrower will use the proceeds from the 2006 Term Loan to fund principal, interest and related charges due by the Borrower in connection with the Borrower’s $5,000,000.00 credit extension from each of The Farm Bureau and Kansas City Life Insurance Company.  The Borrower will not, directly or indirectly, use any part of the 2006 Term Loan proceeds for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U of the Board or to extend credit to any Person for the purpose of purchasing or carrying any such margin stock.

SECTION 2.07.  Illegality.  Notwithstanding any other provision in this Loan Agreement, if the adoption, after the date hereof, of any applicable law, rule, or regulation, or any change therein, or any change, after the date hereof, in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank with any request or directive (whether or not having the force of law) of any such authority, central bank, or comparable agency shall make it unlawful or impossible for the Bank to maintain or fund the 2006 Term Loan then upon notice to the Borrower by the Bank the outstanding principal amount of the 2006 Term Loan, together with interest accrued thereon, and any other amounts payable to the Bank under this Loan Agreement shall be repaid immediately if such change o r compliance with such request, in the judgment of the Bank, requires immediate repayment.

SECTION 2.08.  Increased Cost.  The Borrower shall pay to the Bank from time to time such amounts as the Bank may determine to be necessary to compensate the Bank for any costs incurred by the Bank which the Bank determines are attributable to its making or maintaining the 2006 Term Loan hereunder, or any reduction in any amount receivable by the Bank under this Loan Agreement or the Note in respect of any such Loan or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any change after the date of this Loan Agreement in Federal, state, municipal, or foreign laws, rules or regulations (including Regulation D), or the adoption or making after such date of any interpretations, directives, or requirements applying to a class of banks including the Bank of or under any Federal, state, municipal, or forei gn laws, rules or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof ("Regulatory Change"), which: (1) changes the basis of taxation of any amounts payable to the Bank under this Loan Agreement or the Note in respect of the 2006 Term Loan (other than taxes imposed on or measured by the overall net income of the Bank for such Loan); or (2) imposes or modifies any reserve, special deposit, or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, the Bank; or (3) imposes any other condition affecting this Loan Agreement or the Note (or any of such extensions of credit or liabilities).  The Bank will notify the Borrower of any event occurring after the date of this Loan Agreement which will entitle the Bank to compensation pursuant to this Section as promptly as practicable after it obtains knowledge thereof and determi nes to request such compensation; provided that (i) if the Bank fails to give such notice within 90 days after it obtains knowledge of such an event (or, in the exercise of ordinary due diligence, should have obtained knowledge thereof), the Bank shall be entitled to payment under this Section 2.08 only for costs incurred from and after the date 90 days prior to the date that the Bank does give such notice, and (ii) the Bank will designate a different lending office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the reasonable judgment of the Bank be otherwise disadvantageous to the Bank.

Determinations by the Bank for purposes of this Section of the effect of any Regulatory Change on its costs of making or maintaining the 2006 Term Loan or on amounts receivable by it in respect of such Loan, and of the additional amounts required to compensate the Bank in respect of any Additional Costs, shall be conclusive, provided that such determinations are made on a reasonable basis.

If the Bank determines that it is entitled to Additional Costs and so notifies the Borrower, the Borrower shall have the right within twenty (20) Business Days of being so notified to prepay in full the 2006 Term Loan.

SECTION 2.09.  Commitment Fee.  As an inducement to the Bank entering into this Agreement, the Borrower shall pay to the Bank contemporaneously with the Borrower’s entry into this Agreement a non-refundable commitment fee in the amount of $75,000.00.

SECTION 2.10.  Mandatory PrePayment of 2005 Term Loan – Application of Excess Payment in Mandatory PrePayment of 2004 Term Loan.  On or before the Maturity Date the Borrower shall (i) pay in full the outstanding principal balance of the 2005 Term Loan and all accrued and unpaid interest and all other charges due under the 2005 Term Loan, if any, and (ii) make prepayments of principal on the 2004 Term Loan, after payment in full of all accrued and unpaid interest and all other charges then due under the 2004 Term Loan, if any, in an amount equal to the difference resulting from subtracting (a) the sum of the principal payments of the 2005 Term Loan made by the Borrower after the date of this Loan Agreement prior to the due date of thereof from (b) $5,000,000.00.  All principal prepayments made pursuant to this section 2.10 shall be applied first against the 2005 Term Loan and the b alance of such payments then against the 2004 Term Loan in the inverse order of maturity, as applicable.

SECTION 2.11  Excess Collateral Amount.  Prior to the Maturity Date and as long as no Event of Default has occurred and is continuing, upon receipt of written notice from the Borrower evidencing the occurrence of an Excess Collateral Amount Event, the Bank shall on the first Excess Collateral Amount Redemption Date immediately following it receipt of such notice, remit and/or deliver to the Borrower (i) Cash Collateral in an amount equal to the Excess Collateral Amount then existing and (ii) if the amount of Cash Collateral is less than the then existing Excess Collateral Amount, Pledged Acceptable Securities (having a combined Market Value) in an amount equal to the differenced resulting from subtracting (x) the amount of Cash Collateral distributed to the Borrower pursuant to (i) of this section from (y) the Excess Collateral Amount existing prior to the distribution of Cash Collateral.

ARTICLE III

CONDITIONS

SECTION 3.01. Conditions Precedent to the 2006 Term Loan.  The obligation of the Bank to execute and deliver this Loan Agreement and the effectiveness thereof, the agreement of the Bank to make the 2006 Term Loan shall be subject to the fulfillment and satisfaction, concurrently with the making of the first Advance under the 2006 Term Loan on the Closing Date, of each of the following conditions:

(a)  Note.  The Bank shall have received the Note duly executed and delivered by the Borrower.

(b)  Loan Agreement/Loan Documents.  The Bank shall have received (i) this Agreement, (ii) the Springing Pledge Agreement, (iii) the Negative Pledge Agreement, (iv) the Pledge Agreement Deposit Account, (v) the Acceptable Securities Pledge Agreement and all other Loan Documents, executed and delivered by the Borrower.

(c)  General Certificate.  The Bank shall have received a general certificate for the Borrower dated as of the Closing Date signed by a Responsible Officer of the Borrower in which the Responsible Officer and Borrower shall represent and warrant for the benefit of the Bank as of the Closing Date, that or to, among other things (i) the names of all officers and directors of the Borrower and the officers of the Borrower which are duly authorized and empowered, on behalf of the Borrower, to execute and deliver this Loan Agreement and all other Loan Documents to be executed and delivered by the Borrower; (ii) the Borrower is duly incorporated, that all necessary corporate action to authorize the Borrower’s execution and delivery of this Loan Agreement and all other Loan Documents to which the Borrower is a party or by which it is bound has been taken and remains in full force and ef fect and  (iii) attaching thereto resolutions of the Borrower’s Board of Directors then in full force and effect authorizing the execution, delivery and performance of each Loan Document to be executed by the Borrower and the transactions contemplated hereby and thereby, all in such form as the Bank shall reasonably approve. The general certificate shall have attached to it a currently dated good standing certificate showing the Borrower to be a corporation in good standing in the State of New York, a franchise tax search showing that no taxes or reports are owed, a copy of the Borrower’s certificate of incorporation and by-laws and all amendments thereto. All documents and agreements required to be appended to the Borrower’s general certificate shall be in form and substance reasonably satisfactory to the Bank and the Bank may conclusively rely upon the afore noted certificate until it shall have received a further certificate of a Responsible Officer canceling or amending the prior cert ificate of the Borrower.  

(d) Financial Statements.  The Bank shall have received (i)  internally generated consolidated financial statements of  Borrower and all of its subsidiaries for the fiscal year ended December 31, 2005 prepared in good faith and in a manner and using a methodology which is consistent with the most recent 10-K of the Borrower (subject to year end audit adjustments) and in form and substance reasonably satisfactory to the Bank, delivered and duly certified by the Responsible Officer of the Borrower that such financial statements fairly present the consolidated financial condition of the Borrower at such date (subject to year end audit adjustments) and the results of the operations of the Borrower for the period ended on such date, all in accordance with GAAP applied on a consistent basis, and such financial statements shall not, in the reasonable judgment of the Bank, reflect or ev idence a Material Adverse Effect in the consolidated financial condition of the Borrower and all of its Subsidiaries, as reflected in the financial statements or projections previously delivered by the Borrower to the Bank.

(e) Compliance Certificate.  The Bank shall have received, a compliance certificate on a pro forma basis as if the 2006 Term Loan had been made as of the fiscal quarter ended December 31, 2005 and as to such items therein, including, but not limited to, compliance with Financial Covenants as of such date and/or occurrence of an Event of Default as the Bank reasonably requests, dated the Closing Date, duly executed (and with all schedules thereto duly completed) and delivered by the Responsible Officer of the Borrower.

(f) Solvency, etc.  The Bank shall have received a certificate duly executed and delivered by the Responsible Officer of the Borrower, dated the Closing Date in such form and addressing such issues, including, but not limited to, a statement/certification that the Borrower is solvent and has not: (i) filed a petition seeking relief from any provision of any bankruptcy, reorganization, arrangement or dissolution law of any jurisdiction; (ii) made an assignment for the benefit of creditors; (iii) had a receiver, custodian, liquidator or trustee of its assets appointed by court order or otherwise; or (iv) failed to pay or admitted in writing its inability to pay debts generally as they become due, as the Bank shall reasonably request.

(g) 2006 Term Loan Commitment Amount.  The Bank shall have received a certificate duly executed and delivered by the Responsible Officer of the Borrower, dated the Closing Date setting forth the Restricted Shares Current Market Value and evidencing that such value exceeds 333.34% of the First Advance.

(h) Approvals.  All governmental and third party approvals, if any, necessary in connection with  the transactions contemplated and hereby shall have been obtained and be in full force and effect.

(i) Effectiveness of Representations/Warranties, etc. Both before and after giving effect to the 2006 Term Loan, the following statements shall be true and correct:

(i)

the representations and warranties set forth in each Loan Document shall, in each case, be true and correct with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date); and

(ii)

no Default shall have then occurred and be continuing.

(j)  Opinion of Counsel for Borrower.  The Bank shall have received for its own account a favorable opinion by Milbank, Tweed, Hadley & McCloy LLP, legal counsel for the Borrower, and by other legal counsel for the Borrower, reasonably acceptable to the Bank, in form and substance satisfactory to the Bank dated as of the Closing Date.

Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement, as the Bank may reasonably request.

(k)   Casualty and Risk Insurance.  Proof that the Borrower has in full force and effect such casualty and risk insurance as required herein and in the other Loan Documents with respect to the Leased Premises,  with financially sound and reputable insurance companies or associations of the kinds usually carried by companies engaged in business similar to that of the Borrower, in an amount reasonably acceptable to the Bank on its present and future properties normally covered by insurance (less reasonable deductibles), against such casualties, risks and contingencies as are customarily insured.

(l)  Other Documentation/Satisfactory Legal Form.  The Bank and its counsel shall have received such other documents, instruments, agreements, approvals, consents, authorizations, certifications and financing statements, as the Bank, or its counsel, may reasonably request, including, but not limited to, documents, instruments, agreements, approvals, consents, authorizations, certifications and financing statements the Bank or its counsel shall request in order to verify and confirm that all of the representations and warranties made by the Borrower hereunder and under the other Loan Documents are true and correct and that the Borrower has complied with all conditions to be complied with by it in connection with the making of the 2006 Term Loan by the Bank to the Borrower.  All such documents , instruments, agreements, approvals, consents, authorizations and certifications exe cuted or submitted pursuant hereto by or on behalf of the Borrower shall be reasonably satisfactory in form and substance to the Bank and its counsel.

(m) Fees, Expenses, etc.  The Bank shall have received all fees due and payable pursuant to Section 2.09 and all costs and expenses due and payable pursuant hereunder, including, without limitation, Section 7.04 (including the reasonable fees and expenses of legal counsel).

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

4.01

Representations and Warranties of the Borrower.  The Borrower, as a condition to the Bank making the 2006 Term Loan to the Borrower hereby, represents and warrants to the Bank as follows:

(a)  Corporate Existence.  The Borrower is a corporation duly authorized, validly existing and in good standing under the laws of the State of New York, has all requisite power and authority, corporate or otherwise, to own its assets and to transact business as presently conducted by it and to perform all of its obligations under this Loan Agreement and the other Loan Documents and that the Borrower is qualified as a foreign corporation in good standing under the laws of each jurisdiction in which such qualification is required.

(b)  Due Execution.  The execution, delivery, and performance by the Borrower of this Loan Agreement and the execution, delivery and performance of all other Loan Documents have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the stockholders of the Borrower; (ii) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination, or award presently in effect having applicability to the Borrower; (iii) violate any provision of its certificate of incorporation or by-laws; (iv) result in a breach of or constitute a default under any document, instrument or agreement to which the Borrower is a party or by which it is or its properties may be bound or effected; or (v) result in, or require, the creation or imposition of any Lien (other than as provided herein) upon or with resp ect to any of the properties now owned or hereafter acquired of the Borrower;

(c)  Non-Breach. The Borrower is not in breach of any and is in compliance with all  law(s), rule(s), regulation(s), order(s), writ(s), judgment(s), injunction(s), decree(s), determination(s) and/or indenture(s), agreement(s), lease(s) or instrument(s) to which it is a party or by which it is bound other than any such breach or non-compliance that could not reasonably be expected to have a Material Adverse Effect .

(d)  Approval.  No authorization, consent, approval, license, exemption, filing or registration with any court or governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign (which has not been obtained) is necessary to the valid execution, delivery, or performance by the Borrower of this Loan Agreement or the other Loan Documents.

(e)  Legal Enforceability.  This Loan Agreement, the Note and all other Loan Documents constitute legal, valid, and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except as enforcement of the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting enforcing of creditors’ rights generally.

(f)  Subsidiaries.  Set forth in Exhibit "B" and made a part hereof is a complete and accurate list of all of the Subsidiaries of the Borrower as of the Closing Date, showing that as of the date hereof (as to each Subsidiary)  the jurisdiction of its incorporation, the number of shares of each class of capital stock authorized, and the number of shares of each class of common stock outstanding on the date hereof and the percentage of the outstanding shares of each such class owned (directly or indirectly) by the Borrower and the number of shares covered by all outstanding options, warrants, rights of conversion or purchase, and similar rights as of the date hereof.

(g)  Financial Statements.  The balance sheet of the Borrower dated as of December 31, 2005, and the related statement of income and retained earnings of the Borrower each as delivered by Borrower pursuant to Section 3.01(d), presents fairly the consolidated financial condition of the Borrower at such date and the results of the operations of the Borrower for the period ended on such date (subject to year end audit adjustments)_, all in accordance with GAAP applied on a consistent basis, and since December 31, 2005 except as disclosed in writing to the Bank on or before the date hereof there has been no material adverse change in such condition or operations.  

(h)  Litigation.  Other than those actions, suits or proceedings listed in Exhibit “C” annexed hereto and made a part hereof or otherwise disclosed in writing to the Bank prior to the Bank’s execution hereof, there are no actions, suits, or proceedings seeking damages (including, compensatory, consequential, special and punitive) in excess of $5,000,000.00 for any given action, suit or proceeding pending or, to the knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to the Borrower or the Subsidiary, would have a material adverse affect on the financial condition, properties or operations of the Borrower.

(i)  Federal Reserve Regulations.  The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Board), and no part of the proceeds of the 2006 Term Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock.

(j)  Labor Disputes and Acts of God.  Neither the business nor the properties of the Borrower are affected by any fire, explosion, accident, strike, lockout, or other labor dispute, drought, flood, storm, hail, earthquake, embargo, act of God or of public enemy or other casualty (whether or not covered by insurance), materially or adversely affecting such business or properties or the operations of the Borrower.

(k)  Taxes.   The Borrower has filed all Federal and state tax returns and, to the best of its knowledge, all local tax returns required to be filed and paid all taxes shown thereon to be due, including interest and penalties,  or if such taxes are being contested in good faith by appropriate proceedings, the Borrower has set aside on its books adequate reserves with respect to such claims so contested.

(l)  Accuracy of Information. To the best of the Borrower’s knowledge, no information, exhibit, or report furnished by the Borrower to the Bank in connection with the negotiation of this Loan Agreement contained any material misstatement of fact or misstate a material fact or any fact necessary to make the statements contained therein not misleading.

(m)  ERISA.  To the best of its knowledge, the Borrower is in compliance in all material respects with all applicable provisions of ERISA; neither a Reportable Event nor a Prohibited Transaction has occurred and is continuing with respect to any Plan; no notice of intent to terminate a Plan has been filed nor has any Plan been terminated; no circumstances exist which constitute grounds under Section 4042 of ERISA entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administrate, a Plan, nor has PBGC instituted any such proceedings; the Borrower has not completely or partially withdrawn under Section 4201 or 4204 of ERISA from a Multi-Employer Plan; the Borrower has met its minimum funding requirements under ERISA with respect to all of its Plans and the present market value of all planned assets exceeds the present value of all vested benefits under each Plan as determined on the most recent valuation date of the Plan and in accordance with the provisions of ERISA and the regulations thereunder for calculating the potential liability of the Borrower to PBGC or the Plan either until Title IV of ERISA; and the Borrower has not incurred any liability to PBGC under ERISA.

(n)   Licenses and Trademarks.  To the best of its knowledge, the Borrower possesses all licenses, franchises, affiliations, copyrights, trademarks, traderights, tradenames and patent and patent rights, which are required for the conduct of its business as presently conducted without conflict with the rights of others and within the states in which the Borrower is conducting business, except to the extent that failure to possess the same could not reasonably be expected to have a Material Adverse Effect.

(o)  Solvency.  The Borrower is solvent and has not: (i) filed a petition seeking relief from any provision of any bankruptcy, reorganization, arrangement or dissolution law of any jurisdiction; (ii) made an assignment for the benefit of creditors; (iii) had a receiver, custodian, liquidator or trustee of its assets appointed by court order or otherwise; or (iv) failed to pay or admitted in writing its inability to pay debts generally as they become due.

(p)  Indebtedness.  Exhibit "D" is a complete and correct list of all credit agreements, indentures, purchase agreements, guarantees, Capital Leases, and other agreements and arrangements presently in effect providing for or relating to extensions of credit in excess of $1,000,000.00 (including agreements and arrangements for the issuance of letters of credit or for acceptance financing) as of December 31, 2005 in respect of which the Borrower is in any manner directly or contingently obligated; and the maximum principal or face amounts of the credit in question, outstanding or to be outstanding are correctly stated, and all Liens of any nature given or agreed to be given as security therefore is correctly described or indicated in such Exhibit.

(q)  Fiscal Year.  The Borrower’s Fiscal Year end as of the date of this Loan Agreement is December 31.

(r)  Foreign Person.  The Borrower is not a foreign person under and as defined in Section 1455(f)(3) of the Internal Revenue Code, or any successor provision.

(s)  Regulatory Restriction.  The Borrower is not regulated by or otherwise subject to any applicable law, rule or regulation that directly, or indirectly, limits or otherwise restricts its ability to incur, continue or repay indebtedness.

(t)   Investment Company.  The Borrower is not an investment company as defined in the Investment Company Act of 1940, as amended.

(u)  Restricted Securities.  The Borrower has good title to the Restricted Shares and is the legal record and beneficial owner of all of the Restricted Shares, free and clear of all Liens, claims and encumbrances; other than encumbrances set forth in the Lockup Letter, each and every share of the Restricted Shares is duly and validly issued and fully paid and non-assessable, and except as set forth in the Lockup Letter, there are no restrictions on the transfer of any thereof.  Except for the restrictions on transfer and/or pledge set forth in the Lockup Letter, the Borrower may sell the shares free of any restriction and/or limitation under any law, statute, rule or regulation.  After the occurrence of the Lockup Letter Restricted Period Expiration Date and either (i) delivery of Security Certificates for the Restricted Shares or (ii) entry into a Control Agr eement with respect to any Restricted Shares which are uncertificated securities, as herein provided, the Springing Pledge Agreement will constitute an Effective Pledge of the Restricted Shares to the Bank and upon delivery of possession or control of the Security Certificates evidencing the Restricted Shares to the Bank, the Bank will have a first priority perfected security interest therein.

(v)  Security Documents.  (i) The Security Documents are effective to create in favor of the Bank, a legal, valid and enforceable security interest in the Collateral described therein and proceeds thereof, upon the dates and/or occurrence of the events specified in the Security Documents.(ii)  In the case of the Restricted Shares and the Pledged Acceptable Securities described in the Security Documents, when either (i) stock certificates representing such Restricted Shares and/or Pledged Acceptable Securities are delivered to the Bank or (ii) (1) as to the Restricted Shares which are Uncertificated Securities the effectuation of one or more Control Agreements or (2) as to the Pledged Acceptable Securities which are Uncertificated Securities the designation of the Bank as the Entitlement Holder of such Pledged Acceptable Securities, the Security Documents shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Borrower and any other holder of such securities therein and the proceeds thereof, as security for the Obligations, prior and superior in right to any other Person.  

(iii)

In the case of Cash Collateral the Pledge Agreement Deposit Account shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Borrower in such collateral and the proceeds thereof, as security for the Obligations, in each case prior and superior in right to any other Person, to the extent that perfection of a security interest in such Collateral is governed by the Uniform Commercial Code.  

ARTICLE V

COVENANTS

5.01  Affirmative Covenants of the Borrower Other Than Reporting Requirements.  Until the 2006 Term Loan is paid in full, the Borrower has made the Mandatory Prepayment required by Section 2.10 and the Borrower has fulfilled all of its obligations under, this Loan Agreement, the Loan Documents, the Note and all other instruments, documents, agreements, certifications, and/or certificates at any time given to or held by the Bank in connection with the 2006 Term Loan, the Borrower will, unless the Bank shall otherwise consent in writing:

(a)  Payment of Taxes, etc.  Pay and discharge all taxes, assessments, and governmental charges or levies imposed upon the Borrower or its income or profits, upon any properties belonging to the Borrower, prior to the date on which penalties attached thereto, and all lawful claims which, if unpaid, might become a lien or charge against any of the Borrower’s properties, provided that the Borrower shall be required to pay any such tax, assessment, charge, levy, or claim, which is being contested in good faith in appropriate proceedings and for which adequate reserves have been established.

(b)   Maintenance of Insurance.  Maintain insurance in form, substance and amounts (including deductibles) (i) adequate to insure all assets and properties of the Borrower, including, but not limited to all Leasehold Improvements, which assets and properties are of a character usually insured by Persons engaged in the same or similar business as Borrower, against loss or damage resulting from fire, flood, hurricane, and other risks included in an extended coverage policy and/or (ii) against public liability and other tort claims that may be incurred or asserted against the Borrower; all with financially sound and reputable insurance companies or associations providing coverage (A) of the types usually obtained  by companies engaged in business similar to that of the Borrower, (B) in an amount reasonably acceptable to the Bank on the Borrower’s present and future proper ties normally covered by insurance (less reasonable deductibles) and (C) against such casualties, risks and contingencies as are customarily insured.

(c)  Preservation of Corporate Existence, etc.  Preserve and maintain (i) its corporate existence, and (ii) its rights, franchises and privileges in the jurisdiction of its incorporation, and qualify, and remain qualified, as a foreign corporation in each jurisdiction where such qualification is necessary or desirable in view of its business and operations or the ownership of its properties, except in the case of clause (ii), to the extent that failure to preserve and maintain the same could not reasonably be expected to have a Material Adverse Effect.

(d)  Preservation of Corporate Assets.   Maintain all of its assets and properties in good working order and condition (ordinary wear and tear excepted), making all necessary repairs thereto and renewals and replacements thereof, except to the extent that failure to maintain the same as aforesaid could not reasonably be expected to have a Material Adverse Effect.

(e)  Inspection of Records.  At any reasonable time and from time  to time, permit the Bank or any agents or representatives thereof, upon reasonable notice, subject to appropriate limitations to protect confidentiality, to examine and make copies of and abstracts from the records and books of account and visit the properties of the Borrower and to discuss the affairs, finances, and accounts of the Borrower with any of its officers or directors or with the Borrower’s accountant and/or financial advisor(s).

(f)  Keeping of Records and Books of Account.  Keep  accurate records and books of account in which complete entries will be made in accordance with GAAP consistently applied reflecting all financial transactions of the Borrower.

(g)  Payment.  Make full and timely payment of the principal, interest and premium, if any, on the Note and all other obligations of the Borrower to the Bank whether now existing or hereafter arising.

(h)  Compliance with Laws.  Comply in all material respects with all applicable laws, regulations, ordinances, rules, and orders, including Regulations U, T and X of the Board.

(i)  Compliance with ERISA.  Maintain compliance in all material respects with all applicable provisions of ERISA and the published interpretations thereunder.

(j)  Fiscal Year.  Not change its Fiscal Year end which is currently December 31, except upon a prior written notice to the Bank.

(k)  Accuracy of Information.  Not furnish any information, exhibit, or report to the Bank in writing in accordance with the terms hereof which contains any material misstatement of fact or misstates a material fact or any fact necessary to make the statements contained therein not misleading.

(l)  Use of Proceeds.  The proceeds of the 2006 Term Loan and each Advance will be used as set forth in Section 2.06.

(m)   Marketability of Restricted Shares.  On the Lockup Letter Restricted Period Expiration Date, the Borrower shall use it best efforts and shall prior to the date thereof have used its best efforts, both including, but not limited to, timely taking all actions necessary, as directed by the issuer of the Restricted Shares and/or the transfer agent therefor, so that (i) Security Certificates for Restricted Shares to be issued as Certificated Securities shall be issued or reissued free of any restriction on the marketability of such shares, including, but not limited to, the Legend and (ii) Restricted Shares to be issued as uncertificated securities shall be so issued free of any restriction on the marketability thereof, and in each case so that (x) the Borrower and (y) the Bank, upon exercise of its rights under the Springing Pledge Agreement, may sell any and all of the Restri cted Shares, without the need to take any other action, excluding the potential utilization of the services of a broker or dealer (including any affiliate of the Borrower), to sell the Restricted Shares in a sale on the principal national securities exchange or national market system on which the shares of Common Stock are then listed, admitted to trading or traded.

(n)  Effective Pledge.  On the Lockup Letter Restricted Period Expiration Date, the Borrower will (1) as to Restricted Shares to be issued or reissued as Certificated Securities (a) use it best efforts and (b) shall prior to the date thereof have used its best efforts, including, but not limited to, timely taking all actions as directed by the issuer thereof and the transfer agent therefor, to (x) achieve the issuance of any Restricted Shares to be issued or reissued as Certificated Securities free of any restriction on the marketability of such shares and (y) cause all Security Certificates for such shares upon issuance or reissuance to be delivered directly to the Bank by the transfer agent of the Common Stock or (2) as to the Restricted Shares which shall be issued or reissued as Uncertificated Securities (a) use it best efforts and (b) shall prior to the date thereof have used it s best efforts, including, but not limited to, timely taking all actions as directed by the issuer thereof or the transfer agent therefor, to (x) achieve issuance of any Restricted Shares to be issued as uncertificated securities free of any restriction on the marketability thereof and (y) the effectuation of one or more Control Agreements pursuant to which upon issuance of the Restricted Shares to be issued as uncertificated securities the Bank shall obtain control of the Restricted Shares so issued and be authorized without notice to and/or the consent of the Borrower to effectuate the Disposition thereof, and the Bank will as of such date and at all time (i) thereafter until payment in full of the Obligations under the 2006 Term Loan and the effectuation of the 2005/2004 Term Loan Mandatory Prepayment and (ii) after the occurrence of an Event of Default, have a first priority perfected security interest in and to all of the Restricted Shares.

5.02

Negative Covenants of the Borrower.  Until the 2006 Term Loan is paid in full, the Borrower has made the Mandatory Prepayment required by Section 2.10 and the Borrower has fulfilled all of its obligations under this Loan Agreement, the Loan Documents, the Note and all other instruments, documents, agreements, certifications, and/or certificates at any time given to or held by the Bank in connection with the 2006 Term Loan, the Borrower will not, directly or indirectly, without the prior written consent of the Bank:

(a)  Liens, etc.  Create, incur, assume, or suffer to exist (i) any Lien on the shares of stock of any Material Subsidiary now or hereafter owned by the Borrower or (ii) any Lien, other than Permitted Liens, on any of the properties and assets now or hereafter owned by the Borrower.

(b)  Mergers, etc.  Merge into, consolidate with, or sell, assign, or lease or otherwise dispose of (whether in one transaction or in a series of transactions) (1) all or substantially all of its properties or assets, including its account receivables (whether now owned or hereafter acquired) or (2) any portion of its properties or assets, including its account receivables (whether now owned or hereafter acquired) if the sale, assignment, lease or other disposition of any portion of such properties or assets would have a Material Adverse Effect , to any Person or dissolve, except that the Borrower may (i) merge with or consolidate with any Person so long as the Borrower is the surviving entity and that immediately thereafter and giving effect thereto, no event shall occur and be continuing which constitutes a Default or an Event of Default, (ii) sell, transfer, assign, lease or other wise dispose of its properties in the ordinary course of business for full and adequate consideration and  (iii) sell, transfer, discount, or otherwise dispose of notes, account receivables, or other rights to receive payment with or without recourse for collection in the ordinary course of its business.

(c)  Alteration of Business.  Materially alter the nature of the business of the Borrower;

(d)  Capital Structure.  Alter its capital structure except to: (i) acquire and hold treasury stocks; (ii) decrease its capital stock authorized as long as such decrease does not result in the reduction of its capital stock issued; (iii) at any time, increase but not decrease its capital stock issued; and (iv) issue preferred stock; provided that after taking any of the actions described in clauses (i) through (iv) above, the Borrower remains in compliance with the Financial Covenants.

(e)  Transactions With Affiliates and Material Subsidiaries.  Enter into any transaction, including, without limitation, the purchase, sale or exchange of property or the rendering of any service with any Affiliate, or permit any Subsidiary to enter into any transaction, including without limitation, the purchase, sale or exchange of property or the rendering of any service, with any Affiliate, except in the ordinary course of the Borrower's or such Subsidiary’s business and upon fair and reasonable terms, no less favorable to the Borrower, or such Subsidiary, as then would be obtained in a comparable arm's length transaction with a Person not an Affiliate.

(f)  Debt/Indebtedness.  Create, issue, incur, assume, become liable in respect of or suffer to exist any Indebtedness, except:

(i)

Indebtedness in respect of the 2005 Loan, the 2006 Term Loan  and/or the 2004 Loan;

(ii)

Indebtedness existing as of the Closing Date which is identified in Exhibit “D”, and refinancing of such Indebtedness;

(iii)

Indebtedness incurred in connection with the Borrower’s or any of its Subsidiary’s deferred compensation plans;

(iv)

unsecured Indebtedness (not evidenced by a note or other instrument) of the Borrower owing to a Subsidiary;

(v)

Indebtedness under Financial Contracts;

(vi)

Indebtedness under Short Term Line Financing;

(vii)

other Indebtedness of the Borrower incurred in any given Fiscal Year in an aggregate amount not to exceed $5,000,000.00 per Fiscal Year;

(viii)

any extension, renewal or refunding of any Indebtedness permitted pursuant to clauses (i) through (viii) above, provided that the principal amount of such Indebtedness immediately prior to such extension, renewal or refunding is not increased;

provided, however, that the refinancing of any Indebtedness otherwise permitted by clause (ii) shall not be assumed or otherwise incurred if a Default has occurred and is then continuing or would result therefrom.

(g)

Loan to Value.  For any period of time extending beyond 5:00 pm ET on any Business Day, permit the then current outstanding principal balance under the 2006 Term Note to exceed the sum of (i) thirty percent (30%) of the Restricted Shares Current Market Value and (ii) the sum of (a) the Pledge Acceptable Securities Collateral Amount plus (b) the Cash Collateral nor permit any Collateral Deficiency to occur and remain in existence beyond 5:00 PM on the Business Day upon which that occurrence shall first arise.

5.03  Reporting Requirements.  Until the 2006 Term Loan is paid in full and the Borrower has fulfilled all of its obligations under this Loan Agreement, the Note and all other instruments, documents, agreements, certifications, and/or certificates at any time given to or held by the Bank in connection with the 2006 Term Loan, the Borrower will, unless the Bank shall otherwise consent in writing, furnish to the Bank:

(a)  Occurrence of Event of Default.  As soon as possible, but in any event within five (5) days after (i) the occurrence of any Event of Default and/or (ii) the earlier of (a) the Borrower’s knowledge of any event resulting in or (b) the delivery or required delivery date, if earlier, of any statement pursuant to subsections 5.03 (b) and 5.03(c) evidencing, the failure of the Borrower to meet any of the Financial Covenants, a statement of the Chief Financial Officer of the Borrower, setting forth the details of such Event of Default and/or failure and the action which the Borrower proposes to take with respect thereto.

(b)  Quarterly Financial Statements.  As soon as available and in any event within (i) forty-five (45) days after the end of the Fiscal Quarter ending on March 31, 2006 (i) a copy of the Borrower’s 10-Q report filed with the Securities and Exchange Commission and (ii) a certificate of the Chief Financial Officer of the Borrower showing the calculation of each Financial Covenant.

(c)  Annual Financial Statements.  As soon as available, and in any event within ninety (90) days after the end of each Fiscal Year of the Borrower (i) a copy of the Borrower’s 10-K report filed with the Securities and Exchange Commission, (ii) a copy of the annual audit report for such year of the Borrower, including therein the Consolidated balance sheets of the Borrower as at the end of such Fiscal Year and Consolidated statements of income and retained earnings and of Consolidated cash flows of the Borrower for such Fiscal Year and the report of the Accountant, as hereinafter defined, on such financial statements/annual audit report certified by Pricewaterhouse Coopers or other independent certified public accountants of recognized standing reasonably acceptable to the Bank (the “Accountant”) together with (iii) a certificate of the Chief Financial Officer o f the Borrower, on such form as the Bank shall reasonably request, setting forth (a) the calculation of each Financial Covenant as of the end of the applicable period and (b) a statement that such officer has no knowledge and has not obtained any knowledge that a Default or an Event of Default has occurred and is continuing, or if, a Default or an Event of Default  has occurred and is continuing, a statement as to the nature thereof and the action which the Borrower proposes to take with respect thereto.

(d)  Management Letter.  A copy of any management letter received by the Borrower from its accountants, whether with respect to the Borrower and/or any Subsidiary of the Borrower;

(e)  Litigation.  Promptly after the commencement thereof, notice of all actions, suits and proceedings before any court or governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, against the Borrower or any Subsidiary of the Borrower of the type described in Section 4.01(h);

(f)  ERISA Default.  As soon as possible, and in any event within ten (10) days after any officer of the Borrower knows or has reason to know that any Reportable Event with respect to any Plan has occurred, a statement of the Chief Financial Officer of the Borrower, setting forth details as to such Reportable Event and the action with is proposed to be taken with respect thereto, together with a copy of the notice of such Reportable Event given to the PBGC and, promptly after receipt thereof, a copy of any notice the Borrower may have received from the PBGC relating to the intention of the PBGC to terminate any Plan or appoint a Trustee to administer any Plan;

(g)  Governmental Reports.  Within ten (10) days after a request therefor by the Bank, copies of any reports and forms filed with respect to all Plans under ERISA;

(h)  Other Information.  Within fifteen (15) Business Days following a request by the Bank, such other information respecting the business, properties, or the condition, financial or otherwise, of the Borrower or any Subsidiary, as the Bank from time to time may reasonably request.

(i)

Daily Compliance Certificate.  As soon as practicable and in any event prior to 10:00 am ET on each Business Day, a written report, reasonably satisfactory in form and scope to the Bank, setting forth (i) the Closing Price for the Common Stock on the immediately preceding completed Business Day, (ii) the number of Restricted Shares subject to the Negative Pledge Agreement as of 10:00 am ET on such date, (iii) after the occurrence of the Lockup Letter Restricted Period Expiration Date, the number of Restricted Shares subject to the Springing Pledge Agreement as of 10:00 am ET on such date, (iv) the Restricted Shares Current Market Value as of 5:00 PM ET on the immediately preceding Business Day, (v) the Cash Collateral on deposit in the Cash Collateral Account as of 5:00 PM ET on the immediately preceding Business Day and (vi) the outstanding principal balance under the 2006 Term Note.

SECTION 5.04.  Financial Covenants.  Until the 2006 Term Loan is paid in full and the Borrower has fulfilled all of its obligations under this Loan Agreement, the Note and all other instrument, documents, agreements, certifications, and/or certificates at any time given to or held by the Bank in connection with the 2006 Term Loan, the Borrower will, unless the Bank shall otherwise consent in advance in writing, do the following:

(a)  Operating Cash-Flow to Total Fixed Charge Ratio.  Maintain a ratio of operating cash flow to total fixed charges of not less than 1.15 to 1.00 as at the end of each fiscal quarter based on the preceding trailing twelve month period.  Operating Cash Flow is defined as (i) net income (ii) less investment gains (losses) (iii) plus proceeds from the sale of Investments consistent with GAAP, (iv) less any other non-recurring income, (v) plus interest expense (excluding interest expense in respect of Short Term Line Financing secured by marketable securities) (vi) plus depreciation (vii) plus amortization, (viii) plus Lease Expense, (ix) plus charges incurred in connection with Lease and Leasehold abandonments, (x) less Cash Dividends paid after March 31, 2005, (xi) less Income Tax Benefit , and (xii) plus income tax expense to the extent it d oes not result in a required tax payment (xiii) less results related to and charges taken by the Borrower against income for discontinued operations of the Borrower in the amount of $7,292,000.00 for the period ending June 30, 2005; $2,766,000.00 for the period ending September 30, 2005; $1,500,000.00 for the period ending December 31, 2005, and $1,500,000.00 for the period ending March 31, 2006.  Amortization is defined as (i) the amount of any expense(s) required to be recognized by the Borrower, in accordance with GAAP for any period and reflected in the Borrower’s financial statement for such period, for (a) the Borrower’s Intangible Assets, (b) the Borrower’s issuance of (1) any restricted stock, (2) notes, (3) warrants and/or (4) stock to match or fund deferred compensation obligations, (c) cost incurred in the issuance of any options, (ii) less charges taken by the Borrower against income for a given period for discontinued operation of the Borrower.  Total fixed charges are d efined as Interest Expense (excluding interest expense in respect of Short Term Line Financing secured by marketable securities) plus Lease Expense plus current maturities on Long Term Debt (without giving effect to (i) the 2005/2004 Term Loan Mandatory Prepayment, as defined in the Loan Agreement Re: $11,000,000.00 Term Loan dated March 14, 2006 by and between the Bank and the Borrower and (ii) payment of principal on the 2006 Term Loan) /current maturities on long term Capital Leases plus Maintenance CAPEX.  Maintenance CAPEX is defined as CAPEX without a corresponding debt or lease financing commitment for the twelve month period under consideration.  

(b)  Modified Total Funded Debt to EBITDAR Ratio.  Maintain a modified total Funded Indebtedness to EBITDAR ratio of (i) less than 2.00 to 1.00 as of the end of each fiscal quarter based on the preceding trailing twelve month (12) period for the periods ending December 31, 2005 and (iii) less than 1.75 to 1.00 as at the end of all other fiscal quarters based on the preceding trailing twelve (12) month periods.  Modified total Funded Indebtedness is defined as Funded Indebtedness less Short Term Line Financing secured by marketable securities. For purposes of this subsection 5.04(c), (i) EBITDAR is defined as (i) earnings before (a) interest,(b)  taxes (including, but not limited to, the provision for taxes related to discontinued operations), (c) depreciation, (d) amortization, (e) Lease Expense and (f) charges incurred in connection with Lease and Leasehold abandonment, (i i) less investment gains (losses) , (iii) plus realized gains, (iv) less realized losses (iv) plus (a) $7,292,000 for the period ending June 30, 2005, (b)  $2,766,000 for the period ending September 30, 2005, (c) $1,500,000.00 for the period ending December 31, 2005 and (d) $1,500,000 for the period ending March 31, 2006. For purposes of calculating realized gains or losses on the Borrower’s investments, realized gains and losses are defined as gross proceeds from the sale of the investment less the Borrower’s cash basis in the investment.    Amortization is defined as (a) the amount of any expense(s) required to be recognized by the Borrower, in accordance with GAAP for any period and reflected in the Borrower’s financial statement for such period, for (1) the Borrower’s Intangible Assets, (2) the Borrower’s issuance of (A) any restricted stock , (B) notes, (C) warrants and/or (D) stock to match or fund deferred compensation obligations, (3) cost incurred in the issuance of any options, (b) less charges taken by the Borrower against income for a given period for discontinued operation of the Borrower.

Notwithstanding anything to the contrary contained herein, the Borrower’s failure to meet any of the above Financial Covenants shall constitute an Event of Default only if the Borrower fails to cause the covenant violated to be brought into compliance within forty-five (45) days of the date written notice of the Borrower’s failure to meet a Financial Covenant is given to the Borrower by the Bank.

ARTICLE VI

EVENTS OF DEFAULT

SECTION 6.01.  Events of Default.  The occurrence of any of the following events shall constitute an Event of Default hereunder and under the Note and all other Loan Documents:

(a)  Non-Payment.  The failure of the Borrower to make within ten (10) days of when due, whether by acceleration, demand or otherwise, any payment of interest, principal or any other sums payable hereunder, under the Note or under any other Loan Document; provided, however, that without limiting any other provisions hereof, in no event shall “any other sums payable hereunder” as utilized in this Section 6.01(a) include or be deemed to include any mandatory prepayment of the 2006 Term Loan pursuant to Section 2.04(b)(i)(a) hereof and without limiting any other provision hereof, any failure of the Borrower to comply with the requirements of section 2.04 (b), including, but not limited to (a) the provision of a mandatory prepayment of the 2006 Term Loan pursuant to Section 2.04(b)(i) hereof and (b) the obligation of the Borrower to Cash Collateralize and/or Securities Collater alize the 2006 Term Loan pursuant to Section 2.04(b)(i) is and shall constitute the occurrence of an event set forth in Section 6.01(b) and, without limiting any other provision hereof, shall constitute an Event of Default.

(b)  Non-Performance.  The failure of the Borrower beyond any applicable cure period to otherwise fully, timely and substantially comply with the terms, covenants, conditions and provisions to be complied with by the Borrower hereunder, under the Note, under any other Loan Document (subject always with respect to Financial Covenants to the last sentence of Section 5.04);

(c)  Failure of Representation and Warranties.  Any representation or warranty made herein or in any other Loan Document or financial statement submitted to the Bank by the Borrower shall be determined to have been incorrect, false and/or misleading in any material respect when made or given;

(d)  Dissolution.  The dissolution or termination of the existence, for any reason, of the Borrower;

(e)   Default under the Loan Documents.  The occurrence of any Event of Default under the Note, the Loan Agreement, any other Loan Document;

(f)  Bankruptcy, Insolvency, Etc.  If the Borrower or any of the Material Subsidiaries should discontinue business, or if the Borrower or any of the Material Subsidiaries should (A)(i) make a general assignment for the benefit of creditors, or (ii) shall generally not, or shall be unable to, or shall admit in writing its inability to pay its debts as such debts become due, or (iii) apply for or consent to the appointment of a receiver, trustee or liquidator of all or any part of its assets, or (iv) be adjudicated bankrupt or insolvent, or (v) commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt dissolution or liquidation law or statute of any jurisdiction, whether or not now in effect, or (vi) have any such petition or application filed or any such proceeding commenced against it, or (vii) by act or omission indicate its consent to, approval of, or acquiescence in any such petition, application or proceeding, or order for relief, or the appointment of a custodian, receiver or trustee of all or substantially all of their properties, or (B) suffer or permit to continue unstayed and in effect for a period of  sixty (60) days (i) any judgment entered by any court or governmental agency against the Borrower or any one or more of the Material Subsidiaries for damages in the amount in excess of $5,000,000.00, in each instance, and/or (ii) all judgments entered by any court or governmental agency against the Borrower and/or any one or more of the Material Subsidiaries for damages in the combined amount for all such judgments in excess of $10,000,000.00;

(g)  Default with Respect to Other Indebtedness Due Bank.  The occurrence of an event of default under any other present or future Obligations due the Bank or obligations due any Qualified Equipment Lessor (as defined in the 2005 Loan Agreement) by the Borrower and/or any Subsidiary;

(h)  Invalidity of This Loan Agreement, Etc.  This Loan Agreement, the Note and/or any other Loan Document should at any time, after their respective execution and delivery, for any reason cease to be in full force and effect or shall be declared to be null and void or the validity or enforceability thereof shall be contested by the Borrower, or the Borrower shall deny that it has any further liability or obligation under this Loan Agreement, the Note or the other Loan Documents;

(i)  Default With Respect to Other Indebtedness/Material Indebtedness.  The Borrower shall fail to pay any Material Indebtedness when due and/or the Borrower shall fail to pay Indebtedness owing by the Borrower or any Subsidiary of the Borrower (without duplication) to Persons other than the Bank if the outstanding amount of such Indebtedness, including currently due and payable interest, premiums and other charges when due, whether such Indebtedness shall become due by scheduled maturity, by required prepayment, by acceleration, by 2006 Term or otherwise if the aggregate outstanding amount of all such Indebtedness is at least $1,000,000.00; or the Borrower shall fail to perform any term, covenant and agreement on its part to be performed under any agreement or instrument evidencing, securing or relating to any Material Indebtedness owed by the Borrower  to Persons other than th e Bank when required to be performed, if the effect of such failure is to accelerate or permit the holder or holders of such Material Indebtedness or the trustee or trustees under any such agreement or instrument to accelerate the maturity of such Material Indebtedness (after giving affect to all applicable cure periods), unless such failure to perform shall be waived in writing by the holder or holders of such indebtedness, or such trustee or trustees and the Bank shall have received a copy of such waiver;

(j)   Default With Respect to ERISA.  A Reportable Event shall have occurred with respect to any Plan of the Borrower and (i) the Bank is notified by the Borrower, in writing, that the Borrower has determined that such Reportable Event constitutes a reasonable ground for termination of such Plan by the PBGC or the appointment of a receiver to administer the Plan by an appropriate U.S. District Court, or (ii) such proceedings are commenced or such appointment occurs.

SECTION 6.02.  Remedies Upon Default. Upon the occurrence of any Event of Default as aforesaid the Bank, in its discretion, may take one or more of the following actions at the same or different times:

(a)  Declare the Note and all other Obligations due the Bank by the Borrower to be forthwith due and payable in full, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived;

(b)  Exercise all rights and remedies available to the Bank hereunder or any other Loan Document; and/or

(c)  Exercise any and all other rights and remedies available to the Bank, at law or in equity.

It is agreed that upon the occurrence of an Event of Default specified in Section 6.01(f)(A) hereof, the Note and all other Obligations of the Borrower to the Bank hereunder shall forthwith become due and payable automatically, all without notice, demand or protest, all of which are hereby waived.

ARTICLE VII

MISCELLANEOUS

SECTION  7.01.  No Waiver: Cumulative Remedies.  No failure or delay on the part of the Bank, or any other holder of the Note, in exercising any right, power, or remedy hereunder, under the Note or under any other Loan Document shall operate as a waiver thereof  nor shall any single or partial exercise of any such right, power, or remedy preclude any other or further exercise thereof or the exercise of any other right, power, or remedy hereunder under the Note or under any other Loan Document.  The remedies herein provided are cumulative and not exclusive of any other remedies provided by law or available in equity.  

SECTION 7.02. Amendments.  No amendment, modification, termination, or waiver of any provision of this Loan Agreement, the Note, or any other Loan Document nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Bank and (except in case of a waiver) the Borrower and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.  No notice or 2006 Term on the Borrower in any case shall entitle the Borrower to any other or further notice or 2006 Term in similar or other circumstances.

SECTION 7.03. Notices, Etc.  All notices, requests, demands, and other communications provided for hereunder shall be in writing (including email, telegraphic and telefaxed communications) and shall be sufficiently given when received or three (3) days after mailing (whichever first occurs) and, if delivered by mail, shall be sent by registered or certified mail, return receipt requested, postage prepaid, addressed to the Borrower or the Bank, as the case may be, at the addresses listed below or such other address as a party may notify the other parties of in the manner as herein required, from time to time:

To the Borrower:

FIRST ALBANY COMPANIES INC.

677 Broadway

Albany, New York 12207

Attn:  Chief Financial Officer

With a Copy to:

MILBANK, TWEED, HADLEY & McCLOY LLP

1 Chase Manhattan Plaza

New York, New York 10005

Attn: Howard Kelberg

To the Bank:

KEYBANK NATIONAL ASSOCIATION

66 South Pearl Street

Albany, New York  12207

Attention: First Albany Companies

     Richard C. VanAuken, Senior V.P.

With a copy to:

Lemery Greisler, LLC

50 Beaver Street

Albany, New York 12207

Attention: Nicholas J. Greisler, Esq.

SECTION 7.04. Costs, Expenses, and Taxes.  The Borrower agrees to pay on 2006 Term all reasonable costs and expenses of the Bank in connection with the preparation, execution, delivery, and administration of this Loan Agreement, the Note, and the other Loan Documents, including the reasonable and out-of-pocket expenses of Lemery Greisler LLC, counsel for the Bank with respect thereto, and all costs and expenses, if any, in connection with the enforcement of this Loan Agreement, the Note, and the other Loan Documents whether or not a suit or proceeding should be initiated, including those incurred in any bankruptcy or insolvency proceeding.  In addition, the Borrower shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing or recording of this Loan Agreement, the Note, and the other Loan Documents, and agrees to save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes or fees.

SECTION 7.05. Execution in Counterparts.  This Loan Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument.

SECTION 7.06. Binding Effect; Assignment.   This Loan Agreement shall be binding upon and inure to the benefit of the Borrower and the Bank, and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights and obligations hereunder, or under the Loan Documents, without the prior written consent of the Bank.

SECTION 7.07  Governing Law.  This Loan Agreement and the other Loan Documents shall, except as otherwise specifically provided, be governed by, construed and enforced in accordance with the law of the State of New York.

SECTION 7.08.  Severability of Provisions.   Any provision of this Loan Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting  the validity or enforceability of such provision in any other jurisdiction.

SECTION 7.09. Participation.  The Bank reserves the right to assign or obtain participants in the 2006 Term Loan without restrictions; provided, that any such assignment shall require the prior written consent of the Borrower (such consent not to be unreasonably withheld), and that in the case of any such participation the Bank shall retain the right to take the actions referred to in Section 7.02.  The Bank may furnish to participants and assignees (including prospective participants and assignees) any information concerning the Borrower received by the Bank from time to time pursuant to this Loan Agreement; provided that, each participant and assignee and each prospective participant and assignee shall evidence its agreement to preserve the confidentiality of Confidential Information as contemplated by Section 7.13, hereof, by executing and delivering an agreement to the retain the confidentiality of such information in the form as then used by the Bank for the acknowledgement of the confidentiality of information by participant(s), assignee(s) or prospective participant(s) or assignee(s) in connection with a participation, assignment or prospective participation or assignment by the Bank of its credit extensions.

SECTION 7.10.  Survival of Loan Agreement, Etc. All covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by the Bank of the 2006 Term Loan and the execution and delivery to the Bank of the Note and the other Loan Documents and shall continue in full force and effect so long as the 2006 Term Loan is outstanding and unpaid.

SECTION 7.11.  Waiver of Trial by Jury, Etc. THE BANK AND THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING OR COUNTERCLAIM ARISING IN CONNECTION WITH, OUT OF OR OTHERWISE RELATING TO THIS LOAN AGREEMENT, THE NOTE OR ANY OTHER LOAN DOCUMENT.  FURTHER, THE BORROWER HEREBY IRREVOCABLY SUBMITS IN ANY LEGAL PROCEEDING RELATING TO THIS LOAN AGREEMENT, THE NOTES AND ANY OTHER LOAN DOCUMENTS TO THE NON-EXCLUSIVE, IN PERSONAM JURISDICTION OF ANY NEW YORK STATE OR UNITED STATES COURT OF COMPETENT JURISDICTION SITTING IN THE STATE OF NEW YORK, COUNTY OF ALBANY AND AGREES TO SUIT BEING BROUGHT IN ANY SUCH COURT.

SECTION 7.12  Right of Setoff.  Upon the occurrence or during the continuance of any Event of Default the Bank is hereby authorized at any time and from time to time, without notice to the Borrower (any such notice being expressly waived hereby by them) to set off and apply any and all deposits (time or 2006 Term, provisional or final, but excluding Special Deposits) at any time held by the Bank and other Indebtedness at any time owing by the Bank to or for the credit or account to the Borrower against any and all of the Obligations of the Borrower now or hereinafter existing under this Loan Agreement, the Note and all other Loan Documents, or otherwise, irrespective of whether or not the Bank shall have made any 2006 Term under this Loan Agreement, the Note or any other Loan Document and although such obligation may be unmatured.  The Bank agrees to notify the Borrower after any such setoff and application provided that the failure to give such notice shall not effect the validity of such setoff and the application thereof.  The rights of the Bank under this Section are in addition to all other rights and remedies (including, without limitation, other rights of setoff) which the Bank may otherwise have.

SECTION 7.13.  Confidentiality.  The Bank will not disclose any Confidential Information to any person other than (a) its officers, directors, employees, agents, counsel, auditors and other professional advisors, (b) a proposed assigned, a proposed participant or a proposed counter party and their officers, directors, employees, agents, counsel, auditors and professional advisors, (c) the parties to any swap, securitization or derivative transaction referencing or involving rights or obligations under this Agreement or any other Loan Documents, (d) as required by any law, rule, regulation or judicial process, (e) in connection with any litigation to which the Bank is a party, (f) in connection with the exercise of any right or remedy and under this Agreement or the other Loan Documents, (g) as required by any state, Federal, foreign authority or examiner regulating banks or banking or any a spect of the Bank’s activities, provided that in each case except subparagraphs (c) and (e) the Bank uses reasonable efforts to obtain reasonable assurances that confidential treatment will be accorded to Confidential Information disclosed.  As used herein, “Confidential Information” means information that the Borrower furnishes to the Bank on a confidential basis by informing the Bank that such information is confidential and marking such information as such, but does not include any such information that (i) is not disclosed as aforesaid, (ii) is or becomes generally available to the public, or (iii) is or becomes available to such Person or Persons from a source other than the Borrower.

SECTION 7.14  Headings.  Article, Section and Paragraph headings contained in this Loan Agreement are included herein for the convenience of reference only and shall not constitute a part of this Loan Agreement for any other purpose and shall not be deemed to control or affect the meaning or interpretation of any part of this Loan Agreement.

SECTION 7.15  Additional Credit Extensions.  Nothing contained in this Agreement is intended to be an offer or commitment by the Bank to provide any credit extensions and/or loans to the Borrower in addition to the 2006 Term Loan and/or to extend the Stated Maturity Date.  The Borrower and the Bank do hereby acknowledge that the extension of the 2006 Term Loan and each Advance thereunder is at all times subject to satisfaction of the terms and provisions set forth in this Agreement or referenced herein.  It is understood and acknowledged by the Borrower that any such offer or commitment to provide funds in addition to the 2006 Term Loan would be subject to, among other things, receipt by the Bank of internal credit approvals.

SECTION 7.16  2004 Loan Agreement and 2005 Loan Agreement Amendment.  The definition of “Total Fixed Charges” as set forth in section 5.04 of each of the 2004 Loan Agreement and the 2005 Loan Agreement is hereby amended and restated as follows:

Total fixed charges are defined as Interest Expense (excluding interest expense in respect of Short Term Line Financing secured by marketable securities) plus Lease Expense plus current maturities on Long Term Debt (without giving effect to (i) the 2005/2004 Term Loan Mandatory Prepayment, as defined in the Loan Agreement Re: $11,000,000.00 Term Loan dated March 14, 2006 by and between the Bank and the Borrower and (ii) payment of principal on the 2006 Term Loan) /current maturities on long term Capital Leases plus Maintenance CAPEX.

The definition of “amortization” as set forth in section 5.04 of each of the 2004 Loan Agreement and the 2005 Loan Agreement is hereby amended and restated as follows:

Amortization is defined as (i) the amount of any expense(s) required to be recognized by the Borrower, in accordance with GAAP for any period and reflected in the Borrower’s financial statement for such period, for (a) the Borrower’s Intangible Assets, (b) the Borrower’s issuance of (1) any restricted stock, (2) notes, (3) warrants and/or (4) stock to match or fund deferred compensation obligations, (c) cost incurred in the issuance of any options, (ii) less charges taken by the Borrower against income for a given period for discontinued operation of the Borrower.

Notwithstanding anything contained herein, the terms of this Section 7.16 are not intended to and do not serve to effect a novation as to the 2004 Loan Agreement and/or the 2005 Loan Agreement.  The Borrower and the Banks expressly do not intend to extinguish the 2004 Loan Agreement and/or the 2005 Loan Agreement.  Instead, it is the express intention of the Bank and the Borrower to reaffirm the indebtedness created under the 2005 Loan Agreement (including, without limitation, the Note, as defined therein) and the indebtedness created under the 2004 Loan Agreement (including, without limitation, the Note, as defined therein) and the other documents contemplated thereby and to reaffirm the rights and obligations contained in the 2004 Loan Agreement and the 2005 Loan Agreement.  The 2004 Loan Agreement and the 2005 Loan Agreement as amended hereby and each of the Loan Documents, as defined in the 2 004 Loan Agreement or the 2005 Loan Agreement, shall remain in full force and effect.  Except as herein amended, the 2004 Loan Agreement and the 2005 Loan Agreement shall remain unchanged and in full force and effect, and each is hereby ratified in all respects.  All of the representations, warranties and covenants contained in the 2004 Loan Agreement and/or in the 2005 Loan Agreement shall survive the execution and delivery of this Loan Agreement.

SIGNATURES ON IMMEDIATELY FOLLOWING PAGE

#

IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be executed by their respective officers as of the date first above written.

BANK:

KEYBANK NATIONAL ASSOCIATION

By: S/ Richard C. VanAuken

   Richard C. VanAuken, Senior Vice President

BORROWER:

FIRST ALBANY COMPANIES INC.

By:_/s/ Paul Kutey

      Its: CFO

#

STATE OF NEW YORK

)

COUNTY OF ALBANY

)

ss0.:

On this ____ day of March, 2006, before me personally appeared Richard C. VanAuken personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

_/s/____________________________

Notary Public, State of New York

STATE OF NEW YORK

)

COUNTY OF ALBANY

)

ss.:

On this ____ day of March, 2006, before me personally appeared _____________________

personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

__/s/____________________________

Notary Public, State of New York

#

#

EX-10

Exhibit 10.35

PROMISSORY NOTE

(PRIME RATE; UNSECURED)       

$11,000,000.00

Albany, New York

March 14, 2006

FOR VALUE RECEIVED, FIRST ALBANY COMPANIES INC., a New York business corporation with its principal office and place of business at 30 South Pearl Street, Albany, New York 12207 (the "Borrower") promises to pay to the order of KEYBANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, with an office for the transaction of business at 66 South Pearl Street, Albany, New York 12207 ("KeyBank" or “Bank”) in lawful money of the United States of America the principal sum of Eleven Million  and no/100s ($11,000,000.00) Dollars), or, the aggregate unpaid principal amount of all Advances made by the Bank to the Borrower pursuant to Article II of the Loan Agreement, as hereinafter defined, if less, with interest on the unpaid principal balance of such amount from the date of this Note at th e Interest Rate hereinafter defined.  This Note evidences that certain Term Loan to be  made by KeyBank to the Borrower in a series of Advances on the Advance Dates (the “2006 Term Loan” or the “Loan”), under and pursuant to that certain Loan Agreement between the Borrower and KeyBank dated as of March 14, 2006 (the “Loan Agreement”), the terms and provisions of which are incorporated herein by reference and made a part hereof.

The holder of this Note shall set forth on a schedule to this Note or maintained on a electronic information systems/electronic record/computer maintained record, the date and original principal amount of each Advance.  The outstanding principal set forth on any such schedule or any electronic record shall be presumptive prima facie evidence of the Outstanding Principal of this Note and of all Advances made pursuant to the Credit Agreement.  No failure by the Bank to make and no error by the Bank in making any annotation on any such schedule or electronic record shall affect the Borrower’s obligation to pay the principal and interest of each and every Advance of the Term Loan or any other obligation of the Borrower to the Bank pursuant to this Note.

I. DEFINITIONS

(a) “BUSINESS DAY” means any day other than a Saturday, Sunday or other holiday on which commercial banks in New York State are authorized or required to close pursuant to the laws of the State of New York.

(b) "DEFAULT INTEREST RATE" means the Interest Rate (hereinbelow defined) plus two (2%) percent per annum.

(c) “INITIAL INTEREST PERIOD” means that period commencing on the Closing Date and ending on the last day of the calendar month in which the Closing Date occurs.

(d) "INTEREST PERIOD" means, as applicable, (i) the Initial Interest Period and (ii) each Calendar Month thereafter.  Notwithstanding the foregoing, each Interest Period that would otherwise end on a day that is not a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day).

(e) “INTEREST RATE” means a variable rate of interest equal to one percent (1%) in excess of the Prime Rate.  Any change in the Interest Rate shall be effective immediately from and after such change in the Prime Rate.

(f)

“PRIME RATE” means .that interest rate established from time to time by the Bank as the Bank’s Prime Rate, whether or not such rate is publicly announced; the Prime Rate may not be the lowest interest rate charged by the Bank for commercial or other extensions of credit.

(g)

"LOAN DOCUMENTS" means this Note, the Loan Agreement, the Springing Pledge Agreement, the Negative Pledge Agreement, the Acceptable Securities Pledge Agreement, the Pledge Agreement Deposit Account and all other instruments, documents, agreements, certifications, and/or certificates at any time given to or held by the Bank in connection with this Note and the obligations hereunder .

(h)

"MATURITY DATE" means the Stated Maturity Date, or such earlier date the Bank exercises its right to accelerate the 2006 Term Loan as provided in the Loan Agreement and in the other Loan Documents.

(i)

“STATED MATURITY DATE” means June 15, 2006.  All Capitalized Terms used herein and not defined herein shall have that meaning ascribed to such term in the Loan Agreement.

II.  INTEREST

(a)

COMPUTATION OF INTEREST.  Interest on the outstanding principal balance of this Note shall be computed on the basis of a 360-day year for the actual number of days elapsed.  Interest shall accrue until payment is made.

(b)

IMPLEMENTATION OF DEFAULT INTEREST RATE.  Any principal amount not paid when due (whether by demand, acceleration or otherwise)  shall bear interest thereafter until paid in full, at the Default Interest Rate without notice to the Borrower or further action by KeyBank.

(c)

PERIODIC CHANGE IN INTEREST RATE.  Any change in the Prime Rate shall automatically and simultaneously affect a corresponding change in the Interest Rate without notice to Borrower or further action by the Bank.

III.  PAYMENT OF INTEREST AND PRINCIPAL

(a)

INTEREST PAYMENTS.  The Borrower shall pay interest at the Interest Rate on the unpaid principal balance due under this Note on the first day of each Interest Period commencing on the first day of the first Interest Period immediately following the date of this Note and continuing on the first day of each and every Interest Period thereafter until the Maturity Date.

(b)

PAYMENTS OF PRINCIPAL AND INTEREST .  The Borrower shall make payments of principal and Interest as follows:

(i)

An amount equal to fifty percent (50%) of all Net Proceeds from any Restricted Share Sale occurring prior to the Maturity Date and as long as no Event of Default has occurred and is continuing, payable on the Business Day immediately following the receipt of any such Net Proceeds;

(ii)

An amount equal to the applicable Collateral Deficiency payable on the first Business Day of each Collateral Deficiency Occurrence if the Borrower shall fail to either Cash Collateralize or Securities Collateralize such Collateral Deficiency; and

(iii)

The entire outstanding principal balance, all accrued and unpaid interest and all other charges due under the Loan Agreement and under any other of the Loan Documents shall become immediately due and payable in full on the Maturity Date.

IV

DEFAULT

(a)

EVENTS OF DEFAULT.

The Borrower shall be considered in default under this Note and all other Loan Documents upon the occurrence of any one or more of the following events, herein sometimes referred to as events of default:

(i) The failure of the Borrower to pay within ten (10) days of when due, whether by acceleration, demand or otherwise, any principal, interest, or any other charge due hereunder, under any other Loan Document or under any Qualified Lease Agreement (as defined in the 2005 Loan Agreement); or

(ii)  The occurrence of any Event of Default as set forth in the Loan Agreement or any other Loan Document.

(b)

CURE PERIOD WITH RESPECT TO FINANCIAL COVENANTS.  Notwithstanding anything to the contrary contained herein, the Borrower’s failure to meet any Financial Covenants contained in Section 5.04 of the Loan Agreement shall constitute an Event of Default only if the Borrower fails to cause the covenant violated to be brought into compliance within forty-five (45) days of the date written notice of the Borrower’s failure to meet the financial covenant is given to the Borrower by KeyBank.

(c)

RIGHTS ON DEFAULT.

Upon the occurrence of an Event of Default, KeyBank may in its discretion:

(i)

Declare this Note and all other obligations due KeyBank by the Borrower to be forthwith due and payable in full without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived;

(ii)

Exercise all rights and remedies to KeyBank hereunder, under the Loan Agreement and under all other Loan Documents; and/or

(iii)

Exercise any and all other rights and remedies available to KeyBank, at law or in equity.

It is agreed that upon an Event of Default as specified in Section 6.01(f) of the Loan Agreement, this Note and all other obligations of the Borrower to KeyBank shall forthwith become due and payable automatically, all without notice, demand or protest, all of which are hereby waived.

V

GENERAL CONDITIONS

(a)

METHOD OF PAYMENT.  All payments due under this Note are payable at 66 South Pearl Street, Albany, New York 12207, or at such other place as KeyBank shall notify Borrower in writing.  KeyBank reserves the right to require any payment on this Note, whether such payment is of a regular installment or represents a prepayment, to be by wired federal funds or other immediately available funds or to be paid at a place other than the above address. Whenever any payment to be made under this Note shall be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day, and any extension of time shall, in such case, be included in the computation of the payment of Interest.

(b)

APPLICATION OF PAYMENTS RECEIVED.  Except as may otherwise be provided in this Note, all payments received by KeyBank on this Note shall be applied by KeyBank to any unpaid Late Payment Charges (hereinbelow defined) and other charges due hereunder and under the other Loan Documents, accrued and unpaid interest then due and owing and the reduction of principal due on this Note, in such order and in such amounts as KeyBank may determine from time to time.

(c)

LATE PAYMENT CHARGES.  If Borrower fails to pay any amount of principal and/or interest on this Note for ten (10) days after such payment becomes due, whether by acceleration, demand or otherwise, KeyBank may, at its option, whether immediately or at the time of final payment of the amounts evidenced by this Note, impose a late payment charge (the "Late Payment Charge") computed by multiplying the amount of each past due payment by five (5%) percent.  Until any and all Late Payment Charges are paid in full, the amount thereof shall be added to the indebtedness secured by all of the Loan Documents.  The Late Payment Charge is not a penalty and is deemed to be liquidated damages for the purpose of compensating KeyBank for the difficulty in computing the actual amount of damages incurred by KeyBank as a result of the late payment by Borrower.

(d)

PREPAYMENT. The Borrower may, upon at least five (5) Business Days' notice to KeyBank, prepay this Note in whole or in part with accrued interest to the date of such prepayment on the amount prepaid without penalty or premium, provided, that each partial prepayment shall be in a principal amount of not less than Fifty Thousand Dollars ($50,000.00) and the Borrower pays to KeyBank any and all other fees and charges then due hereunder and under the other Loan Documents in connection with such prepayment.  All partial prepayments, including, but not limited to prepayments pursuant to Section III(b)(iii) of this Note shall be applied to principal in the inverse order of maturity.  Without limiting the foregoing, if this Note is prepaid on any day other than the last day of an Interest Period applicable thereto, the Borrower shall also pay to KeyBank any loss or expense that KeyBank may sustain or incur as a consequ ence of a default by the Borrower in making any prepayment of the Note after the Borrower has given a notice thereof to KeyBank in accordance with the provision of the Loan Agreement  A statement as to any amount payable pursuant to this Section V(d) submitted to the Borrower by KeyBank shall be conclusive in the absence of manifest error.  This provision shall survive the payment in full of the Note.

(e)

COSTS AND EXPENSES.  If this Note, or any other Loan Document is placed with an attorney for collection or enforcement, the Borrower agrees that KeyBank shall be entitled to collect from and the Borrower shall pay all costs of collection or enforcement, including, but not limited to, reasonable attorneys' fees, incurred in connection with the protection or realization of collateral or in connection with any of KeyBank's collection or enforcement efforts, whether or not a suit or proceeding is commenced, and all such costs and expenses shall be payable on demand and until paid shall also be secured by the Loan Documents and by all other collateral held by KeyBank as security for Borrower's obligations to KeyBank hereunder and under the other Loan Documents.

(f)

NO WAIVER BY KEYBANK.  No failure by any guarantor of the Loan to make any payments shall be deemed a waiver or release of Borrower's obligations hereunder.  No failure on the part of KeyBank or other holder hereof to exercise any right or remedy hereunder, whether before or after the happening of a default, shall constitute a waiver thereof, and no waiver of any past default shall constitute waiver of any future default or of any other default.  No failure to accelerate the Loan evidenced hereby by reason of default hereunder, or acceptance of a past due installment, or indulgence granted from time to time shall be construed to be a waiver of the right to insist upon prompt payment thereafter, or shall be deemed to be a novation of this Note or as a reinstatement of the Loan evidenced hereby or as a waiver of such right of acceleration or any other right, or be construed so as to preclude the exercise of any right which KeyBank may have, whether by the laws of the state governing this Note, by agreement or otherwise; and Borrower and each endorser or guarantor hereby expressly waive the benefit of any statute or rule of law or equity which would produce a result contrary to or in conflict with the foregoing.  This Note may not be changed orally, but only by an agreement in writing signed by the party against whom such agreement is sought to be enforced.

(g)

WAIVER BY BORROWER.  Borrower and each endorser or guarantor of this Note hereby waives presentment, protest, demand, diligence, notice of dishonor and of nonpayment, and waives and renounces all rights to the benefits of any statute of limitations and any moratorium, appraisement, exemption and homestead now provided or which may hereafter be provided by any federal or state statute, including but not limited to exemptions provided by or allowed under the Bankruptcy Code of 1978, both as to itself personally and as to all of its or their property, whether real or personal, against the enforcement and collection of the obligations evidenced by this Note and any and all extensions, renewals and modifications hereof.

(h)

COMPLIANCE WITH USURY LAWS.  It is the intention of the parties to conform strictly to the usury laws, whether state or federal, that are applicable to this Note.  All agreements between Borrower and KeyBank, whether now existing or hereafter arising and whether oral or written, are hereby expressly limited so that in no contingency or event whatsoever, whether by acceleration of maturity hereof or otherwise, shall the amount paid or agreed to be paid to KeyBank or the holder hereof, or collected by KeyBank or such holder, for the use, forbearance or detention of the money to be loaned hereunder or otherwise, or for the payment or performance of any covenant or obligation contained herein, or in any of the Loan Documents, exceed the maximum amount permissible under applicable federal or state usury laws.  If under any circumstances whatsoever fulfillment of any provision hereof or of the Loan Documents, at the time performance of such provision shall be due, shall involve exceeding the limit of validity prescribed by law, then the obligation to be fulfilled shall be reduced to the limit of such validity; and if under any circumstances KeyBank or other holder hereof shall ever receive an amount deemed interest by applicable law, which would exceed the highest lawful rate, such amount that would be excessive interest under applicable usury laws shall be applied to the reduction of the principal amount owing hereunder or to other indebtedness secured by the Loan Documents and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal and such other indebtedness, the excess shall be deemed to have been a payment made by mistake and shall be refunded to Borrower or to any other person making such payment on Borrower's behalf.  All sums paid or agreed to be paid to the holder hereof for the use, forbearance or detention of the indebtedness of Borrower evidenced hereby , outstanding from time to time shall, to the extent permitted by applicable law, and to the extent necessary to preclude exceeding the limit of validity prescribed by law, be amortized, pro-rated, allocated and spread from the date of disbursement of the proceeds of this Note until payment in full of the Loan evidenced hereby and thereby so that the actual rate of interest on account of such indebtedness is uniform throughout the term hereof and thereof.  The terms and provisions of this paragraph shall control and supersede every other provision of all agreements between Borrower, any endorser or guarantor and KeyBank.

(i)

GOVERNING LAW; SUBMISSION TO JURISDICTION.  THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK.  BORROWER AND EACH ENDORSER OR GUARANTOR HEREBY SUBMITS TO PERSONAL JURISDICTION IN SAID STATE FOR THE ENFORCEMENT OF BORROWER'S OBLIGATIONS HEREUNDER OR UNDER ANY OTHER LOAN DOCUMENT AND WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAW OF ANY OTHER STATE TO OBJECT TO JURISDICTION WITHIN SUCH STATE FOR THE PURPOSES OF LITIGATION TO ENFORCE SUCH OBLIGATIONS OF BORROWER.

(j)

WAIVER OF JURY TRIAL.  KEYBANK AND THE BORROWER HEREBY WAIVE TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS NOTE, ANY OTHER LOAN DOCUMENT OR THE LOAN, OR ANY INSTRUMENT OR DOCUMENT DELIVERED IN CONNECTION WITH THE LOAN, OR THE VALIDITY, PERFECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING BETWEEN THE BORROWER AND KEYBANK.

(k)

NOTICES, Etc.  All notices, requests, demands, and other communications provided for hereunder shall be in writing (including email, telegraphic and telefaxed communications) and shall be sufficiently given when received or three (3) days after mailing (whichever first occurs) and, if delivered by mail, shall be sent by registered or certified mail, return receipt requested, postage prepaid, addressed to the Borrower or the Bank, as the case may be, at the addresses listed below or such other address as a party may notify the other parties of in the manner as herein required, from time to time:

To the Borrower:

FIRST ALBANY COMPANIES INC.

677 Broadway

Albany, New York 12207

Attn:  Chief Financial Officer

With a Copy to:

MILBANK, TWEED, HADLEY & McCLOY LLP

1 Chase Manhattan Plaza

New York, New York 10005

Attn: Howard Kelberg

To the Bank:

KEYBANK NATIONAL ASSOCIATION

66 South Pearl Street

Albany, New York  12207

Attention: First Albany Companies

     Richard C. VanAuken, Senior V.P.

With a copy to:

Lemery Greisler, LLC

50 Beaver Street

Albany, New York 12207

Attention: Nicholas J. Greisler, Esq.

(l)

LIABILITY IF MORE THAN ONE BORROWER.  If more than one person or entity executes this Note as a Borrower, all of said persons or entities are jointly and severally liable hereunder.  Further, if more than one person executes this Note or the word “Borrower” may be read as “Borrowers” where applicable.  Additionally, it is agreed that the term “Borrower” or “Borrowers” when used herein shall include the respective heirs, successors and permitted assigns of the Borrower or Borrowers, as the case may be.

(m)

ENTIRE AGREEMENT.  This Note and the other Loan Documents constitute the entire understanding between Borrower and KeyBank with respect to the Loan and to the extent that any writings not signed by KeyBank or oral statements or conversations at any time made or had shall be inconsistent with the provisions of this Note and the other Loan Documents, the same shall be null and void.

(n)  PARAGRAPH HEADINGS.  The paragraph headings contained herein are for convenience in reference only and shall not be deemed to control or affect the meaning or interpretation of any paragraph or provision of this Note.

IN WITNESS WHEREOF, Borrower has executed this instrument the date first above written.

FIRST ALBANY COMPANIES INC.

By: /s/ Paul Kutey

_____________________

STATE OF NEW YORK  )

COUNTY OF ALBANY   )  ss.:

On this     day of March, 2006, before me, the undersigned, personally appeared ________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

    /s/                                                    

Notary Public-State of New York

EX-10

Exhibit 10.36

ACCEPTABLE SECURITES

PLEDGE AND SECURITY AGREEMENT

This Acceptable Securities Pledge and Security Agreement (the "Pledge Agreement") dated as of March 14, 2006, by and between FIRST ALBANY COMPANIES INC., a New York corporation, with its principal office and place of business as of the date hereof at 677 Broadway, Albany, New York 12207 (the "Borrower" or “Pledgor”), and KEYBANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, with an office for the transaction of business as of the date hereof at 66 South Pearl Street, Albany, New York, 12207 (the "Bank" and “Pledgee”).

W  I  T  N  E  S  S  E  T  H :

WHEREAS, as of the date hereof Pledgor and Pledgee have entered into that certain Loan Agreement Re: $11,000,000.00 Term Loan (the “Loan Agreement”) pursuant to the terms of which Pledgor has agreed in the event of a Collateral Deficiency Deposit achieved in whole or in part by the Effective Pledge of Acceptable Securities to consummate an Effective Pledge of Acceptable Securities to the Bank; and

WHEREAS, pursuant to the Loan Agreement, Pledgee has established a Term Loan in an amount up to the 2006 Term Loan Commitment Amount available to the Pledgor (the “Loan”) and make advances thereunder; and

WHEREAS, Pledgee is willing to extend such financing, but only on the condition, among others, that Pledgor shall first have executed and delivered to Pledgee this Pledge and Security Agreement.

NOW, THEREFORE, in consideration of such financing and for other good and valuable consideration exchanged between the parties hereto, the receipt and sufficiency of which is hereby acknowledged, Pledgor and Pledgee agree as follows:

1.

Defined Terms.   Unless otherwise defined herein, terms defined in the Loan Agreement shall have that meanings ascribed therein.

2.

Pledge and Delivery.

(a)

To secure the prompt and complete payment and performance of (i) all Obligations, as defined in the Loan Agreement, including, but not limited to all obligations and/or indebtedness due under or evidenced or contemplated by the Loan Documents, the 2006 Term Note, the “loan documents” as defined in the 2004 Loan Agreement, the “loan documents” as defined in the 2005 Loan Agreement, the 2005/2004 Term Loan Mandatory Prepayment, and all modifications, extensions, renewals and replacements thereof; (ii) every liability, now or hereinafter owing to Bank by Borrower under and pursuant to those credit facilities (the "Credit Facilities”) established for the Borrower by the Bank under and pursuant to the Loan Agreement, the 2005 Loan Agreement and/or the 2004 Loan Agreement, and all amendments, modifications, renewals and replacements of the foregoing; (iii) every other liability, now or hereafter owing to Bank by Borrower, including, without limitation, every liability, whether owing by only Borrower or by Borrower with one or more others in a several, joint or joint and several capacity, whether owing absolutely or contingently, whether created by note, overdraft, guaranty of payment or other contract or by a quasi-contract, tort, statute or other operation of law, whether incurred directly to Bank or acquired by Bank by purchase, pledge or otherwise and whether participated to or from Bank in whole or in part; (iv) all costs and expenses, including attorneys’ fees, incurred by Bank in connection with the collection of any portion of the indebtedness described in (i) and (ii) hereof; and (v) the payment of all other sums, with interest thereon, advanced in accordance with the terms of this Agreement, the Loan Agreement and all other documents, instruments and agreements held by the Bank in connection with the Obligations and/or pursuant to the terms of the “loan documents 8;, as defined in the Loan Agreement, the 2005 Loan Agreement or the 2004 Loan Agreement, to protect the security of this Agreement and the performance of the covenants and agreements of Borrower contained in this Agreement and the other Loan Documents (the obligations referenced or encompassed within (i) – (v) are referred to herein as the “Secured Obligations”), Pledgor hereby pledges and grants Pledgee a continuing first priority security interest in any and all Pledged Acceptable Securities, together with all proceeds of such Pledged Acceptable Securities (to include all dividends, interest payments, other distributions of any kind whatsoever payable thereunder) and any securities or other property at any time and from time to time receivable or otherwise distributed in respect of or in exchange for any or all instruments or writings representing them (such shares, certificates and other writings and all proceeds being hereinafter collectively called the “Pledged Securities”). &n bsp;Contemporaneously with the delivery of Security Certificates to the Bank for any Pledged Securities issued as Certificated Securities and/or the identification to the Bank of (i) such Acceptable Securities or (ii) any Securities Entitlements for any Acceptable Securities not issued to the Borrower as Certificated Securities, the Pledgee shall execute and deliver an Pledge Acknowledgement in the form attached hereto as Exhibit “A” specifically referencing such Pledged Acceptable Securities (the “Pledge Acknowledgement”).  Without limiting any provision hereof (i) any Security Certificate for any Acceptable Security delivered by or caused to be delivered by the Pledgor to the Pledgee or any representative of the Pledgee and (ii) any Securities Entitlements constituting Acceptable Pledged Securities for which the Pledgee shall be designated as the Entitlement Holder, shall constitute Pledged Acceptable Securities and shall be deemed and shall constitute Pledged Securities hereunder.

(b)

On each Collateral Deficiency Makeup Date upon which the Borrower shall made a collateral deficiency deposit of Acceptable Securities (the “Pledged Securities Delivery Date”), the Pledgor shall either (i) deliver to Pledgee or its representatives the Security Certificate(s) and/or other instruments and documents evidencing all of the Pledged Securities deposited on that date (which are issued as Certificated Securities) and a Pledge Acknowledgement specifically referencing and identifying the Pledged Securities referenced in such Pledge Acknowledgement or (ii) establish the Bank as the Entitlement Holder of all Pledged Acceptable Securities deposited on that date which are not issued as Certificated Securities.  Security Certificates representing the Pledged Securities issued as Certificated Securities shall be delivered to the Bank accompanied by undated, duly executed transfer powers endor sed by Pledgor in blank, signature guarantee and by such other instruments or documents as Pledgee or its counsel shall reasonably request.

(c)

From time to time as required by Section 2.11 of the Loan Agreement, Pledgee shall transfer certain of the Pledged Securities to Pledgor in connection with an Excess Collateral Amount Event as and when specified in Section 2.11 of the Loan Agreement.  Upon such Transfer by the Pledgee to the Pledgor, the Pledged Securities so transferred shall no longer be Pledged Securities, the pledge and security interest contemplated hereby shall terminate as to such transferred Pledged Securities and the Pledgee shall have no rights whatsoever with respect to the Pledged Securities transferred to the Pledgor pursuant to section 2.11 of the Loan Agreement.

3.

Pledgor’s Representations, Warranties and Covenants.

(a)

Pledgor represents, warrants and covenants that (i) Pledgor has the right, power and authority to execute, deliver and perform this Pledge Agreement and to pledge, assign, deliver, transfer and grant a security interest in the Pledged Securities as of each Pledged Securities Delivery Date; (ii) when executed and delivered by Pledgor, this Pledge Agreement will be a legal, valid and binding obligation of Pledgor, enforceable in accordance with its terms; (iii) Pledgor as of each Pledged Securities Delivery Date shall have good title to the Pledged Securities (and shall be the legal record and beneficial owner of each of the Pledged Securities), free and clear of all encumbrances; (iv) each of the Pledged Securities shall be duly and validly issued and fully paid and non-assessable, and there shall be no restrictions on the transfer of any thereof; and (v) no action other than the delivery of each item of th e Pledged Securities to, and its continued possession or control by, Pledgee or any of its agents or nominees is necessary to maintain a perfected, first-priority security interest in such Pledged Securities in favor of Pledgee.

(b)

Pledgor covenants and agrees that (i) it will at its expense defend both its own rights and interests and Pledgee’s rights and security interest in and to the Pledged Securities against the claims and demands of all other persons; and (ii) it will do such acts and execute and/or deliver to Pledgee such further conveyances, agreements, assignments, legal opinions, instruments and other writings, and will obtain all such governmental consents and corporate approvals and will take such further action, as Pledgee may request from time to time in order to obtain the full benefit of this Pledge Agreement, the Pledged Securities, and the rights, powers and remedies granted to Pledgee hereunder.  Pledgor further covenants and agrees that until this Pledge Agreement has been terminated, Pledgor will not, except (x) for Pledged Securities transferred to the Borrower pursuant to 2(c) hereof or (y) without t he prior written consent of the Pledgee, sell, assign, transfer, exchange or otherwise temporarily or permanently dispose of any of the Pledged Securities, or offer or contract to do so, and will not without such consent create, incur, assume or permit to exist any security interest, pledge, claim or other charge or encumbrance on or with respect to any such item other than the security interest granted to Pledgee hereunder.

4.

Names in which Pledged Securities May be Registered Denominations.  At any time following the occurrence of an Event of Default and from time to time thereafter, (i) Pledgee shall have the right (in its sole and absolute discretion) to hold any and all of the Pledged Securities issued as Certificated Securities in its own name, the name (s) of one or more of its nominees or the name of Pledgor endorsed or assigned in blank or in favor of Pledgee, (ii) with respect to any of the Pledged Securities issued as Certificated Securities which Pledgee wishes to hold in its name or the name of any nominee, Pledgee (acting in its own name and capacity or as Pledgor’s attorney-in-fact pursuant to the power of attorney granted to Pledgee in Section 6 hereof) may have such Pledged Securities registered accordingly on the books of the issuer (s) thereof, and Pledgor shall cooperate fully with Pledgee in causing such issuer (s) to effect such transfer and registration and (iii) Pledgee shall have the right to exchange the certificates representing the Pledged Securities issued as Certificated Securities for certificates of smaller or larger denominations for any purpose consistent with this Pledge Agreement.

5.

 Rights, Payments, Etc.

All cash dividends, principal and/or interest payment or other distributions of any kind whatsoever received by the Pledgor, whether resulting from a subdivision, combination, or reclassification of any of the Pledged or received in exchange for Pledged Securities or any part thereof or as a result of any merger, consolidation, acquisition or otherwise, shall be and become part of the Pledged Securities pledged hereunder and shall immediately be delivered to the Pledgee to be held subject to the terms hereof or if dividends, payments or distribution as money such dividends, payments and/or distributions shall be delivered to the Pledgee to be held by the Bank as Cash Collateral pursuant to the Loan Agreement and the Pledge Agreement (Deposit Account).  Any and all money and other property received by Pledgor contrary to the provisions of this Section 5 shall be held by Pledgor in trust for Pledgee, sha ll be segregated by Pledgor from Pledgor’s other funds and property and shall promptly be delivered to Pledgee in exactly the form received by Pledgor, except for any necessary endorsements.

6.

 Pledgee Appointed as Pledgor’s Attorney-in-Fact.  Pledgor hereby appoints Pledgee as Pledgor’s attorney-in-fact with full power in Pledgor’s place and stead, in Pledgor’s name or its own name and at Pledgor’s expense, to execute, endorse and deliver any and all agreements, assignments, pledges, instruments and any other writings, and to take any and all other actions, which Pledgee may deem necessary or desirable to carry out the terms and effect the purposes of this Pledge Agreement and to exercise fully its rights and remedies hereunder.  Pledgee may delegate any and all of such power to any of its officers. directors, employees, agents, nominees and other representatives, including, but not limited to the Institution under the Control Agreement (hereinafter collectively called “Representatives”) and to have any such Representative (s) exercise any such delegated power as substitute (s) for Pledgee.  Pledgor hereby ratifies all that Pledgee and all such Representatives shall lawfully do or cause to be done under this power of attorney, which power is coupled with an interest and shall be irrevocable until this Pledge Agreement have been terminated.

7.

Pledgee’s Rights to Perform for Pledgor.  If Pledgor shall at any time fail to perform or comply with any of its covenants and agreements hereunder, Pledgee may (but shall not be required or obligated to) take such action, in its own name and capacity or as Pledgor’s attorney-in-fact, as Pledgee shall deem necessary or desirable to effect such performance or compliance.

8.

Limitation of Pledgee’s Liability; Reimbursement of Expenses.

(a)

Pledgor agrees that Pledgee shall have no obligation to take, or refrain from taking, any action with respect to the Pledged Securities or Pledgor’s rights and interests therein except with respect to the preservation and return of the Pledged Securities in its possession as and to the extent provided, respectively, in Section 17 hereof and in accordance with Section 2(c) hereof.  Pledgor further agrees that neither Pledgee not any of its Representatives shall have any liability to Pledgor, or to any person claiming rights against Pledgee by, through or under Pledgor, in any way arising out of or in connection with Pledgee’s or any such Representative’s administration of this Pledge Agreement or its exercise of any if its rights, power and remedies hereunder except for (i) Pledgee’s or any such Representative’s failure to take, within ten (10) days after written notice from th e Pledgor, any of the actions referenced in the first sentence of this Section 8(a), or (ii) its failure to exercise reasonable care in the physical custody of the Pledged Securities, or (iii) its gross negligence or willful misconduct.

(b)

Pledgor shall pay or reimburse Pledgee on demand for all costs and expenses (including without limitation reasonable attorneys’ fees and expenses) paid or incurred by Pledgee in connection with (i) the administration of this Pledge Agreement, (ii) the custody or preservation of the Pledged Securities and any authorized collection from, disposition of or other realization on any item (s) thereof, and (iii) the exercise and enforcement of any of Pledgee’s rights, powers and remedies hereunder, including without limitation its right to perform Pledgor’s covenants and agreements hereunder to the extent Pledgor fails to do so.  Until any reimbursement of costs or expenses required under this Section 8 is received by Pledgee in cash or immediately available funds, the amount thereof shall bear interest at the rate specified in the Note for delinquent payments, and such amount and such interes t shall constitute part of the obligations secured by the Pledged Securities.

9.

Default.  The Pledgor shall be in default hereunder upon the Pledgor’s failure to timely do all things required to be done by it hereunder, or upon the occurrence of any Event of Default as set forth in the Loan Agreement.

10.

Remedies.

(a)

If an Event of Default has occurred and is continuing, Pledgee may at any time and from time to time exercise any and all rights and remedies available to it (i) hereunder,  and under the Loan Agreement or any other Loan Document, including without limitation those rights and remedies set out in subsections (b) through (f) of this Section 10, and (ii) as a Bank under the Uniform Commercial Code as then in effect in the State of New York (the “Code”) and under any other applicable law or rule of law or equity.  Should Pledgee elect to proceed by action at law or in equity to foreclose its security interest in and sell any or all of the Pledged Securities, Pledgor waives (to the extent permitted by law) any rights it may then have in connection therewith to require Pledgee to post bonds, sureties or collateral security, to demand possession of any such Pledged Securities pending judgment therein or to exercise any rights of redemption.

(b)

To the extent permitted by applicable federal and state securities laws, Pledgee may sell, assign, transfer, endorse and deliver all or, from time to time any part, of the Pledged Securities at public or private sale, over the counter or at any broker’s board or securities exchange, for cash, on credit or in exchange for other property, for immediate or future delivery, without advertisement or notice (except as provided in this subsection), and for such price and on such terms as Pledgee deems appropriate subject to the terms hereof or as otherwise provided in the Code or any other applicable law.  Any person may be the purchaser of all or any portion of the Pledged Securities sold and thereafter hold the same absolutely free from any claim or right of whatever kind, including any equity of redemption of Pledgor; any such demand, notice, claim, right or equity being hereby expressly waived and r eleased.  Pledgor agrees that to the extent notice of the time and place of any such public sale, or of the time after which Pledgee intends to make any such private sale or other disposition, is required under the Code, such notice shall be deemed commercially reasonable if transmitted by any of the means described in the Loan Agreement not less than 10 days prior thereto.  Pledgee shall not be obligated to effect any sale of any or all of the Pledged Securities, whether or not notice thereof has been given, and may adjourn any public or private sale from time to time by announcement at the time and place fixed for such sale, and such sale may be held without further notice at the time and place to which it was so adjourned.

(c)

At any such private or public sale, Pledgee shall be entitled to bid for and/or purchase the Pledged Securities then being sold and may pay the price thereof by credit against the obligations secured hereby then outstanding.  Any purchaser of any item (s) of the Pledged Securities (including Pledgee) shall take such item (s) free from any right or claim of Pledgor, and Pledgor hereby waives, to the extend permitted by the Code and other applicable law, all rights of redemption and/or to any stay, exemption or appraisal which Pledgor now has or may hereafter acquire.

(d)

In the case of any sale by the Pledgee of any of the Pledges Shares on credit or for future delivery, such Pledged Securities may be retained by the Pledgee until the selling price is paid by the purchaser(s) thereof, but the Pledgee shall incur no liability in case of failure of the purchaser to take up and pay for such item(s).  In case of any such failure, such item(s) may be sold again upon notice, to the extent required by law, as provided in subsection (b) of this Section 10.

(e)

The proceeds of the sale or other disposition of the Pledged Securities shall be applied: (i) first to all costs and expenses including reasonable attorneys fees, incurred by the Pledgee in exercising its rights hereunder, under the Note and under the other Loan Documents and in  preparing for and disposing of the Pledged Securities, whether or not any action or proceeding is commenced, including those incurred in any bankruptcy or insolvency proceeding, (ii) second to the payment of any late charges and accrued and unpaid interest, and (iii) third to the principal due under the Note and the other obligations secured hereby, including, but not limited to the Secured Obligations.  Any surplus shall be paid to the Pledgor, and the Pledgor shall remain liable for any deficiency.

11.

Marshalling.  The Pledgee shall not be required to marshall any present or future security for (including but not limited to this Pledge Agreement and the Pledged Securities pledged hereunder), or guaranties of, the obligations secured hereby or any of them, or to resort to such security or guaranties in any particular order; and all of its rights hereunder and in respect of such securities and guaranties shall be cumulative and in addition to all other rights, however existing or arising.  To the extent that it lawfully may, the Pledgor hereby agrees that it will not invoke any law relating to the marshalling of collateral which might cause delay in or impede the enforcement of the Pledgee’s rights under this Pledge Agreement or under any other instrument evidencing any of the obligations secured hereby or under which any of the obligations secured hereby are outstanding or by which a ny of the obligations secured hereby are secured or guaranteed, and to the extent that it lawfully may the Pledgor hereby irrevocably waives the benefits of all such laws.

12.

Pledgor’s Obligations Not Affected.  The obligations of the Pledgor hereunder shall remain in full force and effect without regard to, and shall not be impaired by: (a) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of the Pledgor; (b) any exercise or non-exercise, or any waiver, by the Pledgee of any right, remedy, power or privilege under or in respect of any of the obligations secured hereby or any security thereof (including this Pledge Agreement); (c) any amendment to or modification of any instrument or agreement evidencing or securing any of the obligations secured hereby; or (d) the taking of additional security for, or any guaranty of, any of the obligations secured hereby or the release or discharge or termination of any security or guaranty for any of the obligations secured hereby, whether or not the Pledgor shall have notice or knowledge of any of the foregoing.

13.

Pro-Rate Security.  All amounts owing with respect to the obligations secured hereby shall be equally and ratably secured by, and proportionately entitled to the benefits of, the Pledged Securities, provided that the costs, fees and expenses of the Pledgee in enforcing his rights hereunder shall constitute a first claim on the Pledged Securities and be entitled to priority over all other obligations in respect of all distributions of any proceeds from any portion of the Pledged Securities.

14.

Amendments, Etc.  No provision of this Pledge Agreement may be amended, modified, supplemented or waived, and no consent to any departure therefrom by Pledgor may be given, except by a writing duly executed and delivered by Pledgee, and any such amendment, etc. shall be effective only as and to the extent provided therein.

15.

Cumulative Remedies; No Waivers by Pledgee.  All rights, powers and remedies of the Pledgee (i) under this Pledge Agreement, the Note, and the other Loan Documents, and (ii) under the Code and other applicable law, are cumulative and except as otherwise provided by law or in such agreements may be exercised concurrently or in any order of succession.  Pledgee’s failure to exercise or delay in exercising any of such rights, powers and remedies shall not constitute or imply a waiver thereof, nor shall Pledgee’s single or partial exercise of any such right, power or remedy preclude its other or further exercise thereof, or the exercise of any other right, power or remedy.  Pledgee’s cure of any Event of Default shall not constitute a waiver thereof, and its waiver of one Event of Default shall not constitute a waiver of any subsequent Event of Default.

16.

Pledgor’s Waivers.  Pledgor agrees that as of the Effective Date, Pledgee’s security interest in the Pledged Securities shall be absolute and unconditional regardless of the existence or occurrence of, and expressly waives any defense or discharge which might otherwise arise from, any of the following:

(i)

any lack of validity or enforceability of this Pledge Agreement, the Note or any other Loan Documents;

(ii)

any change in the time, manner or place of payment of, or in any other terms of the Note or the other Loan Documents, or any other amendment or waiver of, or any consent to departure from, this Pledge Agreement, the Note or any other Loan Document;

(iii)

any exchange, release or non-perfection of any other collateral, or any release, amendment or waiver of, or consent to departure from any guaranty, for any or all of the Note;

(iv)

Pledgee’s resort, during the continuation of an Event of Default, to any or all of the Pledged Securities for payment of all or part of the obligations secured hereby prior to proceeding against any other collateral or any other party primarily or secondarily liable or payment thereof; or

(v)

to the extent permitted by law, any other circumstance which might otherwise constitute a defense available to, or a discharge of, Pledgor in respect of the obligations of the Pledgor under this Pledge Agreement, the Note or any other Loan Document.

17.

Termination; Release of Pledged Securities.  This Pledge Agreement and the security interest granted hereunder shall terminate upon payment in full of all amounts due the Bank under the 2006 Term Loan, the 2006 Term Note, the Loan Documents and the Loan Agreement, including, but not limited to, the 2005/2004 Term Loan Mandatory Prepayment; provided, however, that following the occurrence of an Event of Default, this Pledge Agreement and the security interest granted hereunder shall not terminate until payment in full of all amounts due the Bank under the 2006 Term Loan, the 2006 Term Note, the Loan Documents and the Loan Agreement, including, but not limited to, the 2005/2004 Term Loan Mandatory Prepayment, and the payment in full of all Secured Obligations.  Pledgee shall thereupon reassign and redeliver (or cause to be reassigned and redelivered) to Pledgor or such person(s) as Pledgor sh all designate, against due execution and delivery by Pledgor or such person(s) of a receipt therefor satisfactory to Pledgee in form and substance, such items of the Pledged Shares (if any) as are then held by Pledgee or its representatives, together with appropriate instruments of reassignment and release.  Any such reassignment shall be without recourse to or warranty by Pledgee or any such representative and at the expense of Pledgor.

18.

Notices.  All notices, requests, directions, consents, waivers and other communications hereunder shall be in writing and shall be transmitted by the means and to the addresses from time to time specified in the Loan Agreement.

19.

Binding Agreement; Assignment.  This Pledge Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective, heirs successors and assigns; provided however, that Pledgor shall not assign or otherwise transfer any of its obligations, rights or interests hereunder without the prior written consent of Pledgee.

20.

Waiver of Jury Trial.  THE PLEDGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE, IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED, ARISING OUT OF OR IN CONNECTION WITH THIS PLEDGE AGREEMENT OR ANY MATTERS RELATED THERETO.

21.

Governing Law; Consent to Jurisdiction; Severability.  THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN NEW YORK.  THE PLEDGOR HEREBY CONSENTS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT WITHIN THE STATE OF NEW YORK OR, AT THE OPTION OF THE PLEDGEE, ANY COURT IN WHICH THE PLEDGEE DECIDES TO INITIATE LEGAL OR EQUITABLE PROCEEDINGS CONCERNING THIS AGREEMENT OR ANY MATTERS RELATED THERETO IN WHICH THE COURT HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY; AND TO THE EXTENT PERMITTED BY LAW, THE PLEDGOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT OR OTHER PROCESS OF THE PAPERS ISSUED THEREIN AND AGREES THAT SERVICE MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE PLEDGOR’S ADDRESS FROM TIME TO TIME SPECIFIED IN OR PURSUANT TO THE LOAN AGREEMENT.  Any provision of this Pledge Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

22.

Titles; Counterparts.  Section titles are for convenience only and shall not define, limit, amplify, supplement or otherwise modify or affect the substance or intent of this Pledge Agreement or any provision hereof.  This Pledge Agreement may be executed in two or more counterparts, each of which shall when executed by both parties be deemed to be an original but all of which together shall constitute one and the same agreement.

#

IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be executed as of the day, month and year first above written.

Pledgor/Borrower:

FIRST ALBANY COMPANIES INC.

By:  /S/ Paul Kutey

Name: Paul Kutey

Title: CFO

Pledgee/Bank:

KEYBANK NATIONAL ASSOCIATION

By:__________________________

Name:

Title:

STATE OF NEW YORK  )

COUNTY OF ALBANY   )  ss.:

On this     day of March, 2006, before me, the undersigned, personally appeared ________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

                                     /S/

Notary Public-State of New York

STATE OF NEW YORK  )

COUNTY OF ALBANY   )  ss.:

On this     day of March, 2006, before me, the undersigned, personally appeared ________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

Notary Public-State of New York

EX-10

Exhibit 10.37

NEGATIVE PLEDGE

This Negative Pledge (the “Agreement”) is entered into as of the 14th day of March, 2006.  Pursuant to the terms hereof FIRST ALBANY COMPANIES INC., a New York corporation, with its principal office and place of business as of the date hereof at 677 Broadway, Albany, New York 12207 (the "Borrower") does hereby represent, warrant, covenant and agree for the benefit of KEYBANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, with an office for the transaction of business as of the date hereof at 66 South Pearl Street, Albany, New York, 12207 (the "Bank") as follows:

RECITALS

1.

On or about the date hereof, Bank and Borrower entered into the Loan Agreement Re: $11,000,000.00 Term Loan (the “Loan Agreement”) pursuant to the terms of which Bank agreed to make Advances to the Borrower and Borrower agreed to enter into certain agreements, including, but not limited to this Agreement.  Capitalized terms used in this Agreement which are not defined herein shall have that meaning ascribed to such terms in the Loan Agreement.

2.

In consideration for the 2006 Term Loan, Borrower has agreed to make certain covenants and agreements with the Bank with respect to Borrower’s encumbrance of the Restricted Shares.

3.

Borrower is willing to make these representations and warranties in the manner and in accordance with the terms and provisions hereof.

NOW THEREFORE, for and in consideration of the foregoing, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Borrower does hereby represent to, warrant to and covenant for the benefit of the Bank that until (i) the Lockup Letter Restricted Period Expiration Date and (ii) the Effective Pledge of the Restricted Shares , the Pledgor shall not sell, transfer, exchange, grant any interest or right in and/or to, pledge or otherwise create or suffer the imposition of any liens, security interests, charges or encumbrances (other than encumbrances set forth in the Lockup Letter), upon any of the Restricted Shares.  Borrower’s default of its obligations hereunder shall constitute a Default and Event of Default by the Borrower.

IN WITNESS WHEREOF, the Pledgor has executed and delivered this Negative Pledge as of the date and year first above written.

FIRST ALBANY COMPANIES INC.

By: Paul Kutey

Name: Paul Kutey

Title:   CFO

EX-10

Exhibit 10.38

PLEDGE AGREEMENT
DEPOSIT ACCOUNT

This Pledge Agreement - Deposit Account (as the same may be amended, restated or otherwise modified, this “Agreement”) is made as of the 14 day of March, 2006 by and between the FIRST ALBANY COMPANIES INC., a New York corporation with its principal office and place of business at 677 Broadway, Albany, New York 12207 (the “Debtor”) and KEYBANK NATIONAL ASSOCIATION, a national banking association duly constituted and existing under the laws of the United States of America, with an office for the transaction of business at 66 South Pearl Street, Albany, New York 12207 (the “Secured Party”).

For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties to this Pledge Agreement hereby agree as follows;

As used herein, “Obligations” shell mean: (i) all Obligations, as defined in the Loan Agreement Re: $11,000,000.00 Term Loan dated as of March 14, 2006 (the “Loan Agreement”), including, but not limited to all obligations and/or indebtedness due under or evidenced or contemplated by the Loan Documents, the 2006 Term Note, the “loan documents” as defined in the 2004 Loan Agreement, the “loan documents” as defined in the 2005 Loan Agreement, the 2005/2004 Term Loan Mandatory Prepayment, and all modifications, extensions, renewals and replacements thereof; (ii) every liability, now or hereinafter owing to Bank by Borrower under and pursuant to those credit facilities (the "Credit Facilities”) established for the Borrower by the Bank under and pursuant to the Loan Agreement, the 2005 Loan Agreement and/or the 2004 Loan Agreement, and all amendments , modifications, renewals and replacements of the foregoing; (iii) every other liability, now or hereafter owing to Bank by Borrower, including, without limitation, every liability, whether owing by only Borrower or by Borrower with one or more others in a several, joint or joint and several capacity, whether owing absolutely or contingently, whether created by note, overdraft, guaranty of payment or other contract or by a quasi-contract, tort, statute or other operation of law, whether incurred directly to Bank or acquired by Bank by purchase, pledge or otherwise and whether participated to or from Bank in whole or in part; (iv) all costs and expenses, including attorneys’ fees, incurred by Bank in connection with the collection of any portion of the indebtedness described in (i) and (ii) hereof; and (v) the payment of all other sums, with interest thereon, advanced in accordance with the terms of this Agreement, the Loan Agreement and all other documents, instruments and agreements held by the Bank in connection with the Obligations and/or pursuant to the terms of the “loan documents”, as defined in the Loan Agreement, the 2005 Loan Agreement or the 2004 Loan Agreement, to protect the security of this Agreement and the performance of the covenants and agreements of Borrower contained in this Agreement and the other Loan Documents (the obligations referenced or encompassed within (i) – (v) are referred to herein as the “Secured Obligations”)  Capitalized terms used herein which are not defined herein shall have that meaning ascribed to such terms in the Loan Agreement.

Grant of Security Interest.  Debtor hereby pledges, assigns and grants to the Secured Party, to secure the payment and performance in full of the Obligations, a first priority security interest in the following properties, assets and rights of the Debtor, (all of the same being hereinafter called the “Collateral”):

Deposit Account no. 329 681 044429 in the present amount of $200.00 currently maintained by Debtor with Secured Party (“Deposit Account”), together with all interest whether accrued or hereafter accruing, and any and all additional deposits hereafter made to the Deposit Account, any and all proceeds from the Deposit Account, and all renewals, replacements and substitutions for any of the foregoing.

1.

Authorization to File Financing Statements.  Debtor hereby irrevocably authorizes the Secured Party to file any UCC financing statements to perfect Secured Party’s security interest in the Collateral.  The Debtor agrees to sign all documents that are necessary to perfect, protect or continue Secured Party’s security interest in the Collateral and to furnish any additional information to the Secured Party promptly upon the Secured Party’s request.

2.

Other Actions.  Debtor agrees to take any and all other actions as the Secured Party may determine to be necessary or useful for the attachment, perfection and first priority of, and the ability of the Secured Party to enforce, the Secured Party’s security interest in any and all of the Collateral, including, without limitation, (i) executing, delivering and, where appropriate, filing financing statements and amendments relating thereto under the Uniform Commercial Code (“UCC”), to the extent, if any, that the Debtor’s signature thereon is required therefor, (ii) complying with any statute, regulation or treaty of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of the Secured Party to enforce, the Secured Party’s security interest in such Collateral, (iii) obtaining governmental and other third party waivers, consents and approvals in form and substance satisfactory to the Secured Party, (iv) taking all actions under any earlier versions of the UCC or under any other law, as reasonably determined by the Secured Party to be applicable in any relevant UCC or other Jurisdiction, including any foreign jurisdiction.

3.

Secured Party’s Rights.  (a) While this Agreement is in effect the Debtor shall have no right to make withdrawal from the Deposit Account, except as otherwise provided herein and in the other Loan Documents, and the Secured Party shall retain all rights to possession of the Collateral, together with any evidence of the Collateral, such as certificates or passbooks.  Secured Party shall exercise reasonable care in the physical custody of any certificate or passbook, but shall have no other obligation to protect or maintain the Collateral or its value.  Without limitation, Secured Party shall have no responsibility to collect or protect income on the Collateral, to protect any rights against the issuers of the Collateral, to ascertain maturities or exchanges of the Collateral, or to inform the Debtor regarding any of the foregoing.  Secured Party may take, in its sole discretion, any action on Debtor’s behalf, to maintain or preserve title to the Collateral; any amounts expended by Secured Party in taking such action will be payable by Debtor and will be secured by this Agreement.

(b)

Debtor hereby irrevocably appoints Secured Party as its true and lawful attorney-in-fact, with full power of substitution, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments necessary or useful to accomplish the purposes of this Agreement.  This power is given as security for the Obligations and shall remain in full force and effect until this Agreement is terminated.

(c)

From time to time as required by Section 2.11 of the Loan Agreement, Secured Party shall transfer certain of the funds on deposit in the Deposit Account to the Debtor in connection with an Excess Collateral Amount Event as and when specified in Section 2.11 of the Loan Agreement.  The Collateral so transferred shall no longer be Collateral hereunder, the pledge and security interest contemplated hereby shall terminate as to such transferred funds and the Secured Party shall have no rights as a secured party with respect to the Collateral transferred to the Debtor pursuant to section 2.11 of the Loan Agreement.

4.

Debtor’s Representations and Warranties.  Debtor represents and warrants to the Secured Party as follows: (a) the execution, delivery and performance of this Agreement have been duly authorized by all necessary action of the Debtor; (b) this Agreement constitutes, and any instrument or agreement required hereunder to be given by the Debtor to the Secured Party when delivered will constitute, the legal, valid and binding obligation of the Debtor, enforceable against the Debtor in accordance with their respective terms; (c) the Debtor is the owner of the Collateral, free from any right or claim of any person or any adverse lien, security interest or other encumbrance, except for the security interest created by this Agreement, and the Debtor shall defend the same against all claims and demands of all persons at any time claiming the same or any interests therein adverse to the S ecured Party, and (d) the Debtor shall not pledge, assign or create, or suffer to exist any right of any person in or claim by any person to the Collateral, or any security interest, lien or other encumbrance in the Collateral in favor of any person, other than the

Secured Party.

5.

 Default.  The Debtor shall be in default hereunder upon the Debtor’s failure to timely do all things required to be done by it hereunder, or upon the occurrence of any Event of Default as set forth in the Loan Agreement.

6.

Rights and Remedies.

If any Event of Default shall occur, Secured Party may, at its election, and without demand or notice of any kind each of which is hereby waived, do any one or more of the following:

(a)

Exercise any and all rights and remedies available to Secured Party under any applicable law;

(b)

Exercise any and all rights and remedies granted to Secured Party under the terms of this Agreement and the other Loan Documents;

(c)

Set off the unpaid balance of the Obligations against any debt owing to Debtor by the Secured Party.  

(d)

Take directly all funds in the Deposit Account and apply them to the Obligations in such manner as the Secured Party in its sole and absolute discretion may decide.

If the Deposit Account is subject to an early withdrawal penalty, that penalty shall be deducted from the Deposit Account prior to its application to the Obligations.  Any excess funds remaining after application of the Deposit Account proceeds to the Obligations will be paid to Debtor.  Debtor agrees, to the extent permitted by law, to pay any deficiency after application of the proceeds of the Deposit Account to the Obligations.  The remedies in this Section are in addition to, not in limitation of, any other right, power, privilege, or remedy, either in law, in equity, or otherwise, to which the Secured Party may be entitled.  All Secured Party’s rights and remedies, whether evidenced by the Agreement or by any other agreement, instrument or document shall be cumulative and may be exercised singularly or concurrently.

7.

No Waiver by Secured Party.  The Secured Party shall not be deemed to have waived any of its rights and remedies in respect of the Obligations or the Collateral unless such waiver shall be in writing and signed by the Secured Party.  No delay or omission on the part of the Secured Party in exercising any right or remedy shall operate as a waiver of such right or remedy or any other right or remedy.  A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion.  All rights and remedies of the Secured Party with respect to the Obligations or the Collateral whether evidenced hereby or by any other instrument or papers, shall be cumulative and may be exercised singularly, alternatively, successively or concurrently at such time or at such times as the Secured Party deems expedient.

8.

Suretyship Waivers by Debtor.  The Debtor waives demand, notice, protest, notice of acceptance of this Agreement, notice of loans made, credit extended, collateral received or delivered or other action taken in reliance hereon and all other demands and notices of any description.  With respect to both the Obligations and the Collateral, the Debtor assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of or failure to perfect any security interest in any Collateral, to the addition or release of any party or person primarily or secondarily liable, to the acceptance of partial payment thereon and the settlement, compromising or adjusting of any thereof, all in such manner and at such time or times as the Secured Party may deem advisable.  The Debtor further waives any and all other suretyship defenses.

9.

Marshalling.  The Secured Party shall not be required to marshal any present or future collateral security (including but not limited to the Collateral) for, or other assurances of payment of, the Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of its rights and remedies hereunder and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights and remedies, however existing or arising.  To the extent that it lawfully may, the Debtor hereby agrees that it will not invoke any law relating to the marshalling of collateral which might cause delay in or impede the enforcement of the Secured Party’s rights and remedies under this Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, the Debtor hereby irrevocably waives the benefits of all such laws.

10.

Governing Law; Consent to Jurisdiction.  The provisions of this Agreement and the respective rights and duties of Debtor and Secured Party hereunder shall be governed by and construed in accordance with New York law.  Debtor hereby irrevocably submits to the non-exclusive jurisdiction of any state or federal court sitting in Albany, New York, over any action or proceeding arising out of or relating to this Agreement, or any document related to the Obligations, and Debtor hereby Irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such state or federal court.  The Debtor hereby waives any objection that it may now or hereafter have to the venue of any such suit or any such court or that such suit is brought in an inconvenient court.

11.

Waiver of Jury Trial.  DEBTOR AND SECURED PARTY EACH WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, BETWEEN SECURED PARTY AND DEBTOR ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.

12.

Notices.  All notices, requests, demands or other communications provided for hereunder shall be in writing and, if to Debtor or Secured Party, mailed or delivered to it, addressed to it at the following:

To the Debtor:

FIRST ALBANY COMPANIES INC.

677 Broadway

Albany, New York 12207

Attn:  Chief Financial Officer

With a Copy to:

MILBANK, TWEED, HADLEY & McCLOY LLP

1 Chase Manhattan Plaza

New York, New York 10005

Attn: Howard Kelberg

To the Secured Party:

KEYBANK NATIONAL ASSOCIATION

66 South Pearl Street

Albany, New York  12207

Attention: First Albany Companies

     Richard C. VanAuken, Senior V.P.

With a copy to:

Lemery Greisler, LLC

50 Beaver Street

Albany, New York 12207

Attention: Nicholas J. Greisler, Esq.

All notices, statements, requests, demands and other communications provided for hereunder shall be deemed to be given or made when delivered or forty-eight (48) hours after being deposited in the mails with postage prepaid by registered or certified mall, addressed as aforesaid, or sent by facsimile with telephonic confirmation of receipt, except that notices from Debtor to Secured Party pursuant to any of the provisions hereof shall not be effective until received by Secured Party.

13.

Miscellaneous.  The headings of each section of this Agreement are for convenience only and shall not define or limit the provisions thereof.  This Agreement and all rights and obligations hereunder shall be binding upon the Debtor and its successors and assigns, and shall inure to the benefit of the Secured Party and its successors and assigns.  If any term of this Agreement shall be held to be invalid, illegal or unenforceable, the validity of all other terms hereof shall in no way be affected thereby, and this Agreement shall be construed and be enforceable as if such invalid, illegal or unenforceable term had not been included herein.  The Debtor acknowledges receipt of a copy of this Agreement.

14.

Termination.  This Agreement and the security interest granted hereunder shall terminate upon payment in full of all amounts due the Secured Party under the 2006 Term Loan, the 2006 Term Note, the Loan Documents and the Loan Agreement, including, but not limited to, the 2005/2004 Term Loan Mandatory Prepayment; provided, however, that following the occurrence of an Event of Default, this Agreement and the security interest granted hereunder shall not terminate until payment in full of all amounts due the Bank under the 2006 Term Loan, the 2006 Term Note, the Loan Documents and the Loan Agreement, including, but not limited to, the 2005/2004 Term Loan Mandatory Prepayment, and the payment in full of all Secured Obligations.

#

IN WITNESS WHEREOF, intending to be legally bound, the Debtor has caused this Agreement to be duly executed as of the date first above written.

Debtor: FIRST ALBANY COMPANIES INC.

By:

/s/ Paul Kutey

Name:

 Paul Kutey

Title:

 CFO

Secured Party: KEYBANK NATIONAL ASSOCIATION

By:

__________________________________

Name:

Richard C. Van Auken                               

Title:

Senior Vice President   

STATE OF NEW YORK  )

COUNTY OF ALBANY   )  ss.:

On this     day of March, 2006, before me, the undersigned, personally appeared _______________ _____, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

/S/                                                              

Notary Public-State of New York

Qualified County of:

Commission Expires:

STATE OF NEW YORK  )

COUNTY OF ALBANY   )  ss.:

On this     day of March, 2006, before me, the undersigned, personally appeared Richard C. Van Auken, Senior Vice President, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

Notary Public-State of New York

Qualified County of:

Commission Expires:

EX-10

Exhibit 10.39

SPRINGING

PLEDGE AND SECURITY AGREEMENT

This Springing Pledge and Security Agreement (the "Pledge Agreement") dated as of March 14, 2006, by and between FIRST ALBANY COMPANIES INC., a New York corporation, with its principal office and place of business as of the date hereof at 677 Broadway, Albany, New York 12207 (the "Borrower" or “Pledgor”), and KEYBANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, with an office for the transaction of business as of the date hereof at 66 South Pearl Street, Albany, New York, 12207 (the "Bank" and “Pledgee”).

W  I  T  N  E  S  S  E  T  H :

WHEREAS, Pledgor owns, on and as of the date of this Pledge Agreement, 1,116,290 shares of common stock, $.01 par value per share of iRobot Corporation, a Delaware corporation (the “Company”), which shares (including any certificate (s) and/or other tangible evidences thereof) are more specifically described in Exhibit "A" hereto and made a part hereof; and

WHEREAS, pursuant to that certain Loan Agreement Re: $11,000,000 Term Loan dated as of the date hereof between the Pledgor and Pledgee (the “Loan Agreement”), Pledgee has established a Term Loan in an amount up to the 2006 Term Loan Commitment Amount available to the Pledgor (the “Loan”) and make advances thereunder; and

WHEREAS, Pledgee is willing to extend such financing, but only on the condition, among others, that Pledgor shall first have executed and delivered to Pledgee this Springing Pledge and Security Agreement.

NOW, THEREFORE, in consideration of such financing and for other good and valuable consideration exchanged between the parties hereto, the receipt and sufficiency of which is hereby acknowledged, Pledgor and Pledgee agree as follows:

1.

Defined Terms.   Unless otherwise defined herein, terms defined in the Loan Agreement shall have that meanings ascribed therein.

2.

Pledge and Delivery.

(a)

To secure the prompt and complete payment and performance of (i) all Obligations, as defined in the Loan Agreement, including, but not limited to all obligations and/or indebtedness due under or evidenced or contemplated by the Loan Documents, the 2006 Term Note, the “loan documents” as defined in the 2004 Loan Agreement, the “loan documents” as defined in the 2005 Loan Agreement, the 2005/2004 Term Loan Mandatory Prepayment, and all modifications, extensions, renewals and replacements thereof; (ii) every liability, now or hereinafter owing to Bank by Borrower under and pursuant to those credit facilities (the "Credit Facilities”) established for the Borrower by the Bank under and pursuant to the Loan Agreement, the 2005 Loan Agreement and/or the 2004 Loan Agreement, and all amendments, modifications, renewals and replacements of the foregoing; (iii) every other liability, now or hereafter owing to Bank by Borrower, including, without limitation, every liability, whether owing by only Borrower or by Borrower with one or more others in a several, joint or joint and several capacity, whether owing absolutely or contingently, whether created by note, overdraft, guaranty of payment or other contract or by a quasi-contract, tort, statute or other operation of law, whether incurred directly to Bank or acquired by Bank by purchase, pledge or otherwise and whether participated to or from Bank in whole or in part; (iv) all costs and expenses, including attorneys’ fees, incurred by Bank in connection with the collection of any portion of the indebtedness described in (i) and (ii) hereof; and (v) the payment of all other sums, with interest thereon, advanced in accordance with the terms of this Agreement, the Loan Agreement and all other documents, instruments and agreements held by the Bank in connection with the Obligations and/or pursuant to the terms of the “loan documents 8;, as defined in the Loan Agreement, the 2005 Loan Agreement or the 2004 Loan Agreement, to protect the security of this Agreement and the performance of the covenants and agreements of Borrower contained in this Agreement and the other Loan Documents (the obligations referenced or encompassed within (i) – (v) are referred to herein as the “Secured Obligations”), Pledgor hereby effective as of the Lockup Letter Restricted Period Expiration Date (such day being referred to herein as the “Effective Date”) pledges, assigns, delivers and transfers to Pledgee, and grants Pledgee a continuing first priority security interest in 1,116,290 shares of Common Stock, as described in Exhibit "A" attached hereto, together with all proceeds of such shares (to include all dividends and other distributions payable thereunder) and any securities or other property at any time and from time to time receivable or otherwise distributed in respect of or in exchange for any or all instruments or writings representing them (such shares, certificates and other writings and all proceeds being hereinafter collectively called the “Pledged Shares”).

(b)

On the Effective Date, Pledgor shall either (i) deliver to Pledgee the certificate(s) and/or other instruments and documents evidencing all of the Pledged Shares issued as Certificated Securities or (ii) as to the Pledged Shares which are issued as Uncertificated Securities, effectuate and deliver one or more fully executed Control Agreements by the Borrower, Bank and applicable Institution, pursuant to which the Bank, subject to the rights of the Borrower to delivery an entitlement order for the sale of such Pledged Shares to the limited extent as contemplated and permitted by section 2.04(b)(ii) of the Loan Agreement, shall obtain control of the Pledged Shares so held and be authorized without notice to and/or the consent of the Borrower to effectuate the Disposition thereof pursuant to the terms of this Pledge Agreement and the other Loan Documents.  Upon delivery of Security Certificates pursuant to sub provision (i) hereof to Pledgee, the certificates representing the Pledged Shares shall be accompanied by undated, duly executed stock powers endorsed by Pledgor in blank, signature guarantee and by such other instruments or documents as Pledgee or its counsel shall reasonably request.

(c)

On or before the Effective Date, the Pledgor shall use its best efforts to take all actions necessary, including, but not limited to (i) the removal of any and all legends, including the Legend, from each Security Certificate evidencing one or more of the Pledged Shares and (ii) the reissuance of Security Certificates for the Pledged Shares free of the Legend or any other restriction on the marketability of such shares, to enable (i) the Pledgor and (ii) the Pledgee to sell any and all of the Pledged Shares issued as Certificated Securities, without the need to take any other action to sell the Pledged Shares.

3.

Pledgor’s Representations, Warranties and Covenants.

(a)

Pledgor represents and warrants that (i) Pledgor has the right, power and authority to execute, deliver and perform this Pledge Agreement and to pledge, assign, deliver, transfer and grant a security interest in the Pledged Shares as of the Effective Date; (ii) when executed and delivered by Pledgor, this Pledge Agreement will be a legal, valid and binding obligation of Pledgor, enforceable in accordance with its terms; (iii) Pledgor has good title to the Pledged Shares (and is the legal record and beneficial owner of each of the Pledged Shares), free and clear of all encumbrances except the Lockup Letter; (iv) each of the Pledged Shares is duly and validly issued and fully paid and non-assessable, and there are no restrictions on the transfer of any thereof, other than as may be imposed under the Lockup Letter; and (v) no action other than (a) the delivery of Security Certificate(s) for the Pledged Shares issued as certificated securities to, and the continued possession or control by, Pledgee or any of its agents or nominees or (b) execution and delivery of a Control Agreement pursuant to which the Bank, subject to the rights of the Borrower to delivery an entitlement order for the sale of such Pledged Shares as contemplated and permitted by the Loan Agreement, shall obtain control of the Pledged Shares issued as uncertificated securities, is necessary to maintain a perfected, first-priority security interest in such Pledged Shares in favor of Pledgee.

(b)

Pledgor covenants and agrees that (i) it will at its expense defend both its own rights and interests and Pledgee’s rights and security interest in and to the Pledged Shares against the claims and demands of all other persons; and (ii) it will do such acts and execute and/or deliver to Pledgee such further conveyances, agreements, assignments, legal opinions, instruments and other writings, and will obtain all such governmental consents and corporate approvals and will take such further action, as Pledgee may request from time to time in order to obtain the full benefit of this Pledge Agreement, the Pledged Shares, and the rights, powers and remedies granted to Pledgee hereunder.  Pledgor further covenants and agrees that until this Pledge Agreement has been terminated, Pledgor will not (x) except as permitted by section 2.04(b)(ii) of the Loan Agreement and in accordance with and not in violatio n of any of the other Loan Documents or (y) without the prior written consent of the Pledgee, sell, assign, transfer, exchange or otherwise temporarily or permanently dispose of any of the Pledged Shares, or offer or contract to do so, and will not without such consent create, incur, assume or permit to exist any security interest, pledge, claim or other charge or encumbrance on or with respect to any such item other than the security interest granted to Pledgee hereunder.

4.

Names in which Pledged Shares May be Registered Denominations.  At any time following the occurrence of an Event of Default and from time to time thereafter, (i) Pledgee shall have the right (in its sole and absolute discretion) to hold any and all of the Pledged Shares in its own name, the name (s) of one or more of its nominees or the name of Pledgor endorsed or assigned in blank or in favor of Pledgee or as contemplated by the Control Agreement, (ii) with respect to any of the Pledged Shares which Pledgee wishes to hold in its name or the name of any nominee, Pledgee (acting in its own name and capacity or as Pledgor’s attorney-in-fact pursuant to the power of attorney granted to Pledgee in Section 6 hereof) may have such Pledged Shares registered accordingly on the books of the issuer (s) thereof, and Pledgor shall cooperate fully with Pledgee in causing such issuer (s) to effect such t ransfer and registration and (iii) Pledgee shall have the right to exchange the certificates representing the Pledged Shares for certificates of smaller or larger denominations for any purpose consistent with this Pledge Agreement.

5.

 Voting Rights; Dividends, Etc.

(a)

So long as no Event of Default shall have occurred and be continuing:

(i)

Pledgor shall be entitled to exercise any and all voting and/or consensual rights and powers accruing to an owner of the Pledged Shares for any purpose not inconsistent with (a) the provisions of this Pledge Agreement and the Note and (b) the preservation of the value of and Pledgee’s security interest in the Pledged Shares.

(ii)

If any or all of the Pledged Shares shall have been registered in the name (s) of Pledgee and/or any of its nominees, Pledgee shall execute and deliver to Pledgor, or cause to be so executed and delivered, all such proxies, powers of attorney, dividend orders and such other instruments and writings as Pledgor may reasonably request to enable it, subject to the provisions of Section 6(b) hereof, to exercise the rights and powers to which it is entitled under the provisions of paragraphs (i) of this Section 5(a).

(b)

Upon the occurrence and during the continuance of an Event of Default, all rights of Pledgor to exercise the voting and consensual rights and powers described in paragraph (i) of Section 5(a) hereof shall cease, and all such rights shall thereupon become vested in Pledgee; provided however, that Pledgor may thereafter continue to exercise any and all such voting and consensual rights and powers until such time as Pledgee shall notify Pledgor in writing that Pledgee intends to assume and exercise the same.

(c)

Any cash dividends or other distributions of any kind whatsoever received by the Pledgor, whether resulting from a subdivision, combination, or reclassification of the outstanding capital stock of the issuer or received in exchange for Pledged Shares or any part thereof or as a result of any merger, consolidation, acquisition or otherwise, shall be and become part of the Pledged Shares pledged hereunder and shall immediately be delivered to the Pledgee to be held subject to the terms hereof provided if such dividends or distributions are monies, they shall be held by the Bank as Cash Collateral pursuant to the Loan Agreement and the Pledge Agreement (Deposit Account).  Any and all money and other property received by Pledgor contrary to the provisions of this Section 5 shall be held by Pledgor in trust for Pledgee, shall be segregated by Pledgor from Pledgor’s other funds and property and shall p romptly be delivered to Pledgee in exactly the form received by Pledgor, except for any necessary endorsements.

6.

 Pledgee Appointed as Pledgor’s Attorney-in-Fact.  Pledgor hereby appoints Pledgee as Pledgor’s attorney-in-fact with full power in Pledgor’s place and stead, in Pledgor’s name or its own name and at Pledgor’s expense, to execute, endorse and deliver any and all agreements, assignments, pledges, instruments and any other writings, and to take any and all other actions, which Pledgee may deem necessary or desirable to carry out the terms and effect the purposes of this Pledge Agreement and to exercise fully its rights and remedies hereunder.  Pledgee may delegate any and all of such power to any of its officers. directors, employees, agents, nominees and other representatives (hereinafter collectively called “Representatives”) and to have any such Representative (s) exercise any such delegated power as substitute (s) for Pledgee.  Pledgor hereby r atifies all that Pledgee and all such Representatives shall lawfully do or cause to be done under this power of attorney, which power is coupled with an interest and shall be irrevocable until this Pledge Agreement has been terminated.

7.

Pledgee’s Rights to Perform for Pledgor.  If Pledgor shall at any time fail to perform or comply with any of its covenants and agreements hereunder, Pledgee may (but shall not be required or obligated to) take such action, in its own name and capacity or as Pledgor’s attorney-in-fact, as Pledgee shall deem necessary or desirable to effect such performance or compliance.

8.

Limitation of Pledgee’s Liability; Reimbursement of Expenses.

(a)

Pledgor agrees that Pledgee shall have no obligation to take, or refrain from taking, any action with respect to the Pledged Shares or Pledgor’s rights and interests therein except with respect to (i) the preservation and return of the Pledged Shares in its possession as and to the extent provided, respectively, in Section 16 thereof; and (ii) the execution and delivery to Pledgor of certain instruments and other writings as and when required under Section 5(a) (ii) hereof.  Pledgor further agrees that neither Pledgee not any of its Representatives shall have any liability to Pledgor, or to any person claiming rights against Pledgee by, through or under Pledgor, in any way arising out of or in connection with Pledgee’s or any such Representative’s administration of this Pledge Agreement or its exercise of any if its rights, power and remedies hereunder except for (i) Pledgee’s or a ny such Representative’s failure to take, within ten (10) days after written notice from the Pledgor, any of the actions referenced in the first sentence of this Section 8(a), or (ii) its failure to exercise reasonable care in the physical custody of the Pledged Shares, or (iii) its gross negligence or willful misconduct.

(b)

Pledgor shall pay or reimburse Pledgee on demand for all costs and expenses (including without limitation reasonable attorneys’ fees and expenses) paid or incurred by Pledgee in connection with (i) the administration of this Pledge Agreement, (ii) the custody or preservation of the Pledged Shares and any authorized collection from, disposition of or other realization on any item (s) thereof, and (iii) the exercise and enforcement of any of Pledgee’s rights, powers and remedies hereunder, including without limitation its right to perform Pledgor’s covenants and agreements hereunder to the extent Pledgor fails to do so.  Until any reimbursement of costs or expenses required under this Section 8 is received by Pledgee in cash or immediately available funds, the amount thereof shall bear interest at the rate specified in the Note for delinquent payments, and such amount and such interest sh all constitute part of the obligations secured by the Pledged Shares.

9.

Default.  The Pledgor shall be in default hereunder upon the Pledgor’s failure to timely do all things required to be done by it hereunder, or upon the occurrence of any Event of Default as set forth in the Loan Agreement.

10.

Remedies.

(a)

If an Event of Default has occurred and is continuing, Pledgee may at any time and from time to time exercise any and all rights and remedies available to it (i) hereunder,  and under the Note or any other Loan Document, including without limitation those rights and remedies set out in subsections (b) through (f) of this Section 10, and (ii) as a Bank under the Uniform Commercial Code as then in effect in the State of New York (the “Code”) and under any other applicable law or rule of law or equity.  Should Pledgee elect to proceed by action at law or in equity to foreclose its security interest in and sell any or all of the Pledged Shares, Pledgor waives (to the extent permitted by law) any rights it may then have in connection therewith to require Pledgee to post bonds, sureties or collateral security, to demand possession of any such Pledged Shares pending judgment therein or to exer cise any rights of redemption.

(b)

To the extent permitted by applicable federal and state securities laws, Pledgee may sell, assign, transfer, endorse and deliver all or, from time to time any part, of the Pledged Shares at public or private sale, over the counter or at any broker’s board or securities exchange, for cash, on credit or in exchange for other property, for immediate or future delivery, without advertisement or notice (except as provided in this subsection), and for such price and on such terms as Pledgee deems appropriate subject to the terms hereof or as otherwise provided in the Code or any other applicable law.  Any person may be the purchaser of all or any portion of the Pledged Shares sold and thereafter hold the same absolutely free from any claim or right of whatever kind, including any equity of redemption of Pledgor; any such demand, notice, claim, right or equity being hereby expressly waived and released.  Pledgor agrees that to the extent notice of the time and place of any such public sale, or of the time after which Pledgee intends to make any such private sale or other disposition, is required under the Code, such notice shall be deemed commercially reasonable if transmitted by any of the means described in the Loan Agreement not less than 10 days prior thereto.  Pledgee shall not be obligated to effect any sale of any or all of the Pledged Shares, whether or not notice thereof has been given, and may adjourn any public or private sale from time to time by announcement at the time and place fixed for such sale, and such sale may be held without further notice at the time and place to which it was so adjourned.

(c)

At any such private or public sale, Pledgee shall be entitled to bid for and/or purchase the Pledged Shares then being sold and may pay the price thereof by credit against the obligations secured hereby then outstanding.  Any purchaser of any item (s) of the Pledged Shares (including Pledgee) shall take such item (s) free from any right or claim of Pledgor, and Pledgor hereby waives, to the extend permitted by the Code and other applicable law, all rights of redemption and/or to any stay, exemption or appraisal which Pledgor now has or may hereafter acquire.

(d)

Pledgor agrees and acknowledges that Pledgee shall be under no obligation to delay a sale of any of the Pledged Shares for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the Securities Act even if the issuer would agree to do so.  Pledgor further agrees and acknowledges that in order to comply with applicable federal and state securities laws without effecting such registration, Pledgee may be required (i) to sell or otherwise dispose of any security at one or more private rather than public sales and (ii) to limit the prospective purchasers at such sale (s) to persons who will represent and agree that they are purchasing the securities they intend to acquire for their own account for investment and not with a view to the distribution or sale thereof, and who will be compelled to accept stringent restrictions on their ability to d ispose of such securities.  Accordingly, Pledgor agrees that (i) Pledgee shall not incur any liability to Pledgor by reason of the fact that the price obtained for any or all the Pledged Shares at such private sale (s) to investors restricted as provided above may be less than the price which might be obtained therefore at a public sale or unrestricted private sale and (ii) any and all private sales shall be deemed commercially reasonable even of (a) the amount received is less than the then outstanding amount due on the obligations secured hereby and/or (b) even if Pledgee accepts the first offer received unless the sale in question is conducted in bad faith or in a manner manifestly unreasonable for sales of that type.

(e)

In the case of any sale by the Pledgee of any of the Pledges Shares on credit or for future delivery, such Pledged Shares may be retained by the Pledgee until the selling price is paid by the purchaser(s) thereof, but the Pledgee shall incur no liability in case of failure of the purchaser to take up and pay for such item(s).  In case of any such failure, such item(s) may be sold again upon notice, to the extent required by law, as provided in subsection (b) of this Section 10.

(f)

The proceeds of the sale or other disposition of the Pledged Shares shall be applied: (i) first to all costs and expenses including reasonable attorneys fees, incurred by the Pledgee in exercising its rights hereunder, under the Note and under the other Loan Documents and in  preparing for and disposing of the Pledged Shares, whether or not any action or proceeding is commenced, including those incurred in any bankruptcy or insolvency proceeding, (ii) second to the payment of any late charges and accrued and unpaid interest, and (iii) third to the principal due under the Note and the other obligations secured hereby.  Any surplus shall be paid to the Pledgor, and the Pledgor shall remain liable for any deficiency.

11.

Marshalling.  The Pledgee shall not be required to marshall any present or future security for (including but not limited to this Pledge Agreement and the Pledged Shares pledged hereunder), or guaranties of, the obligations secured hereby or any of them, or to resort to such security or guaranties in any particular order; and all of its rights hereunder and in respect of such securities and guaranties shall be cumulative and in addition to all other rights, however existing or arising.  To the extent that it lawfully may, the Pledgor hereby agrees that it will not invoke any law relating to the marshalling of collateral which might cause delay in or impede the enforcement of the Pledgee’s rights under this Pledge Agreement or under any other instrument evidencing any of the obligations secured hereby or under which any of the obligations secured hereby are outstanding or by which any o f the obligations secured hereby are secured or guaranteed, and to the extent that it lawfully may the Pledgor hereby irrevocably waives the benefits of all such laws.

12.

Pledgor’s Obligations Not Affected.  The obligations of the Pledgor hereunder shall remain in full force and effect without regard to, and shall not be impaired by: (a) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of the Pledgor; (b) any exercise or non-exercise, or any waiver, by the Pledgee of any right, remedy, power or privilege under or in respect of any of the obligations secured hereby or any security thereof (including this Pledge Agreement); (c) any amendment to or modification of any instrument or agreement evidencing or securing any of the obligations secured hereby; or (d) the taking of additional security for, or any guaranty of, any of the obligations secured hereby or the release or discharge or termination of any security or guaranty for any of the obligations secured hereby, whether or not the Pledgor shall have notice or knowledge of any of the foregoing.

13.

Pro-Rate Security.  All amounts owing with respect to the obligations secured hereby shall be equally and ratably secured by, and proportionately entitled to the benefits of, the Pledged Shares, provided that the costs, fees and expenses of the Pledgee in enforcing his rights hereunder shall constitute a first claim on the Pledged Shares and be entitled to priority over all other obligations in respect of all distributions of any proceeds from any portion of the Pledged Shares.

14.

Amendments, Etc.  No provision of this Pledge Agreement may be amended, modified, supplemented or waived, and no consent to any departure therefrom by Pledgor may be given, except by a writing duly executed and delivered by Pledgee, and any such amendment, etc. shall be effective only as and to the extent provided therein.

15.

Cumulative Remedies; No Waivers by Pledgee.  All rights, powers and remedies of the Pledgee (i) under this Pledge Agreement, the Note, and the other Loan Documents, and (ii) under the Code and other applicable law, are cumulative and except as otherwise provided by law or in such agreements may be exercised concurrently or in any order of succession.  Pledgee’s failure to exercise or delay in exercising any of such rights, powers and remedies shall not constitute or imply a waiver thereof, nor shall Pledgee’s single or partial exercise of any such right, power or remedy preclude its other or further exercise thereof, or the exercise of any other right, power or remedy.  Pledgee’s cure of any Event of Default shall not constitute a waiver thereof, and its waiver of one Event of Default shall not constitute a waiver of any subsequent Event of Default.

16.

Pledgor’s Waivers.  Pledgor agrees that as of the Effective Date, Pledgee’s security interest in the Pledged Shares shall be absolute and unconditional regardless of the existence or occurrence of, and expressly waives any defense or discharge which might otherwise arise from, any of the following:

(i)

any lack of validity or enforceability of this Pledge Agreement, the Note or any other Loan Documents;

(ii)

any change in the time, manner or place of payment of, or in any other terms of the Note or the other Loan Documents, or any other amendment or waiver of, or any consent to departure from, this Pledge Agreement, the Note or any other Loan Document;

(iii)

any exchange, release or non-perfection of any other collateral, or any release, amendment or waiver of, or consent to departure from any guaranty, for any or all of the Note;

(iv)

Pledgee’s resort, during the continuation of an Event of Default, to any or all of the Pledged Shares for payment of all or part of the obligations secured hereby prior to proceeding against any other collateral or any other party primarily or secondarily liable or payment thereof; or

(v)

to the extent permitted by law, any other circumstance which might otherwise constitute a defense available to, or a discharge of, Pledgor in respect of the obligations of the Pledgor under this Pledge Agreement, the Note or any other Loan Document.

17.

Termination; Release of Pledged Shares.  This Pledge Agreement and the security interest granted hereunder shall terminate upon payment in full of all amounts due the Bank under the 2006 Term Loan, the 2006 Term Note, the Loan Documents and the Loan Agreement, including, but not limited to, the 2005/2004 Term Loan Mandatory Prepayment; provided, however, that following the occurrence of an Event of Default, this Pledge Agreement and the security interest granted hereunder shall not terminate until payment in full of all amounts due the Bank under the 2006 Term Loan, the 2006 Term Note, the Loan Documents and the Loan Agreement, including, but not limited to, the 2005/2004 Term Loan Mandatory Prepayment, and the payment in full of all Secured Obligations.  Pledgee shall thereupon reassign and redeliver (or cause to be reassigned and redelivered) to Pledgor or such person(s) as Pledgor shall designate, against due execution and delivery by Pledgor or such person(s) of a receipt therefor satisfactory to Pledgee in form and substance, such items of the Pledged Shares (if any) as are then held by Pledgee or its representatives, including, but not limited to, any Institution under any Control Agreement, together with appropriate instruments of reassignment and release.  Any such reassignment shall be without recourse to or warranty by Pledgee or any such representative and at the expense of Pledgor.

18.

No Transfer Prior to the Lockup Letter Restricted Period Expiration Date.  Anything in this Agreement to the contrary notwithstanding, the pledge and security interest contemplated hereby shall not come into effect, and the Pledgee shall have no rights whatsoever with respect to the Collateral, until the occurrence of the Lockup Letter Restricted Period Expiration Date (but such pledge and security agreement and such rights of the Pledgee shall be deemed to take effect automatically upon the occurrence of the Lockup Letter Restricted Period Expiration Date); and nothing herein shall be deemed to constitute a transfer or other disposition of any of the Pledged Shares or any right, title or interest therein or thereto until the occurrence of the Lockup Letter Restricted Period Expiration Date.

19.

Notices.  All notices, requests, directions, consents, waivers and other communications hereunder shall be in writing and shall be transmitted by the means and to the addresses from time to time specified in the Loan Agreement.

20.

Binding Agreement; Assignment.  This Pledge Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective, heirs successors and assigns; provided however, that Pledgor shall not assign or otherwise transfer any of its obligations, rights or interests hereunder without the prior written consent of Pledgee.

21.

Waiver of Jury Trial.  THE PLEDGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE, IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED, ARISING OUT OF OR IN CONNECTION WITH THIS PLEDGE AGREEMENT OR ANY MATTERS RELATED THERETO.

22.

Governing Law; Consent to Jurisdiction; Severability.  THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN NEW YORK.  THE PLEDGOR HEREBY CONSENTS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT WITHIN THE STATE OF NEW YORK OR, AT THE OPTION OF THE PLEDGEE, ANY COURT IN WHICH THE PLEDGEE DECIDES TO INITIATE LEGAL OR EQUITABLE PROCEEDINGS CONCERNING THIS AGREEMENT OR ANY MATTERS RELATED THERETO IN WHICH THE COURT HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY; AND TO THE EXTENT PERMITTED BY LAW, THE PLEDGOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT OR OTHER PROCESS OF THE PAPERS ISSUED THEREIN AND AGREES THAT SERVICE MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE PLEDGOR’S ADDRESS FROM TIME TO TIME SPECIFIED IN OR PURSUANT TO THE LOAN AGREEMENT.  Any provision of this Pledge Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

23.

Titles; Counterparts.  Section titles are for convenience only and shall not define, limit, amplify, supplement or otherwise modify or affect the substance or intent of this Pledge Agreement or any provision hereof.  This Pledge Agreement may be executed in two or more counterparts, each of which shall when executed by both parties be deemed to be an original but all of which together shall constitute one and the same agreement.

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IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be executed as of the day, month and year first above written.

Pledgor/Borrower:

FIRST ALBANY COMPANIES INC.

By: /s/ Paul Kutey

Name: Paul Kutey

Title: CFO

Pledgee/Bank:

KEYBANK NATIONAL ASSOCIATION

By:__________________________

Name:

Title:

STATE OF NEW YORK  )

COUNTY OF ALBANY   )  ss.:

On this     day of _______, 2006, before me, the undersigned, personally appeared ________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

   /s/                                                     

Notary Public-State of New York

STATE OF NEW YORK  )

COUNTY OF ALBANY   )  ss.:

On this     day of _______, 2006, before me, the undersigned, personally appeared ________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

Notary Public-State of New York